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Thailand

Siam Cement Plc. (SCC.BK/SCC TB)*

Earnings to bottom out in 2Q11
Bt362.00

Company update

Outperform
Maintained

1
2
3

Nat Panassutrakorn
66.2658.8888 Ext. 8849
natp@kgi.co.th

Anticipate 2Q11 net profit to drop 10.5% YoY to Bt6.5bn

2011 normalized profit expected to rise 17.5% YoY
Maintain Outperform with 2011 target price of Bt428.00

A little bumpy in 2Q11, but 2H11 outlook remains bright

We expect SCCs 2Q11 earnings to decline 10.5% YoY and
29.1% QoQ to Bt6.5bn as chemical spread is anticipated to have
narrowed due to weak demand in the regional market and the
companys cement and paper units were in their slow season.
However, earnings should see a strong rebound in 2H11 as the
company launches new high value added (HVA) products from its
chemical unit to meet strong demand in the market and demand
for cement and paper recovers. Given the bright outlook, we are
maintaining full-year net profit forecast excluding non-recurring
items of Bt32.0bn and rate Outperform on the counter with a
target price of Bt428.00.
Figure 1: 2Q11 earnings preview
Bt mn
Sales
Costs of Sales
Gross Profit
EBIT
EBITDA
Pre-tax Profit
Corporate Tax
After-tax profit
Equity Income (Loss)
Net Profit
Net Profit without non-recurring items
Reported EPS
Percent
Gross margin
EBITDA margin
Net margin , excl FX

2Q11F
94,428
79,319
15,108
6,353
11,878
4,728
1,418
3,310
2,350
6,526
6,526
5.44
2Q11F
16.0
12.6
6.9

2Q10
YoY (%)
77,371
22.0
63,337
25.2
14,035
7.7
6,328
0.4
11,274
5.4
5,138
(8.0)
1,660
(14.6)
3,478
(4.8)
1,907
23.2
7,295
(10.5)
7,299
(10.6)
6.08
(10.5)
2Q10 YoY (ppts)
18.1
(2.1)
14.6
(2.0)
9.4
(2.5)

1Q11
QoQ (%)
92,478
2.1
76,618
3.5
15,859
(4.7)
7,752
(18.1)
12,821
(7.4)
6,195
(23.7)
2,105
(32.6)
4,090
(19.1)
3,041
(22.7)
9,207
(29.1)
9,207
(29.1)
7.67
(29.1)
1Q11 QoQ (ppts)
17.1
(1.1)
13.9
(1.3)
10.0
(3.0)

Source: Company data; KGI Securities (Thailand) estimates

Key assumptions for 2Q11 earnings forecast

Although there was weak demand for its core business and an
inventory loss of around Bt500mn is to be booked, the capacity
increase from its new cracker would help offset the poor figures and
allow SCC to post a 2Q11 net profit of Bt6.5bn, down 10.5% YoY.

Petrochemical unit: Despite Chinas weak demand for

polypropylene (PP) and polyethylene (PE), which pressured these
olefin prices, SCCs additional capacity of 1.7mn tons from its new
cracker (MOC) is expected to help increase its 2Q11 sales 38.0%
YoY. However, an increase in average naphtha price during the
quarter would result in a drop in PE/naphtha spread from
US$479/ton in 2Q10 to US$399/ton while PP-naphtha was
US$693/ton compared to US$637/ton in 2Q10. We forecast 2Q11
EBITDA margin to decline to 8.0% from 9.0% in 2Q10. In addition,
the declines in PP, PE and naphtha prices at the end of the period by

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around US$50-100 per ton could result in the booking of an

inventory loss of Bt500mn.
Cement unit: Second quarter is normally the slow season and
with slow buying ahead of the election, domestic volume would stay
flat at 2.6mn tons rather than increasing as had been expected.
However, a price increase of 10.0% YoY to Bt1,850-1,900 per ton
should increase sales by 13.5% YoY and raise its EBITDA margin to
23.5% from 21.7% in 2Q10.
Paper unit: Despite slow demand in 2Q11, a price increase,
particularly in packaging paper, should help it maintain sales of
Bt13.0bn for the quarter. In addition, economy of scale from
running at full capacity would help offset rising raw material costs
and maintain EBITDA margin at 20.6%.
Figure 2: 2Q11 earnings assumptions
Sales by unit (Btmn)
Cement
Petrochemicals
Paper & Packaging
Total
EBITDA Margin (%)
Cement
Petrochemicals
Paper & Packaging
Total

2Q10
12,033
38,057
12,781
77,371
2Q10
21.7
9.0
20.5
14.6

3Q10
12,054
39,636
13,451
79,060
3Q10
20.6
9.4
17.9
13.0

4Q10
12,034
37,669
12,931
76,252
4Q10
20.0
7.0
12.9
13.0

1Q11
14,241
48,404
13,700
92,478
1Q11
26.4
8.7
18.6
13.9

2Q11F
YoY(%)
QoQ(%)
13,653
13.5
-4.1
52,519
38.0
8.5
13,037
2.0
-4.8
94,428
22.0
2.1
2Q11F YoY (ppts) QoQ (ppts)
23.5
1.8
-2.9
8.0
-1.1
-0.8
20.6
0.1
2.0
12.6
-2.0
-1.3

Source: Company data; KGI Securities (Thailand) estimates

Full-year normalized profit to rise 17.5% YoY

During 2H11, 2e expect the smooth running of HVA products such
as specialty elastomers and propylene oxide with a capacity of 220K
and 390K, respectively, to help ramp up both the MOC and the ROC
crackers to high operating rates of 90.0-100%. Furthermore, more
HVA products, which have higher margins than other commodities
grade products, and a demand recovery in its chemical, paper and
cement units would help sustain SCCs EBITDA margin at 15.3%.
This should allow 2011 revenue and net profit excluding
non-recurring items to rise 13.6% YoY and 17.5% YoY to
Bt342.4bn and Bt32.1bn, respectively.

Valuation and Recommendation

Given the bright outlook for its main business and new investment,
we expect SCCs earnings to rise consistently over the next three years
with normalized profit growth of 13.5% CAGR. We rate the counter
Outperform with a 2011 sum-of-the-part target price of Bt428.00.
Year to Dec
2008
2009
2010
2011F
2012F
Year to Dec

Sales Sales growth

(Bt mn)
(%)
293,230
9.5
238,664
(18.6)
301,323
26.3
342,448
13.6
372,468
8.8
GM
EV/EBITDA
(%)
(X)
15.4
3.4
22.3
2.7
17.7
2.2
19.2
2.7
19.5
2.2

2008
2009
2010
2011F
2012F
Sector
12M target price (Bt/shr)
Upside/downside (%)
The percentile of excess return (%)
Dividend yield-12/11F (%)
Book value/shr-12/11F (Bt)
P/B-12/11F (x)
Net debt/equity-12/11F (%)

EBITDA
NP
EPS
(Bt mn)
(Bt mn)
(Bt)
38,875
16,770
13.98
51,246
24,345
20.29
50,333
37,382
31.15
58,505
32,082
26.74
57,962
35,201
29.33
PBV
PER
Dividend
(X)
(X)
Yield (%)
5.0
25.9
2.1
4.2
17.8
2.3
3.3
11.6
3.5
2.9
13.5
3.5
2.6
12.3
3.7
Cement 52-week trading range (Bt)
428.0 Mkt cap-Bt bn/US$ bn
18.2 Outstanding shares (mn)
48.7 Free floating shares (mn)
3.5 Foreign ownership (mn)
123.4 3M avg. daily trading (mn)
2.9 Abs. performance (3,6,12M)(%)
104.8 Rel. performance (3,6,12M)(%)

EPS growth
(%)
(44.7)
45.2
53.5
(14.2)
9.7
ROAE
(%)
19.3
25.4
31.5
22.8
22.3
251-384
434.4/14.5
1,200
814
300
2.2
2.3; 4; 35.1
3.9; 1.9; 2.6

*The Company may be issuer of Derivative Warrants on these securities.

http://research.kgi.com; Bloomberg: KGIT <GO>

Please see back page for disclaimer

July 7, 2011

DA ILY Navigator

Thailand

Balance Sheet
As of 31 Dec (Bt mn)
Total Assets
Current Assets
Cash & ST Investments
Inventories
Accounts Receivable
Others
Non-current Assets
LT Investments
Net fixed Assets
Others
Total Liabilities
Current Liabilities
Accounts Payable
ST Borrowings
Others
Long-term Liabilities
Long-term Debts
Others
Shareholders' Equity
Common Stock
Capital Surplus
Retained Earnings
Preferred Stock

Profit & Loss

2008
285,717
83,826
26,714
30,107
1,259
25,746
201,891
0
139,076
62,815
174,331
64,554
1,196
49,950
13,407
109,777
109,777
0
111,386
1,200
0
110,186
0

2009
316,059
89,988
28,937
30,986
3,415
26,649
226,072
0
153,884
72,188
184,638
52,299
2,031
35,737
14,531
132,338
132,338
0
131,421
1,200
0
130,221
0

2010
359,219
141,395
69,827
36,917
2,641
32,010
217,823
0
151,932
65,892
199,649
83,082
2,110
61,813
19,160
116,566
116,566
0
159,570
1,200
0
158,370
0

2011F
383,209
121,319
28,530
47,379
4,901
40,510
261,890
0
159,706
102,185
208,185
84,617
3,030
60,461
21,127
123,567
123,567
0
174,725
1,200
0
173,525
0

2012F
385,504
121,703
21,001
51,319
5,330
44,052
263,801
0
159,671
104,131
190,212
86,407
3,490
59,971
22,947
103,805
103,805
0
194,694
1,200
0
193,494
0

Source: Company data; KGI Securities (Thailand) estimates

2008

Year to 31 Dec (Bt mn)

Sales

2009

2010

2011F

2012F

(3.0)
9.5
8.2
1,869
1.1
649.0
649.0

(3.3)
9.6
7.6
1,756
1.1
585.0
538.0

6.8
10.4
7.9
1,700
1.3
500.0
627.0

5.8
11.2
8.2
1,800
1.5
500.0
530.0

4.6
11.7
8.5
1,800
1.7
540.0
550.0

9.5
(29.4)
(20.9)
(44.7)
(44.7)

(18.6)
54.2
28.8
45.2
45.2

26.3
(16.2)
(4.8)
53.5
53.5

13.6
39.6
24.6
(14.2)
(14.2)

8.8
16.9
10.9
9.7
9.7

Cost of Goods Sold

Gross Profit
Operating Expenses

22.3
11.5
18.5
10.2
8.1
25.4

17.7
7.7
13.9
12.4
11.1
31.5

19.2
9.4
15.3
9.4
8.6
22.8

19.5
10.1
15.6
9.5
9.2
22.3

199.8
152.4
2.9
1.1
8.0
0.9
1.3
0.4
133,013

176.7
133.1
4.9
1.0
5.8
0.8
1.7
0.6
139,139

150.0
81.5
4.9
0.9
10.9
0.8
1.7
0.9
108,552

140.3
104.8
5.9
0.8
3.7
0.3
1.4
0.4
155,498

113.0
84.8
6.8
0.9
8.2
0.7
1.4
0.3
142,774

14.0
24.1
72.7
244.4
32.4
7.6

20.3
30.5
87.1
198.9
42.7
8.5

31.2
41.5
110.9
251.1
41.9
12.5

26.7
39.2
123.4
285.4
48.8
12.5

29.3
42.3
139.8
310.4
53.7
13.5

1.1
28.4
49.4
3.1
74.7

0.8
32.4
60.1
3.2
89.3

0.9
29.4
50.0
3.0
76.3

0.9
32.2
55.6
3.4
84.4

1.0
35.7
60.1
4.0
91.9

2009

2010

2011F

2012F

248,096

185,456

247,915

276,694

45,135

53,208

53,408

65,754

299,702
72,765

27,273

25,661

30,326

33,539

35,095

Operating Profit

17,862

27,547

23,082

32,215

37,670

Net Interest

(6,089)

(5,649)

(4,670)

(5,444)

(5,511)

Interest Income

6,089

5,649

4,670

5,444

5,511

Net Investment Income/(Loss)

4,669

7,200

8,390

6,251

6,490

Net other Non-op. Income/(Loss)

4,156

4,292

6,384

5,034

4,684

734

(3,875)

18,156

(593)

(1,192)

Pretax Income

21,332

29,514

51,341

37,463

42,141

Income Taxes

4,562

5,168

13,959

5,381

6,940

16,770

24,345

37,382

32,082

35,201

13.98

20.29

31.15

26.74

29.33

Interest Expense

Net Extraordinaries

Net Profit
EPS (Bt)

Source: Company data; KGI Securities (Thailand) estimates

Cash Flow
Year to 31 Dec (Bt mn)

2008

2009

2010

2011F

2012F

48,832

32,905

50,818

20,016

45,362

Net Profit

16,770

24,345

37,382

32,082

35,201

Depreciation & Amortization

12,188

12,208

12,478

15,006

15,608

Change in Working Capital

19,873

(3,648)

959

(27,072)

(5,447)

Others
Investment Cash Flow
Net CAPEX

(43,888) (36,164)

(4,609) (55,636) (16,635)

(40,461) (26,825) (11,999) (20,434) (15,321)

Change in LT Investment
Change in Other Assets
Free Cash Flow
Financing Cash Flow
Change in Share Capital

(287)

(189)

(9,034)

6,758

(658)

(3,140)

(9,150)

16,424

(41,959)

(656)

4,944

(3,259)

46,209

(35,620)

28,727

17,985

5,707

(5,699)

(2,540) (35,670)

Net Change in Debt

31,908

10,017

3,534

14,387

(20,438)

Change in Other LT Liab.

(13,923)

(4,310)

22,929

2,448

Net Cash Flow

15.4
6.1
11.7
5.7
6.3
19.3

2008

293,230 238,664 301,323 342,448 372,468

Operating Cash Flow

Key Ratios & Drivers

Year to 31 Dec
Forecast drivers
Total cement demand growth (%)
Domestic cement sales (Mn tons)
Cement exports (Mn tons)
Domestic cement price (Bt/ton)
Petrochemical volume (Mn tons)
PE-naphtha spread (US$/ton)
PP-naphtha spread (US$/ton)
Growth (% YoY)
Sales
OP
EBITDA
NP
EPS
Profitability (%)
Gross Margin
Operating Margin
EBITDA Margin
Net Profit Margin
ROAA
ROAE
Stability
Gross Debt/Equity (%)
Net Debt/Equity (%)
Interest Coverage (x)
Interest & ST Debt Coverage (x)
Cash Flow Interest Coverage (x)
Cash Flow/Interest & ST Debt (x)
Current Ratio (x)
Quick Ratio (x)
Net Debt (Bt mn)
Per Share Data (Bt)
EPS
CFPS
BVPS
SPS
EBITDA/Share
DPS
Activity
Asset Turnover (x)
Days Receivables
Days Inventory
Days Payable
Cash Cycle

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(9,233) (16,927) (15,232)

40,510

(37,861)

(6,644)

Source: Company data; KGI Securities (Thailand) estimates

Rates of Return on Invested Capital

COGS
Depreciation
Operating Exp.
+
+
=
Revenue
Revenue
Revenue
2008
73.1%
5.1%
9.3%
2009
76.4%
4.7%
10.8%
2010
80.5%
4.2%
10.1%
2011F
72.6%
5.1%
9.8%
2012F
78.1%
4.1%
9.4%
Working Capital
Net PPE
Other Assets
Year 1/
+
+
=
Revenue
Revenue
Revenue
2008
0.2
0.5
0.2
2009
0.3
0.6
0.3
2010
0.2
0.5
0.2
2011F
0.3
0.5
0.3
2012F
0.3
0.4
0.3
Operating
Capital
Cash
Year
x
x
=
Margin
Turnover
Tax Rate
2008
12.5%
1.1
77.9%
2009
8.1%
0.8
84.5%
2010
5.3%
1.0
57.9%
2011F
12.5%
1.0
68.8%
2012F
8.3%
1.0
80.8%
Year 1-

Operating
Margin
12%
8%
5%
13%
8%
Capital
Turnover
1.1
0.8
1.0
1.0
1.0
After-tax Return
on Inv. Capital
11.0%
5.7%
3.2%
8.3%
6.4%

Source: Company data; KGI Securities (Thailand) estimates

Source: Company data; KGI Securities (Thailand) estimates

*The Company may be issuer of Derivative Warrants on these securities.

http://research.kgi.com; Bloomberg: KGIT <GO>

Please see back page for disclaimer

July 7, 2011