SCCC - 3Q24: Up YoY on better cost control

Though missing consensus by 15%, SCCC posted a 3Q24 net profit of Bt790mn, surging 79.1% YoY due to improved cost control and lower coal energy costs but slipping 9.7% QoQ on seasonality. SCCC expects Thailand’s cement demand to recover, driven by government disbursement; however it does see risk from government instability and high household debt. We maintain Neutral with a target price of Bt158.00, based on a 13.1x PE or -1.0SD of its 10-year PE mean.

3Q24 net profit up YoY but down QoQ. Missing consensus by 15%, SCCC reported a 3Q24 net profit of Bt790mn, up 79.1% YoY on improved cost controls and lower coal costs in nearly all cement businesses across Thailand, Vietnam, Sri Lanka and Cambodia. Net profit slipped 9.7% QoQ on a 1.2% QoQ slowdown in sales as the rainy season reduced construction activity, and retail spending was lower due to high household debt. Additionally, the company faced challenges from floods in the northern and northeastern regions of Thailand, as well as disruption in exports to Myanmar and Laos, also affected by flooding. Gross margin was 28.7% in 3Q24, up from 27.1% in 2Q24 and 25.7% in 3Q23 on lower coal prices, improved cost efficiency and a higher proportion of alternative energy sources. LANNA’s drop in profit pulled equity contribution down to Bt192mn (-36.3% QoQ, +4.9% YoY).

Outlook. SCCC is moderately positive about the overall cement market in Thailand (72% of total revenue). It expects growth to be backed by infrastructure projects such as mass transit and road expansion, as well as more activity in the commercial and industrial sectors. However, the residential sector still faces challenges due to weak household spending and high household debt. The Vietnam market (13% of total revenue) is also projected to experience moderate growth, supported by government investment and large-scale infrastructure projects. 9M24 net profit accounted for 80% of our full-year profit forecast and we maintain our forecast as holidays generally make 4Q24 a low season.

To consolidate LANNA starting 4Q24. Following the tender offer for LANNA shares, SCCC has increased its ownership in LANNA by 16.46% of total shares from the previous 44.99%. It expects to consolidate LANNA's financial statements starting from 4Q24. It will continue to implement cost saving programs with the goal of reducing overall expense by 15%.

Valuation & recommendation. We believe cement and building material demand needs more time to recover, with 4Q24 being a low season (long holidays, low construction activities) and high household debt continuing to erode cement demand. Therefore, we keep our Neutral recommendation with a TP of Bt158.00 based on 13.1x PE or -1.0 S.D. of 10-year PE mean.

Key risks: Changes in purchasing power, higher energy costs and geopolitical issues. Key ESG risks are energy management and high greenhouse gas emissions.