SCCC results hurt by weaker domestic demand, higher SG&A expenses

Siam City Cement (SCCC), Thailand’s second-largest cement producer, posted a 3Q14 net profit of THB1.06bn (US$33m), down 13 per cent YoY and 29 per cent QoQ hurt in part by weaker domestic demand as well as higher Selling, General & Administrative (SG&A) expenses.

The weak results are due mainly to weak domestic demand but this was partly mitigated by increased exports following the reopening of its kiln Line 1, 2) lower gross margins, from 45.6 per cent in 3Q13 to 43.9 per cent, mainly due to increased power cost; and 3) a rise in SG&A expenses from 24.8 per cent and 23.5 per cent of sales in 3Q13 and 2Q14, to 25.7 per cent in 3Q14, due to higher maintenance expenses.

Analysts at Phatra Securities (Thailand) anticipate SCCC’s earnings outlook for 4Q14 should be similar to 3Q14 as demand is expected to stay soft before recovering next year. Despite the current weak demand environment, the research house maintains its earnings forecasts and expect SCCC's earnings to grow by 22.8 per cent, 12.4 per cent, and 9.3 per cent in 2014-16. This is based on its assumptions that domestic cement demand will be stagnant this year before growing five per cent per annum in 2015-16 driven by the government's THB3trn, eight-year infrastructure investment plan.

Earlier this week, industry peer Siam Cement also said it expects domestic demand to increase by five per cent in 2015, based on conservative estimates. The company believes that the slowdown in the Thai economy has bottomed since August 2014, and is making a gradual recovery. It expects to benefit from rising demand for cement and building materials stimulated by the government's accelerated infrastructure development.