Fitch affirms Siam Cement ratings, outlook Stable

Fitch has affirmed Siam Cement Co's (SCC) National Long-Term Rating at 'A(tha)', National Short-Term Rating at 'F1(tha)' and its senior unsecured debentures at 'A(tha)'. The outlook is ‘Stable.

Fitch expects SCC's capex to increase in 2014-2015 as it expands its businesses, particularly in Southeast Asia. A majority of investments will be in the cement and building materials businesses. It expects SCC's net adjusted debt/EBITDAR, including dividends from associates, to be within 3.0x-3.5x in 2014 (9M13: 3.0x) due to the higher capex, and trend below 3.0x thereafter as it reaps the benefits of expansion and as its existing operations continued to grow.

The ratings agency expects SCC's operating cash flows to improve in 2014, supported by continuing growth in its cement and building materials businesses and recovery in the chemical business. The increase in operating cash flows will be driven by organic growth as well as SCC's recent acquisitions of four building material companies and three paper packaging companies.

The ratings are supported by SCC's well-diversified sources of revenue from its chemical, cement and building materials, and paper businesses. This diversification supported cash flow generation when it chemical business in 2011-2012 faced an industry-wide downturn. Regional expansion is positive for its business profile over the longer term, although the earnings contribution from regional operations is likely to be small in 2014-2015.

SCC's leading positions in Thailand and Southeast Asia in each of its core businesses - chemical, cement and building materials, and paper - give it a competitive advantage. The company should maintain its leading market share in these sectors over the next five years, Fitch adds.