Fitch affirms Siam City Cement rating, outlook Stable

Fitch Ratings (Thailand) Limited has affirmed Siam City Cement Public Company Limited's (SCCC) National Long-Term rating at 'A(tha)', its National Short-term rating at 'F1(tha)' and its senior unsecured debentures at 'A(tha)'. The Outlook is Stable.

The ratings reflect SCCC's leading market position as the second-largest cement and ready mixed concrete producer in Thailand. This has helped maintain reasonable EBITDA and EBITDA margin despite pressure from price competition and higher energy costs in the past five years. Strong cement demand in Thailand driven by a strong urbanisation trend in the provinces and the government's large spending plan on infrastructure projects, in particular, should drive healthy growth in SCCC's cement and ready mixed concrete sales in 2013-2015.

Fitch believes SCCC's low financial leverage of 0.5x at end-2012 should provide enough flexibility for the company's high capex in the next two years. The expected higher capex for several capacity expansions is likely to increase the company's net adjusted debt/EBITDAR to 1.0x-1.5x in 2013-2014. Its interest coverage should remain solid with funds from operations (FFO) interest coverage in a range of 10x-20x.
Margin remains vulnerable: SCCC's EBITDA margin remains vulnerable to an increase in energy costs, mainly coal and electricity. Pressure from coal prices is likely to ease in 2013 compared with the past three years. However, Fitch expects price competition, stemming from excess capacity, to continue to limit the company's capability to pass on cost increases to buyers in the medium term.

SCCC's ratings are constrained by the lack of geographical diversification. A majority of its earnings are from cement and complimentary products sold in Thailand where there is large excess capacity which results in occasional price competition among cement producers. While the excess capacity is likely to be moderately absorbed by solid cement demand growth in the medium term, additional capacity may stem from the debottlenecking of existing kilns and from new kilns of major domestic producers.