RHB Research

26 Mar 2013

THAILAND EQUITY Investment Research

Kannika Siamwalla 66 2862 9744

kannika.si@th.oskgroup.com

Company Update

Siam Cement
BUY
Target THB549

Poised To Catch Aseans Growth Wave

SCC is positioned to fully capture the growth within ASEAN, boosted by its asset bases in the regions major countries. We like its cement and building materials business, which stand to benefit from government spending over the next several years. We are neutral on its petrochemical business, although we expect earnings to improve over last years. We rate this stock as a BUY, and THB549 TP.

Price

THB472

Holding Companies Diverse Cement Manufacturer Stock Statistics Bloomberg Ticker Market Cap 52 wk H/L price 3m ADT YTD Returns (%) Beta (x)

SCC TB THB566,400m USD19,331m 500 312 THB618m 7.3 1.10

Major Shareholders (%) Crown Property Bureau Thai NVDR Chase Nominee Limited 42 Share Price Performance (%) Month 1m 3m 6m 12m Absolute (0.9) 7.3 34.1 32.2 Relative 0.2 (3.3) 15.7 4.6 30.17 12.75 3.92

6-month Share Price Performance

Price Close 540 Relative to Stock Exchange of Thailand Index (RHS) 113 490 107

We rate this stock as a BUY recommendation and a THB549 TP based on 16.37x EV/EBITDA. This is equivalent to a 20.5x 2013F PE, 3.6x 2013F PBV and is slightly less than our DCF valuation of THB574/share (WACC 10.7%). We like this company as it is well positioned to fully capture the growth within the ASEAN region, propelled by its presences in Indonesia, Vietnam, Myanmar, Thailand and the Philippines. The company has clear strategy to take baby steps initially by exporting to these countries and getting to know the markets before making large investments abroad. The contribution from ASEAN accounted for 18% of total sales and 39% of total exports in 2012. We are bullish on the domestic cement business on the belief that this sector will continue to see strong growth over the next few years, buoyed by a positive economic outlook, the robust residential and commercial sectors (particularly up-country) and government infrastructure projects. We are also positive on the building material business. The property segment grew strongly in 2012 and we see further growth potential in the property segment, fuelled by strong demand from up-country residential demand as farming income improves. We are currently neutral on the petrochemicals segment as petrochemical spreads have already improved from the trough in 3Q12 (as did SCCs share price). New ethylene capacity will be coming onstream in the region in 2013F (this product accounts for around 28% of total SCCs production) while the purified terephthalic acid (PTA) business will continue to languish.

440

101

390

95

340

89

290 25-May-12 27-Nov-12 26-Mar-12 26-Jul-12 26-Sep-12 28-Jan-13

83

Forecasts and Valuations Total turnover (THBm) Recurring net profit (THBm) Recurring net profit growth Core EPS (THB) Core EPS growth DPS (THB) Dividend Yield Core P/E (x) Return on average equity P/B (x) EV/EBITDA (x) Net debt to equity RHBRI vs consensus EPS
Source: Company data, RHBRI estimates

Dec-10 301,323 37,382 0.0% 31.2 0.0% 12.5 2.6% 15.2 4.29 15.3 52.3%

Dec-11 368,579 27,281 (27.0%) 22.7 (27.0%) 12.5 2.6% 20.8 20.0% 4.03 14.1 81.2%

Dec-12 407,601 60,098 120.3% 50.1 120.3% 11.0 2.3% 9.4 41.4% 3.79 7.0 88.6%

Dec-13F 434,195 68,638 14.2% 57.2 14.2% 12.6 2.7% 8.3 43.6% 3.42 6.8 82.9%

Dec-14F 450,763 70,827 3.2% 59.0 3.2% 13.0 2.7% 8.0 40.7% 3.10 6.9 76.3%

Source: Bloomberg

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26 Mar 2013

THE BUSINESS SEGMENTS SCCs business segments are cement, building materials, petrochemicals, paper and distribution, accounting for 15%, 9%, 38%, 11% and 26% of group revenue respectively. Cement: We are bullish on the domestic cement business and believe that this sector will continue to see strong growth over the next few years due to a positive economic outlook, robust residential and commercial sector (particularly upcountry) and government infrastructure projects. The countrys cement sales grew 12% q-o-q to 2.9m tonnes in January 2013. Our forecast is for the domestic cement business to grow 12% annually over the next five years, by which time Thailands cement production capacity is expected to reach full capacity of 56m tonnes per annum (tpa). This is assuming the best-case scenario for all construction works. We have assumed that SCCs market share will be at 40% throughout the forecast period. Domestic cement sales are forecast to jump to 14m tpa (+12% y-o-y) for 2013F, while export sales are expected to decline as domestic sales pick up. We are forecasting for sales price to average THB1850/tonne but are not assuming any cement price fluctuations over the forecast period. During the last increase in 2011, cement price was raised by about THB100/tonne amid a cement shortage caused by the countrys major floods. The risks to our assumptions are the possibly of the domestic economy not turning out as robust, and construction projects not rolling out as expected. Building materials: We are positive on the building material business as the property sector is evidently strong, with new housing in Bangkok and its vicinity surging 37% y-o-y to 111,875 units while registrations for condominiums nationwide soared 105% y-o-y to 81,665 units in 2012. We see further growth potential in the property sector given the strong up-country residential demand as a result of improving farming income. Demand for the housing and condominium sectors remain healthy in Bangkok. Although demand in these segments is strong for the country as a whole and this should translate into higher earnings for SCCs building material business we expect cost pressure to persist as labour and electricity cost rise. SCCs building material business showed a strong recovery in 1Q12 with 29% q-o-q revenue growth to THB10.3bn and an EBITDA margin of 19% jump to THB1.9bn. However, this tapered off towards the end of last year to a more normalised EBITDA margin of 14%-16%. Meanwhile, 2012 revenue grew 21% y-o-y to THB41bn with EBITDA margin at 16%. We are forecasting a softer revenue growth of 15% for 2013F with EBITDA margin of 16% at THB47bn and THBTHB7.6bn respectively. Petrochemicals: We are currently NEUTRAL on the petrochemicals sector as spreads have improved from their trough in 3Q12 (as did SCCs share price). New ethylene capacity will be coming onstream in 2013F (at around 28% of SCCs total production) while its PTA business remain in the doldrums. However, domestic demand for petrochemicals product is still robust, as PP compounds are seeing strong back orders from car production, PVC demand remains healthy as a result of sturdy progress in the construction industry, and EDC prices stay healthy due to tight supply. We are forecasting for 2013 product prices to remain as they were in 2012, while overall product spreads are expected to improve from those in 2012. Overall, EBITDA is expected to increase to THB10bn for 2013F from THB8.6bn in 2012.

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26 Mar 2013

Paper and distribution business: We are forecasting stable earnings for the paper business, in which utilization is running at full capacity and EBITDA margins are more or less stable. Figure 1: Key assumptions

2011 Cement Cement price, domestic (THB/t) % change Cement price, export (USD/t) % change Total sales, domestic (mtpa) % change Total sales, export (mtpa) Petrochemicals Total effective capacity (mtpa) Utilisation rate (%) Spreads (to naphtha, USD/t)
Ethylene Propylene MixedC4 Benzene HDPE LDPE LLDPE PP PVC Source:OSKestimates

2012 1,850 3% 51 12% 12.5 12% 5.7 -11% 6.12 99%

2013f 1,850 0% 51 0% 14.0 12% 5.3 -7% 6.12 99%

2014f 1,850 0% 51 0% 15.7 12% 3.6 -32% 6.12 99%

1,800 7% 45 11% 11.2 5% 6.4 -12% 6.12 92%

222 467 62 148 434 611 367 649 403

235 467 62 265 437 611 367 502 464

207 467 62 265 437 611 367 550 400

207 467 62 190 437 611 367 550 400

VALUATION AND RECOMMENDATION We rate this stock as a BUY with a TP of THB549, based on +2 SD on the stocks historical 10-year average of 16.37x EV/EBITDA. This is equivalent to a 20.5x 2013F PE and 3.6x 2013F PBV, slightly lower than our DCF valuation of THB574/share (WACC 10.7%). Figure 2: SCCs valuations
PBV PER 15.84 424 19 509 20.7 554 496 EV/EBITDA 16.37 549 13 436 10.9 366 450 574 428 448 383 574 534 DCF Ave. (THB/sh)

10 year SCC (+2SD, x) Implied valuation (THB/sh) Global multiples (x) Implied valuation (THB/sh) Regional multiples (x) Implied valuation (THB/sh) Ave. (THB/sh) Souce: Bloomberg, OSK estimates

3.89 590 1.34 203 2.4 364 386

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26 Mar 2013

SCC TB Forward P/E

P/E (X) 25.0 20.0
+2SD = 15.84x
SCC TB - Forward P/E

SCC TB Forward P/BV

P/BV (X) 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0
Jan-04 Jan-05 Jan-06 Jan-13
SCC TB - Forward P/BV

+2SD = 3.89x +1SD = 3.21x Mean = 2.53x -1SD = 1.85x -2SD = 1.17x

15.0 10.0 5.0 0.0

Jan-04 Jan-05 Jan-06 Jan-07
Mean = 9.98x

+1SD = 12.91x

-1SD = 7.04x -2SD = 4.11x

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Source : OSK, Bloomberg SCC TB EV/EBITDA

Times 25.0 20.0 +2SD = 16.37x 15.0 Mean = 10.45x 10.0 5.0 0.0
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
SCC TB - EV/EBITDA

Source : OSK, Bloomberg

SCC TB Technical Chart

+1SD = 13.41x -1SD = 7.49x -2SD = 4.53x

Source : OSK, Bloomberg

Source : OSK, Bloomberg

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Jan-13

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FINANCIALS
Profit & Loss (THBm) Total turnover Cost of sales Gross profit Gen & admin expenses Selling expenses Operating profit Operating EBITDA Depreciation of fixed assets Amortisation of intangible assets Operating EBIT Net income from investments Other recurring income Interest expense Pre-tax profit Taxation Minority interests Profit after tax & minorities Net income to ord equity Recurring net profit
Source: Company data, RHBRI

Dec-10 301,323 (247,915) 53,408 (13,919) (16,407) 23,082 35,560 (12,006) (472) 23,082 8,390 24,416 (4,670) 51,218 (13,959) 123 37,382 37,382 37,382

Dec-11 368,579 (315,811) 52,768 (14,378) (18,760) 19,630 32,838 (12,724) (484) 19,630 6,774 10,894 (6,048) 31,250 (7,504) 3,535 27,281 27,281 27,281

Dec-12 407,601 (353,695) 53,905

Dec-13F 434,195 (372,643) 61,552

Dec-14F 450,763 (386,837) 63,926

53,905 67,952 (14,047) 53,905 1,561 10,737 (6,321) 59,882 (4,742) 4,958 60,098 60,098 60,098

61,552 76,776 (15,224) 61,552 4,168 10,000 (6,290) 69,429 (5,749) 4,958 68,638 68,638 68,638

63,926 80,510 (16,584) 63,926 5,001 10,000 (6,970) 71,956 (6,088) 4,958 70,827 70,827 70,827

Balance Sheet (THBm) Total cash and equivalents Inventories Accounts receivable Other current assets Total current assets Total investments Tangible fixed assets Total other assets Total non-current assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Total long-term debt Other liabilities Total non-current liabilities Total liabilities Share capital Retained earnings reserve Shareholders' equity Minority interests Other equity Total equity Total liabilities & equity
Source: Company data, RHBRI

Dec-10 69,827 36,544 2,641 32,010 141,022 51,193 156,781 10,223 218,197 359,219 40,755 22,969 19,358 83,082 112,497 4,069 116,566 199,648 1,200 130,704 131,904 26,453 1,214 159,571 359,219

Dec-11 29,885 41,838 4,171 40,870 116,764 81,385 164,800 11,789 257,974 374,738 64,273 25,403 16,775 106,451 97,995 7,323 105,318 211,769 1,200 139,414 140,614 22,769 (415) 162,968 374,738

Dec-12 32,741 48,890 43,181 4,454 129,266 79,234 173,963 13,110 266,307 395,573 48,900 45,577 4,254 98,731 126,570 9,149 135,720 234,450 1,200 148,176 149,376 17,937 (6,190) 161,123 395,573

Dec-13F 23,687 52,080 45,998 4,745 126,511 80,373 198,739 13,965 293,077 419,588 78,119 48,550 4,531 131,201 96,500 9,746 106,246 237,447 1,200 164,236 165,436 22,894 (6,190) 182,141 419,588

Dec-14F 37,677 54,068 47,754 4,926 144,424 81,907 222,154 14,498 318,559 462,983 137,004 50,403 4,704 192,111 56,500 10,118 66,618 258,730 1,200 181,391 182,591 27,852 (6,190) 204,253 462,983

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Cashflow (THBm) Operating profit Depreciation & amortisation Change in working capital Other operating cashflow Operating cashflow Interest paid Tax paid Cashflow from operations Other new investments Other investing cashflow Cashflow from investing activities Dividends paid Proceeds from issue of shares Increase in debt Other financing cashflow Cashflow from financing activities Cash at beginning of period Total cash generated Implied cash at end of period
Source: Company data, RHBRI

Dec-10 23,082 12,478 (6,205) 24,416 53,771 (4,670) (13,959) 35,142 27,394 (30,715) (3,321)

Dec-11 19,630 13,208 (26,980) 10,894 16,751 (6,048) (7,504) 3,199 8,711 (72,015) (63,305) (15,001) (3,569)

Dec-12 53,905 14,047 16,498 10,737 95,186 (6,321) (4,742) 84,123 8,762 (48,222) (39,460) (15,001) (38,131) 13,203 (39,929) 22,680 4,735 27,414

Dec-13F 61,552 15,224 (2,769) 10,000 84,007 (6,290) (5,749) 71,968 16,060 (59,435) (43,375) (13,205) (851) (14,056) 25,064 14,537 39,601

Dec-14F 63,926 16,584 (1,725) 10,000 88,785 (6,970) (6,088) 75,727 17,155 (61,086) (43,932) (15,081) 18,885 3,804 16,010 35,599 51,609

3,070 1 3,071 28,936 34,891 63,827

9,016 (1) (9,555) 63,827 (69,661) (5,834)

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RECOMMENDATION CHART

547 497 447 397 347 297 247 197 147 97 47 Mar-08
Source : RHBRI, Bloomberg

Price Close

Jul-09

Oct-10

Jan-12

Date 2013-03-26

Recommendation

Target Price Price

Source : RHBRI, Bloomberg

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RHB Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage Disclosure & Disclaimer All research is based on material compiled from data considered to be reliable at the time of writing, but RHB does not make any representation or warranty, express or implied, as to its accuracy, completeness or correctness. No part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. This report is general in nature and has been prepared for information purposes only. It is intended for circulation to the clients of RHB and its related companies. Any recommendation contained in this report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This report is for the information of addressees only and is not to be taken in substitution for the exercise of judgment by addressees, who should obtain separate legal or financial advice to independently evaluate the particular investments and strategies. RHB, its affiliates and related companies, their respective directors, associates, connected parties and/or employees may own or have positions in securities of the company(ies) covered in this research report or any securities related thereto, and may from time to time add to, or dispose off, or may be materially interested in any such securities. Further, RHB, its affiliates and related companies do and seek to do business with the company(ies) covered in this research report and may from time to time act as market maker or have assumed an underwriting commitment in securities of such company(ies), may sell them or buy them from customers on a principal basis and may also perform or seek to perform significant investment banking, advisory or underwriting services for or relating to such company(ies), as well as solicit such investment, advisory or other services from any entity mentioned in this research report. RHB and its employees and/or agents do not accept any liability, be it directly, indirectly or consequential losses, loss of profits or damages that may arise from any reliance based on this report or further communication given in relation to this report. The term RHB shall denote where applicable, the relevant entity distributing the report in the particular jurisdiction mentioned specifically herein below and shall refer to RHB Research Institute Sdn Bhd, its holding company, affiliates, subsidiaries and related companies. All Rights Reserved. This report is for the use of intended recipients only and may not be reproduced, distributed or published for any purpose without prior consent of RHB and RHB accepts no liability whatsoever for the actions of third parties in this respect. Malaysia This report is published and distributed in Malaysia by RHB Research Institute Sdn Bhd (233327-M), Level 11, Tower One, RHB Centre, Jalan Tun Razak, 50400 Kuala Lumpur, a wholly-owned subsidiary of RHB Investment Bank Berhad (RHBIB), which in turn is a wholly-owned subsidiary of RHB Capital Berhad. As of 25 Mar 2013, RHBIB does not have proprietary positions in the subject companies, except for: a) As of 25 Mar 2013, none of the analysts who covered the stock in this report has an interest in the subject companies covered in this report, except for: a) Siam Cement PCL Singapore This report is published and distributed in Singapore by DMG & Partners Research Pte Ltd (Reg. No. 200808705N), a wholly-owned subsidiary of DMG & Partners Securities Pte Ltd, a joint venture between OSK Investment Bank Berhad, Malaysia (OSKIB) and Deutsche Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Group). DMG & Partners Securities Pte Ltd is a Member of the Singapore Exchange Securities Trading Limited and is a subsidiary of OSKIB, which in turn is a wholly-owned subsidiary of RHB Capital Berhad. DMG & Partners Securities Pte Ltd may have received compensation from the company covered in this report for its corporate finance or its dealing activities; this report is therefore classified as a non-independent report. As of 25 Mar 2013, DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd do not have proprietary positions in the subject companies, except for: a) As of 25 Mar 2013, none of the analysts who covered the stock in this report has an interest in the subject companies covered in this report, except for: a) Siam Cement PCL

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