The Siam Cement Public Company Limited (SCC) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome back to SCG Analyst Conference for the First Quarter 2021 Results. In response to the ongoing COVID-19 outbreak, we are organizing this event 100% virtually. Despite the slight change in the format, we still aim to provide you with the results clarification and business updates with our management as usual. Kindly note that while our program is on, you'll be muted. We will open the floor up to questions after our management speaks. Now onwards to this morning's program. Today's presenters are as follows. [ Beginning with the consolidated results, the CEO of SCG , Khun Roongrote Rangsiyopash ]. The financials will be highlighted by the CFO of SCG, Khun Thammasak Sethaudom. For the business units, beginning with the President of the Cement-Building Materials Business, Khun Nithi Patarachoke. He will be supported by Khun Chana Poomee. And he will be followed by the President of the Chemicals Business, Khun Tanawong Areeratchakul. Thank you. And now on to today's exciting program beginning with Khun Roongrote krub.

Good morning, everyone. I guess you all have seen the financial results of the first quarter that we sent to the Stock Exchange last night. So today, we'll just recap what's going on. Next page. Next, please? Okay. Yes. Basically, the first quarter revenue was THB 122 billion, which is about 15% growth on a year-on-year basis and 26% growth on the quarterly basis. In terms of EBITDA, we [ registered ] THB 23.6 billion in terms of EBITDA. That's about 68% year-on-year growth and 29% Q-on-Q. Again, this representing growth on the Chemicals, Packaging. Equity income, again, the significant growth in the first quarter. We had a total of THB 5.7 billion in terms of equity income, and that's about 350% year-on-year and about 60% (sic) [64%] Q-on-Q growth. Again, we have seen both growth coming from Chemicals equity income and also the other equity income, primarily our joint venture in the agricultural machinery. In terms of profit, we registered THB 14.9 billion, which represents 114% growth from the same period of last year and 85% growth from the last quarter. As you can see, year-on-year, we reduced the growth from the Chemicals and also Packaging as well as the equity income, whereas the year-on-year profit for the Cement-Building Materials is relatively flat. Next, please. In terms of segmentation, really not that much change from the same period of last year. Chemicals account for 42% of the revenues; and Packaging, 22%; and Cement-Building Materials is 36%. Next, please. Here, you can see that in terms of the profit, Chemicals represented about 59% of the profit, whereas Cement-Building Materials is 19%; Packaging is 10%; and equity income is 12%. Next, please. This is the sales segmentation. As you can see, in terms of the total sales, about 58% of the total sales is coming from Thailand, and the remaining 42% is coming from export and ASEAN operations. ASEAN operations, by the way, account for about 26% of the total sales. In terms of the export portion, as you can see, the big change is the export to China, Hong Kong and also South Asia. Next, please. Here, this is the metrics that we intend to share with you. First one is the HVA, high value-added products and services. Keep in mind that this is a new definition. So old definition last year would be roughly around 42%. Under the new definition, last year was 32%. In this first quarter, the high value-added products accounted for about 34% of our total sales. Another metrics is new products. New products, basically, we're talking about the products that are within 3 to 5 years of the first introduction to the market. And that represented about 13% of our total sales. The last one is the service solutions. Here, you can see some growth. We're talking about 5%, but I believe that this service solution has a long potential to grow going forward. Next slide, please. Now I would like to turn this to Khun Thammasak for the financial update, please.

Good morning. So next page, please. So this is the financial update. And you could see that EBITDA on assets improved from 10% to 11.1%. And EBITDA margin also improved to 19%. So we -- this is quite healthy at the moment. And EBITDA on asset -- net debt is 100 -- sorry, next page. Net debt is THB 161 billion, and net debt to EBITDA is 1.9. Net debt to equity is only 0.4, so it's really a very healthy balance sheet at the moment. Next, please. We spent THB 17.5 billion for the first quarter, and majority is -- more than 50% is still on the Long Son Petrochemical in Vietnam and also the acquisition of the packaging [ budget ]. Next, please. Interest and finance costs amount to almost THB 1.7 billion, decreased year-on-year. And the interest cost, which stood at 2.8%. Next please. For the financial highlights, you could see that EBITDA generation is pretty strong. That's 35.6 billion (sic) [ THB 23.7 billion ] for the first quarter. This is, again, [ just to emphasize ], up 29% Q-on-Q and 68% year-on-year. We see the Chemicals market recovery very well. For the financial highlight, strong EBITDA generation for THB 23.6 billion, and this is up 29%, okay? And from the Chemical market recovery and the expansion of the HVA, MOC debottleneck, which Nithi will explain a little bit more, that startup ahead of plan. Cost saving from the Cement-Building Material is still there. And I think this is good, make the business healthy. Broad execution by Packaging business still get on plan, so that is good. Cash and cash under management is THB 111 billion by the end of first quarter. In the second quarter, we will pay a dividend, as we already announced. And we are very well positioned for growth opportunities. And again, just today, we are going to give you a little bit more color on the Sirplaste. This is the biggest plastic recycling company in Portugal. And also yesterday, you already heard about the Go-Pak from the Packaging business. In terms of the outlook, CapEx and investment up, I will forecast a little bit. We aim for THB 75 billion to THB 80 billion this year. And again, as we still represent about half. And also next year, our CapEx for LSP will be around, let's say, THB 40 billion. So this is the financial highlight. Next please. May I recap very quickly for SCG Packaging. So I think most of you may already listen to Pi Wichan. But anyway, you could see that revenues up 12% year-on-year and 15% Q-on-Q and register at THB 27.2 billion for the first quarter. Core EBITDA also expands 9% year-on-year, 27% Q-on-Q and registered at THB 5.47 billion. Margin also quite good at the 20% and okay. Then the core profit also stood at THB 2.2 billion, so again, it's up year-on-year and Q-on-Q, as you can see. SCG Packaging still execute the growth strategy as planned. You could see that consolidation of SOVI and Go-Pak is well recognized. And then expansion of the value-added solution and innovation is still there, and you could see the improvement in the overall business operation and product portfolio. So may I pass to Pi Nithi krub.

Good morning. For CBM, I would like to start for Thai market first. In Thailand, for this quarter, grey cement demand increased 3% year-on-year. Residential and commercial segments have improved in line with business sentiment at gradual growth up 2% year-on-year. Infrastructure segment still play a major role, growing at 6% year-on-year, thanks to the public investment, especially in Northern and Northeastern regions. Ready-mix concrete demand grew 2% year-on-year, thanks to the positive market reaction from the improved situation of the COVID-19, leading to more public and private projects. While demand for the ceramic tile remained stable year-on-year, housing product demand increased 8% year-on-year, mainly from renovation projects. Over in -- next, please. Over in ASEAN, cement demand landscape improved across the region from the big contraction seen in the second half of last year. The exception was Myanmar, which experienced a substantial drop in cement demand as a result of political riot within the country. Next, please. Ceramic tile sales volume grew 8% year-on-year, thanks to increasing demand, particularly in Thailand, the Philippines and Indonesia. Next, please. Thailand sales segmentation. Domestic sales in this quarter increased 3% year-on-year from higher demand, particularly from housing products, for innovation projects and high purchasing power from higher farm income. Next, please. Overall, ASEAN and other sales growth declined 7% year-on-year due mainly to relative weak demand landscape and a month-long planned maintenance of our cement plant in Cambodia, while sales to non-ASEAN markets increased and had a positive impact on overall revenues. Next, please. Revenue from sales. This quarter, revenue from sales remained stable year-on-year, thanks to higher sales in domestic market that helped offset lower regional sales. Next, please. For EBITDA and profit. This quarter, EBITDA and profit were stable year-on-year, owing to the domestic market recovery despite the comparatively weak regional demand and planned maintenance shutdown in Cambodia. Next, please. The outlook -- demand outlook in second quarter will be affected by the existence of Songkran holiday, as last year, the festival was postponed. However, we expect that cement demand will increase on higher construction and renovation activity. We believe that the government spending on infrastructure projects will continue to be the major contributor to the domestic demand. We also see positive sign in residential sector, thanks to the higher income, higher farm income and improved business sentiment. For company update. Amidst the resurgence of COVID-19 outbreak, we continue our effort in developing innovative products and solution geared towards [indiscernible] and well-being of our customer as well as the community. I will give more details shortly. We steadily grew our retail platform, adding 3 new franchise stores, bringing the total number to 21 countrywide. Focus will also make in active omnichannel with continued expansion of gross merchandise value and product offerings. Finally, we continue to concentrate our effort on cost optimization to sustain profitability and competitiveness. Next, please. This is the new product and solution in respond to COVID outbreak. For example, service solution we have developed during this period include, the first one is called HVAC air scrubber, which is an air cleaner system with energy saving. This product contains special absorbent sheet to reduce all pollutant gas, including CO2 and [indiscernible]. And the bi-ionization air purifier, this is the air purifier system which can reduce the fine particles such as PM2.5 and PM10. On solution front, medical solution developed to help curb the spread of COVID-19, including ARI clinic, positive pressure room for medical use to ensure safety of medical staff and other patients in the hospital. Additionally, bathroom mobile unit help facilitate hospital staff and patients. Next, please. This is our retail business and online platform. We can increase our retail and SCGHOME.com. This online grew 300% year-on-year, and nearly 20,000 SKU or products have been added. For the Q-Chang services, we have integrated to 16 retail franchise store with GMV growing 400% year-on-year. The last one, NocNoc market platform, grew 200% year-on-year [ with more SKU ], with 140,000 SKU in this quarter. Last one, I would like to ask Pi Chana to explain the efficiency improvement. Please?

Good morning. Good morning. We continue to carry out efficiency improvement across our operations. We certainly -- we actively adopt lean and ID4 by implementing internal consolidation of support function among CBM operation and enhance collaboration between working unit. This includes, first, image processing, which is used for detecting defect and ensure quality of product. Second, data integration and the creation of the signal database used to analyze efficiency of machinery and production system and identify room for improvement. Amidst a rise in pricing coal, we have already secured [indiscernible] and locked in about 80% of our planned coal consumption in this year. And also, we have increased the uses of alternative fuel from last year, 19%, to the first quarter of this year, 23%. That's all for me. May I pass back to Khun Nithi.

May I pass to Pi Tanawong. Please, kab.

Good morning, kab. For the Chemical business in the first quarter, as you can see that for crude oil price increased quite significant and mainly from the OPEC still maintained cut and, at the same time, there will be a supply -- there was a supply restraint from the situation in the U.S. winter freeze. And similar to naphtha, it also increased significantly. And this one, again, mainly from the winter freeze in the U.S. And -- but at the same time, even though the [indiscernible] increase, like I mentioned earlier, but for the product, key product spread. In terms of demand, I think I would say that demand is quite good. I mean -- but at the same time, the supply [ you're not ] quite high from the winter freeze situation in U.S. So that's why we -- the cap is -- I mean the product price is still quite okay, and we can maintain our cap. And in terms of PVC, price also rose sharply from the supply tightness. Again, this is also in term of demand also quite strong and mainly from -- mainly infrastructure project in region. Next, kab. And for Q1 performance highlights. As the people mentioned earlier, I would like to give you a bit more detail. For MOCD debottleneck and expansion, we can complete the construction. Even though during the pandemic, but we have a very good practice, and we can control the construction without any COVID case. And we can start up the plan last year, 1 quarter ahead of plan. And this -- thank you for our team. And this one, we -- that's why we continue some volume in the first quarter. First, you can see that the sales volume also come up to approximately 490,000 tons in the first quarter. And also, this demand, like I mentioned, the demand in globally -- global demand also quite improved and mainly from the advance of the vaccination as well. And again, I mean the third bullet just mentioned that the [indiscernible] with winter freeze, we try to maintain our competitive advantage. So we -- our supply chain will be our product mix and product destination to make sure that we can capture a good margin. Next, kab. If we look at HDPE gap, like I mentioned in the first quarter, the gap is in place quite substantial compared to -- the gap is somewhat solid. The gap is more or less the same as the fourth quarter. But I mean even though the stock come out, but compare year-on-year, it's improved quite a lot, 48%. Next, kab. PP, I think similar to [ PE PPVE ]. In terms of Q-on-Q, gap also improved 9% and 56% year-over-year. And it is mainly from the supply tightness and demand improves. Next, kab. For PVC, you can see that -- okay, of course, there are supply tightness that happened, like I mentioned earlier, but at the same time, the demand in ASEAN also quite strong from the construction activity. Next, kab. Benzene and toluene spread. For benzene and naphtha [ cap ] improved. And again, it happened from the winter freeze. And at the same time, the gasoline demand in U.S. also improved, so we can -- we have a [ with a ] volume to U.S. And toluene adding more or less the same as with benzene because of the tight supply. Next, kab. MMA due to the tight supply and also the demand improved. So we can -- in terms of gap, improved 8% Q-on-Q and 19% year-on-year. But for BD gap, declined 51% Q-on-Q and 3% year-on-year and mainly from the -- as you may know that in the fourth quarter, some company, I mean like operation in South Korea and Japan, they had to shut down. So now they already resume operation, so there are some additional BD supply increase in the first quarter. Next, kab. In terms of sales volume, as I mentioned earlier, that the first quarter, the volume increased 27% Q-on-Q and 16% year-on-year and mainly due to the -- we had some additional volume from the MOCD startup and, at the same time, the demand also quite healthy. Next, kab. Financial. Revenue from sales improved 43% Q-on-Q and 35% year-over-year and mainly from the higher sales volume. If we compare Q-on-Q to last quarter, I mean Q4 in last year, we had MOC turnaround for 28 days. And when we compare year-on-year, we have some improvement around 35% and mainly from the higher product price. Next, kab. EBITDA also improved 16% Q-on-Q and 276% year-on-year and mainly from the higher sales volume and also year-on-year depend on the higher -- due to the higher product gap. Next, kab. Similar to profit, profit improved 51% Q-on-Q and approximately -- Q-on-Q, this is again -- I mean we have [indiscernible] last quarter, but 400% year-on-year from higher gap and also higher equity income. Next, kab. Outlook. I would say that now what we see the situation now. We see the crude oil will be steady and maybe slightly higher and mainly due to the demand recovery from the COVID vaccination rollout. And in addition, we see the seasonal gasoline demand. And OPEC+, they also try to curb them to balance the market. So what we foresee the crude oil will be slightly increased. And naphtha, I think moving in line with the crude due to the firm demand from the cracker. For polyolefin side, what I would say that price are likely to move higher compared to the first quarter because the industry effect, I think, still a bit low over to Q2. And at the same time, the demand itself was quite okay. And in addition, what we have seen, even though we -- in the second quarter, third quarter, we see some additional volume, we will increase -- additional supply we will come up. But we see some actually high freight cost still there. And this one will help mitigate in terms of the new capacity entering in the market. And -- but anyway, what we have seen now, maybe you can see that now the COVID situation still flourish. The number of cases, especially, for example, in India, we -- what we can see, this is something that we have to monitor. And if went up, there is certainty that it may happen in the second half. For PVC, what we -- the outlook, we see that we expect the price to increase in the Q2, and this is due to the limited supply from -- again, from the winter freeze, from them. Now they already resumed their start-up, but they have to top up their inventory elsewhere. So this is the outlook that what we have. Next, kab. Company update, circular economy-related activity. I would like to inform you that SCG Chemical, we have signed an agreement to acquire 70% of the company named [ it is spelled in the other case they have to ] called Sirplaste. And this is the largest mechanical recycling company in Portugal. The capacity is 36,000 tons. And this one, what we can do, this one will help us enter in the European market, that they have their advanced in terms of their market and technology. And at the same time, on the right side, you can see that we also develop what we call PCR, post consumer resin, formulation development. Now we can develop and we already commercialized some formulation to our -- to the brand owner. So it means that with this combination, we can have high value-added in term of PCR. Next, kab. I think we -- just to give you a video presentation that you can see the picture of the Sirplaste company. [Presentation]

Next, kab. For Long Son project, what I would like to update now, our progress is 76% as of March '21. And we can -- our progress is still as planned even though there is -- like I mentioned earlier, we don't have it. We have a good control that we don't have any COVID case in our construction site. And we already complete -- you can see from the picture that we complete the 2-kilometer jetty [ facil ]. And also, we thought polyolefin reactor, we already complete the installation. So again, I think we still keep our plan to commercialize sometime in the first half of 2023. Okay. That's all for the Chemical. May I continue for the sustainability, kab? Actually, as we mentioned last time, you know that SCG, we recognize the importance of the sustainability development. And we would like to ensure that we put sustainable development into action and into our strategy to move forward. We also set a target and monitoring the target. So what we have shown here, the number that we have here, this is the forecast that we did for last year. For example, the greenhouse gas, we can reduce 10.9% and equivalent to around 2.9 million tons of CO2. And for water reduction, we reduced 15%, equivalent to approximately 60 million cubic meter. And SCG Green Choice product, what we did -- we can have -- our revenue from SCG Green Choice is approximately 33%, so roughly around [ THB 130,000 million ]. And from the below, you can see that there is a lot of activity that what we're doing now. For example, CBM construction solution, we use virtual and digital technology, that what we call BIM. And this one can help not only the -- not only we can optimize the time, but we can minimize the waste. So this one will be really good in term of to reduce the construction waste. And the Chemical business, again, as I mentioned last time, we still continue our circular economy approach. And for Packaging, circular economy, what they call Make-Use-Return. Now the number that I would like to share that now they can have like approximately 95% of raw material they have been used from the recycled paper. So this is something in terms of environment that what we monitor and we try to expedite and move forward. Next, kab. For social, I -- as you know, that even though -- as you know that the COVID situation still surge again. And SCG and SCGP -- I mean SCG Packaging will still continue to support to distribute innovative medical equipment and supply to many hospitals in the many province. And this one will help. In addition, we also will support them the bathroom mobile unit. The positive pressure chamber to support them, the medical workforce, and medical equipment to support the medical workforce. With regard to the human right, in the last year, there is no reported case from the human right violation. For governance, I will say that we are still -- has been certified by Thailand Private Sector Collective Action Coalition against Corruption. And this is -- we have been certified since 2013, and we still keep our momentum. And we still follow our code of conduct. Okay, kab. I think that's all I have. Let me pass back to Khun Roongrote.

Thank you, kab. I think in summary, I think we reported very strong profit in the first quarter. The economic recovery contributed a lot to the increase in the Chemical margins. At the same time, the Texas situation is also allowing the supply to be quite tight in the first quarter. The completion of the MOC Debottlenecking, this is something that the whole organization has been quite proud of. We were able to do it earlier and also effectively with no accident. So that's something that contributed a lot to our operations. The acquisitions of the Sirplaste in Portugal is the -- one of the stepping stone for our circular economy platform. Cement-Building Materials, despite of the challenging situation not only in Thailand but also in the other countries within ASEAN, we continue to, I believe, deliver sustainable cost situationally. Whereas the SCG Packaging has and will continue to execute growth. With that in mind, one of the things that I want to share with you is that we look at our growth potential of the Chemical business within ASEAN, basically Long Son. And also, our footprint in Indonesia, this is something that we believe that we can leverage that kind of platform. At the same time, as we have been sharing with you throughout the past few years is the technology platform. For example, in terms of infrastructure, in terms of the products supplying to the automotive which, in the future, we will turn to the EV market as well as the consumer segment like food packaging and so on. And lastly, as we have demonstrated for the past 2 or 3 years, the initiative in the circular economy strategy. So these 3 foundations is something that we hope to look and study more carefully in terms of the growth possibility for our business. That's also including financial strategy in terms of the possible public offering of SCG Chemicals. This would take some time. I think we cannot take it lightly. So that's something that it would take us a while. We do expect that the study and the restructuring, improvement in the Chemicals business will be completed within next year. So I'll be able to update you once the study is ongoing. So that's about all for this morning.