2Q23 net profit was Bt8.1bn, -18.7% YoY and -51.1% QoQ, beating INVX and consensus estimates hugely on another one-time gain related to fair value adjustment of its subsidies. 2Q23 core profit grew 16% QoQ on contribution from chemical and packaging units (higher chemical spreads and lower raw material and energy – coal - cost for packaging unit). In view of the recent drop in share price and an improving near-term earnings outlook, we maintain OUTPERFORM with a new SOTP target price of Bt357.
Strong 2Q23 net profit of Bt8.1bn beat INVX by 75% and consensus by 61% on an unexpected one-time gain of Bt2.8bn from fair value adjustment of subsidiaries. Removing this shows a 2Q23 core profit of Bt5.2bn, in line with our estimate. The extraordinary items were fair value adjustment for subsidiaries of Bt2.86bn and inventory loss of Bt1.84bn.
2Q23 core profit was up 15.5% QoQ due to: 1) better chemical unit on the back of higher chemical spread (high density polyethylene, HDPE, spread was US$443/ton in 2Q23 vs US$396/ton in 1Q23) and a 7.0% QoQ increase in production volume after fully restarting its ROC plant, raising olefins utilization rate to 80-85% in 2Q23 from 75-80% in 1Q23, 2) 21.7% QoQ growth in earnings at SCGP on lower cost, and 3) the semi-annual dividend income from Toyota & Kubota (Thailand).
3Q23 earnings outlook. We expect the better momentum to continue in 3Q23 on the back of a gradual improvement in sales volume on resumption of its Rayong Olefins (ROC) plant amid the high season in overall chemical demand, while we also see better earnings contribution from its packaging business.
Dividend on 1H23. SCC will pay a dividend of Bt2.50/sh on its 1H23, with XD Aug 8.
Revisit our 2023 core earnings. We are revising down our 2023 core earnings forecast by 17% to reflect the lower-than-expected utilization rate for the chemical unit in response to a slower pace of recovery in chemical demand.
Action & Recommendation. We maintain Outperform with a new TP of Bt357 (from Bt385). We are positive on the earnings outlook for the medium to long term on the scheduled September startup of the new Long Son Petrochemical (LSP) plant (+40% capacity addition).
Key risks are changes in purchasing power and higher costs from inflationary pressure, higher interest rate and exchange rate volatility as well as the huge additional supply coming on the market.
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