SCC - Growing the value up to 2023 (TP Bt550.0, OUTPERFORM)
(16/07/2018 - 09:45)
กลุ่มอุตสาหกรรม วัสดุก่อสร้าง
หุ้น SCC
มูลค่าพื้นฐาน 550.00
คำแนะนำ BUY
  • MOC expansion (completed mid-2021) and LSP cracker (2023) to be the next growth engines; new supply additions to peak in 2H18 and less in 2019-2022
  • Expect 2Q18F earnings at Bt12.5bn (+1% qoq, -6% yoy); weak THB, dividend income to offset softer chemical margins
  • OUTPERFORM, DCF-based TP Bt550/sh; net debt/EBITDA is below 2.0x in 2019-2022, vs 2.0-3.0x in previous cycle 

 

MOC expansion and LSP cracker will be the next growth drivers

SCC’s earnings will continue to weigh on chemical business. We expect new supply to peak in 2H18 and be in line with demand growth in 2019. SCC is more optimistic and expects 3% supply addition vs our 3.8% assumption in 2019. The new supply will gradually grow to 3-4% p.a. up to 2022, in line with demand growth and ensuring that the peak cycle will be extended to 2022. SCC approved expansion of MOC cracker (+350k tons, Bt15.5bn capex) and signed a 15-year agreement with Qatar Petroleum to buy 2m tons p.a. of Propane and naphtha (representing 80% of feedstock requirement) for its LSP cracker in Vietnam. MOC expansion and LSP cracker will be completed in mid-2021 and 2023 and would support SCC’s earnings as the chemical industry will turn to downcycle. Both investments are part of Bt50bn annual capex budget and still keep net debt/EBITDA below 2.0x vs. 2.0-3.0x in previous capex cycle in 2008-2012.

 

2Q18F earnings stronger than market expected at Bt12.5bn (+1% qoq but -6% yoy)

Although chemical margins softened qoq, SCC had settled pricing one-month earlier and strong margins in March should be seen in April and this reduced the impact of softening margins. Rising crude oil prices pushed up naphtha feedstock prices (+US$60/ton qoq), which lowered HDPE spread to US$744 and PP spread to US$660 from US$798 and US$689 in 1Q18 respectively. Sales volume for PE and PP should be flat qoq to 450k tons. THB had weakened qoq by Bt1.8/USD and this will contribute c.Bt5bn higher cash flow. Cement business should remain soft due to long holidays in 2Q with flat qoq selling prices at Bt1,700/ton (+Bt50 in 1Q18). We assume SCC would receive Bt1.3bn dividend from Toyota Motor (same as 2Q17). Equity income should improve qoq to Bt4.0bn, up 7% qoq, due improving chemical margins of associated companies and no plant outage (one plant outage in 1Q18).

  

OUTPERFORM, TP Bt550/sh; growing the value by 2023

SCC’s share price has softened in the past three months due to market concerns on weaken HDPE spreads. We are less concerned given current HDPE spread at US$720 still healthy and in line with our assumption. Our DCF-based TP is Bt550/sh, implying 12.3x FY18F PE.