Siam Cement: Building materials

THE COMPANY: Siam Cement (SCC) was established in 1913 and became a listed company in 1975. SCC is a diversified industrial firm with operations in the cement, petrochemicals, paper, and building products manufacturing and distribution industries. SCC’s petrochemicals operations are its largest contributor, with more than 52% of total sales in 2011, but its cement operations produce the highest return on employed capital, at 14%. SCC has recently embarked on a series of acquisitions and investments in ASEAN member countries, where operations account for around 7% of total sales in 2011.

SCC is the largest cement producer in Thailand and one of the biggest in Asia with 25m tpa of capacity (including Cambodia). Its cement brand name “Chang” (meaning elephant) is the strongest cement franchise in Thailand. SCC is also the top player in the local paper and ceramic businesses. Its own-brand distribution channel for its building material products is called Cementhai Homemart. It is the second-largest petrochemicals player in Thailand after the PTT Group. The Crown Property Bureau is the major shareholder, with a 32% stake.

DEVELOPMENT STRATEGY: SCC embarked on greenfield expansion from 2006 to 2010, with BT146bn ($4.67bn) spent on new plants and upgrades in all segments. This culminated in the second naphtha cracker, raising the firm’s total annual olefins capacity to 2.9m tonnes, from 1.2m tonnes. SCC’s normalised net profit was flat in 2011 at BT27.3bn ($870.87m) as its operations were affected by the floods in the final quarter of 2011. While SCC is exposed to the commodity cycle, its diversification cushions it from fluctuations in certain segments.

SCC has embarked on an aggressive acquisition strategy over the next five years. Of its BT150bn ($4.79bn) capital expenditures budget, the company expects more than 85% to go towards new acquisitions and investments. Unlike the previous capex cycle (2006-10), when SCC was focused on greenfield projects mainly in Thailand, this new cycle will be concentrated on acquiring existing assets and firms in the ASEAN countries, although some of the budget will also be allocated to greenfield projects, which include a cement plant in Indonesia and a petrochemicals project in Vietnam.

In 2011 as part of its new ASEAN acquisition strategy, SCC made its largest acquisition to date in Indonesia – buying a 30% stake in PT Chandra Asri, a naphtha cracker and downstream producer, for $443m. SCC has also announced a number of other new acquisitions recently, the biggest being its participation in a petrochemicals complex in Vietnam, in which it has an effective stake of 46%. The total cost of the project is some $4.5bn.

Other potential projects in the pipeline include building a cement plant in Indonesia with the potential capacity of 2m tonnes. The project is estimated to cost around BT7.2bn ($229.68m) and will be supported by the recent acquisition of Boral, which has limestone assets. Construction is expected to start in the second half of 2012. Another project that is in the works is the construction of a cement plant in Myanmar that will have a capacity of 1.m-1.5m tonnes. The project is on hold, however, for more clarity to be given by the government of Myanmar on new regulations and securing limestone reserves. SCC is currently in talks to acquire Sulfindo, an Indonesian PVC maker. SCC is also interested in acquiring a paper and packaging company in Indonesia.

These acquisitions are estimated to drive its future earnings growth and should contribute 20% of the company’s total earnings in 2015. Contribution from these acquisitions is expected to add BT82 ($2.62)/share, which is included in the company’s target price of BT410 ($13.08).

Moreover, other factors that are expected to contribute to growth is the continued expansion of the domestic-based economy, which, in turn, will boost SCC’s cement, paper and building materials sales.