add (previously hold) slow margin recovery post naphtha ... · dubai crude oil price, naphtha crack...

Company Note Cement │ Thailand │ November 19, 2018

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.

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Siam Cement Slow margin recovery post naphtha cost relief

■ Asian naphtha cost likely peaked in Oct 18 and started falling along with the Dubai crude price and naphtha crack spread.

■ Integrated chemical spread recovery could be slow until by-product credits provide stronger support.

■ Upgrade to Add from Hold with a higher TP of THB496.

Lower feedstock cost pressure We believe Asian naphtha cost likely peaked at US$696/t in Oct 18. Apart from weaker

Dubai crude oil price, naphtha crack spread also fell to US$65.3/bbl in recent weeks due

to weaker demand for gasoline blending. During 2Q19-3Q19F, we believe LPG will

become cheaper which would enable naphtha crackers to switch feed, thereby relieving

feedstock cost pressure further.

Impact from US PE capacities already half way over Since late-2017, four US ethylene crackers with a combined capacity of 5.0mtpa have

started operations. We expect the four remaining US-based plants with a combined

capacity of 4.6mt to start in 4Q18-2Q19. Price recovery for ethylene/PE could be limited

until these new capacities fully ramp up. Upside risk to Asian PE spread is potential

delays in the start of US crackers due to high ethane feedstock cost and construction

delays. Downside risk is a slowdown in PE demand due to US-China trade tensions.

Slow integrated chemical spread recovery With recent naphtha cost relief, we estimate that SCC’s integrated chemical spread has

picked up to US$461/t in Nov 18 vs. year low of US$418/t in Oct 18. We believe chemical

margin recovery could be slow until we see stronger contributions from co-products,

including propylene, BD and BZ. SCC’s 4Q18F chemicals EBITDA could remain weak

due to the lagged impact of high naphtha cost in Oct 18 but we believe 1Q19F recovery

is likely unless crude oil price increases abruptly from the current levels.

Domestic cement demand recovery Domestic cement demand surprised the market on the upside in 3Q18 with yoy growth of

7.0%, mainly driven by government infrastructure projects. SCC expects cement demand

to remain strong over the next 6-9 months as government infrastructure budget

disbursement remains resilient. We believe the key risk for the cement business is high

energy cost. Export volume could recover if SCC is able to find new markets, like the US.

Valuation remains attractive We trim our FY18-20F EPS by 2.2-4.8% to reflect changes in our chemical conversion

cost assumptions. We upgrade SCC to Add from Hold with a higher SOP TP of THB496.

SCC has re-rated over the past few weeks on oil price correction but our valuation

breakdown suggests chemical division’s 2019F EV/EBITDA is cheap at 5.9x vs. regional

average of 7.6x.

SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS

Thailand

ADD (previously HOLD)

Consensus ratings*: Buy 20 Hold 9 Sell 1

Current price: THB436.0

Target price: THB496.0

Previous target: THB425.0

Up/downside: 13.8%

CGS-CIMB / Consensus: 3.8%

Reuters: SCC.BK

Bloomberg: SCC TB

Market cap: US$15,878m

THB523,200m

Average daily turnover: US$27.05m

THB886.2m

Current shares o/s: 1,200m

Free float: 59.8% *Source: Bloomberg

Key changes in this note

FY18F EPS decreased by 3.0%.

FY19F EPS decreased by 2.2%.

FY20F ROE decreased by 4.8%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 4.3 -1.8 -7.2

Relative (%) 8 0.9 -3.9

Major shareholders % held KING MAHA VAJIRALONGKORN 33.3 State Street Corp 4.9 Randeryburamakarn Co. Ltd 1.3

Insert

Analyst(s)

Amornrat CHEEVAVICHAWALKUL

T (66) 2 761 9228 E [email protected]

Financial Summary Dec-16A Dec-17A Dec-18F Dec-19F Dec-20F

Revenue (THBm) 423,442 450,921 473,910 480,808 487,306

Operating EBITDA (THBm) 76,900 72,320 63,903 66,816 71,477

Net Profit (THBm) 56,084 55,041 44,728 47,649 50,285

Core EPS (THB) 45.42 43.60 37.16 39.71 41.90

Core EPS Growth 22.3% (4.0%) (14.8%) 6.8% 5.5%

FD Core P/E (x) 9.60 10.00 11.73 10.98 10.40

DPS (THB) 19.00 19.00 15.50 17.00 19.00

Dividend Yield 4.36% 4.36% 3.56% 3.90% 4.36%

EV/EBITDA (x) 8.10 8.54 9.50 9.34 8.81

P/FCFE (x) 10.16 8.25 NA 22.76 18.63

Net Gearing 54.5% 50.4% 45.9% 49.6% 50.0%

P/BV (x) 2.18 2.00 1.82 1.66 1.53

ROE 24.4% 20.9% 16.3% 15.8% 15.3%

% Change In Core EPS Estimates (2.96%) (2.20%) (4.82%)

CIMB/consensus EPS (x) 0.95 0.99 1.00

86.0

93.1

100.3

390

440

490

Price Close Relative to SET (RHS)

10

20

30

Nov-17 Feb-18 May-18 Aug-18

Vo

l m

Cement │ Thailand

Siam Cement │ November 19, 2018

2

Slow integrated chemical margin recovery

Naphtha cost collapsed along with crude oil price and gasoline crack spread

Asian naphtha cost in Oct 18 hit a three-year high of US$696/t, due to rising

crude oil price. Apart from high feedstock cost, Asian naphtha crackers will also

suffer from higher conversion cost as part of the naphtha is converted into

methane as fuel used in conversion process.

However, we believe naphtha cost may have peaked in the short term. Apart

from a lower Dubai crude oil price of US$65.3/bbl last week, naphtha crack

spread over Dubai has fallen to -US$8/bbl along with the gasoline crack spread.

Naphtha sometimes tracks gasoline crack spread as naphtha can also be used

for direct blending into motor gasoline and isomerisation for octane

enhancement. We believe gasoline oversupply should continue in the medium

term as demand growth from the US has slowed down. This should cap

significant improvement in gasoline and naphtha crack spread, thereby leading

to lower naphtha cost. As such, we should see gradual naphtha cost relief from

Nov 18 onwards unless crude prices start rising significantly again.

Figure 1: Asian naphtha cost vs. Dubai crude oil price Figure 2: Naphtha crack spread over Dubai

SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS

Figure 3: Gasoline and naphtha crack spread over Dubai Figure 4: World gasoline demand vs. supply growth (yoy)


Title:

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20

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-

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1,000

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Jun-0

9

Nov-

09

Apr-

10

Sep-1

0

Feb

-11

Jul-11

Dec-

11

May-

12

Oct-12

Mar-

13

Aug-1

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Jan-1

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Nov-

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Apr-

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Sep-1

5

Feb

-16

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Oct-17

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Aug-1

8

Asian naphtha (LHS) Dubai

US$/t US$/bbl

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(5.0)

-

5.0

10.0

15.0

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2015 2016 201 2018

US$/bbl

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Source:


(15.0)

(10.0)

(5.0)

-

5.0

10.0

15.0

20.0

25.0

Jan-1

0

May-

10

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Jan-1

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May-

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Sep-1

1

Jan-1

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May-

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Jan-1

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May-

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Jan-1

4

May-

14

Sep-1

4

Jan-1

5

May-

15

Sep-1

5

Jan-1

6

May-

16

Sep-1

6

Jan-1

7

May-

17

Sep-1

7

Jan-1

8

May-

18

Sep-1

8

Gasoline crack spread Naphtha crack spread

US$/bbl

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Source:


0

100

200

300

400

500

600

2016 201 2018F 2019F

Demand growth Supply growth

k bbl/day

Cement │ Thailand


3

Some naphtha crackers have flexibility to switch between naphtha and LPG.

SCC can use LPG for up to 25-30% of its total feedstock requirement. We

estimate that ethylene cash cost using naphtha feedstock is US$33/t cheaper

than LPG feedstock in Nov 18. We should see more feedstock switching in

2Q19-3Q19F when LPG becomes cheaper seasonally, thereby relieving

naphtha cost pressure further.

Figure 5: Ethylene cash cost using naphtha vs. LPG feed Figure 6: Naphtha-LPP cost differential (after taking into account

by-product credits)

SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS, IHS SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS, IHS

Additional PE supplies from US nearly half way over

Since the beginning of 2018, four shale gas crackers in the US with a combined

capacity of 5.0mtpa (Oxychem JV, Dow at Freeport, CP Chem, ExxonMobil at

Baytown) have started. We expect the four remaining US crackers with a

combined capacity of 4.6mtpa to start operating during 4Q18-3Q19F. As such,

the price recovery for ethylene and polyethylene (PE) could be limited until these

new capacities fully ramp up. Upside risks to Asian PE price would come from

the potential delays in the start of US crackers as a result of a spike in ethane

feedstock cost on tight pipeline capacities in the Permian basin.

According to SCC, Asian PE demand may recover in the short term as PE

inventory has already hit the lows that could trigger restocking demand.

However, we note that 4Q18 PE demand could be lower yoy due mainly to the

high base in 2016, which was driven by coal feedstock shortage in China, and

2017 due to China’s policies on recycling plastic.

The demand for HDPE pipe grade, which was the major driver for PE demand

during 1H18, has slowed down. According to IHS Markit (IHS), the price

premium of pipe grade over film grade PE has narrowed as coal-to-gas projects

have slowed down. Together with rising cargoes from the Middle East to China,

HDPE price fell to US$1,190/t in Nov 18 vs. 3Q18 average of US$1,300/t

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-

200

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1,000

1,200

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6

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8

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9

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1

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2

Jul-12

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3

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Jan-1

4

Jul-14

Jan-1

5

Jul-15

Jan-1

6

Jul-16

Jan-1

7

Jul-17

Jan-1

8

Jul-18

Naphtha feedstock LPG feedstock

US$/t

Title:

Source:


(300)

(200)

(100)

-

100

200

300

400

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2014 2015 2016 201 2018

naphtha is more expensive

LPG is more expensive

US$/t

Cement │ Thailand


4

Figure 7: New ethylene capacity in the US (time-weighted) Figure 8: Global ethylene supply additions


Figure 9: Asian PE prices Figure 10: Asia PE-naphtha spreads

SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS, IHS SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS

Figure 11: US ethylene capacity start up

SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS, IHS

Integrated chemical margin has bottomed

Based on our estimates, the integrated chemical spreads have recovered to

US$461/t in Nov 18 vs. year low of US$418/t in Oct 18, mainly due to a sharp

fall in naphtha cost. We believe SCC still needs stronger PE and co-product

prices in order to see further chemical margin improvement.

During Oct-Nov 18, co-product credits, especially benzene (BZ) and butadiene

(BD) have remained soft. Weak demand for synthetic rubber has led to weaker

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200

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1,000

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1Q18 2Q18 3Q18 4Q18F 1Q19F 2Q19F 3Q19F 4Q19F 1Q20F

'000 tpa

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(4,000)

(2,000)

-

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201

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2018F

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Net supply increase Net demand increase (3.5% pa)

Net demand increase (4.5% pa)

'000tpa

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600

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9

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0

Feb

-11

Jul-11

Dec-

11

May-

12

Oct-12

Mar-

13

Aug-1

3

Jan-1

4

Jun-1

4

Nov-

14

Apr-

15

Sep-1

5

Feb

-16

Jul-16

Dec-

16

May-

17

Oct-17

Mar-

18

Aug-1

8

HDPE LLDPE LDPE

US$/t

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Source:


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200

300

400

500

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900

1,000Ja

n-0

9

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9

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Apr-

10

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0

Feb

-11

Jul-11

Dec-

11

May-

12

Oct-12

Mar-

13

Aug-1

3

Jan-1

4

Jun-1

4

Nov-

14

Apr-

15

Sep-1

5

Feb

-16

Jul-16

Dec-

16

May-

17

Oct-17

Mar-

18

Aug-1

8

HDPE-naphtha LDPE-naphtha PP-naphtha

US$/t

Projects Location Feedstock Startup date Ethylene capacity ('000 tpa)

Oxy/Mexichem JV Ingleside Ethane Mar-17 550

DOW Freeport E/P Sep-17 1,500

CP Chem Cedar Bayou Ethane Mar-18 1,500

ExxonMobil Baytown Ethane Jul-18 1,500

FPC USA Point Comfort Ethane 1Q19 1,200

IVL Lake Charles Ethane 2Q19 440

Sasol Lake Charles Ethane mid-19 1,550

Shin-Etsu Plaquemine Ethane 2019 500

Axial/Lotte JV Lake Charles E/P 2H19 1,000

Shell Monaca Ethane 2021 1,500

Total/Nova/Borealis JV Port Arthur, TX Ethane 2021 1,000

Cement │ Thailand


5

demand for BD, which are key feedstocks for styrene-butadiene rubber (SBR).

The unplanned outage of styrene monomer (SM) capacities also led to lower

demand for BZ. On the supply side, Asian aromatics complexes maximise PX

production in light of the high demand, leading to higher supply of BZ co-product

and suppressed BZ-naphtha spread.

Figure 12: SCC’s integrated chemical spreads Figure 13: Benzene, propylene, butadiene vs. naphtha (US$/t)


PVC demand remains weak but EDC cost should be softer

Polyvinyl chloride (PVC) – ethylene dichloride (EDC)/ethylene (C2) spread got

squeezed further to US$302/t in Oct 18 from US$342/t in 3Q18 and US$384/t in

2Q18, due largely to a sharp increase in EDC cost caused by China’s tariff on

US imports. Asian PVC price also fell to US$850/t in Oct 18 (18-month low) due

to rising PVC cargoes from the US and weak demand in India as a result of

currency depreciation.

SCC guided that PVC-EDC/C2 spread should bottom in 4Q18F. In the US,

caustic soda prices fell sharply in 2Q-3Q18 (due to weak economics of alumina)

which finally led to lower utilisation rate for the EDC plant which produces

caustic soda as by-product. The recovery in caustic soda price should re-

incentivise EDC producers to ramp up utilisation, leading to lower EDC cost

pressure for non-integrated PVC producers, such as SCC.

Figure 14: Asian PVC-EDC/C2 spread Figure 15: PVC, EDC and caustic soda prices


Title:

Source:


-

200

400

600

800

1,000

1,200

Jan-0

9

May-

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Sep-0

9

Jan-1

0

May-

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Sep-1

0

Jan-1

1

May-

11

Sep-1

1

Jan-1

2

May-

12

Sep-1

2

Jan-1

3

May-

13

Sep-1

3

Jan-1

4

May-

14

Sep-1

4

Jan-1

5

May-

15

Sep-1

5

Jan-1

6

May-

16

Sep-1

6

Jan-1

7

May-

17

Sep-1

7

Jan-1

8

May-

18

Sep-1

8

US$/t

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500

1,000

1,500

2,000

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3,000

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(100)

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Jan-0

9M

ay-

09

Sep-0

9Ja

n-1

0M

ay-

10

Sep-1

0Ja

n-1

1M

ay-

11

Sep-1

1Ja

n-1

2M

ay-

12

Sep-1

2Ja

n-1

3M

ay-

13

Sep-1

3Ja

n-1

4M

ay-

14

Sep-1

4Ja

n-1

5M

ay-

15

Sep-1

5Ja

n-1

6M

ay-

16

Sep-1

6Ja

n-1

7M

ay-

17

Sep-1

7Ja

n-1

8M

ay-

18

Sep-1

8

Benzene-naphtha Propylene-naphtha Butadiene-naphtha (RHS)

Title:

Source:


-

100

200

300

400

500

600

Jan-0

9

Jun-0

9

Nov-

09

Apr-

10

Sep-1

0

Feb

-11

Jul-11

Dec-

11

May-

12

Oct-12

Mar-

13

Aug-1

3

Jan-1

4

Jun-1

4

Nov-

14

Apr-

15

Sep-1

5

Feb

-16

Jul-16

Dec-

16

May-

17

Oct-17

Mar-

18

Aug-1

8

US$/t

Title:

Source:


-

200

400

600

800

1,000

1,200

1,400

Jan-0

9

Jun-0

9

Nov-

09

Apr-

10

Sep-1

0

Feb

-11

Jul-11

Dec-

11

May-

12

Oct-12

Mar-

13

Aug-1

3

Jan-1

4

Jun-1

4

Nov-

14

Apr-

15

Sep-1

5

Feb

-16

Jul-16

Dec-

16

May-

17

Oct-17

Mar-

18

Aug-1

8

PVC EDC Caustic soda

US$/t

Cement │ Thailand


6

Domestic cement demand to improve

Government infrastructure spending to boost domestic consumption

SCC stated that domestic cement demand grew another 7.0% yoy in 3Q18. This

was mainly driven by government infrastructure segment where demand

improved by 12.0% yoy. SCC expects cement demand to remain strong for the

next 6-9 months as the government’s mega infrastructure budget disbursement

remains resilient.

Cement demand from the residential property segment has turned positive for

the first time in the past three years. Having mostly sold their finished inventories

in 2017, the big listed residential property developers have started to launch new

projects, leading to more active construction activities. Cement demand recovery

in provincial areas remains slow. SCC’s target for domestic cement sales growth

in 2018F is 3-4% vs. -5% in 2017.

Figure 16: SCC – domestic cement sales Figure 17: Thailand domestic cement consumption growth (yoy),

by segment


Limited upside for EBITDA margin

We believe the biggest risk for its cement and building material unit (CBM) is

high energy costs. Although domestic cement prices have stabilised at

THB1,700-1,750/t, the profitability of Thai cement producers could remain under

pressure from coal costs unless they collectively increase domestic selling

prices. We estimated that EBITDA fell to US$11/t in 3Q18 vs. US$15/t in 2015-

2016.

Another margin pressure for the CBM unit is the sluggish cement demand

outlook in regional markets, especially in Myanmar. Cement demand in

Indonesia grew by 7.0% yoy in 3Q18 but EBITDA margin should remain poor

due to the chronic oversupply situation. SCC already booked impairment

charges of THB420m for its Indonesia ready-mixed concrete plant in 3Q18.

SCC plans to increase cement market share in both China and the US as the

trade flow between the two countries could be increasingly disrupted in the near

future. SCC used to export white and porcelain cement to US-based customers

ten years ago. It has revisited the old customer base to increase export volume

in the next few quarters. This may help support export margin which has been

weak in the past few quarters.

Title:

Source:


0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1Q

09

3Q

09

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10

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10

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3Q

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1Q

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15

1Q

16

3Q

16

1Q

17

3Q

17

1Q

18

3Q

18

million tonne

Title:

Source:


-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

1Q

15

2Q

15

3Q

15

4Q

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16

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16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

3Q

18

Total market Commerical retail Government Residential

Cement │ Thailand


7

Figure 18: Domestic cement selling price Figure 19: Cement EBITDA margin


Investment budget concentrated on chemical projects

Long Son chemical project

SCC now has 100% stake in Long Son Petrochemical project in Vietnam, which

was originally a 46:25:29 JV with Qatar Petroleum (QPI) and Petro Vietnam. QPI

pulled out from the project in 2017 due its internal capital and feedstock

reallocation policy. Petro Vietnam agreed to sell its 29% stake to SCC for

THB2.9bn in May 18. SCC cited that all investment privileges granted by the

Vietnamese government are intact.

SCC said 94% of its engineering, procurement and construction (EPC) costs

have been locked in. Construction contracts for olefins, polyolefins plants and

utilities have already been signed. The target commercial startup date has been

delayed to 1H23 from 1H22. Estimated capacity remains at 1.6mtpa of olefins.

Its mix of ethylene vs. propylene will depend on the type of feedstock. SCC may

not invest in BTX extraction units due to limited amount of pygas output if LPG

feedstock is used.

SCC sees a threat from China’s mega-sized olefins capacity of 6-7mtpa in 2022-

2023F. However, the management believes that full-cycle returns should remain

attractive. Its cracker can switch to LPG/ethane usage for up to 70% of its

feedstock requirement vs. only 30% for a typical naphtha cracker. In general,

swing feed crackers should generate better investment returns than an

integrated refinery-chemical complex, according to SCC.

Total project cost is US$5.4bn. Assuming ground-breaking by late-2018, we

expect big capital outflow to take place in 2021-2022F. We agree that Vietnam is

an attractive market as it is currently a big importer of PE/PP. Potential PE and

PP demand is 1.9mt and 1.2mt respectively, according to SCC.

Title:

Source:


1,500

1,550

1,600

1,650

1,700

1,750

1,800

1,850

1,900

1,950

2,000

1Q

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11

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11

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12

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12

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16

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17

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17

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18

THB/t

Title:

Source:


10.0%

12.0%

14.0%

16.0%

18.0%

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22.0%

24.0%

26.0%

28.0%

30.0%

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

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16

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16

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16

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17

2Q

17

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17

4Q

17

1Q

18

2Q

18

3Q

18

Cement │ Thailand


8

Figure 20: Long Son - polyolefins sales mix Figure 21: Long Son – feedstock mix


Figure 22: Capex by business


Naphtha cracker debottlenecking

In May 18, SCC’s board approved the expansion of its Map Ta Phut olefins

complex (MOC) to increase its olefins capacity to 2.05mt from 1.70mt. Ethylene

capacity would increase by 300ktpa from its current capacity of 1.8mtpa

(combined capacity of Rayong Olefins Complex and MOC). Propylene capacity

will increase by 50ktpa.

SCC’s primary objective for capacity expansion is to cover its internal ethylene

deficit of 200-300ktpa. We believe the expansion is a positive move as the

profitability distribution is heavily skewed in favour of upstream ethylene, while

high-density PE (HDPE)-ethylene spread has narrowed to US$0-30/t during the

past two years.

Debottlenecking would involve the installation of additional furnaces. Its

feedstock mix would remain unchanged, which is 70-75% naphtha and the rest

LPG. As SCC believes ethylene supply could become tighter than propylene’s,

its existing metathesis unit, which converts ethylene and C4 into propylene, will

not be fully utilised. As such, ethylene output could be maximised with additional

mixed C4. SCC will cover its propylene shortfall by buying externally from third

parties.

Investment cost is THB15.5bn, which equates to US$1,340 per tonne of olefins.

This is the same as PTTGC’s spending on its new naphtha cracker project.

Title:

Source:


HDPE33%

LLDPE37%

PP30%

Title:

Source:


LPG - import from middle east

60%

Naphtha - import from

Thailand/Singapore/middle east

30%

Ethane -domestic

10%

Title:

Source:


15% 11%18%

26%

41%

73% 69%

80%

58%

54% 60%54%

49%

36%

19%22%

14%

30%

27% 26% 23% 17% 15%

5% 5%5%

5%

4% 3% 5% 8% 8%3% 4% 1%

7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2014 2015 2016 201 2018F 2019F 2020F 2021F 2022F

Petrochemical Cement & building material Packaging Others

Cement │ Thailand


9

PTTGC’s project was announced earlier in Jan 18, costing US$985m or

US$1,313/t. SCC expects to start commercial operation in 2H21.

Figure 23: SCC – two naphtha crackers’ capacity Figure 24: Ethylene-naphtha vs. HDPE-ethylene spread


Valuation and recommendation

Share price to track near-term financial performance

We trim our FY18-20F EPS forecasts by 2.2-4.8% to reflect changes in cement

conversion cost assumptions. We upgrade SCC to Add from Hold with a higher

sum-of-parts target price of THB496 as we roll forward our valuations from end-

2018F to end-2019F.

Figure 25: SCC - earnings revisions


Title:

Source:


900 900

1,200

450

800

850

184

160

160

86

70

70

190

75

75

-

500

1,000

1,500

2,000

2,500

ROC MOC (existing) MOC (post expansion)

Ethylene Propylene Benzene TL Mixed C4

'000 tonne/year

Title:

Source:


(200)

(100)

-

100

200

300

400

500

600

700

800

900

1Q

04

3Q

04

1Q

05

3Q

05

1Q

06

3Q

06

1Q

07

3Q

07

1Q

08

3Q

08

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

1Q

14

3Q

14

1Q

15

3Q

15

1Q

16

3Q

16

1Q

17

3Q

17

1Q

18

3Q

18

Ethylene-naphtha HDPE-ethylene

US$/t

2018F 2019F 2020F

Revenue (revised) 473,910 480,808 487,306

Revenue (previous) 472,079 480,608 488,921

% change 0.4% 0.0% -0.3%

EBITDA (revised) 63,903 66,816 71,477

EBITDA (previous) 65,369 66,979 73,123

% change -2.2% -0.2% -2.2%

Net profit (revised) 44,728 47,649 50,285

Net profit (previous) 46,090 48,719 52,830

% change -3.0% -2.2% -4.8%

Core EPS (revised) 37.16 39.71 41.90

Core EPS (previous) 38.30 40.60 44.03

% change -3.0% -2.2% -4.8%

Cement │ Thailand


10

Figure 26: Sum-of-parts valuation


SCC’s share price recently rebounded from its year low of THB408 as crude oil

prices started correcting. However, it still trades at an undemanding 2019F

EV/EBITDA of 9.3x, in line with historical average. The stock could tactically

rebound in the short-term as naphtha cost has fallen along with crude oil prices,

suggesting that integrated chemical spread may have bottomed out, albeit with

potentially slow recovery.

Figure 27: SCC’s share price vs. integrated chemical spreads


SCC’s headline EV/EBITDA multiple could look expensive when compared to

Asian chemical peers as cement and building material businesses generally

have higher P/E and EV/EBITDA multiples. We apply EV/EBITDA of 10.0x to the

cement business (discounted to SCCC’s 2019F EV/EBITDA of 11.5x); the

residual enterprise value implies an EV/EBITDA multiple of 5.9x in 2019F for the

chemicals business, which is lower than Asian chemical peers’ 7.6x.

Investment risks to SCC’s share price performance include potential consensus

earnings downgrades. We believe that the current Bloomberg 2018F full-year

forecast implies HDPE-naphtha spread assumption of US$720/t, which is too

aggressive in our view. Despite the oil price correction in Nov 18, we believe

consensus FY18F earnings estimates remain aggressive as realised naphtha

price normally lags spot price by at least two weeks.

Business segment Multiples Remarks

Petrochemical 7.0 x EV/EBITDA versus 7.6x of regional avg

Cement/building mat 10.0 x EV/EBITDA versus 11.5x of SCCC

Paper 9.0 x EV/EBITDA versus 10.0x of regional avg

Building material 9.5 x EV/EBITDA versus 10.0x of Thailand avg

Sum-of-the-part valuation Value for business unit (THBm)

Petrochemical 320,911

Cement/building mat 225,955

Packaging 106,119

Total 652,985

Other associates 180,622

Net debt (193,414)

Minority interest (44,815)

Equity value 595,378

No. of share 1,200

Target price (2019) 496

Title:

Source:


0

100

200

300

400

500

600

-

200

400

600

800

1,000

1,200

Jan-0

8

May-

08

Sep-0

8

Jan-0

9

May-

09

Sep-0

9

Jan-1

0

May-

10

Sep-1

0

Jan-1

1

May-

11

Sep-1

1

Jan-1

2

May-

12

Sep-1

2

Jan-1

3

May-

13

Sep-1

3

Jan-1

4

May-

14

Sep-1

4

Jan-1

5

May-

15

Sep-1

5

Jan-1

6

May-

16

Sep-1

6

Jan-1

7

May-

17

Sep-1

7

Jan-1

8

May-

18

Sep-1

8

SCC - Integrated chemical spreads Share price (RHS)

US$/t THB/share

Cement │ Thailand


11

Risks

Near-term catalysts for SCC include a sharp drop in oil prices and potential

recovery in PE restocking demand regionally.

Downside risks to our forecasts include lower PE sales volume if ethylene

feedstock cost remains high, and lower-than-expected integrated chemical

spreads.

Figure 28: Peers comparison


Figure 29: SCC – P/E chart Figure 30: SCC – EV/EBITDA chart


Company BloombergPrice Target Price Market Cap

Ticker (local curr) (local curr) (US$ m) CY18F CY19F CY20F CY18F CY19F CY20F CY18F CY19F

ASIA

Formosa Plastics Corp 1301 TT NR 101 NA 20,861 11.5 11.8 11.6 18.0 18.0 18.2 6.4% 6.2%

Formosa Chemicals & Fibre Corp 1326 TT NR 108 NA 20,539 11.2 12.2 12.5 11.5 12.3 12.7 6.3% 5.8%

Nan Ya Plastics Corp 1303 TT NR 78 NA 20,072 10.9 12.1 12.8 13.3 13.9 15.2 6.9% 6.1%

Formosa Petrochemical Corp 6505 TT NR 112 NA 34,617 14.2 15.8 15.0 9.3 10.5 10.1 5.6% 4.9%

Oriental Union Chemical Corp 1710 TT NR 26 NA 739 10.9 9.3 14.0 7.0 6.6 8.9 7.2% 7.7%

TSRC Corp 2103 TT NR 28 NA 760 20.7 14.6 13.1 9.3 7.9 6.9 4.7% 5.9%

International CSRC Investment Holdings Co 2104 TT NR 39 NA 1,089 9.1 10.0 10.4 6.5 6.6 6.7 6.5% 6.5%

LG Chem 051910 KS Add 344,500 500,000 21,548 14.2 12.8 9.9 5.6 5.8 4.9 1.9% 1.9%

Lotte Chemical 011170 KS Hold 293,500 295,000 8,914 5.8 7.1 6.1 2.4 2.4 2.1 3.1% 2.7%

Kumho Petrochemical 011780 KS Add 89,900 125,000 2,427 9.8 8.3 7.7 7.3 6.1 5.5 1.5% 1.8%

Hanwha Chemical Corp 009830 KS NR 17,300 NA 2,511 6.7 4.9 4.5 6.2 6.2 5.8 2.2% 2.2%

Siam Cement SCC TB Add 436 496.00 15,878 11.7 11.0 10.4 9.4 9.3 8.8 3.6% 3.9%

PTT Global Chemical PTTGC TB Add 77 97.00 10,535 7.9 7.9 7.3 5.1 5.0 4.3 5.5% 5.5%

Indorama Ventures IVL TB Hold 54 59.80 9,159 9.8 10.1 9.5 7.8 7.4 7.0 3.0% 3.0%

Petronas Chemicals Group PCHEM MK Hold 9 8.90 17,943 15.6 14.9 14.2 7.4 6.4 5.6 3.0% 3.4%

Lotte Chemical Titan TTNP MK Hold 5 4.13 2,511 15.2 15.1 11.2 5.7 7.2 10.4 2.6% 2.6%

Sinopec Shanghai Petrochemical Co Ltd 338 HK NR 4 NA 7,199 9.4 8.9 9.3 4.9 5.2 5.5 2.0% 1.8%

China BlueChemical Ltd 3983 HK NR 3 NA 1,648 8.1 8.8 8.8 4.6 4.7 5.0 2.0% 2.1%

Wanhua Chemical Group Co Ltd 600309 CH NR 30 NA 11,960 7.5 5.9 5.3 4.9 4.7 4.0 5.6% 5.9%

Average (all) 214,189 11.1 11.0 10.3 7.6 7.6 7.0 4.5% 4.3%

Dividend

Yield (%)Recom.

P/E (x) EV/EBITDA (x)

Title:

Source:


0

2

4

6

8

10

12

14

16

18

20

Jan-03 Sep-04 May-06 Jan-08 Sep-09 May-11 Jan-13 Sep-14 May-16 Jan-18

PE Mean +1STD -1STD +2STD -2STD

+2 std

+1 std

-1 std

-2 std

Mean

Title:

Source:


4

6

8

10

12

14

16

Jan-03 Sep-04 May-06 Jan-08 Sep-09 May-11 Jan-13 Sep-14 May-16 Jan-18

EVEBITDA Mean +1STD

-1STD +2STD -2STD

+2 std

+1 std

-1 std

-2 std

Mean

Cement │ Thailand


12

BY THE NUMBERS


14.0%15.2%16.4%17.6%18.8%20.0%21.2%22.4%23.6%24.8%26.0%

1.601.802.002.202.402.602.803.003.203.403.60

Jan-14A Jan-15A Jan-16A Jan-17A Jan-18F Jan-19F

P/BV vs ROE

Rolling P/BV (x) (lhs) ROE (rhs)

-30%

-17%

-3%

10%

23%

37%

50%

9.0

10.0

11.0

12.0

13.0

14.0

15.0

Jan-14A Jan-15A Jan-16A Jan-17A Jan-18F Jan-19F

12-mth Fwd FD Core P/E vs FD Core EPS Growth

12-mth Fwd Rolling FD Core P/E (x) (lhs)

FD Core EPS Growth (rhs)

Profit & Loss

(THBm) Dec-16A Dec-17A Dec-18F Dec-19F Dec-20F

Total Net Revenues 423,442 450,921 473,910 480,808 487,306

Gross Profit 127,131 124,896 116,728 119,345 125,300

Operating EBITDA 76,900 72,320 63,903 66,816 71,477

Depreciation And Amortisation (22,710) (23,282) (22,478) (21,680) (21,207)

Operating EBIT 54,190 49,038 41,425 45,136 50,271

Financial Income/(Expense) (7,572) (7,112) (6,357) (6,870) (6,960)

Pretax Income/(Loss) from Assoc. 17,933 18,212 14,883 15,256 15,391

Non-Operating Income/(Expense) 10,287 10,367 9,232 9,393 9,474

Profit Before Tax (pre-EI) 74,837 70,505 59,183 62,915 68,176

Exceptional Items 1,710 2,949 150 0 0

Pre-tax Profit 76,547 73,454 59,333 62,915 68,176

Taxation (5,828) (5,694) (7,097) (5,654) (6,453)

Exceptional Income - post-tax

Profit After Tax 70,719 67,760 52,236 57,262 61,722

Minority Interests (14,635) (12,718) (7,508) (9,612) (11,437)

Preferred Dividends

FX Gain/(Loss) - post tax

Other Adjustments - post-tax

Net Profit 56,084 55,041 44,728 47,649 50,285

Recurring Net Profit 54,504 52,321 44,596 47,649 50,285

Fully Diluted Recurring Net Profit 54,504 52,321 44,596 47,649 50,285

Cash Flow


EBITDA 76,900 72,320 63,903 66,816 71,477

Cash Flow from Invt. & Assoc. 0 0 0 0 0

Change In Working Capital 1,880 (10,732) (2,825) (694) (145)

(Incr)/Decr in Total Provisions

Other Non-Cash (Income)/Expense

Other Operating Cashflow 10,292 11,911 15,368 (1,047) 202

Net Interest (Paid)/Received (7,572) (7,112) (6,357) (6,870) (6,960)

Tax Paid (5,828) (5,694) (7,097) (5,654) (6,453)

Cashflow From Operations 75,671 60,692 62,992 52,552 58,122

Capex (31,469) (24,309) (45,725) (62,800) (55,325)

Disposals Of FAs/subsidiaries 41,056 30,802 0 0 0

Acq. Of Subsidiaries/investments (572) (8,425) (2,000) (2,000) (2,000)

Other Investing Cashflow (23,825) (3,190) 5,834 6,101 6,155

Cash Flow From Investing (14,811) (5,122) (41,891) (58,699) (51,170)

Debt Raised/(repaid) (9,385) 7,829 (35,010) 29,138 21,130

Proceeds From Issue Of Shares

Shares Repurchased

Dividends Paid (20,398) (22,799) (18,600) (20,400) (22,800)

Preferred Dividends

Other Financing Cashflow (19,393) (23,730) (1,437) 28 26

Cash Flow From Financing (49,176) (38,700) (55,047) 8,766 (1,644)

Total Cash Generated 11,685 16,869 (33,946) 2,619 5,308

Free Cashflow To Equity 51,476 63,399 (13,909) 22,991 28,082

Free Cashflow To Firm 68,433 62,682 27,458 723 13,912

Cement │ Thailand


13

BY THE NUMBERS… cont’d


Balance Sheet


Total Cash And Equivalents 40,799 56,908 23,080 25,698 31,006

Total Debtors 51,473 55,407 52,657 53,423 54,145

Inventories 53,335 57,650 60,263 60,816 60,827

Total Other Current Assets 11,020 1,654 3,446 3,496 3,543

Total Current Assets 156,626 171,619 139,445 143,434 149,522

Fixed Assets 246,491 250,339 278,791 322,354 355,437

Total Investments 104,712 108,468 119,398 130,552 141,787

Intangible Assets 20,419 28,879 28,879 28,879 28,879

Total Other Non-Current Assets 11,440 14,106 7,234 7,338 7,437

Total Non-current Assets 383,062 401,793 434,302 489,124 533,540

Short-term Debt 15,806 19,783 9,478 9,616 9,746

Current Portion of Long-Term Debt 49,531 44,706 11,000 11,000 11,000

Total Creditors 48,553 46,056 44,966 45,621 46,237

Other Current Liabilities 4,179 5,463 15,706 16,004 16,108

Total Current Liabilities 118,068 116,007 81,150 82,241 83,091

Total Long-term Debt 128,858 144,674 153,674 182,674 203,674

Hybrid Debt - Debt Component

Total Other Non-Current Liabilities 3,960 3,332 1,896 1,923 1,949

Total Non-current Liabilities 132,818 148,007 155,570 184,598 205,624

Total Provisions 7,184 7,573 7,573 7,573 7,573

Total Liabilities 258,070 271,587 244,293 274,412 296,287

Shareholders' Equity 240,023 261,098 287,226 314,475 341,960

Minority Interests 41,595 40,727 42,229 43,671 44,815

Total Equity 281,618 301,825 329,455 358,146 386,775

Key Ratios

Dec-16A Dec-17A Dec-18F Dec-19F Dec-20F

Revenue Growth (3.68%) 6.49% 5.10% 1.46% 1.35%

Operating EBITDA Growth 11.1% (6.0%) (11.6%) 4.6% 7.0%

Operating EBITDA Margin 18.2% 16.0% 13.5% 13.9% 14.7%

Net Cash Per Share (THB) (127.8) (126.9) (125.9) (148.0) (161.2)

BVPS (THB) 200.0 217.6 239.4 262.1 285.0

Gross Interest Cover 7.16 6.89 6.52 6.57 7.22

Effective Tax Rate 7.6% 7.8% 12.0% 9.0% 9.5%

Net Dividend Payout Ratio 37.5% 43.8% 41.7% 42.8% 45.3%

Accounts Receivables Days 45.71 43.26 41.61 40.26 40.40

Inventory Days 65.61 62.13 60.25 61.13 61.49

Accounts Payables Days 60.15 52.96 42.90 38.56 39.15

ROIC (%) 17.0% 14.4% 11.6% 12.2% 12.1%

ROCE (%) 11.6% 9.8% 8.0% 8.4% 8.5%

Return On Average Assets 14.6% 12.9% 10.2% 10.6% 10.4%

Key Drivers

Dec-16A Dec-17A Dec-18F Dec-19F Dec-20F

Domestic ASP (% Change) -7.0% 0.0% 2.0% 2.0% 2.0%

Domestic Vol. Sales Growth (%) 0.0% -1.9% 3.0% 3.0% 5.0%

Export ASP (% Change) -9.8% -21.3% 5.0% 5.0% 5.0%

Export Vol. Sales Growth (%) -32.9% 34.2% -12.5% 0.0% 0.0%

Utilisation Rate (%) N/A N/A N/A N/A N/A

Unit Raw Material ASP (% Change) N/A N/A N/A N/A N/A

Export Sales/total Sales (%) N/A N/A N/A N/A N/A

Cement │ Thailand


14

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Cement │ Thailand


15

Country CGS-CIMB Entity Regulated by

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(a) -

(ii) Analyst Disclosure: As of November 19, 2018, the analyst(s) who prepared this report, and the associate(s), has / have an interest in the securities (which may include but not limited to shares, warrants, call warrants and/or any other derivatives) in the following company or companies covered or recommended in this report:

(a) -

This report does not purport to contain all the information that a prospective investor may require. Neither CGS-CIMB or CIMB, as the case may be, nor any of their respective affiliates (including CGIFHL, CIMBG and their related corporations) make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information and opinion contained in this report. Neither CGS-CIMB or CIMB, as the case may be, nor any of their respective affiliates nor their related persons (including CGIFHL, CIMBG and their related corporations) shall be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof.

This report is general in nature and has been prepared for information purposes only. It is intended for circulation amongst CGS-CIMB’s or CIMB’s (as the case may be) clients generally and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. The information and opinions in this report are not and should not be construed or considered as an offer, recommendation or solicitation to buy or sell the subject securities, related investments or other financial instruments or any derivative instrument, or any rights pertaining thereto.

Investors are advised to make their own independent evaluation of the information contained in this research report, consider their own individual investment objectives, financial situation and particular needs and consult their own professional and financial advisers as to the legal, business, financial, tax and other aspects before participating in any transaction in respect of the securities of company(ies) covered in this research report.

The securities of such company(ies) may not be eligible for sale in all jurisdictions or to all categories of investors.

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Germany: This report is only directed at persons who are professional investors as defined in sec 31a(2) of the German Securities Trading Act (WpHG). This publication constitutes research of a non-binding nature on the market situation and the investment instruments cited here at the time of the publication of the information.

The current prices/yields in this issue are based upon closing prices from Bloomberg as of the day preceding publication. Please note that neither the German Federal Financial Supervisory Agency (BaFin), nor any other supervisory authority exercises any control over the content of this report.

Hong Kong: This report is issued and distributed in Hong Kong by CGS-CIMB Securities (Hong Kong) Limited (“CHK”) which is licensed in Hong Kong by the Securities and Futures Commission for Type 1 (dealing in securities), Type 4 (advising on securities) and Type 6 (advising on corporate

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finance) activities. Any investors wishing to purchase or otherwise deal in the securities covered in this report should contact the Head of Sales at CGS-CIMB Securities (Hong Kong) Limited. The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CHK has no obligation to update its opinion or the information in this research report.

This publication is strictly confidential and is for private circulation only to clients of CHK.

CHK does not make a market on other securities mentioned in the report.

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The research analysts, strategists or economists principally responsible for the preparation of this research report are segregated from the other activities of CGS-CIMB India and they have received compensation based upon various factors, including quality, accuracy and value of research, firm profitability or revenues, client feedback and competitive factors. Research analysts', strategists' or economists' compensation is not linked to investment banking or capital markets transactions performed or proposed to be performed by CGS-CIMB India or its affiliates.

CGS-CIMB India does not have actual / beneficial ownership of 1% or more securities of the subject company in this research report, at the end of the month immediately preceding the date of publication of this research report. However, since affiliates of CGS-CIMB are engaged in the financial services business, they might have in their normal course of business financial interests or actual / beneficial ownership of one per cent or more in various companies including the subject company in this research report.

CGS-CIMB or its associates, may: (a) from time to time, have long or short position in, and buy or sell the securities of the subject company in this research report; or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company in this research report or act as an advisor or lender/borrower to such company or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.

CGS-CIMB India, its associates and the analyst engaged in preparation of this research report have not received any compensation for investment banking, merchant banking or brokerage services from the subject company mentioned in the research report in the past 12 months.

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This research report is not an offer of securities in Indonesia. The securities referred to in this research report have not been registered with the Financial Services Authority (Otoritas Jasa Keuangan) pursuant to relevant capital market laws and regulations, and may not be offered or sold within the territory of the Republic of Indonesia or to Indonesian citizens through a public offering or in circumstances which constitute an offer within the meaning of the Indonesian capital market law and regulations.

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Recipients of this report are to contact CGS-CIMB Research Pte Ltd, 50 Raffles Place, #16-02 Singapore Land Tower, Singapore in respect of any

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matters arising from, or in connection with this report. CGS-CIMBR has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only. If you have not been sent this report by CGS-CIMBR directly, you may not rely, use or disclose to anyone else this report or its contents.

If the recipient of this research report is not an accredited investor, expert investor or institutional investor, CGS-CIMBR accepts legal responsibility for the contents of the report without any disclaimer limiting or otherwise curtailing such legal responsibility. If the recipient is an accredited investor, expert investor or institutional investor, the recipient is deemed to acknowledge that CGS-CIMBR is exempt from certain requirements under the FAA and its attendant regulations, and as such, is exempt from complying with the following :

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(f) any other laws, regulations, notices, directive, guidelines, circulars and practice notes which are relates to the above, to the extent permitted by applicable laws, as may be amended from time to time, and any other laws, regulations, notices, directive, guidelines, circulars, and practice notes as we may notify you from time to time. In addition, the recipient who is an accredited investor, expert investor or institutional investor acknowledges that as CGS-CIMBR is exempt from Section 27 of the FAA, the recipient will also not be able to file a civil claim against CGS-CIMBR for any loss or damage arising from the recipient’s reliance on any recommendation made by CGS-CIMBR which would otherwise be a right that is available to the recipient under Section 27 of the FAA, the recipient will also not be able to file a civil claim against CGS-CIMBR for any loss or damage arising from the recipient’s reliance on any recommendation made by CGS-CIMBR which would otherwise be a right that is available to the recipient under Section 27 of the FAA.

CGS-CIMBR, its affiliates and related corporations, their directors, associates, connected parties and/or employees may own or have positions in specified products of the company(ies) covered in this research report or any specified products related thereto and may from time to time add to or dispose of, or may be materially interested in, any such specified products. Further, CGS-CIMBR, its affiliates and its related corporations do and seek to do business with the company(ies) covered in this research report and may from time to time act as market maker or have assumed an underwriting commitment in specified products of such company(ies), may sell them to or buy them from customers on a principal basis and may also perform or seek to perform significant investment banking, advisory, underwriting or placement services for or relating to such company(ies) as well as solicit such investment, advisory or other services from any entity mentioned in this report.

As of November 16, 2018, CGS-CIMBR does not have a proprietary position in the recommended specified products in this report.

CGS-CIMBR does not make a market on the securities mentioned in the report.

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CGS-CIMB is not registered with the Spanish Comision Nacional del Mercado de Valores to provide investment services.

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Switzerland: This report has not been prepared in accordance with the recognized self-regulatory minimal standards for research reports of banks issued by the Swiss Bankers’ Association (Directives on the Independence of Financial Research).

Thailand: This report is issued and distributed by CGS-CIMB Securities (Thailand) Co. Ltd. (“CGS-CIMB Thailand”) based upon sources believed to be reliable (but their accuracy, completeness or correctness is not guaranteed). The statements or expressions of opinion herein were arrived at after due and careful consideration for use as information for investment. Such opinions are subject to change without notice and CGS-CIMB Thailand has no obligation to update its opinion or the information in this research report.

CGS-CIMB Thailand may act or acts as Market Maker, and issuer and offerer of Derivative Warrants and Structured Note which may have the following securities as its underlying securities. Investors should carefully read and study the details of the derivative warrants in the prospectus before making investment decisions.

AAV, ADVANC, AMATA, AOT, AP, BANPU, BBL, BCH, BCP, BCPG, BDMS, BEAUTY, BEM, BGRIM, BJC, BH, BLA, BLAND, BPP, BTS, CBG, CENTEL, CHG, CK, CKP, COM7, CPALL, CPF, CPN, DELTA, DTAC, EA, EGCO, EPG, ERW, ESSO, GGC, GFPT, GLOBAL, GLOW, GPSC, GUNKUL, HANA, HMPRO, INTUCH, IRPC, ITD, IVL, KBANK, KCE, KKP, KTB, KTC, LH, LPN, MAJOR, MEGA, MINT, MTLS, ORI, PRM, PSH, PSL, PTG, PTT, PTTEP, PTTGC, QH, RATCH, ROBINS, RS, SAWAD, SCB, SCC, SGP, SIRI, SPALI, SPRC, STA, STEC, SUPER, TASCO, TCAP, THAI, THANI, TISCO, TKN, TMB, TOA, TOP, TPIPL, TPIPP, TRUE, TTW, TU, TVO, UV, WHA, WHAUP, WORK.

Corporate Governance Report:

The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information.

The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CGS-CIMB Thailand does not confirm nor certify the accuracy of such survey result.

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Score Range: 90 - 100 80 – 89 70 - 79 Below 70 or No Survey Result

Description: Excellent Very Good Good N/A

United Arab Emirates: The distributor of this report has not been approved or licensed by the UAE Central Bank or any other relevant licensing authorities or governmental agencies in the United Arab Emirates. This report is strictly private and confidential and has not been reviewed by, deposited or registered with UAE Central Bank or any other licensing authority or governmental agencies in the United Arab Emirates. This report is being issued outside the United Arab Emirates to a limited number of institutional investors and must not be provided to any person other than the original recipient and may not be reproduced or used for any other purpose. Further, the information contained in this report is not intended to lead to the sale of investments under any subscription agreement or the conclusion of any other contract of whatsoever nature within the territory of the United Arab Emirates.

United Kingdom and European Economic Area (EEA): In the United Kingdom and European Economic Area, this material is also being distributed by CGS-CIMB Securities (UK) Limited (“CGS-CIMB UK”). CGS-CIMB UK is authorized and regulated by the Financial Conduct Authority and its registered office is at 27 Knightsbridge, London, SW1X7YB. The material distributed by CGS-CIMB UK has been prepared in accordance with CGS-CIMB’s policies for managing conflicts of interest arising as a result of publication and distribution of this material. This material is for distribution only to, and is solely directed at, selected persons on the basis that those persons: (a) are eligible counterparties and professional clients of CGS-CIMB UK; (b) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the “Order”), (c) fall within Article 49(2)(a) to (d) (“high net worth companies, unincorporated associations etc”) of the Order; (d) are outside the United Kingdom subject to relevant regulation in each jurisdiction, material(all such persons together being referred to as “relevant persons”). This material is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this material relates is available only to relevant persons and will be engaged in only with relevant persons.

Where this material is labelled as non-independent, it does not provide an impartial or objective assessment of the subject matter and does not constitute independent “research” (cannot remove research from here under the applicable rules of the Financial Conduct Authority in the UK. Consequently, any such non-independent material will not have been prepared in accordance with legal requirements designed to promote the independence of research (cannot remove research from here) and will not subject to any prohibition on dealing ahead of the dissemination of research. Any such non-independent material must be considered as a marketing communication.

United States: This research report is distributed in the United States of America by CGS-CIMB Securities (USA) Inc, a U.S. registered broker-dealer and a related company of CGS-CIMB Research Pte Ltd, PT CGS-CIMB Sekuritas Indonesia, CGS-CIMB Securities (Thailand) Co. Ltd, CGS-CIMB Securities (Hong Kong) Limited, CGS-CIMB Securities (India) Private Limited, and is distributed solely to persons who qualify as “U.S. Institutional Investors” as defined in Rule 15a-6 under the Securities and Exchange Act of 1934. This communication is only for Institutional Investors whose ordinary business activities involve investing in shares, bonds, and associated securities and/or derivative securities and who have professional experience in such investments. Any person who is not a U.S. Institutional Investor or Major Institutional Investor must not rely on this communication. The delivery of this research report to any person in the United States of America is not a recommendation to effect any transactions in the securities discussed herein, or an endorsement of any opinion expressed herein. CGS-CIMB Securities (USA) Inc, is a FINRA/SIPC member and takes responsibility for the content of this report. For further information or to place an order in any of the above-mentioned securities please contact a registered representative of CGS-CIMB Securities (USA) Inc.

CGS-CIMB Securities (USA) Inc. does not make a market on other securities mentioned in the report.

CGS-CIMB Securities (USA) Inc. has not managed or co-managed a public offering of any of the securities mentioned in the past 12 months.

CGS-CIMB Securities (USA) Inc. has not received compensation for investment banking services from any of the company mentioned in the past 12 months.

CGS-CIMB Securities (USA) Inc. neither expects to receive nor intends to seek compensation for investment banking services from any of the company mentioned within the next 3 months.

Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

Spitzer Chart for stock being researched ( 2 year data )

Siam Cement (SCC TB)

Rating Distribution (%) Inv estment Banking clients (%)

Add 60.5% 4.2%

Hold 25.8% 2.4%

Reduce 13.7% 0.4%

Distribution of stock ratings and inv estment banking clients for quarter ended on 30 September 2018

759 companies under cov erage for quarter ended on 30 September 2018

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Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (Thai IOD) in 2017, Anti-Corruption 2017

AAV – Very Good, n/a, ADVANC – Excellent, Certified, AEONTS – Good, n/a, AMATA – Very Good, n/a, ANAN – Excellent, n/a, AOT – Excellent, Declared, AP – Excellent, Declared, ASK – Very Good, Declared, ASP – Very Good, Certified, BANPU – Excellent, Certified, BAY – Excellent, Certified, BBL – Very Good, Certified, BCH – Good, Declared, BCP - Excellent, Certified, BCPG – Very Good, n/a, BEM – Very Good, n/a, BDMS – Very Good, n/a, BEAUTY – Good, n/a, BEC – Very Good, n/a, , BGRIM – not available, n/a, BH - Good, n/a, BJC – Very Good, Declared, BJCHI – Very Good, Declared, BLA – Very Good, Certified, BPP – Good, n/a, BR - Good, Declared, BTS - Excellent, Certified, CBG – Good, n/a, CCET – Good, n/a, CENTEL – Very Good, Certified, CHG – Very Good, Declared, CK – Excellent, n/a, COL – Very Good, Declared, CPALL – not available, Declared, CPF – Excellent, Declared, CPN - Excellent, Certified, DELTA - Excellent, n/a, DEMCO – Excellent, Certified, DIF – not available, n/a, DTAC – Excellent, Certified, EA – Very Good, n/a, ECL – Very Good, Certified, EGCO - Excellent, Certified, EPG – Very Good, n/a, GFPT - Excellent, Declared, GGC – not available, Declared, GLOBAL – Very Good, Declared, GLOW – Very Good, Certified, GPSC – Excellent, Declared, GRAMMY - Excellent, n/a, GUNKUL – Excellent, Declared, HANA - Excellent, Certified, HMPRO - Excellent, Certified, ICHI – Excellent, n/a, III – not available, n/a, INTUCH - Excellent, Certified, IRPC – Excellent, Certified, ITD – Very Good, n/a, IVL - Excellent, Certified, JAS – not available, Declared, JASIF – not available, n/a, JUBILE – Good, Declared, KAMART – not available, n/a, KBANK - Excellent, Certified, KCE - Excellent, Certified, KGI – Very Good, Certified, KKP – Excellent, Certified, KSL – Very Good, Certified, KTB - Excellent, Certified, KTC – Excellent, Certified, LH - Very Good, n/a, LPN – Excellent, Certified, M – Very Good, n/a, MACO – Very Good, n/a, MAJOR – Very Good, n/a, MAKRO – Very Good, Declared, MALEE – Very Good, n/a, MBKET – Very Good, Certified, MC – Very Good, Declared, MCOT – Excellent, Certified, MEGA – Very Good, n/a, MINT - Excellent, Certified, MTLS – Very Good, Declared, NYT – Excellent, n/a, OISHI – Very Good, n/a, PLANB – Excellent, Declared, PLAT – Very Good, Certified, PSH – Excellent, Certified, PSL - Excellent, Certified, PTT - Excellent, Certified, PTTEP - Excellent, Certified, PTTGC - Excellent, Certified, QH – Excellent, Certified, RATCH – Excellent, Certified, ROBINS – Excellent, Certified, RS – Very Good, n/a, SAMART - Excellent, n/a, SAPPE - Good, n/a, SAT – Excellent, Certified, SAWAD – Very Good, n/a, SC – Excellent, Declared, SCB - Excellent, Certified, SCBLIF – not available, n/a, SCC – Excellent, Certified, SCN – Very Good, Declared, SCCC - Excellent, Declared, SIM - Excellent, n/a, SIRI – Very Good, Declared, SPA - Good, n/a, SPALI - Excellent, n/a, SPRC – Excellent, Declared, STA – Very Good, Declared, STEC – Excellent, n/a, SVI – Excellent, Certified, TASCO – Very Good, n/a, TCAP – Excellent, Certified, THAI – Very Good, n/a, THANI – Very Good, Certified, THCOM – Excellent, Certified, THRE – Very Good, Certified, THREL – Excellent, Certified, TICON – Very Good, Declared, TIPCO – Very Good, Certified, TISCO - Excellent, Certified, TK – Very Good, n/a, TKN – Very Good, Declared, TMB - Excellent, Certified, TNR – Good, n/a, TOP - Excellent, Certified, TPCH – Good, n/a, TPIPP – not available, n/a, TRUE – Excellent, Declared, TTW – Very Good, n/a, TU – Excellent, Declared, TVO – Excellent, Declared, UNIQ – not available, Declared, VGI – Excellent, Declared, WHA – not available, Declared, WHART – not available, n/a, WORK – not available, n/a.

Companies participating in Thailand’s Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of October 28, 2016) are categorized into:

- Companies that have declared their intention to join CAC, and

- Companies certified by CAC

Recommendation Framework

Stock Ratings Definition:

Add The stock’s total return is expected to exceed 10% over the next 12 months.

Hold The stock’s total return is expected to be between 0% and positive 10% over the next 12 months.

Reduce The stock’s total return is expected to fall below 0% or more over the next 12 months.

The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the stock. Stock price targets have an investment horizon of 12 months.

Sector Ratings Definition:

Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation.

Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation.

Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.

Country Ratings Definition:

Overweight An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark.

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Price Close

Recommendations & Target Price

Add Hold Reduce Not Rated

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Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark.

Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.

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add (previously hold) slow margin recovery post naphtha ... · dubai crude oil price, naphtha crack...

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