3Q07 preliminary normalised profit forecast is maintained at Bt6,500-7,000mn, up from the previous quarter’s Bt6,367mn, but down from last year’s 8,396mn. This earnings level base is disappointing when compared to SCC’s quarterly profits over the last three years averaging in at Bt8.2bn. Including the gain from its remaining 5% divestment of Aromatics (Thailand) (ATC) - an after-tax gain of around Bt1,800mn - SCC should post a net profit of Bt8,300-8,800mn, stable qoq but up 9-15%yoy.
New global capacity in petrochemicals is expected to be around 5-6mn tonnes. Therefore, the PE - naphtha spread is expected to be maintained at $550-600/tonne, matching forecast for 2H07. Cement and paper are expected to recover due to a better economic outlook from later this year on the back of year-end elections. 2008 normalised earnings are expected to increase 15% y-o-y to Bt31,928mn (EPS Bt26.61).
SCC’s fair value is estimated at Bt300, based on a 2008 PER of 11-12x, which matches the PER of the market. Although SCC plans to invest about Bt90bn over the next 4-5 years, the company is expected to continue generating a cash flow of about Bt40-45bn per year. This will enable SCC to maintain its annual dividend of Bt15/share or a yield of 6.1%. Accordingly, a BUY is recommended.
