Thailand’s Siam City Cement - 4Q09 earnings lower than expected

Thailand’s Siam City Cement - 4Q09 earnings lower than expected
Published: 15 February 2010

SCCC reported a 4Q09 net profit of THB707m, up 18.1 per cent YoY but down 4.4 per cent QoQ. Stripping out FX gains of THB48m, its normalised profit was THB659m, up 9.3 per cent YoY, but down 12.9 per cent QoQ. The result was 10 per cent below our expectation and 5 per cent below the market consensus due to higher-than-expected SG&A expenses at year end. The improvement YoY was backed by increased margin from better cost control, while the drop QoQ was due to higher SG&A expenses at year end.

Key highlights for 4Q09 earnings:

- Revenue was down YoY, but up QoQ. SCCC’s 4Q09 sales revenue was THB5bn, down 4.4 per cent YoY, but up 1.9 per cent QoQ. The drop YoY was due to lower cement selling prices, as intense price competition offset the rise in sales volume. Meanwhile, the improvement QoQ was from increased sales volume.

- Gross margin was up YoY and QoQ. Its 4Q09 gross margin expanded to 42.7 per cent, up 1.5ppts YoY and 1.1ppts QoQ. The increase was spurred by the rise in cement sales volume (covered fixed costs) and better cost control (from the startup of the geocycle platform which uses alternative fuel from waste such as tires, plastic and wood).

- SG&A to sales was flat YoY, but up QoQ. SG&A to sales was 25.6 per cent, flat YoY but up 2.3ppts QoQ, due to higher SG&A expenses at year end.

After paying a dividend of THB6.00 per share for its 1H09 results, SCCC is expected to pay a dividend of THB4.25 per share for its 2H09 results, implying a dividend yield of 2 per cent. This is based on a dividend payout ratio of 80 per cent of net profit in 2009 (equal to the dividend payout ratio in 2008).
2010 earnings forecast was revised down for SCCC by 3.5 per cent to THB3.4bn. This was due to i) a reduction in FX assumption to THB33.25/US$ from THB34.50/US$ in 2010; ii) taking into account the higher interest expenses from the issuance of debentures of THB4.0bn since mid-2009.

Even after cutting our earnings forecast, SCCC is still expected to post earnings growth of 15.5 per cent YoY in 2010, ending the series of contractions it has had over the past several years. The key earnings driver will be the improved local and export cement demand, thanks to a revival in private investment and accelerated public investment in the local market and the global economic recovery in the export market.

A rating of Outperform is maintained with an EV/EBITDA target price of THB278.00 (from THB284.00) in 2010.