THAILAND: Moderate growth likely in cement demand next year

Fitch Ratings says demand for cement and building materials in Thailand will accelerate with government's planned infrastructure investments over the near term. However, a slow recovery of demand from the residential segment should soften the pace of overall demand growth in 2016.

The infrastructure investments will continue to be a key driver for cement and building materials over the next few years. The accelerated project implementation in rails, roads, harbours, and airports is worth around Bt1.8trillion from late-2015 through 2021. Fitch expects cement, which holds the largest share of structural building materials in terms of sales value, to recover with a demand growth of 3 to 5 per cent in 2016. 

Overall demand for cement declined in the second half of last year and continued to ease in the first nine months of this year, even though the demand from government projects grew at about 10 per cent year-on-year in the first nine months of this year. The pull-back was felt mainly in the residential segment, which has the highest contribution - of about 50 per cent - in the cement market. The effectiveness of government spending to stimulate demand in late-2015 should be largely offset by weak residential and commercial segments.

Fitch expects demand for cement from government projects to grow at a faster pace next year while that for residential construction should show merely a slight improvement, despite the recent government stimulus scheme for residential properties last month. The measures would rather encourage sales of property developers' inventories than new construction - and, more importantly, the remaining weak purchasing power should outweigh the benefits from the schemes.

The leading cement producers in Thailand - The Siam Cement Plc (A(tha)/Stable), Siam City Cement Plc ( A(tha)/Stable), and TPI Polene Plc (TPIPL, not rated) - should receive the windfall from government projects and be able to enhance their operating performance in 2016. 

These firms reported lower revenue and EBITDA from cement and building materials in the first nine months of this year. Fitch believes the expected rise in domestic demand next year should also partially absorb new capacity from TPIPL's expansion of about four million tonnes per annum.

THAILAND: Siam Cement Conglomerate cuts cement demand forecast for 2015

Cement demand at Thailand's largest construction materials maker, Siam Cement Group, dropped year on year in the third quarter through September, reversing a pickup in the previous three months, as cement use in the residential and retail sectors fell on weak consumer confidence.

"I believe that cement demand would be plus next year," said Kan Trakulhoon, SCG president and CEO, at an earnings conference Wednesday. This year, however, demand looks flat, at around 40 million tons, he said, lowering the company's earlier forecast for a 3% rise. If the new outlook proves correct, it will be the second year in a row that demand for cement, which Kan sees as an important economic indicator, fails to expand. Cement and building materials are a core business for SCG, accounting for 40% of its revenue. Slumping demand dragged down the company's sales for the third quarter by 11%, year on year, to 110 billion baht ($3.2 billion).

Kan said he hopes the government's stimulus measures launched last month will start boosting demand "toward the end of the year." The measures include soft loans to low income earners, cash grants to villages for construction and repair work, and small government projects. Infrastructure projects in the pipeline will also help.

Despite the contraction in the top-line number, SCG is expected to book a record profit this year, thanks to lower crude oil prices. Lower input costs improved margins in the company's chemical business. Net profit rose 15% in the third quarter, year on year. For the nine months through September, profit climbed 37% to 33.951 billion baht, beating last year's full-year profit of 33.6 billion baht.

With the economic recovery at home slower than expected, SCG is pushing ahead with investments in neighboring countries, looking to capitalize on stronger demand outside Thailand. A new cement plant in Indonesia is to start commercial operations by the end of the year, while a second production line at its Cambodian cement plant is also in the works. Cement plants in Myanmar and Laos are to go online in 2016 and 2017, respectively.

To enhance Siam Cement's name recognition in these countries, and compete with global brands, the company recently changed the name of its Tra Chang brand, which it had been using in Thailand and Laos, to the better known SCG brand.

THAILAND: Thai Siam City Cement says Holcim to divest stake

Siam City Cement PCL (SCCC) , Thailand's second-largest cement maker, said on Monday Swiss company Holcim has decided to sell its 27.5 percent stake in the company.

SCCC said in a statement Thai Roc-Cem Ltd, Holcim's indirect wholly-owned subsidiary, will sell 63.29 million shares of SCCC, but Holcim gave no details about the divestment or when the sale would be finalised.

Based on Monday's closing price of SCCC shares at 434 baht, the stake is valued at about 27.5 billion baht ($843 million), according to Reuters calculations.

SCCC is controlled by Thailand's Ratanarak family.

THAILAND: New SCG cement plant to use waste-heat power technology

Thailand-based cement producer Siam Cement Group (SCG) has announced that its new plant in Sukabumi, West Java, which is expected begin operating in 2015, will be equipped with a waste-heat power generation (WHG) system that could reduce energy use by up to 30 per cent.

“At the Sukabumi plant, we will use the same technology, the WHG system, that we have been using at our plant in Lampang province in Thailand,” SCG president and CEO Kan Trakulhoo said on the sidelines of the 2014 ASEAN Sustainability Development Symposium in Bangkok, Thailand, this weekend.

“Such technology can transform heat produced during the cement production process into electricity. It could cut 25-30 percent of [our] energy use. This is part of our commitment to establishing plants that are eco-friendly, not only here in Thailand but also in other countries where we have plants,” Kan added.

The Sukabumi cement plant, which will be run by SCG’s wholly owned subsidiary, PT Semen Jawa, will have a capacity of 1.8 million tons per year. SCG invested US$456 million to build the cement factory.

Between the two WHG systems in Lampang and Sukabumi, SCG could cut greenhouse gas emissions by more than 300,000 tonnes per year and coal imports by up to 450,000 tons per year.

“For the Lampang plant, we could also save around 1.6 billion Thai Baht [THB] on power use every year,” said SCG managing director for the Lampang plant, Surachi Nimlaor.

He added that installing a HWG system at the Sukabumi plant would benefit local residents, as heating the power plant would require many workers.

“In Lampang, the WHG project has provided permanent jobs to around 75 people,” Surachi said.

Established in 1913, SCG is a business group controlled by Thailand’s royal family. The group comprises dozens of firms in a variety of sectors, including petrochemicals, paper, cement, construction and material and logistics distribution.

As of 2014, SCG’s assets in Indonesia were valued at $983 million, accounting for 55 pe rcent of the company’s total assets in the Southeast Asia region.

THAILAND: Siam Cement

Key takeaways from NDR in Singapore. Last week, we arranged a non-deal roadshow in Singapore with SCC, led by Khun Nithi Patarachoke (VP Cement and Building Materials, Domestic Market), Khun Kulachet Dharachandra (Corporate Planning Director) and the IR team. Management seems positive towards the short-term outlook, with cement and building materials units already at bottom and an improving chemical unit. Investors were impressed by its concrete LT plans for all business units.

LT plans. These include expansion into ASEAN and a higher portion of HVA (high-value-added) products and services (34% now, rising to 50% over the LT). SCC has set capex at Bt40-50bn/year for the next five years. Of this, ~50% will be invested in cement and building material units (new cement plants and buying building materials assets), and the rest in the chemical (Vietnam chemical complex and debottlenecking of Chandra Asri) and paper (packaging solution and improving productivity in fibrous chain) units. It maintains its dividend policy at 40-50% of net profit. 

Cement and building material unit (43% of 9M14 earnings). 

SCC said domestic cement demand hit bottom at -3% YoY in 3Q14, improving to flat growth in Oct 2014. It expects local cement demand to grow at least 5% in 2015 (vs. 7% in 2009-13) from 0% in 2014F thanks to a return of government projects (30% of usage) from normal budget disbursement, growth in commercial projects (20% of usage) after the appointment of a BOI board, plus greater construction permit approvals and better sentiment. It also expects residential use (50% of usage) to improve, particularly for developer-initiated projects (40% of residential) with a return of presales, but it does not expect owner-built housing (60% of residential) to grow much given the fragile farm income and high household debt. Local building material demand is set to grow at least 5% in 2015 from -4% in 2014F. 

Government disbursement for the Bt2.4trn in infrastructure projects is expected at earliest in late 2015. The direct impact on cement usage is not high (~8-10mn tons over 8-10 years); indirect impact is much larger via stimulating private investment. 

Local cement price will be firm, backed by tight industry utilization rate at 85-90% with minimal impact from TPIPL's incremental supply (5% of demand in 2015F). 

Cement production cost per unit is set to be unchanged in 2015, with lower coal costs (35% of cost) offset by a potential rise in electricity cost (35% of cost). 

Construction of its new cement plants is on schedule, adding 6.3mn tons to cement capacity: 0.9mn tons in Cambodia (2Q15), 1.8mn tons in Indonesia (3Q15), 1.8mn tons in Myanmar (2Q16), and 1.8mn tons in Laos (2Q17). 

SCC will enjoy double-digit cement demand growth as supply remains limited in Cambodia, Myanmar, and Laos (all net importers). To lower its logistics cost, it can use these overseas plants to serve demand based on location rather than country; for example, its Laos plant is much closer to northeastern Thailand (100km) than its Saraburi plant is (400km). For Indonesia, though there will be more supply over the next few years, the impact on its new cement plant is limited, given: 1) 50% captive demand from its RMC and lightweight concrete block plant; 2) 50% is sold via its distribution channel (Kokoh), with just 2% of that depending on local demand. 

SCC conservatively expects to achieve the same margin at its overseas plants as Thailand's, thanks to higher ex-factory selling price (US$60-75/ton vs. Thailand's local price of US$60/ton and export price at US$45/ton), relatively the same or cheaper production costs, though initially operating costs will be higher.

After the startup of new overseas capacity, with the lower logistics costs, SCC will gain because a portion of the low-margin export sales (4mn tons now) will be instead directed to the local market, where margin is higher (+6.3mn tons, +40% to current local sales volume of 16mn tons). The remaining capacity in Thailand can serve local demand over the next 5-10 years. 

Of global ceramic players, SCC is #1 in terms of capacity but #6 in terms of revenue. Longer term, it plans to rationalize product mix in each country.

SCC is an integrated player in ASEAN, providing structure (cement), and building materials and distribution, providing more value than would just one activity alone.

Chemical unit (35% of 9M14 earnings). 

The dip in oil price will give a ST benefit in the form of wider chemical spreads, seen in the PE/PP-naphtha spread of US$810-849/ton (+40% YoY and +20% QoQ) in Oct 2014. Though spread might narrow for the rest of 4Q14 from the drop in product selling prices in tandem with the dip in feedstock costs, it should be somewhat better than 3Q14's US$691-716/ton from a favorable demand/supply picture. The inventory loss should be manageable at Bt500-700mn in 4Q14. Its chemical sales volume will be solid, as some buyers delayed shipments from late 3Q14 (when prices began to trend down) to 4Q14. 

PE/PP spreads (70% of its consolidated earnings) are slightly above mid-cycle and SCC expects to see spreads widen further given firm demand growth of 4% p.a. (consumer and capital goods) and limited new supply growth of 3-4% p.a. through 2017. Recovery of PVC spreads (30% of its consolidated earnings) will take at least six months in the presence of weak demand on low construction activities in China and high EDC costs. For its associates, MMA spreads will be healthy from firm demand in consumer and capital goods, while BD and PTA spreads will be weak in the ST from weak rubber prices and high incremental supply from China. 

Progress of investments: The debottlenecking of Chandra Asri (30percent stake), Indonesia's only chemical complex, will add 44% to bring production to 1.3mn tons from 0.9mn with targeted completion in late 2015. The shareholder structure for the new chemical complex in Vietnam (US$4.5bn investment, 1.4mn tons capacity), has been settled: SCC will hold 46%, Vietnamese partners 29% and Qatar Petroleum 25%. SCC will be in charge of operations, Qatar Petroleum will provide feedstock, both gas and naphtha (flexible feedstock: 0-70% gas and 30-100% naphtha), and the Vietnamese partners will handle local issues and regulations. It is waiting to open bidding for contractors and discussing the financing with lenders, expected to wind up in 1H15. The startup of new plant is planned for in 2019.

Paper unit (11% of 9M14 earnings). 

Packaging chain (80% of earnings): SCC expects high demand regional growth with greater expansion into packaging solutions, both paper and non-paper packaging (plastics). The fibrous chain (20%) will be moved to more high-margin HVA products after completion of the investment from Nippon Paper (30percent stake) in 2014. 

BUY; SOTP PT of Bt520. Time to accumulate: 1) 8% underperformance to the SET over six months; 2) YoY and QoQ earnings growth in 4Q14F: QoQ on seasonal dividend income and better chemical spread and volume and YoY without last year's chemical unit shutdown; 3) attractive valuation, trading at 14x 2015PE against 2-year EPS growth of 17%, from wider chemical spreads, higher non chemical volume and inorganic growth from new investments in ASEAN.

THAILAND: SCG REVIEW BUSINESS PLANS

Siam Cement Group (SCG), Thailand's top industrial conglomerate, is poised to revamp its business plans to cope with theimpact of the political turmoil and adverse economic outlook, setting its sight on more exports and trading with the Asean market.

President and chief executive Kan Trakulhoon said the country's prolonged political problems and the absence of a functioning government have affected the operational plans of all businesses including SCG.

The company is scheduled to submit the new business plans to the meeting of the shareholders and board of directors on Wednesday.

According to Mr Kan, the existing business plan called for the company to cut cement shipments by 1 million tonnes a year from 5 million tonnes in 2012 to 4 million tonnes in 2013 and 3 million tonnes this year to serve more domestic consumption.

But given the unfavourable market conditions at home, the company will keep cement exports at 4 million tonnes this year, with Myanmar, Cambodia and Vietnam as the target markets.

"The overall market of cement and construction materials has shrunk over the past couple of months thanks to the sluggish economy which has been hit by the prolonged political problems,'' said Mr Kan. "Earlier we forecast the two industries should increase by 8-9% this year, but now we see they would grow at best at 4-5%."

According to Mr Kan, the cement and construction materials fell 7-8% during January and February against 4-5% growth it projected earlier. Normally, late December until April is the peak selling season for products in this group, as people build and renovate their homes during this period.

Cement and construction materials are expected to be harder hit in the second and fourth quarters of the year, as the construction and property business slows down in line with tepid economic prospect and a lack of new private investments because of the absence of a new Board of Investment (BoI).

Investment proposals worth 500-600 billion baht are still awaiting approval from the BoI’s main board which has yet to be appointed because of the political crisis since last October, when board member terms expired.

SCG itself has one project, a joint venture with Japanese partner, pending approval from the BoI. The company also has two other joint venture investment projects with the Japanese investors waiting to submit the investment privileges with the BoI.

Mr Kan said he remains upbeat that SCG's sales revenue would grow by at least 10% this year from 434 billion baht last year.

Domestic sales are expected to make up for 65% of the group's sales revenue this year, with overseas sales contributing the remaining 35%, 20% of which will come from Asean

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%.

THAILANDIA: STOCKS NEWS THAILAND-Siam Cement seen posting weak Q2

Shares in Siam Cement Pcl fell to their lowest in almost a week on expectations that the industrial conglomerate would report a fall in net profit for the second quarter hurt by weak results of its core petrochemical business.

Siam Cement shares were down 0.93 percent at 319 baht, falling at one point to 318 baht, the lowest since July 2. The broader stock market was up 0.03 percent.

Citigroup forecast Siam's net profit to fall 42 percent to 4.35 billion baht for the April-June quarter, year-on-year.

"First-half estimated profit should come at 34 percent of consensus fiscal year forecast, possibly leading to further earnings downgrades and a cap on the share price in the medium term," it said in a report.

Citigroup maintained its 'buy' rating on the stock, citing strong domestic consumption supporting Siam's cement and building material businesses, with a target price of 388 baht.

"Non-chemical business should partly offset chemical weakness until the next cyclical upturn," it said.

THAILAND: Thai floods sink Siam Cement Q4 net profit, shares drop

Q4 net profit down 81 pct at 3.2 bln baht as f'cast

* To spend 30 bln baht, plans bond sales this year

* Stocks down, but in line with broader market fall (Adds details throughout, analyst comments)

BANGKOK,  Thailand's top industrial conglomerate, Siam Cement Pcl, reported an 81 percent fall in fourth-quarter profit on Wednesday, hit by severe flooding, a drop in equity income from chemical associates plus the absence of extra gains.

But analysts expect its earnings to recover in 2012 on the back of pent-up demand for cement and other materials for post-flood rebuilding, although a weak global economy may put pressure on its chemical unit.

"Though the current petrochemicals spread is weakened by global economic concerns, we remain positive on the medium- to long-term outlook due to limited new supply," an analyst at Tisco Securities said, giving a "buy" rating on the stock with a target price of 450 baht.

The shares were down 0.6 percent at 324 baht at 0826 GMT after the results, in line with the broad market. The stock hit an eight-day low of 323 baht at one stage.

It had risen 19.5 percent in the fourth quarter, compared with an 11.9 percent gain in the market.

Siam Cement, 30 percent owned by the royal family's Crown Property Bureau, is Thailand's third-largest company by market value. It earns up to half its profit from petrochemicals, the rest coming from paper, cement and other building materials.

Its October-December net profit came to 3.2 billion baht($101.75 million), well below the year-earlier profit of 16.7 billion baht but in line with the 3.27 billion forecast by seven analysts polled by Reuters.

The company, a barometer for Thailand's corporate health, made a 27.3 billion baht profit in 2011, or 22.73 baht per share, compared with 37.4 billion in 2010 when it booked a gain from the sale of a stake in PTT Chemical Pcl.

Siam Cement said in a statement its equity income dropped 19 percent to 6.77 billion baht last year. In particular, a large drop in equity income from chemicals associates due to a global economic slowdown hurt fourth-quarter earnings, it said.

MERGER DRIVE

Sales revenue in 2011 rose 22 percent to 368.6 billion baht as product prices in all business units rose.

Earnings before interest, tax, depreciation and amortisation (EBITDA) in the year were practically flat, rising just 1 percent to 46.3 billion baht.

Siam Cement could spend 30 billion baht on investments, including merger and acquisition deals this year, and is looking at overseas assets, especially in other Southeast Asian countries.

Chief Executive Kan Trakulhoon told reporters the company was interested in buying a stake in a cement maker in Vietnam and expected to spend less than 10 billion baht ($315 million) on the acquisition.

In September, the company agreed to buy 30 percent of Indonesia's Chandra Asri Petrochemical Tbk for $442 million in a deal mainly with Singapore state investor Temasek.

In December its board approved a plan to spend 6.2 billion baht to raise its stake in Thai Plastic and Chemicals Pcl to 69.3 percent from 45.6 percent.

The company plans to sell up to 25 billion baht of four-year bonds to refinance debt and help fund its expansion. It is to pay a dividend of 7 baht for its second-half performance.

THAILAND: Cement supplier predicts 2012 sales revival

THE transition to a democratic government in 2011 affected a number of construction projects and reduced cement sales, a major international supplier said recently.

Mr Syamrath Suthanukul, the marketing director of Thailand’s Siam Cement Company (SCG), said year-on-year sales fell by about 20 percent from 2010.

“In 2011, our cement exports to Myanmar were down by about 20 percent from 2010 because of the changes that were taking place within the government. As a result, a number of projects were delayed,” Mr Syamrath said.

“There were also fewer projects in 2011,” he added.

He said 2010 had been a record year for SCG’s exports with many projects under construction in Nay Pyi Taw buying its cement.

He added that the company had established a firm hold in Myanmar but expected to face increased competition in coming years.

“We know that there will be more cement brands in Myanmar in coming years and we expect to face strong competition but it’s still a great market to be in,” he added.

“For 2012, we’re hoping the market will be great for us,” he said, adding that the company supplied a number of government projects.

Mr Kan Trakulhoon, chief executive officer and president of SCG, told The Myanmar Times that the company was anticipating strong sales in 2012.

“SCG exports a lot of products to Myanmar. For example, the Yangon-Nay Pyi Taw highway is made from our Elephant brand cement. We are willing to spend more of our budget in Myanmar,” he said.

THAILANDIA: Post-flood work to boost Thai builders, material firms

As water recedes in Thailand's central provinces after weeks of flooding, construction, engineering and building materials firms are looking forward to a boom in demand for repair and restoration work in both the industrial and residential sectors.

Further out, there will be huge flood management projects from the government and smaller-scale work from companies and industrial estate operators wanting to beef up their own defences against natural disasters.

"Demand will be very strong because damaged factories need to recover and resume operations after the flood," said Phonphatra Techakanokrak, assistant vice-president for the engineering division of Berli Jucker Pcl.

Berli Jucker, a consumer products conglomerate with liquor tycoon Charoen Sirivadhanabhakdias chairman, is going to focus more on being a consultant to flooded factories and supply equipment such as power transmission systems and special doors.

"Revenue from the engineering business should grow twice as fast as in normal periods," Phonphatra said, noting that the seven flood-hit industrial estates in the central provinces accounted for 17.2 percent of Thailand's industrial output.

The Federation of Thai Industries says the cost of damage to flooded factories, both inside and outside the estates, could be at least 500 billion baht ($16 billion), but many facilities are still flooded and the cost could go far higher.

The bigger companies on the affected estates probably have insurance for business interruption, but small and medium-sized firms (SMEs), which probably don't, could face losses of about 89-143 billion baht ($2.8-4.6 billion), Kasikorn Research Center said in a report.

SMEs are estimated to need about 65-104 billion baht ($2.1-$3.3 billion) for reconstruction and rebuilding their businesses, Kasikorn said.

As for the residential sector, the state-run Government Housing Bank (GHB) says about 1 million homes in the seven central provinces including Bangkok have been damaged by floods.

"Single detached houses that were flooded to knee level should require spending of over 100,000 baht ($3,200) per unit for repairs, while town houses should need more than 10,000 baht," said Samma Kitsin, director of GHB's real estate information centre.

Demand for furniture and building materials such as cement and tile products will be strong. Prolonged exposure to floodwater can damage tile floors and make wooden doors swell until they are unusable.

All this should boost the outlook of Home Product Center Pcl , rival Siam Global House Pcl and tile maker Dynasty Ceramic Pcl, analysts said.

Analysts said the likely winners from flood management projects will be the country's top cement producer, Siam Cement Pcl, second-ranked Siam City Cement Pcl and top contractor Italian-Thai Development Pcl.

"For construction materials, we like Siam Cement and Dynasty Ceramic," said KGI Securities analyst Rakpong Chaisuparakul.

Siam Cement should benefit from increased cement demand in the first half of 2012, while Dynasty should see higher residential demand for low-end tile products, the broker said.

Shares in Siam Cement have risen 10 percent in the past month, outperforming a rise of nearly 4 percent in the main index. Home Pro rose 13 percent in the same period.

"Homepro is, in our view, the only retail name benefiting from post-flood activity," said Suchart Techaposai, head of Research at Citigroup in Thailand.

Corporate credit demand is expected to be strong in the first quarter as companies and industrial estates draw down more funds than usual to restore operations and ramp up capacity, KGI said, adding it liked banks with strong corporate business such as Kasikornbank and leader Bangkok Bank Pcl.

Once the government draws up plans for large infrastructure projects to prevent floods in the future, contractors such as Nawarat Patanakarn Pcl, a major listed construction company, should feel the benefit.

"We should see a clearer picture about the government budget on post-flood large projects in the next financial year, starting from October 2012," said Vajraput Vajrabhaya, the general manager of Nawarat Patanakarn.

THAILAND: SCG plans maximised production

Siam Cement Group (SCG) has ramped up production at its plants and is ready to slash prices of some building materials by as much as 60% to serve an expected post-flood jump in demand.

Thailand's top industrial conglomerate experienced a 40% drop in cement sales in the Central region in October, while building material sales fell by 20-25% when the floods approached provinces to the north of Bangkok.

Its paper business, especially packaging, also declined by more than 20% due to supply-chain disruptions, said Kan Trakulhoon, the president and chief executive.

But demand is expected to rebound sharply after floodwaters subsides, when the supplies of some products will face a shortage, Mr Kan said yesterday.

"Plants that have suspended production earlier [due to flooding] such as cement and fibre cement facilities, have resumed and ramped up to maximum capacities," he noted.

Only a few plants in the inundated Nava Nakorn Industrial Estate, such as those of Cotto and Kubota diesel engines, have yet to fully return to normal production.

"We expect all the group's factories to run at full capacity by next year's first quarter," Mr Kan said.

For some products, such as ceramic tiles, SCG will hold a special campaign offering a 60% price cut, he said.

"The fourth quarter will be tough for us in terms of sales," he said, adding that about 200 out of more than 500 dealers had been affected by floods.

Nonetheless, Mr Kan acknowledged that the group's investment plan has not changed despite the floods.

But the business plan that was drafted in September will be reviewed next month to determine the actual business environment after the floods, he noted.

THAILAND: Siam Cement, Thai Building-Material Makers Gain on Flood Demand

Siam Cement Pcl paced gains in shares of Thai construction-material producers on speculation demand will surge after the nation’s worst floods in more than half a century.

Siam Cement, the nation’s largest producer, climbed 5.5 percent to 290 baht at 11:42 a.m. local time, set for the highest close since Sept. 22. Siam City Cement Pcl, the second- biggest maker, rose 5.6 percent to 226 baht. Tipco Asphalt Pcl, the largest asphalt maker, surged 7.3 percent to 55.5 baht, set for the highest close since April 28.

“Investors are looking to buy shares of companies that will benefit from a jump in demand in the aftermath of the flooding,” Sasikorn Charoensuwan, head of research at Phillip Securities (Thailand) Pcl in Bangkok, said by phone today. “Home-improvement and building materials will be in great need as the damage from flooding has been quite severe.”

At least 269 people have been killed and 2.4 million displaced as a result of heavy monsoon rains that have deluged the country since July 25, the Department of Disaster Prevention and Mitigation said today.

Home Product Center Pcl, the country’s biggest home- improvement materials retailer, increased 3.4 percent to 9.25 baht, poised for a record close. Chonburi Concrete Product Pcl, a producer of concrete walls, blocks and products, advanced 4.5 percent to 2.34 baht.

THAILAND: Cement prices expected to climb further

After increasing prices three times for a total of 20% during the first seven months of the year, cement makers look set to keep doing so for the rest of the year due to an upward trend in commodity prices, according to Chonburi Concrete Product Plc (CCP).

All commodity prices tend to rise further even as oil prices are either stable or falling, noted CCP managing director Chakrit Theepakornsukkasame.

To maintain its gross margin, CCP will raise cement prices in line with costs, but Mr Chakrit declined to be specific about the extent of the increases.

As of the end of July, CCP had a total backlog of 2.3 billion baht - 1.5 billion baht from the government sector and 800 million baht from the private sector. This did not include the backlog of subsidiary Smart Concrete Co Ltd.

The SET-listed cement producer was confident of turning a profit by 2013 after the current backlog is realised over the next two years. Its backlog today is at a record high level since its establishment in 1983, outpacing the 2.1 billion baht worth of jobs in hand achieved five years ago.

With accumulated losses of 200 million baht, CCP projected revenue would grow by 15-20% this year as most of the backlog would be realised in the fourth quarter onward. For next year, CCP hopes its revenue would grow even further, at 25-30%.

CCP reported a consolidated first-half net profit of 14.02 million baht, against a net loss of 13.67 million baht in the same period last year, on sales of 1.1 billion baht, up 9% year-on-year.Second-quarter net profit was 5.5 million baht, an increase of 237.42%, on sales of 526.74 million baht, up 0.14%. Its gross margin in the quarter rose to 13.3% from 12% last year as CCP and its subsidiaries were able to raise product prices in line with market demand.

Its subsidiary Chonburi Kanyong focused on imported products and making its own high-margin products. Meanwhile, its lightweight concrete subsidiary Smart Concrete also recorded growth in sales.

"Demand has shifted to ready-mixed concrete due to the lack of labour," he said. "Revenue from Smart Concrete also rose due to the growth of lightweight concrete used in many projects today."

CCP's board has agreed to issue 155 million warrants with a three-year maturity to current shareholders at the ratio of two existing shares for one warrant.

As at the end of June 2011, its debt-to-equity ratio was 7.1 times, down from 7.4 times at the end of 2010. Bank debts stood at 717.75 million baht out of total liabilities of 1.9 billion baht.

A rise in the minimum wage to 300 baht a day would have no impact on CCP because it would raise cement prices and pass on the higher cost to customers.

CCP shares closed yesterday on the Stock Exchange of Thailand at 3.00 baht, up four satang, in trade worth 5.5 million baht.

THAILAND: Thailand Stocks: Italian-Thai, Kulthorn, Padaeng, Thai Rayon

Shares of the following companies had unusual moves in Thailandtrading. Stock symbols are in parentheses and prices are as of the 4:30 p.m. close in Bangkok. The SET Index fell 9.30 points, or 0.9 percent, to 1,077.02, the first decline in four days.

Italian-Thai Development Pcl (ITD) , Thailand’s largest construction company, dropped 3.3 percent to 4.08 baht, the lowest close since June 30. The company’s net loss in the second quarter widened to 389.7 million baht ($13.1 million) from a loss of 267.8 million baht a year earlier.

Kulthorn Kirby Pcl (KKC) , a producer of compressors for refrigerators and air conditioners, slid 10 percent to 5.30 baht, the lowest close since Oct. 13. Profit in the second quarter fell 72 percent to 45.6 million baht.

Padaeng Industry Pcl (PDI) , a zinc producer, decreased 5.8 percent to 17.80 baht, the lowest level since Feb. 26, 2010. The company reported a net loss of 26.7 million baht in the three months ended June 30, compared with a profit of 111.6 million baht a year earlier.

Sri Trang Agro-Industry Pcl (STA) , Thailand’s biggest publicly traded rubber producer, lost 4.6 percent to 26.25 baht, the lowest since June 30. Rubber futures in Tokyo fell as concerns over a slowing global economy and declining oil prices countered limited supply from Thailand, the largest producer.

Thai Rayon Pcl (TR) , a chemical producer, jumped 7 percent to 92 baht, the highest close since Nov. 16. Net income for the quarter ended June 30 increased 62 percent to 1.21 billion baht.

United Standard Terminal Pcl (UST) , a warehouse operator, surged by the 30 percent daily limit to 32.5 baht, the highest close since June 1997. Net income in the second quarter more than tripled to 78.4 million baht.

THAILAND: SCG doubles forecast, says worst is past

Siam Cement Group (SCG) has doubled this year's revenue growth forecast to 20% despite lingering concerns over high oil prices and a weak global economic outlook.

Thailand's top industrial conglomerate, which recently spent 6.5 billion baht to acquire a ceramics and distribution business in Indonesia, has also raised its five-year investment budget from 100 billion baht to as much as 150 billion through 2016.

Kan Trakulhoon, the president and chief executive, said yesterday that SCG's financial performance had already reached bottom, with its top revenue generator, the petrochemical business, expecting a recovery from next month onward in terms of spreads on decreasing new global supplies.

Second-quarter net profit edged up by 3% year-on-year to 7.49 billion baht, while sales revenue rose by 21% to 93.9 billion.

Nonetheless, on a quarterly basis, the company's profit fell by 19%, with sales growth relatively flat at 2%.

Mr Kan cited a decline in the petrochemical spread due to higher feedstock costs and inventory loss along with low seasonal volume in most businesses as key reasons for the second-quarter results.

SCG Chemicals, which accounts for half the group's total sales, saw its second-quarter net profit drop 19% year-on-year and 48% quarter-on-quarter to 2.49 billion baht on lower margin at both the subsidiary and associate levels, decreased sales volume and inventory loss as the chemicals industry is now in a trough, particularly the high-density polyethylene chain.

The group still reported strong first-half growth in net profit, by 18% year-on-year to 16.7 billion baht, on sales revenue of 186 billion baht, up by 28%.

Mr Kan said that thanks to the group's diversified business, SCG's financial results were sustained in the second quarter despite the petrochemical spread being as low as $400 a tonne.

Net profit from the cement business rose 34% year-on-year to 1.99 billion baht thanks mainly to good cost management.

In the second half, the petrochemical supply picture will improve, as small plants with annual capacity of 200,000 to 300,000 tonnes have begun shutting down on squeezed margins.

"Oil prices remain our main concern for second-half results, as Brent crude has remained high at more than $110 a barrel," said Mr Kan, adding that growing debt concerns in the US and Europe would put global product demand under pressure for the rest of the year.

But Asian economies, especially in Southeast Asia, remain sound, he said. "Luckily, SCG has already expanded substantially in Southeast Asia, with our asset value totalling 30 billion baht."

With the acquisition of Indonesian firms, SCG has become one of the largest ceramics manufacturers in the world, with annual capacity of 149 million square metres.

It will begin consolidating the 4-billion-baht revenue of the Indonesian units into the group in the third quarter.

SCG has mapped Indonesia, Vietnam and the Philippines as strategic countries in Asean, Mr Kan added.

Shares of Siam Cement (SCC) closed yesterday on the SET at 375 baht, unchanged, in trade worth 605 million baht.

THAILAND: SCG plans B3bn fibre cement plant

Siam Cement Group (SCG), Thailand's top industrial conglomerate, will spend 3 billion baht to build a new factory to produce fibre cement, aiming to lift its annual production capacity of the wood substitute products to 90 million square metres within two years.

Siam Fiber Cement Co, a subsidiary of SCG Building Materials, will construct its fifth plant in Nong Khae in Saraburi province to serve growing demand for environment-friendly fibre cement, said managing director Panthep Supachaiyakit.

The new factory is expected to be operational in the first quarter of 2013.

Last year, the company spent 1.3 billion baht for capacity expansion of Siam Fiber Cement which controls a 40% share of 20-billion-baht domestic fibre cement market. Its revenue grew 12% over 2009 to 7.8 billion baht, Mr Panthep said.

"We are confident that the market will continue to expand significantly and our focus remains on innovative products that are good for preserving the environment," he said, adding that sales were expected to expand by 8-10% this year.

Only 6% of the company's revenue is generated from exports to nine Asian countries led by Laos and Cambodia. Shipments surged by 30% in 2010.

Exports will be increased in line with SCG's strategy to become the leader in the Southeast Asian market by 2015 when Asean becomes a single market, he said.

As the overall market continues its substantial expansion, the company expects competition will intensify. New quality products would be key to staying ahead of competitors and maintaining a leading position, he noted.

THAILAND: Siam Cement looks past Asean

Siam Cement Group (SCG) may increase its five-year investment budget from 100 billion baht as the country's top industrial conglomerate is spreading its investments outside Southeast Asia with ongoing talks to acquire a petrochemical company in the US.

SCG projects total revenue will rise by about 10% this year. Yesterday, it reported a 26% jump in total revenue to 301.3 billion baht for 2010, well above the 10% forecast.

The industrial conglomerate also posted a record-high net profit of 37.38 billion baht last year, a rise of 54% year-on-year with earnings growth in most key businesses and dividends.

SCG Chemicals accounted for almost half of the group's revenue, with sales of 144 billion baht, up 43%. Its earnings surged 80% to 22.6 billion, thanks to an 8.8-billion-baht extraordinary profit from the divestment of its shares in PTT Chemical in the final quarter.

The paper business earned 51.7 billion baht in revenue, rising 21%, as net profit grew 53% to 3.49 billion.

The cement unit, meanwhile, reported a 3% drop of earnings to 6 billion despite the 5% increase in revenue to 48.95 billion.

In last year's fourth quarter, the group's earnings jumped by 213% to 16.67 billion baht on sales of 76.25 billion, an increase of 23% from the same period of 2009.

President and chief executive Kan Trakulhoon said rising interest rates and high oil prices might affect domestic consumption of industrial products by pushing up their prices. SCG consequently might be forced to export more with lower margins.

Export revenue amounted to 30% of the group's total sales last year, with another 7% earned from subsidiaries operating in Asean, he added.

Given revenue and profit growth, Mr Kan said the group now has extra cash of 70 billion baht with net debt reduced from 120 billion baht to below 84 billion.

"Our financial status is now the strongest historically, enabling us to be more proactive in overseas investments. There is a possibility that our five-year investment plan (2011-15) will be higher than 100 billion baht announced earlier," said Mr Kan.

"We have discussed mergers and acquisitions in high-value-added products in the US."

He said the group invested 150 billion from 2005-10.

In Asean, talks have been pursued to acquire companies in corrugated containers and building materials. Meanwhile, it is highly likely that SCG would invest in a new cement plant in Indonesia while its petrochemical joint venture in Vietnam is at the stage of finalising the financial arrangements.

"The company has looked at investment opportunities in Burma including in Dawei. We believe economic development in Burma will be fast now that the political situation is improving. After all, it has in abundance natural resources including natural gas," said Mr Kan.

Shares of Siam Cement (SCC) closed yesterday on the Stock Exchange of Thailand at 313 baht, up 2 baht, in trade worth 2.36 billion baht.

THAILAND: Demand for cement seen rising by 10%

Domestic cement consumption is expected to grow by nearly 10% this year to return to pre-recession levels even though demand is likely to slow in the property sector, says Siam City Cement Plc (SCCC).

One-million-tonne factories in Cambodia, Burma possible in five years, says Mr Arto.

Thailand's second-largest cement manufacturer said construction of the Purple and Red mass-transit train lines would drive demand to increase in 2011 from about 25 million tonnes last year.

But speculation in the property sector, in which a large number of condominiums were built in 2010, will recede somewhat this year because of oversupply, said Philippe Arto, managing director of SCCC.

"For us, the industry's growth is quite good. Overall, the mood is optimistic," said Mr Arto, but he noted the country's exports, exchange rate, and energy prices might negatively affect the economy and also cement demand this year.

The company has secured coal supply from several contracts in the past six months. This will help soften the impact of rising coal prices driven by the severe floods in Australia, the world's largest coal exporter, he added.

SCCC, which is one-third owned by Switzerland-based Holcim, is studying the feasibility of building cement plants in Cambodia and Dawei in Burma in terms of demand and potential local partners.

The company expects to make a decision on Cambodia this year while a Burma decision should take 12 to 18 months to finalise, he said.

"Demand in Burma and Cambodia is growing faster than in the Thai market," Mr Arto said. "I think that in five years, it is possible for us to have factories in both countries with a capacity of one million to 1.5 million tonnes."

Surachai Pramualcharoenkit, an analyst from Kim Eng Securities, said rising interest rates and bids by banks to tighten property loans might affect the growth of cement demand.

Kim Eng projects cement consumption to grow by 5-10% to 27.5 million tonnes this year from 7-8% growth in 2010.

"Production cost is our major concern for SCCC this year as coal price has gone up significantly," Mr Surachai said. Energy costs account for 70% of production costs for cement.

SCCC launched its "Green Heart" site yesterday at to promote its green products, projects and activities related to environmental conservation such as the Green School projects.

Shares of SCCC closed yesterday on the Stock Exchange of Thailand at 230 baht, down one baht, in trade worth 50 million baht.