Siam Cement: healthy 1H08, but weak prospects for 2H08

Siam Cement: healthy 1H08, but weak prospects for 2H08
Published: 11 July 2008

SCC’s 2Q08 earnings should be better than earlier expectation due to improving margins for cement and paper businesses. Normalized net profit is expected to increase slightly 3% YoY to Bt6.54bn but fall 5% QoQ due to seasonal effect and lower HDPE-naphtha margin. Due to a lack of divestment gain, net profit should drop 26% YoY and 8% QoQ.
 
Despite the stronger than expected 1Q08 results and the expected healthy 2Q08 results, FY08F net profit was still turned down by 0.5% to reflect growing domestic risks from (i) rising inflation and interest rate, and (ii) increasing political uncertainty, which could slowdown construction activities in 2H08. FY09F net profit was revised down by 5.1% as we expect contracting margins for cement and paper businesses resulting from sharp rise in coal prices. Subsequently, target price was downgraded to Bt190 based on a 10% discount to a revised sum-of-parts valuation.