Siam City Cement to continue downward from negative environment

Siam City Cement to continue downward from negative environment
Published: 19 October 2007

Siam City Cement (SCCC) is expected to announce a 3Q07 profit of Bt933mn (EPS Bt4.06), down 1% qoq and 6% yoy. Thai cement demand will remain down 4% yoy compared with a fall of 8% yoy in the second quarter and 6% in the first quarter. This decrease is attributed to lower demand from the government sector and a general decline in residential housing. Average domestic prices are expected to be stable from last quarter. With the low domestic demand, SCCC has focussed more on the export market. SCCC sales of Bt5,849mn is expected to be slightly up 4% qoq, but down 3% yoy. The gross margin is expected to be stable qoq at 29%, but down from last year from higher energy costs. These earnings are viewed as exceptable considering all of the negative factors effecting the economy at present. 
 
For the 2007 full year, domestic cement demand will fall 5%. 2007 forecast on SCCC earnings will be revised down after the 3Q07 results are announced. Next year should see clearer signs of a construction recovery from the low 2007 base and be driven by the expected economic recovery after the elections and the start of the mega projects. SCCC should see 2008 sales rise 11.8% to Bt26,446m and a net profit rise to Bt4,463mn (EPS Bt19.4), up 14%.  
 
The SCCC fair value is estimated at Bt290 per share based on a 2008 PER of 15x. This PE is a similar multiple to other leading cement companies. The current share price of Bt278 has a slight upside of 4%. SCCC is expected to maintain a dividend of Bt14 per share (yield 5.1%), which still looks attractive when compared with bank rates. With the current price having little upside, a recommendation of HOLD is maintained.