Siam Cement (SCC) should benefit from the government's effort to promote public infrastructure spending, as well as the cyclical upturn of the petrochemicals cycle. Phatra Securities estimates that every Bt100bn spending per year for these infrastructure projects would add 1.3Mt of cement demand growth per year, which is roughly equivalent to an additional five per cent cement demand growth per annum.
Also, the outlook for petrochemical products is very favorable for 2004 with anticipated tighter supply and a bullish demand outlook, especially from the China market. SCC, having strong exposure to the chemicals business, should benefit from the cyclical upturn. Chemicals business should contribute approximately 26 per cent of EBITDA and 35 per cent of net income.
A Buy rating is recommended by local analysts on SCC. A 12-month share price objective is Bt300 for local shares and Bt330 for foreign shares (10 per cent premium over local shares). Share price objective is based on a 2004E P/E multiple of 15.5x, which is the weighted average P/E multiple of peers in its core businesses. Risks to achieving share price objectives for SCC are the potential for intermittent cement price wars and the cyclical nature of its paper and chemical operations.
