SCC – Preview 4Q24: Core loss expected

We expect a 4Q24 core loss of Bt431mn, primarily due to a full quarter of depreciation and interest expenses of Bt850mn/month plus nitrogen gas cost of Bt100mn/month for the LSP project; the cement business is expected to be flat YoY and QoQ. We expect 1H25 to remain challenging on low chemical spread but expect some recovery in 2H25. We cut our 2024F by 36% and 2025F by 60% to reflect a lower chemical spread assumption. We maintain our Neutral recommendation but cut our 2025 SOTP to Bt180 from Bt260.

4Q24 expected to be in the red again. We expect SCC to report a core loss of Bt431mn in 4Q24 (vs. Bt502mn core profit in 4Q23 and Bt1.4bn core loss in 3Q24) upon a full quarter of depreciation and interest expenses of Bt850mn/month for the Longson Petrochemical (LSP) plant, as well as ~Bt100mn/month expense for nitrogen gas to prevent corrosion of the LSP plant equipment and to ensure rapid restart. This will be coupled with a drop in HDPE spread to US$316/ton in 4Q24 (4Q23: US$363/ton, 3Q24: US$323/ton) due to weak demand. The cement business is expected to be stable both YoY and QoQ. However, core profit in 4Q24 is expected to improve slightly QoQ due to cost optimization and dividend income from Toyota and Kubota Thailand. We expect no significant impairment expenses or inventory gains/losses in 4Q24.

1H25 remains challenging, but we expect recovery in 2H25. We expect 1H25 to remain challenged by continued low chemical spread plus full recognition of huge fixed cost of Bt850mn/month for the LSP project. The company expects chemical spread to gradually improve in 2025 upon a gradual recovery in demand following China's large-scale economic stimulus, but this will likely be more evident in 2H25. Whether LSP will resume operations will depend on propane prices and the overall cost competitiveness of the chemical production chain. The negatives are expected to be partially offset by slightly improved cement demand as the government has sped up disbursement and coal costs are lower. Cost savings are expected to reduce expenses by ~Bt5bn in 2025.

Action & recommendation. We cut our 2024F by 36% and 2025F by 60% to reflect a lower chemical spread assumption of US$338/ton (from US$350) in 2024 and US$350/ton (from US$400) in 2025. We also assume its cost savings program reduces expenses by Bt5bn in 2025. We stay Neutral with our 2025 SOTP reduced to Bt180 (from Bt260 previously).

Key risks are higher costs from inflationary pressure, higher interest rate and exchange rate volatility as well as oversupply in the cement and chemical businesses.