| BANGKOK, July 31
BANGKOK, July 31 Siam Cement Pcl,
Thailand's largest industrial conglomerate, is finally catching
up with the capacity it overbuilt before the Asian financial
crisis as it feeds demand from frontier markets including
Myanmar and Cambodia.
The company's rapid growth is emblematic of Southeast Asia's
rise, where countries such as the Philippines, Indonesia and
Thailand currently rank among the world's strongest economies.
With that economic growth comes demand for the building and
packaging materials that Siam Cement makes.
At the height of the Asian financial crisis in 1998,
Thailand used less than 60 percent of its cement capacity, which
peaked at 56 million tonnes, far outstripping demand. Capacity
has held steady since then, but now as much as 90 percent is
used, and Siam Cement plans to expand its production capability
in 2015, which would be the first increase since the 1990s.
Myanmar, Cambodia and Laos have a cement shortage and must
import supplies, while demand in Indonesia and Thailand -
Southeast Asia's two biggest economies - is expected to rise 10
percent this year because of big infrastructure projects.
Siam Cement, the region's second-largest cement maker after
Swiss company Holcim Ltd, is expected to report later
on Wednesday that second-quarter net profit doubled, which would
bring the first-half earnings growth to 70 percent, according to
eight analysts surveyed by Reuters.
For the full year, analysts expect a 39 percent rise in net
profit to 32.9 billion baht ($1.05 billion), which would be the
highest since 2010.
Indonesian rival Semen Indonesia Tbk reported a 23
percent increase in first-half net profit on Tuesday.
While Thai companies including top oil and gas company PTT
Pcl have scaled back investment after a slump in
Southeast Asian exports, Siam Cement maintained its five-year
capital spending budget at 200 billion baht ($6.43 billion) as
part of its drive to capture growth around the region.
"Our investments will focus on Indonesia, Vietnam and
Myanmar, which are our strategic countries," Chief Executive Kan
Trakulhoon told Reuters in a recent interview.
The Thai firm's investments reached 47 billion baht ($1.51
billion) in 2012, the most since 1997 when capital spending hit
a record high of 61.3 billion baht. Its net debt-to-EBITDA
ratio, a measure of gearing, stood at 2.7 at the end of March,
compared with 9.2 at the end of 1997.
The company plans to raise its domestic capacity by 10
percent in 2015, when new cement plants in Indonesia, Cambodia
and Myanmar will also gradually come on stream.
Smaller domestic rivals such as second-ranked Siam City
Cement Pcl, part owned by Holcim, and No. 3 TPI Polene
Pcl also plan to boost domestic capacity after working
through the oversupply.
Thailand's cement demand recovered from severe floods in
late 2011, recording 12.8 percent growth in 2012. Growth is
expected to continue next year despite a possible delay in an
$11 billion water management programme and $70 billion worth of
New home construction and renovations have helped pick up
the slack, and Siam Cement's plants in the central and northern
parts of Thailand have been running at full capacity. Domestic
cement sales in May rose 11.8 percent year-on-year. Residential
projects normally make up half of cement demand and
infrastructure takes up about 20 percent.
Siam Cement shares, valued at $17 billion, have outperformed
the Thai market, up 42 percent in the past 12 months, compared
with a 23 percent gain for the broader Thai market.
According to Thomson Reuters StarMine, 19 of 21 analysts
covering the stock rate Siam Cement "buy" or "strong buy" with
the other two advising clients to "sell".
The question mark hanging over the company is whether the
strong Southeast Asian demand will last once the U.S. Federal
Reserve begins scaling back its bond-buying programme, which has
sent a wave of cheap money into emerging markets. As borrowing
costs rise, big infrastructure projects become more expensive.
But for now, Thailand's cement sector is in the sweet spot.
"Thailand has more room to capture demand as it is in the
early years of a strong growth cycle. In the next three years,
it should be a golden period for the cement sector after a
downturn in the past decade," said Suwat Sinsadok, an analyst at
CIMB Securities in Bangkok.
($1 = 31.1900 Thai baht)
(Editing by Emily Kaiser)