Thailand producer Siam City Cement’s disappointing 3Q10 earnings were down 20%-21% QoQ and YoY to THB582m. However, earnings next year will be strongly driven by better efficiency and full utilisation of a new kiln leading to energy savings of THB540-640m. The 2011 earnings will also be driven by volume and better prices. SCCC is a dividend play with an expected 2011 yield of 6.4%.
Siam City Cement (SCCC) announced rather disappointing 3Q10 earnings of Bt582mn (EPS Bt2.53), down 20%-21% QoQ and YoY. This result was the product of 1) the gross margin down to 41% from 42% in previous quarter and previous year on higher energy costs, 2) with other income down to THB28mn (-27% QoQ, -15% YoY), 3.) lower equity income down to THB69mn (-18% QoQ, -41% YoY) and 4) a forex loss of -Bt22mn. Sales in the quarter were stable at THB5,023mn slightly down 4% QoQ, while slightly up 2% YoY.
The fourth quarter earnings are expected to recover driven by higher prices increased in the third quarter with moderate earnings on demand still affected by the floods. 2010 earnings has been revised downward. However, next year earnings will be driven by the Waste Heat Recovery (WHR) project (cost THB2300m) that will save energy costs of THB540-640m. In addition, next year earnings will also be supported by the cement price increase in late 3Q10 of THB200-400/t and domestic cement demand will grow by around 10% driven by government and private sector projects. We see the 2011 SCCC sales increasing by 17% to THB24,579m driven by both volume and prices. The Waste Heat Recovery (WHR) project will support performance to help the net profit, expected to increase by 44%, to THB4,195m (EPS Bt18.24).
Meanwhile, the company said it is studying a feasibility of building a cement plant in Burma’s Dawei district as part of Italian Thai Development’s $50-billion project in the neighbouring country.
SCCC executive vice-president Chantana Sukumanont said ITD chairman Premchai Karnasutra had informed her that a licence to operate a cement plant would be available, as ITD is seeking several partners to jointly invest in the megaproject.