MCI (P) 194/11/2012 Ref. No.: TH2013_0186 1 of 9

Siam City Cement - SCCC Valuation too stretched amid unexciting 1QCY13 results Bloomberg │ Reuters SCCC TB │SCCC.BK

Phillip Securities Research Pte Ltd 29 May 2013

Report type: Company Results

Company Overview SCCC is Thailand’s second largest manufacturer and distributor of cement products with a market share of between 26%-28%.

SCCC reported meager profit growth of 4% y-y in 1QCY13. To meet full-year profit growth target of 15% y-y, much will

depend on the pace of revenue over the remaining three quarters of the year.

In our view, valuation remains too stretched given its earnings growth outlook for CY13. Current P/E level also represents a significant premium to historical averages.

We put a ‘SELL” rating on SCCC shares with a target price of Bt340/share.

What is the news? SCCC posted a 1QCY13 profit of Bt1.2bn, up a meager 4% y-y. How do we view this? SCCC reported meager profit growth of 4% y-y in 1QCY13 as quarterly sales rose a mere 8% y-y in the wake of a slowdown in export sales and escalating electricity costs squeezed EBITDA margins. Despite weaker-than-expected 1QCY13 results, we leave our CY13 profit growth outlook for SCCC unchanged at 15% y-y on expectations that the pace of earnings growth will accelerate over the remaining three quarters of the year in the light of favorable domestic market conditions, the likely pickup in sales volumes after the startup of a new cement kiln in 2HCY13, and selling price increases. Investment Actions? In our view, SCCC remains too stretched valuation-wise. Current valuation of 24x CY13 P/E represents a significant premium to historical averages of 19x, given its CY13 earnings growth outlook of 15%. We put a ‘SELL” rating on SCCC shares with a target price of Bt340/share.

Siam City CementRating 5.00 Sell- Previous Rating 5.00 SellTarget Price (Bt) 340.00- Previous Target Price (Bt) 340.00Closing Price (Bt) 458.00Expected Capital Gains (%) -25.8%Expected Dividend Yield (%) 3.5%Expected Total Return (%) -22.2%Raw Beta (Past 2yrs w eekly data) 1.06Market Cap. (USD mn) 3,509Enterprise Value (USD mn) 3,603Market Cap. (Bt mn) 105,340Enterprise Value (Bt mn) 108,0883M Average Daily T/O (mn) 0.252 w eek range 271 - 504Closing Price in 52 week range

Major Shareholders (%)34.827.59.4

CG Report - 2012 (Very Good)

Key Financial SummaryFYE 12/11 12/12 12/13F 12/14FRevenue (Btmn) 23,251 26,592 29,556 31,471Net Profit (Btmn) 3,293 3,637 4,197 4,434EPS (Bt) 14.32 15.81 18.25 19.07Net Profit, adj. (Btmn) 3,257 3,863 4,217 4,434EPS, adj. (Bt) 14.16 16.80 18.33 19.07P/E (X),adj. 32.3 27.3 25.0 24.0BVPS (Bt) 62.17 64.90 69.04 72.54P/B (X) 7.4 7.1 6.6 6.3DPS (Bt) 13.00 14.21 16.24 17.15Div. Yield (%) 2.8 3.1 3.5 0.0 Source: Bloomberg, PSR est.*All multiples & yields based on current market price

Valuation MethodP/E'13 (19x)

1. Sunrise Equity2. Thai Roxsam3. Bangkok Broadcasting & Television

250.00

300.00

350.00

400.00

450.00

500.00

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13

Apr-13

May-13

0

0.1

0.2

0.3

0.4

Volume, mn SCCC TB EQUITY SETI rebased

0% 50% 100%

Analyst Phillip Research Team +65 65311240 research@phillip.com.sg

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1QCY13 profit up a meager 4% y-y SCCC reported meager profit growth of 4% y-y in 1QCY13. Quarterly sales rose a mere 8% y-y to Bt7.5bn in 1QCY13 as (i) domestic cement sales edged up a slight 2% y-y to Bt6.1bn though domestic cement demand in Thailand grew 10% y-y, (ii) export cement sales dropped from a year ago in the face of weak global economic conditions, (iii) concrete sales surged 39% y-y to Bt1.7bn and (iv) Conwood sales jumped 16% y-y on the back of infrastructure construction activity and robust growth in domestic housing market. As cement sales contributed as much as 81% of total sales, solid growth in concrete and Conwood sales gave little boost to total sales. EBITDA margin narrowed to 23% in 1QCY13 from 26% in 1QCY12 as escalating electricity costs offset the positive impact of slight increases in selling prices. CY13 profit growth outlook unchanged at 15% with much depending on pace of revenue over the remaining three quarters of the year Despite weaker-than-expected 1QCY13 results, we leave our CY13 profit growth outlook for SCCC unchanged at 15% y-y. Even though 1QCY13 sales grew a mere 8% y-y, we believe sales momentum will accelerate over the remaining three quarters of the year and keep SCCC on course to meet full-year sales growth target of 11% y-y on expectations that favorable conditions in the construction market will put domestic cement demand on track to meet full-year growth target of 8%-10% and the startup of a new cement kiln in 2HCY13 will further boost sales volumes. We also believe EBITDA margin will likely pick up in 2QCY13-4QCY13 and cause the full-year margin figure to be similar to a year ago as there could be more room to raise selling prices over the remaining course of the year. Valuation too stretched To meet full-year profit growth target of 15%, much will largely depend on whether earnings momentum will accelerate over the remaining three quarters of the year after SCCC posted weaker-than-expected 1QCY13 results. In our view, SCCC remains too stretched valuation-wise. Current valuation of 24x CY13 P/E represents a significant premium to historical averages of 19x, given its CY13 earnings growth outlook of 15%. We put a ‘SELL” rating on SCCC shares with a target price of Bt340/share.

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SCCC (Bt mn) 1QCY13 4QCY12 1QCY12 y-y+/- q-q+/- 2012 2011 y-y+/-Sales 7,579.16 6,397.54 6,992.17 8.39% 18.47% 26,427.01 23,149.74 14.16%Other Income 23.46 32.83 23.85 -1.64% -28.54% 164.83 100.99 63.21%Interest Expenses 68.76 66.12 63.85 7.69% 3.99% 267.40 215.60 24.03%Income Tax 290.97 200.54 322.24 -9.70% 45.09% 822.36 1,615.13 -49.08%Operating profit 1,447.56 898.03 1,512.90 -4.32% 61.19% 4,318.43 4,386.55 -1.55%EBITDA 1,810.02 1,255.38 1,861.70 -2.78% 44.18% 5,734.76 5,681.21 0.94%Gain/loss from affiliates 80.70 66.04 92.10 -12.38% 22.20% 368.57 483.70 -23.80%Pre-extra profit 1,237.60 765.15 1,281.33 -3.41% 61.75% 3,862.99 3,257.13 18.60%Pre-extra profit per share 5.38 3.33 5.57 -3.41% 61.56% 16.80 14.16 18.60%Net profit 1,217.96 757.06 1,278.60 -4.74% 60.88% 3,636.75 3,293.41 10.43%EPS (Bt) 5.30 3.29 5.56 -4.68% 61.09% 15.81 14.32 10.43%Operating profit margin 19.10% 14.04% 21.64% -11.73% 36.06% 16.34% 18.95% -13.76%EBITDA margin 23.88% 19.62% 26.63% -10.31% 21.70% 21.70% 24.54% -11.58%Pre-extra margin 16.33% 11.96% 18.33% -10.89% 36.53% 14.62% 14.07% 3.89%Net profit margin 16.07% 11.83% 18.29% -12.12% 35.80% 13.76% 14.23% -3.27%Balance sheet (Bt mn)Assets 29,713.80 28,002.46 28,655.91 3.69% 6.11% 28,002.46 26,536.46 5.52%Liabilities 10,854.83 10,349.97 10,365.76 4.72% 4.88% 10,349.97 9,528.81 8.62%Paid-up (m shrs) - Par Bt10 230.00 230.00 230.00 0.00% 0.00% 2,300.00 230.00 900.00%Equities 18,858.97 17,652.48 18,290.15 3.11% 6.83% 17,652.48 17,007.66 3.79%Book value/share(Bt) 82.00 76.75 79.52 3.11% 6.83% 7.67 73.95 -89.62%Debt/equity (x) 0.58 0.59 0.57 1.56% -1.83% 0.59 0.56 4.65%

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FYE Dec CY10 CY11 CY12 CY13F FY14FValuation RatiosP/E (X), adj. 38.6 32.3 27.3 25.0 24.0P/B (X) 7.1 7.4 7.1 6.6 6.3EV/EBITDA (X), adj. 22.4 19.0 18.8 16.7 16.0Dividend Yield (%) 2.4 2.8 3.1 3.5 3.7%Per share data (Bt)EPS, reported 11.72 14.32 15.81 18.25 19.07EPS, adj. 11.87 14.16 16.80 18.33 19.07DPS 11.00 13.00 14.21 16.24 17.15BVPS 64.77 62.17 64.90 69.04 72.54Growth & Margins (%)GrowthRevenue 5.2 10.1 14.4 11.1 6.5EBITDA -3.0 17.5 0.9 12.7 4.8EBIT -5.2 20.8 -0.4 14.2 5.2Net Income, adj. -7.3 19.3 18.6 9.2 5.1MarginsEBITDA margin 22.9 24.4 21.6 21.9 21.5EBIT margin 18.0 19.8 17.2 17.7 17.5Net Profit Margin 12.8 14.2 13.7 14.2 14.1

Key RatiosROE (%) 16.4 19.6 21.0 23.1 23.3 ROA (%) 10.9 12.7 13.3 13.5 12.9

Net Debt-Cash 2,182 2,659 3,004 4,917 4,405Net Gearing(X) 0.1 0.2 0.2 0.3 0.2

Income Statement (Bt mn)Revenue 21,117 23,251 26,592 29,556 31,471EBITDA 4,834 5,681 5,735 6,465 6,773Depreciation & Amortisation 1,023 1,079 1,149 1,228 1,265EBIT 3,811 4,602 4,586 5,237 5,508Net Finance (Expense)/Income (194) (216) (267) (364) (365)Other items (35) 36 (226) (20) 0Associates & JVs 301 484 369 323 323Profit Before Tax 3,883 4,907 4,461 5,176 5,466Taxation (1,187) (1,615) (822) (976) (1,029)Profit After Tax 2,696 3,291 3,638 4,200 4,437Non-controlling Interest 1 (2) 2 3 4Net Income, reported 2,695 3,293 3,637 4,197 4,434Net Income, adj. 2,730 3,257 3,863 4,217 4,434Source: PSR est.

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FYE Dec CY10 CY11 CY12 CY13F CY14FBalance Sheet (Bt mn)Cash 2,002 1,921 2,159 4,753 4,565ST Investments 0 0 0 180 180Accounts Receivables 2,711 2,387 3,178 3,680 3,894Inventories 1,575 2,393 2,097 3,113 3,263Others 209 186 242 337 337Total current assets 6,496 6,887 7,675 12,063 12,238PPE 14,390 14,762 15,234 16,730 16,465Intangibles 1,127 1,734 1,945 1,944 1,944Associates & JVs 1,319 1,526 1,661 1,980 2,303Investments 382 382 155 155 155Others 1,533 1,246 1,333 1,309 1,309Total non-current assets 18,751 19,649 20,327 22,117 22,175Total Assets 25,247 26,536 28,002 34,180 34,413Short term loans 55 240 4,382 4,603 3,903Accounts Payables 1,495 1,867 2,190 2,401 2,503Others 2,161 2,163 1,948 2,425 2,425Total current liabilities 3,711 4,269 8,521 9,430 8,831Long term loans 4,128 4,341 780 5,067 5,067Others 869 919 1,049 1,060 1,060Total liabilities 8,709 9,529 10,350 15,556 14,958Non-controlling interest 7 5 6 6 6Shareholder Equity 16,532 17,003 17,646 18,617 19,449

Cashflow Statements (Bt mn)CFOPBT 3,883 4,907 4,460 5,173 5,462Adjustments 1,120 1,123 1,354 1,367 1,307Cash from ops before WC changes 5,004 6,029 5,814 6,540 6,769WC changes 386 (238) (269) (1,295) (263)Cash generated from ops 5,390 5,791 5,545 5,245 6,507Taxes paid, net (1,119) (1,444) (1,089) (691) (1,029)Interest paid (189) (187) (205) (296) (365)Cashflow from ops 4,082 4,159 4,251 4,257 5,113CFICAPEX, net (1,390) (1,941) (1,732) (2,757) (1,000)Dividends from associates & JVs 173 213 254 0 0Dividends/Interest from InvestmentsPurchase/sale of investments 0 0 0 (180) 0Investments in subs & associates (14) (0) 0 0 0Others 21 (139) (117) (10) 0Cashflow from investments (1,210) (1,868) (1,595) (2,946) (1,000)CFFShare issuance 0 0 0 0 0Purchase of treasury shares 0 0 0 0 0Loans, net of repayments (110) 394 579 4,506 (700)Dividends to minority interests 0 0 0 0 0Dividends to shareholders & capital reduction (2,528) (2,760) (2,990) (3,215) (3,602)OthersCashflow from financing (2,638) (2,366) (2,410) 1,291 (4,302)Net change in cash 234 (74) 245 2,602 (189)Effects of exchange rates 1 (6) (8) (8) 0CCE, end 2,002 1,921 2,159 4,753 4,565Source: PSR est.

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