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The Siam Cement

Look forward for 2015 BUY

The Siam Cement Plc (SCC)

2Q14 profit would be disappointing; SCC’s core businesses have not

rebounded as remarkably as expected. We revise down FY2014

earnings forecast by 14%. However, SCC is projected to revive in

2015. We recommend buying when price weakens after 2Q14

earnings report.


- 2Q14 profit estimated at B8,178m, falling 18%yoy

Demand for cement and construction material in every segment dropped in

2Q14 as a result of the political turmoil and long holidays. Profit from

petrochemical is expected to drop as well. While upstream petrochemical

business (SCC holding only two-third stake) has rebounded rapidly,

downstream petrochemical business has not recovered significantly. Though

HDPE-Naphtha spread stayed above US$600/ton, PVC spread has dropped

and PTA and BD prices have remained weak. Meanwhile, paper business has

remained prosperous; demand for packaging has increased thanks to growth

in export. For investment business, dividend from Toyota is projected to drop

from B2.2bn in 2Q13 due to lower domestic automotive demand. Overall,

2Q14 net profit is estimated at B8,178m, falling 18%yoy. 1H14 dividend is

expected at B6/share.

- To invest over B250bn in next five years

ASEAN economy is expected to rebound remarkably from now on. SCC has

announced five-year investment plans worth of B250bn; over 50% of which

will be invested on cement and construction material business expansion: four

cement factories in Indonesia, Myanmar, Cambodia and Laos with the total

capacity of 6.3 million tons/year (ASEAN is currently focusing on

infrastructure development projects). For petrochemical business, conclusion

on Petrochemical Complex valued US$4.5bn in Vietnam would be made within

late-2014. For paper business, Nippon Paper Industries (Japan’s largest paper

producer) holds 30percent stake in SCC’s fibrous chain business; SCC is expected

to focus more on HVA.

- Revise down earnings forecast by 14%. Buy when price weakens

We revise down SCC’s earnings forecast by 14% in 2014 and 7.5% in 2015,

reflecting slow rebound in core businesses. We also decrease SCC’s fair value

(DCF) from B520 to B500. Despite limited upside, we recommend buying

when price weaken. SCC is expected to grow continuously in a long run and

fully benefit from economic rebound in Thailand and ASEAN.


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