The Siam Cement

Q4 2012 profit recovery worse than expected due to poor petrochemical and paper businesses HOLD

The Siam Cement (SCC)

Q4 2012 net profit is B6.9bn, increasing 8% QoQ

SCC's 4Q12 financial result has been reported with B6.9bn of net profit or

8% QoQ increase, which is slightly less than projected. In 4Q12, 50% of

profit has come from the company's investment which is B2.5bn of dividend

yield (mainly from TOYOTA, 10percent stake held by SCC). Moreover, there's

profit sharing from Siam Kubota of almost B1bn due to B590m of flood

insurance claim. For the cement and construction material businesses, they

still have grown well with profit close to our estimation. However, the profit

of petrochemical business has turned out to be much worse than projected

at only B185m which is the lowest in 3 years regardless of tremendous

stock loss in 2Q12. These were results of sales dropping along the low

season and B400m of tax adjustment (together with the associated

company that still hasn't recovered). Accordingly, SCC has to bear equity

loss of B305m. In terms of the paper business, the spread has decreased

and the maintenance expenses were almost B300m, so the profit has fallen

by 30% QoQ. For 2H12 financial result, SCC has announced to pay the

dividend yield by B6.5, going XD on 2 April 2013.

Aggressively rising petrochemical spread to urge return of 1Q13 profit growth

The spread and prices of petrochemical business have obviously recovered

since late-2012 because China's economy has improved. Combined with the

maintenance shutdown of many plants in the Middle East, SCC's

petrochemical business is likely to return to generate profit as usual once

again. In the 1st quarter of each year, it's the high season for cement

business and construction materials. For the paper business, the earnings

are believed to improve after last year's maintenance and the fire accident

in Phoenix Pulp that has resumed production once again in November 2012.

Nevertheless, the company's profit from investment tends to decline due to

no dividend yield from TOYOTA (normally paid in every 2nd and 4th of every

year). Preliminary, SCC's 1Q13 profit is projected to stand at B7-8m.

2013 profit revised down 11%, but long-term growth rate revised up. Reiterate "HOLD"

The profit sharing form associated companies in petrochemical businesses

which are PTA and Butadience are likely to recover a lot slower than

expected. Furthermore, the paper business has faced aggressive

competition. At present, customers have now turned their interest more to

electronics devices. Accordingly, we revise down our 2013 profit by 11% to

B31,406m. However, SCC's continuous investment plan in 5 years ahead

worth of B200bn would help boost the company's long-term growth. We

revise up the long-term growth which is used to calculate the fair value,

using DCF, from 3.5% to 4% or B470 (from B445) with not much upside

from the current share price. We only recommend "HOLD", expecting

around 3% of return/year from dividend yield.