Upbeat outlook for Siam Cement PLC

Kasikorn Securities (Thailand) has reinitiated coverage of Thai conglomerate Siam Cement PLC with an 'Outperform' rating due to renewed optimism in domestic cement consumption and further improvement in its chemical business' profitability.

The research house says the Thai cement industry is expected to resume its organic growth at about 6-7 per cent in 2015. “We believe that the industry has already passed the bottom with the government’s planned investment in major infrastructure projects to significantly boost cement consumption,” it states.

However, competition in the domestic market may intensify due to the start-up of TPIPL's new cement line (4Mt) in late 2014. Nevertheless, Kasikorn Securities believes a price war is unlikely to break out again as tight production capacities should deter major producers from applying pricing strategies. Based on expected six per cent volume growth, SCC's cement selling price could decline by as much as THB120/t (US$3.7) and it would still be able to maintain its EBITDA at the same level as 2014.

'Golden year' ahead
Additionally, 2016 will be a golden year for SCC's cement business due to its double-digit effective capacity growth and improvement in the domestic cement demand/supply balance.

SCC is building four cement plants in Cambodia, Indonesia, Myanmar and Laos that are scheduled to start their commercial runs in 3Q15, 4Q15, 2Q16 and 3Q17, respectively. The cement segment contributes a relatively high margin to SCC (about 15 per cent EBITDA margin). Meanwhile, we expect the domestic cement market will further improve as construction of previously approved infrastructure projects starts up, which will further boost cement consumption growth. Meanwhile, all the incremental supply of TPIPL will be totally consumed within two years (2015-16), the report added.