Siam Cement Polymer spreads to remain strong
■ Siam Cement Polymer
Vietnam-based olefins plant of 1. mtpa should be the company’s long-term EPS growth driver, thanks to feedstock cost competitiveness.
■ Asian PVC-EDC spread was at a 10-year high in Apr 21, which should support SCC’s chemical EBITDA in the near term. Expanded ethylene capacity right on time to capture strong demand SCC’s project to expand ethylene capacity by 300ktpa achieved on-spec production in Mar 21 and started commercial production in Apr 21F.
The primary objective behind increasing ethylene production is to cover its internal ethylene deficit of 200-300ktpa. We believe the expansion plan is good for SCC as profitability distribution is heavily skewed to upstream ethylene-naphtha while the PE-ethylene spread was always narrow at US$80-100/t over 2019-2020.
If the Asian ethylene-naphtha spread stands at US$500/t in 2021F, incremental net profit would reach THB2.0bn or 4.8% of our 2021F net profit forecast. Vietnamese chemical project to underpin long-term growth Based on SCC’s disclosure, the construction of the Long Son Petrochemical (LSP) project, a Vietnam-based chemical complex, was 66% completed at end-2020.
The project will add 1.65mtpa of olefins volume (ethylene and propylene) on top of the Thaibased capacity of 3.4mtpa. The key strength of the project is its competitive cost for liquefied petroleum gas (LPG), supplied by Qatar Petroleum. SCC projects commercial startup for 1H23F.
Assuming that HDPE-naphtha and PP-naphtha spreads are at US$500/t and US$520/t, respectively, we estimate EBITDA accretion from LSP to be THB12.0bn.
Assuming D/E ratio of 1.5:1, we expect the project to see IRR of 10.8% if costs are US$5.5bn. Upside from Asian polyvinyl chloride (PVC) spread Despite higher ethylene dichloride (EDC) cost, the Asian PVC-EDC/ethylene spread exceeded US$600/t in early-Apr 21, a 10-year high as the market remains very tight with improved demand and low supply globally. According to IHS, the PVC inventory level is abnormally low ahead of the heavy maintenance season in 2Q21F.
We estimate that every US$100/t increase in PVC-EDC/ethylene spread leads to 6.2% upside for our 2021F EPS forecast. Capturing benefit from tight chemical market, reiterate Add We raise our 2021-2023F EPS forecasts by 5.7-10.6% to reflect higher chemical spread assumptions.
We also lift our EBITDA forecasts (2.4-5.7%), triggering a hike in our SOPbased target price to THB480. We reiterate Add. We believe SCC could withstand the potentially higher naphtha cost in the near term as LPG feedstock should become cheaper in the summer season.
SCC’s long-term EPS outlook is also well supported by capacity expansion in Vietnam. Valuation remains inexpensive at 2021F P/BV of 1.4x vs. 2010-2020 average of 2.2x. An upside risk is lower-than-expected naphtha cost. A downside risk is weaker-than-expected domestic cement demand
– By CIMB Bank Research
