Target price : Bt150
Recommendation : BUY
Closing Price (15 May 09) : Bt148.50
1Q09 net profit down YoY in a weak market
- First-quarter 2009 profit was down 20% YoY but up 19% QoQ.
- We expect SCCC to stage an earnings comeback in 2010 on the back of a recovery in construction activity. This year, profit should continue to
slide, as a drop in costs seems to be not enough to offset a decline in revenue.
- Our price target is unchanged at Bt150/share. With limited upside from the current trading levels, we rate SCCC shares a 'BUY on Weakness.'
1Q09 profit down 20% YoY but up 19% QoQ
SCCC, Thailand's second biggest cement maker posted a profit of Bt804m in 1Q09, down 20% YoY but up 19% QoQ. The decline in domestic sales volume amid sluggish construction activity dragged revenue down 10% YoY. On a QoQ basis, the top-line figure was down slightly from the prior quarter. EBITDA margin however improved to 30% from 21% and 28% in 4Q08 and 1Q08 respectively due chiefly to falling energy and coal costs. In this quarter, SCCC booked a loss of Bt88m from its affiliate (LANNA) against a profit of Bt99m and Bt66m in 4Q08 and 1Q08 respectively. Overall, the first-quarter earnings were up QoQ but down YoY.
Expectations of profit comeback in 2010 on the back of a pickup in construction activity; profit however set to fall this year as drop in costs not enough to offset revenue decline
The first-quarter profit figure accounted for 30% of our full-year estimate. We retain our forecast that domestic sales volume will shrink by 8-10%, export sales will contract by 20%, and average selling price will stay flat. We forecast 2009 revenue to fall by 12%. EBITDA margin should edge marginally higher, helped by falling coal prices. Because of the decline in profit contribution from affiliate this year, we expect 2009 profit to drop by 12%. Looking into 2010, we expect to see better growth, boosted by construction of the government's infrastructure projects. We believe demand will grow by 3-5% and SCCC should be able to raise average selling price slightly. EBITDA margin would edge marginally up. On this basis, we expect 2010 EPS to grow by 11% to Bt13.42.
Valuation & Recommendation
Our price target for SCCC is unchanged at Bt150/share, based on 12x 2010 P/E, a discount to its historical multiples of 15x. We like SCCC, as it would be the first to benefit from a recovery in cement demand. Meanwhile, its peers SCC and TPIPL would however remain dogged by the down cycle in petrochemical prices in 2009-10. At current levels, we see limited valuation upside in P/E terms but the stock has an estimated dividend yield of roughly 6-7%. We therefore rate SCCC shares a 'BUY on Weakness.'
By Phillip Securities (Thailand) Plc. on May 18, 2009
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