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

Good morning, ladies and gentlemen. Welcome to SCG Analyst Conference for the First Quarter of 2023. Today's presenters comprise SCG management led by Khun Roongrote Rangsiyopash, the CEO of SCG, who will walk you through the consolidated results. He will be followed by the CEO of SCGC, Khun Tanawong Areeratchakul, who will be supported by Khun Sakchai Patiparnpreechavud, Chief Commercial Officer of SCGC. Then they will be followed by the President of the Cement and Building Materials business, Khun Nithi Patarachoke, who will highlight Cement-Building Material business performance. The financials will be highlighted by SCG's Chief Financial Officer, Khun Chantanida Sarigaphuti. Sustainability will be highlighted by SCGC's Sustainability Officer, Khun Chana Poomee. And finally, Renewable Energy business will be highlighted by Khun Thammasak Sethaudom, Executive Vice President of SCG. Thank you. And now on to today's program, beginning with Khun Roongrote.

Good morning. The first quarter of this year, we started to see some recovery of the business environment. Total revenues in the first quarter was THB 128.7 billion. This is up by 5% Q-on-Q from our business units, especially the higher sales volume of chemicals following the restart of the ROC in the early February. However, on the year-to-year basis, the total revenues still dropped because of the lower product prices and also lower volumes. Okay. In terms of EBITDA, the first quarter, we had THB 12.1 billion EBITDA. This is up by 20% from the previous quarter. Nevertheless, declined 31% from the same period of last year. The better performance in the first quarter came from Cement-Building Materials and also Packaging as well as the Chemicals business. In terms of profit, in the first quarter, we had THB 16.5 billion profit. Out of that THB 16.5 billion, THB 12 billion was actually the gain from the value adjustment relating to the merger of the SCG Logistics and JWD. Without that, the profit would have been THB 4.5 billion, which is the significant improvement from the last quarter because of the chemicals, packaging and also the cement and building materials recovery. Okay. In terms of the profit by segment, what you are seeing is that the decline of the portion of the chemicals profit, whereas the packaging, the cement building materials and others actually increased in terms of the percentage compared to the total. In terms of the sales destination, Thailand accounted for about 58%. What's declining is the business in ASEAN and also the other overseas. What we're also seeing is the drop in the China and Hong Kong export. Okay. HVA relatively flat at about 33%, whereas the new product introduced sales actually increased from 17% to 18%. And the Service Solutions business also improved from 5% to 7%. I'd like to pass along to Khun Tanawong for the Chemical business. Thank you.

Good morning. SCG Chemical in the first quarter -- let me begin with market situation. If you remember that last quarter -- what I mentioned last time that last quarter, most of the players and customer, they reduce the inventory substantially. And when we start over the first quarter this year, what we have seen that the demand seems to be good. I mean gradually improved actually because the China opening and also the restocking activity. So that's why the product price and product cap improved. So if we look at -- sorry, maybe I have -- that colleague is not that good -- okay, if you look in detail, like I mentioned, if you look at the oil price actually, first quarter or even though what they will apply is decreased. But you can say that the naphtha price is quite stable at the high level and mainly from the last year sanction, there's a petroleum product sanction. So the EBITDA volume, I mean the naphtha EBITDA volume from the waste reduced substantially. So that's why naphtha seems strong. But however, as I mentioned, the demand improved from China reopening and restocking activity held improved product price. So PE and PP cap improve as well. And in terms of sale volume, as Khun Roongrote mentioned, actually, when we saw the improvement in terms of demand. So we restart our cracker layer olefin at the beginning of February. So that's why the sale volume improved from the last quarter. And look at the vinyl chain. Again, the demand and restocking activity to happen in the first quarter, especially in India. So that's why the product cap was good, I mean, compared to the last quarter. And in terms of sales volume, I would say that quite flat compared to the previous quarter. And if you look at in the last 3 quarters also, more or less the volume quite flat. Financial revenue improved mainly due to the volume increase. And at the same time, like I mentioned, we also -- the price also improved from the demand improves. And EBITDA from operation and the net profit also better than last quarter, as you can see from the margin recovery from the previous quarter. So I will say that this is something that what we see some signal that at least the demand gradually improve. Look at the outlook. In terms of the global economy, I would say that it's still quite volatile. You can see that the Western now the lease agency are still there. And I think what we have seen that the global economy also rely on the energy price as well. So this is something that we have to monitor closely. And in terms of -- if we look at the demand side, again, like I mentioned, I think the demand in the second quarter will gradually improve. And also, I mean, both for PE, PP and also for the [ vinyl and -- but supply also come online in the first half of this year, especially from China. So we have to monitor this one carefully to see that if the China, they implement any economic -- I mean, stimulus package, we do hope that demand will improve. And in terms of cost of oil price and still remain at a high level and also the naphtha, we do believe that we will link to the oil price. And so vinyl EDC price, what we have -- what we foresee that the second quarter, the supply for EDC may be tight and mainly due to the supply from U.S. and the Middle East, they have some maintenance activity. So this is the outlook for the second quarter. And what I would like to share with you that in addition to what I just explained, we try to give you an idea that during the high volatility period, we try our best, actually, in terms of the whole vinyl chain, we implement or we digitize the whole vinyl chain, starting from the raw material that we try to optimize feed stock. At the same time, we also try to optimize the operation and product development, we try to speak up. So this one can help improve efficiency and at the same time, we can speed up product development by using the digital technology. So this is something that what we did and what we're doing now. And for SCGC GREEN POLYMER, we still keep our momentum. This is -- I would like to share some example we collaborate with Colgate-Palmolive. It is what we call lightweight packaging. We use our SMX Technology to produce packaging that in terms of the product specification is still better than what we used previous, I mean design. But in terms of the raw material usage, we can reduce. So at the same time, we can reduce the carbon dioxide emission as well. So we try to leverage and expand this type of application throughout the plan. And the second one we collaborate with the SACMI. SACMI is machine maker for the cap bottle. And what we develop with them is a cap special or that when you open the cap still remain attached with container and in line with the European EU regulation that any container that smaller than the 3 liter they need to cap design to make the cap remain attached with container. This one can prevent leakage of the cap to the -- to outside. And this one can help, we can collect material back to be recycled easily. So this one, we also try to leverage and expand this application towards the brand owner as well. For long-term petrochemical update. Actually, we are still -- like I mentioned last time, we are still on plan, on budget. And we have already the start-up the 3 polymer plant and complete the test run for those 3 polymer plants. Now we are in the process of the commissioning and start-up the cracker. So that's all I have. Thank you. So may I pass to Pat.

Thank you. Happy to have. For CBM, I would like to start with business highlights. First of all, let me update you on our key execution. We had a better quarter in the first quarter this year. We succeed in improving our business performance and to drive our EBITDA margin up 6% from last quarter, thanks to lower energy costs and key execution, including: first, managing mix fuel and increased alternative fuel usage for domestic cement operation. Second, adding around 10 megawatt, our solar power bringing total 179 megawatts for the oil CBM. Thirdly, increasing revenue by resting price to compensate for our cost push. This is -- this now we'll get move we will continue doing even as energy costs start to go down. So for Thai market, cement demand grew 2% year-on-year. Ongoing infrastructure projects are key engine that drove demand, while residential and commercial sector were stable compared to last year. Ready-mixed concrete grew 8% year-on-year from mega projects, such as high -- not high, the speed, the railway construction. Demand for housing products grew 1% year-on-year by the construction recovery in housing project segment. Next Slide. Cement demand in ASEAN market remained relatively weak due to negative impact from higher inflation and energy price, which drove up cement and building material price resulting in delay in construction activities. Ceramic tiles sale volume modestly decreased 2% year-on-year, mainly from regional market demand weakness. However, we could increase selling price in all markets. Total revenue from sales was stable compared to the same period last year. Although ASEAN sales trend lowered from weak demand, improvement was made from higher sales in both domestic and new market segment. EBITDA and profit. Net profit jumped from special gain from fair value of adjustment of the investment in SCG Logistics from a merger with JWD. If we look at core EBITDA and core profit, you can see that the increase from last quarter from cost improvement and revenue optimization effort. Let me recap for the announced plan to IPO of SCG Decor. SCG Decor, we've replace COTTO as SCG's flagship company for decor surface and bathroom business with a broader business scope in ASEAN and focus on high-margin products compared to COTTO SCG Decor has high profitability and asset side. This restructuring will strengthen SCG business in ASEAN and unlock value for SCG. This open opportunity for high-margin bathroom business to expand regionally and reinforce our business position as a dominant ASEAN decor surface player and create many synergy down the road. Following transaction on SCGJWD, I'm glad to announce that the share swap between SCG Logistics and JWD has already been completed on the 14th of February. Now SCG through its subsidiaries hold 42.9% in SCGJWD, we expect the entire business transfer process to be complete within the fourth quarter. Outlook. Looking ahead, Thailand economy should continue to improve from tourism and more business activity from China reopening. Private investment are expected to gradually recover. Continued infrastructure projects should continue to be a key driver of cement demand with additional new projects expand after general election in May. Energy cost should have already peaked as seen in decreased core and domestic electricity tariffs. Price increased momentum is expected to continue throughout this year, which support from the rising demand. Finally, we expect regional market to recover on the back of service sector recovery and stimulus measure by their governments. Company update. Let me also share with you the event that we plan for the morning of May 16 this year, which and view all key business under CBM. I would like to take this opportunity to invite all the analysts to join this event. I believe that you will learn more about cement and building material business, which is not just about cement. Please be welcome to join. And if you haven't received any invitation, please contact our IR for more detail. Thank you. I would like to pass to Chantanida.

Thank you, Nithi. Good morning. First, I will take a brief recap on SCG Packaging financial performance. For the first quarter, revenue, it was about THB 33.7 billion, which is pretty -- sorry, yes, THB 33.7 billion, which is pretty much flat from the previous quarter. Anyway, we started to see the gradual recovery in the overall demand, especially after the China reopening. Core EBITDA was THB 4.4 billion, and core profit was about THB 1.2 billion. Both EBITDA and profit dropped year-on-year, but improved Q-on-Q. The improvement was basically from the lower cost and increase the sales volume of the packaging paper. On the financial, net debt was THB 267 billion at the end of first quarter. Net debt to EBITDA increased slightly from end of last year to 4.7x, but net debt to equity remained quite strong at 0.6x. In terms of the capital expenditure spending, first quarter, we spent about THB 9 billion, of which about almost THB 4 billion was to LSP project. And as I informed last time, we expect the capital expenditure and investment this year to be about THB 40 billion to THB 50 billion. Our primary focus continues to be the financial stability. Okay. Cash at the end of first quarter was about THB 94 billion. And in terms of the interest rate, our portfolio is 88% is fixed and the remaining 12% is floating. Debenture continued to be our major source of funding. It represents about 2/3 of our loan portfolio. And we are pleased to announce that on April 3, we successfully closed the issuance of THB 15 billion debenture, which is very well received by the bondholders. Thank you.

Next slide, please. In the first quarter of this year, SCG has absolute gas -- greenhouse gas emission Scope 1 and Scope 2 was about 6.84 million tonnes CO2. This keeps SCG on track to achieve our target on 2030 and this in line with the science based target initiative. As such, this year, we will have a reduction of about 2.5%. Next slide, please. The energy situation is still volatile due to factors such as the ongoing conflict between Russia and Ukraine as well as reduction of the OPEC cost on oil production. It is also considered as the opportunity to accelerate our transition energy project to promote the visit growth by increasing the use of the green energy, increasing proportion opportunity field such as the biomass and additive. This quarter, we can achieve about 20% -- 23% for the whole set of SCG and 38% for cement operation in Thailand. Next slide, please. Go green, what we have the target about to -- of the total revenue on the green product. For this quarter, we have achieved about THB 69 billion, account for 54% after total sales revenue, this is -- also we focus on the transition of the -- our product, hydraulic product cement to the new hybrid segment. This quarter, it's about 51% of the new part hybrid cement and can reduce the CO2 emission about 90,000 metric tonnes of CO2. Next slide, please. Reduce inequality, create jobs and income security by developing skill and capability, providing education, opportunity and improve wellbeing starting last year. For this year, we have a target 5,600 people for 2023 and this quarter, we have the support. The creation of job is about 1,541, the majority from the Q-Chang followed by power of community and skill development school. And also, we are very glad that we also provide career for disability in the Lampung province. Siam Validus. Also, we provide a financial platform support for the growing business, our stakeholder and partner Siam Saison, we also support the financial service to enhance business capability. There were construction partner about 35%. Next slide, please. This is what we're trying to enhance collaboration. In the left side, collaboration among partner from the various sector, not only in Thailand but also nationally and regionally. Ecosystem co-challenge with the business in ASEAN reader for just energy transition. A newly launching world economic forum community to delivery adjust energy transition in ASEAN. And also, we have the collaborating with the office of National Resource and Environmental Policy and Planning in Thailand, Global Cement and Concrete Association, the engining in still of Thailand, development department of the traffic work and power and country planning, anti contractor association to organize, Thailand, the new chapter of Green Construction Forum 2023, promoting the construction industry to achieve the target of reducing greenhouse gas emission. For the natural climate solution, we collaborate with Sweden Embassy and Thai Royal Embassy and partner to promote sustainable global forest management model and also the -- collaborating with the department of forestry at Lampung province to reforestation of the commodity forest about 3,000 lights in Lampung. That's all for me. May I pass to Khun Thammasak.

Good morning. For the SCG Cleanergy, the first quarter, we have a very good development to report to you. But before getting into all the good detail of the green megawatt, I would like to respond to some of the questions that I received over the past few months on our business model on the SCG Cleanergy. I have to say that it's very clear that the renewable energy is going to be a very important part of the world economies and SCG take part of these opportunities. So -- but how to capture the opportunities, that is something I would like to discuss. You could heard that we're working on the government PPA. We put our effort on the private PPA. We are talking about Smart Grid. And just recently, we're talking about high-efficiency heat battery. How these things put together? What is our thinking behind the business model? Let me start with the government PPA. This is more like -- to make it more like an energy to our other business unit that you may familiar with. Government PPA is more on the commodities, it's a scale, fixed price. So we sell at 2.16 per kilowatt hours. So this is the fix price. That means the way that we can create additional value is to drive down the cost and improve the efficiency of our solar and our operation. So this is a scale that really matter. So that's the government PPA. It's come with the scale and we can drive the efficiency over our network. For the HVA that you may familiar with, this is the private PPA. The private PPA is more for the industrial estate at the very high energy price, electricity price. So all the businesses are seeking to lower the electricity price and the renewable energy not only help reduce the energy price, but also drive down the carbon emission. However, the industrial users are not just looking for the price, but they are looking for overall values, meaning that they want to optimize the green energy, sell and buy. So that's why the Smart Grid blueprint will play a very important role for value creation for, let's say, 1 factory if they have like 1 or 2 month demand then they have to take the Cleanergy from the grid. So in this case, they can take it from our Smart Grid. And some months, they may have the surplus capacities. They say they have a maintenance shutdown or the major turnaround, they can sell to the Smart Grid. This is a better value creation for our industrial customer, that's why we call it the HVA business. And just recently, we are launching the HHVA and part of it is just an example of it is the Rondo high-efficiency heat battery. This to solve the issue of the intermittence of the renewable energy by nature. So the sun and the wind will not come all the time. But demand for the industry, we will need it all the time. That's why you need to have a very high efficiency energy storage. I have to say that if any industry or any plans that have the surpassed solar and also have the use of the boiler, that's the candidate for Rondo. You can see on the possibilities. I have more detail on Rondo later on this. But these are the business model we are working on. We are working on the scale, on the government PPA. We're working on the value added for the industry, for the private PPA and the Smart Grid and we are working on the energy storage and also the virtual carbon trading and power trading system. Next page. So this progressed. Up to now, we have 220 megawatts already in operation that we already generate the value of the money. The majority is still within the SCG group, about 212 and 8 megawatts already in operation for the outside SCG. But the good news is we already signed or award the PPA for another 343 megawatts. This is the -- we already have -- the big chunk is from the government PPA. The government PPA, we recently win is 367 megawatts. And the private PPA is 87. There will be more to come because as I told you, this segment, growth is very, very high. Next page. For Rondo, this is one of the very big tool technologies from the California and first commercial site already in operation in Go Green in California. You could see that the unit of Rondo, when you put on, you can remove the boiler. And the unit is very static, meaning that you don't have any movement part. So you could see that when the sun shine, you can have the heat store in the Rondo and you can use that heat to replace the boiler. That's the logic of it. So we see that this is one of the really high efficient way to cope with the intermittence of the renewable energy, and this could be a good solution. So that's the progress from SCG Cleanergy.

In summary, the first quarter profit in terms of the operating profit was THB 4.5 billion. This is coming from the reduce in terms of the energy costs, the improved demand from China opening and also our efforts in terms of optimizing our revenue and cost, particularly the -- in our business. I think looking ahead, starting from the Thai economy, we do expect continuation of the recovery, mainly in the tourist industry. Chinese recovery, we do expect that to continue, particularly from the more consumer spending and also the policies to stimulate growth as a result of the slowdown from the COVID shutdown. In terms of the regional market, we'd imagine the market is expected to trend better, and we do expect that recovery from COVID will also continue. At the same time, the challenging still remain, particularly in the chemicals industry. This is coming from the new supplies and also the pace of the demand recovery. On the other hand, progress in terms of the LSP project in the southern part of Vietnam is quite well on track and also we do expect the full startup will be in the middle of this year. SEC has approved extension of the SCGC, IPO until the beginning of October this year. In terms of the business restructuring, the merger between SCG Logistics and JWD went well. And now the merged company has become the largest logistics company in ASEAN. At the same time, there is the progress in terms of the efforts to strengthen our decor surface and bathroom business across the ASEAN. This will be done through SCG Decor, which will replace COTTO as a flagship company in this business. Our management will continue to meet these challenges. We will continue to increase the percentage of the alternative fuels, implementing our pricing strategy at the same time, making sure that we have ample liquidity and also the financial stability. In terms of the operational improvement, automation, we will continue to be implemented throughout our operations. I'm sure that this will make us more competitive in terms of the cost and also ability to improve the efficiency of the operations. So that's about all in terms of our first quarter result. Thank you.