FSSIA Expects Improved Earnings Outlook for SCGP and SCGC to Benefit SCC, Eyeing Target Price at THB483

The share price of The Siam Cement Public Company Limited (SET: SCC) had a positive performance on the first two days after the earnings report of 1Q22, despite a decline of 40% in net profit for the period.

SCC reported a net profit of 8,843 million baht in 1Q22, decreased 40.70% from a net profit of 14,913 million baht in 1Q21. The decrease was mainly due to higher feedstock costs from Chemicals business in 1Q22 and the absence of winter freeze’s supply shortage in the United States in 1Q21, resulting in better performance in the petrochemicals industry in 1Q21 compared to normal business operations. Chemical segment is SCC’s largest revenue contributor, while having the biggest fall in net profit for the period, declining by 59% from the same period of last year. The packaging segment reported a 22% decline of profit growth, but the cement segment had 13% growth.

Still, SCC’s revenue and earnings were better-than-expected by 5.31% and 4.67%, respectively, which could be the reason for an increase in share price after the earnings report as the majority of investors had priced in the negativity of higher costs, which reflected in SCC’s share price that declined 16% so far this year, 15% in three months and 13% in the past month. 


FSS International Investment Advisory (FSSIA) remained positive on SCC, saying that the Long Son Petrochemical (LSP) project in Vietnam could be the catalyst for SCC. The plant is poised to COD in 1H23 and is currently undergoing test runs for the production plants. Of the total USD5.4b investment cost, SCC still has USD1.5b (THB50b) remaining in the budget to invest to complete LSP. 

However, FSSIA expected the valuation for SCG Chemical (SCGC) to likely be less appealing for the IPO given the currently poor PE and PP industry margin outlook. With a total 15.296b shares post IPO and up to 3.855 billion new shares for the IPO, FSSIA estimated that SCGC is likely to contribute a THB86 value based on 7x 2023E EV/EBITDA vs FSSIA’s estimated current value of THB84 (75% holding), offering a small upside to SCC’s current share price if SCGC’s IPO valuation is lower than 7x 2023E EV/EBITDA.

In addition, FSSIA maintain BUY rating on SCC with a target price of THB483 (SoTP), incorporating a THB112/share value for SCGC based on SCC’s 100% holding after net debt. FSSIA stated that it believes the projected improving earnings outlook for SCGP and SCGC in 2H22-2023 and the COD of LSP will be key catalysts for SCC.