Overview of Siam Cement (SCC)

Siam Cement (SCC) operates as a holding company with a diversified portfolio in industrial supplies and the construction industry. Its six core business segments include chemicals, paper, cement, building materials, distribution, and investment. Despite its wide-ranging operations, SCC is facing significant challenges, particularly in its petrochemical and cement divisions, impacting its overall financial performance.

Stock Performance and Key Data

The company’s share price stands at Bt154.00, with a target price of Bt160.00, indicating a limited upside of 3.9%. The stock has been underperforming, with its 52-week high and low at Bt328.00 and Bt221.00, respectively. SCC’s market capitalization is Bt308.6 billion (approximately US\$8.5 billion), and major shareholders include Maha Vajiralongkorn (33.3%), the Stock Exchange of Thailand (10.0%), and STATE STREET Corp (4.3%).

4Q24 Financial Performance Preview

SCC is expected to report a net loss of Bt930 million for 4Q24, marking a continued decline in earnings across all business segments. The petrochemical division remains the most affected due to weak olefins spreads, supply challenges, and subdued demand. The report highlights that the ongoing downturn in this segment will likely persist over the next 2-3 years.

Though dividend income from Toyota (Bt1 billion) and the absence of stock losses in 4Q24 provide some relief, overall performance remains weak. Domestic demand for cement has yet to benefit from increased government spending, as total sales and exports declined 1.7% and 15.8% quarter-on-quarter (QoQ), respectively, according to the Office of Industrial Economics (OIE).

Segmental Analysis

Cement and Building Materials

The domestic cement market remains sluggish despite increased government spending. Seasonal factors and slowing regional demand are dampening performance. For SCG Décor (SCGD), a sub-segment of the cement and building materials business, net profit for 4Q24 is estimated at Bt80 million, declining both QoQ and year-on-year (YoY).

Petrochemical Business

The petrochemical segment continues to face significant headwinds. The olefins spread declined QoQ, with improvements in polypropylene (PP) spreads offset by weaker spreads in high-density polyethylene (HDPE) and low-density polyethylene (LDPE). The segment is expected to report a net loss of Bt3.2 billion in 4Q24, compared to a net loss of Bt1.5 billion in 3Q24. Additionally, the Longson (LSP) project, which began operations in September but experienced a production shutdown in mid-October, contributed to higher operating expenses.

Packaging (SCGP)

The packaging business also faces challenges, with SCGP’s net profit expected to decline QoQ and YoY. Contributing factors include lower average selling prices (ASP) due to increased supply from China, sluggish regional demand, and narrower gross profit margins driven by higher raw material costs. The full recognition of Fajar’s operating results for 4Q24 also led to higher loss recognition, despite an improvement in Fajar’s overall performance QoQ.

Key Financial Metrics

Key financial metrics for SCC reveal a difficult road ahead:

• Net Turnover: Bt501.8 billion in 2024F, marginally up from Bt499.6 billion in 2023.
• EBITDA: Bt29.6 billion in 2024F, down 22% YoY.
• Net Profit: Bt5.9 billion for 2024F, a steep 77% YoY decline.
• Earnings Per Share (EPS): Bt4.94 for 2024F, down from Bt21.60 in 2023.

Operating profit is expected to turn negative at Bt-2.2 billion in 2024F, compared to Bt8.3 billion in 2023. Additionally, the company’s debt-to-equity ratio is projected to improve slightly to 0.60 in 2024F from 0.74 in 2023.

Strategic Projects and Long-Term Outlook

The Ethane Flexibility Project, part of the LSP initiative, represents a long-term growth strategy for SCC. With an investment of over US\$700 million, the project aims to increase ethane-receiving capacity by up to 70%, reducing production costs by US\$200-250 per tonne. However, operations are not expected to commence until 2027.

Revised Earnings Forecasts

UOB Kay Hian has revised SCC’s 2024-25 net profit estimates downward by 26% and 45%, respectively. The downward revision reflects weaker petrochemical earnings, higher operating costs for the LSP project, and reduced gross profit margin assumptions across all business segments. The report projects a net profit of Bt5.9 billion for 2024 and Bt7.7 billion for 2025, down 77% and 31% YoY, respectively.

Valuation and Recommendation

The valuation for SCC is based on a sum-of-the-parts (SOTP) methodology:

• Chemicals Business: Valued at -2.0SD P/B of 0.37x.
• Cement Business: Valued at forward PE of 12x mean.
• SCGP: Valued at regional forward PE of -2.0SD at 19.9x.

The target price has been lowered to Bt160.00, and the HOLD recommendation is maintained due to the weak outlook for the petrochemical business and delayed recovery in demand.

Environmental, Social, and Governance (ESG) Initiatives

SCC has a strong ESG focus, with initiatives in carbon reduction, renewable energy, and eco-friendly construction materials. Social efforts include community engagement, employee welfare, and ethical labor practices. The governance framework emphasizes transparency, risk management, and alignment with UN Sustainable Development Goals (SDGs).