Maybank Securities has made an analytic report after The Siam Cement Public Company Limited (SCC) announced its 1Q19 consolidated financial statement, giving the 12-month target price at ฿490/share, on Forward P/E +0.5SD of 13x, recommending BUY on weakness.
1Q19 earnings slowed YoY to THB 11.662 billion (+11% QoQ, -6% YoY), close to Maybank’s estimate of THB 11.75 billion, dragged by the chemicals business. Cement and packaging businesses are growing well. 2Q19 earnings tend to tumble, affected by new labour protection law and falling petrochemical spreads. 2019 earnings outlook is expected to maintain improving, driven by growing cement and construction and packaging products, while the chemicals business is uncertain.
Chemicals down, cement & packaging picking up
Chemical business saw profit decreased YoY to THB 6.1 billion (+13% QoQ, -25% YoY), hit by the trade war issue, weak demand and HDPE-Naphtha spreads dropped to $574/ton (-10% QoQ, -28% YoY).
However, earnings recovered QoQ as the previous quarter suffered a stock loss of THB 2.2 billion. The cement business enjoyed a 2% YoY increase in demand, making cement prices to rise by THB50/ton. The investment to save costs helped support cement and construction product earnings to improve to THB3b (+95% QoQ, +22% YoY). For packaging business, although the demand is slowing, the cost management, production efficiency enhancement helped boost earnings to THB 1.7 billion (+13% QoQ, +11% YoY).
2Q19 earnings to tumble, but overall 2019 will hold
Management has a negative view of 2Q19, as the new Labour Protection Law will affect the net profit of about THB 2 billion. The increase in oil prices impacts Naphtha costs as well as low demand will affect the petrochemical spreads further. The cement and packaging businesses will be affected by the low season. But in 2Q19, it will receive a dividend of ฿THB 1 -1.5 billion from the car makers.
For overall 2019, cement demand should grow by 3-4%. Packaging business is likely to grow well and will receive positive results from the expansion of investment and business in. Maybank expects earnings to grow 1.4% to THB 45.4 billion this year.
Moreover, Maybank has made a note on some risk which is: energy costs, high competitive in cement business and petrochemicals fluctuate.
Beside Maybank who gives “BUY” recommendation, several security companies also have BUY recommendations as well. Tisco Securities gives the target price as high as ฿548/share while CGS-CIMB suggests at ฿530/share, and DBS Securities at ฿504/share.