Fitch Ratings forecasts Siam Cement’s earnings outlook

Fitch Ratings forecasts  Siam Cement’s earnings outlook
26 February 2008

Siam Cement’s earnings outlook is expected to remain "constrained", given the expected pressure on petrochemical prices, still rising energy costs in the cement and paper divisions and further currency appreciation, according to Fitch Ratings (Thailand), The Nation reports.  
"In light of its large investment plans and weakening earnings prospect, SCC’s financial leverage is likely to weaken to the range of 3.0 times during 2008-2009, although the company should be able to maintain its ratio of net debt to Ebitda in line with the long-term leverage target of 2.5 times thereafter," Fitch said.  
Ebitda is a free-cash-flow measure adding back interest, taxes, depreciation and amortisation to earnings.  
Fitch on February 25 assigned the "A+" rating for SCC’s Bt20 billion unsecured and unsubordinated debentures, due 2012, thanks to its good revenue diversification, leading position, extensive distribution channels and strong brand recognition.  
The rating agency also said that the rating reflected the firm’s relatively strong cash-flow generation and good track record of senior management.  
Fitch took into account the continued pressure on the company’s margins in all core businesses amid rising costs of raw materials and energy.  
Other key credit concerns include the effect of the baht’s appreciation against the US dollar on SCC’s export revenue and the execution risks of new investments. 
The company’s net sales rose 3.7 per cent last year, thanks to strong petrochemical prices, but its Ebitda declined by 16 per cent to Bt38.7 billion. SCC’s Ebitda margins declined to 15 per cent in 2007 from 18 per cent in 2006.  
The new debentures will be used to refinance the company’s maturing debentures, as well as to fund its planned new projects.  
SCC is committing about Bt90 billion for new investment plans from this year to 2010, including a second naphtha cracker and downstream domestic projects that would require 76 per cent of total planned capital outlays.  
Other projects include a packaging-paper plant in Vietnam, printing and writing-paper capacity expansion in Thailand and waste-heat generator projects related to efficiency-improvement programmes for the cement division.  
Also, SCC is still reviewing potential investments, including a petrochemical complex in Vietnam and a cement plant in Indonesia.  
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