20130801-Maybank_KERPL-Siam_Cement_Strong_2Q13_earnings,_beating_forecast_13页_1mb

Earnings Review Summary

Core Content

This document provides an earnings review for Siam Cement Corporation (SCC) for the second quarter of 2013 (2Q13) and outlines the company's financial performance, strategic initiatives, and future outlook. The report is issued by Maybank Kim Eng and highlights the strong earnings performance, key drivers, and valuation metrics.

Key Information

• Company Overview: SCC is a leading construction material conglomerate in Thailand, with operations in cement, building products, pulp and paper, and Petrochem. It has a strong distribution and trading activity and recently acquired a 30% stake in Siam Global Services, a home improvement retailer.
• Share Price & Target: The current share price is THB458.00, with a target price of THB550.00.
• Market Position: SCC is the largest construction material conglomerate in Thailand and aims to be a major player in the ASEAN market.
• Ownership: The company is owned by the Crown Property Bureau, which manages the wealth of the Crown.

Financial Performance

2Q13 Earnings Highlights

• Net Profit: THB9.9bn, up 132% YoY and 13% QoQ, beating forecast by 10%.
• Operating Income: Rose 94% YoY.
• Investment Income: Generated profits of ~THB2bn vs losses of THB309mn in 2Q12.
• Dividend Income: THB2.5bn from auto investments.
• Insurance Compensation: THB450mn booked as other income.

Key Earnings Drivers

• Cement Demand & Price Hike: 9% YoY demand growth and a THB50/ton price increase.
• Petrochem Recovery: Strong volume demand for HDPE and PP, and healthy spreads (PE-Naphtha up 22% YoY, PP-Naphtha up 14% YoY).
• Investment Gains: Expected THB1.5bn gain in 3Q13 from revaluation of investments in Siam Sanitary Ware & Siam Sanitary Fittings.
• Inventory & FX Losses: THB800mn inventory loss and THB300mn FX-related losses in 2Q13, but these are expected to be avoided in 3Q13.

Business Breakdown

• Cement & Building Materials (Consmat):
  • Net profit: THB3.0bn, 34% of total net profit.
  • Domestic demand: 7.9Mn tonnes, with average cement price rising to THB1,875/tonne.
  • EBITDA margin: 14.9%, slightly down from 15.1% in 1Q13.
• Petrochem:
  • Net profit: THB2.6bn, up from losses in 2Q12.
  • Sales volume: 457,000 tonnes, up 19% YoY.
  • EBITDA margin: 8.1%, up significantly from 0.7% in 2Q12.
• Paper:
  • Net profit: THB1.0bn, down 6% YoY due to softer domestic demand.
  • Sales: THB14.3bn, down 1% YoY.
  • Expected to benefit from the consolidation of two subsidiaries (Dyna Packs and Orient Containers) in 3Q13.

Outlook

3Q13

• Expected to remain strong, with earnings of THB8-9bn, compared to THB6.4bn in 3Q12.
• Non-recurring gain of ~THB1.5bn from investment revaluation.
• No significant extraordinary items expected.
• Petrochem and Consmat are expected to perform well due to seasonal buying and price hikes.

4Q13

• Map Ta Phut Olefins plant will undergo a 45-day maintenance shutdown, reducing earnings but already factored into forecasts.

2H13

• Domestic demand is expected to weaken, but waste paper prices are likely to firm due to tight supply.
• Container board prices could face pressure due to higher regional supply and slower economic growth in China.
• Pulp prices are expected to remain soft, affecting the P&W segment.

Financial Metrics

• Market Cap: US$17,651mn
• Free Float: 67.69%
• ROE: 24.0% (2014)
• Net Gearing: 78%
• NTA/shr: 158
• Interest Cover: 7.9x
• EPS (2013F): THB29.04
• EPS Growth (2013F): 47.8%
• DPS (2013F): THB14.50
• Dividend Yield: 3.2% (2013F)
• P/BV (2014): 2.9x
• EV/EBITDA (2014): 11.0x

Strategic Initiatives

• Capex Plan: SCC is maintaining a 5-year capex outlay of THB200bn, primarily for building materials.
• Dividend Policy: High cash balance (THB40bn) and strong cash flow (THB50-70bn) are expected to support dividend growth.
• Interim Dividend: THB5.5/sh (35% DPR) for 1H13, with expectations for higher final dividends to reach THB14-15/sh for FY2013.
• Investments:
  • Sanitary Ware & Fittings: THB2.6bn to acquire remaining shares from TOTO Group.
  • MG Stone Slabs: THB1.5bn investment in construction.
  • Indonesia Cement Plant: EPC contract signed in May 2013, expected to start production in mid-2015.
  • Myanmar Cement Plant: Investment approved in Q2/13, awaiting board approval.
  • Debottlenecking: Completed in YE2013, increasing capacity by 7%.

Valuation

• Valuation Metric: Based on PBV (Price to Book Value), with fair value at LTM PBV + 1SD.
• Price Target: THB550.00, based on 15x 2014PE and 23% EPS growth.
• Dividend Yield: Nearly 4% at the price target, supported by strong cash flow.
• PBV: 3.3x (2013F), 2.9x (2014F), and is considered a key valuation metric.

Regional Comparison

Conclusion

SCC has delivered strong 2Q13 earnings, outperforming expectations and showing resilience across most business segments. The company is maintaining its BUY rating with a 12-month price target of THB550, based on strong fundamentals, improving ROE, and a solid cash flow outlook. Strategic investments and potential acquisitions are expected to enhance long-term growth. The valuation is based on PBV, with SCC trading at a discount relative to its growth potential and ROE.