The Siam Cement PCL (SCC): 3QFY17E seen down 14% y-y October 17, 2017

Y‐Y profit softness expected in 3QFY17: We expect SCC will see its 3Q17 profit drop by 14% y‐y to Bt12,160mn, dragged down by weak showings from core businesses as (i) narrowing downstream spreads of HDPE and product spreads of C1 and C2 down US$75/ton and US$40/ton respectively put pressure on chemicals business despite a y‐y increase in spreads of HVA products from associates, which delivered 5% y‐y profit growth and a stock gain of Bt1bn, up from Bt450mn in 3QFY16, (ii) cement/building materials business feels the pinch from margin squeeze as a result of (a) higher coal prices, (b) the inability to raise selling prices to reflect rising operating costs and (c) a further drop of 1% in domestic cement demand, and (iii) the packaging business shows unexciting performance.

‘BUY’ rating intact: We estimate that its profit cycle in FY17‐18 will slow down but after FY19 new supply in petrochemmical business will decrease and spreads will swing to positive growth. The cement/building materials business is expected to improve due to government infrastructure investments driven by EEC and SCC’s investments in the ASEAN market. We still see SCC’s long‐term growth potential. Valuation also looks attractive as SCC is currently trading well below our DCF‐based target price of Bt570/share and sports a dividend yield of between 3%‐4%.

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