THAILAND: SCCC prosper in 2014, with continuous capacity expansion

- Bright long-run outlook with B3bn investment budget ready

Although the government-supported mega infrastructure projects have been delayed by the current political instability, the plans would proceed after the general election next year as they all are essential for the country's development. SCCC holds a positive outlook toward the cement business in 2014, believing a cement demand to grow 5%, while increasing demand for cement during the past year has helped increase cement selling price. In terms of cost, SCCC has made a forward contract for 80% of its coal purchase for using in 2014 at a 10% lower price than 2013, so the company would be able to keep its profit margin good despite a rise in electricity fee, the main cost.

For the future growth, SCCC has set a budget of Bt3-4bn; Bt1.5bn of which will be used for annual maintenance while the rest will be used for expanding capacity of its ready-mixed concrete and super block factories and improving efficiency of existing plants.

- Cement kiln maintenance shutdown to affect 4Q13 profit

As SCCC had to run its four cement kilns at their full capacity in 9M13 to support growing demands, the maintenance shutdown has been postponed to 4Q13, which is a low season of the business. At the same time, the reopening of the cement kiln#1 that had been closed since 2008 could proceed as planned; the test run has just finished and a commercial run can be expected in 2014. After the cement kiln#1 resumes, SCCC's clinker's production will increase by 1.5 million tons/year. However, some of the test run expense will be booked in 4Q13, so the gross margin might decrease significantly from the prior quarter. Nevertheless, 5% rising domestic cement selling price since the beginning of the year will help generate profit growth, comparing to Bt756m in 4Q12.

- Current share price has 19% upside. 

With the strong business growth and continuous investment, we estimate SCCC's profit at Bt6,038m in FY2014 or the growth of 15%yoy. 2014 fair value, at 18x PER, is Bt473m, implying 19% upside from the current share price, while there will also be a dividend yield of around 4%.