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

Good morning, ladies and gentlemen. Welcome to SCG Analyst Conference for the second quarter of 2023. Today's presenters comprise SCG management led by Khun Roongrote Rangsiyopash, the CEO of SCG, who will walk you through consolidated results. Then he will be followed by the CEO of SEGC, Khun Tanawong Areeratchakul, who will be supported by Khun Sakchai Patiparnpreechavud, Chief Commercial Officer of SEGC. Then we will follow by the President of the Cement and Building Materials business, Khun Nithi Patarachoke, who will highlight Cement Building Material and Cement and Green Solution Businesses performance. And he will be followed by Khun Wiroat Rattanachaisit, Vice President, Living Solutions business, and Khun Paramate Nisagornsen, Vice President Distribution and Retail business. The financials will be highlighted by SCG's Chief Financial Officer, Khun Chantanida Sarigaphuti. Sustainability will be highlighted by SCG's Chief 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 second quarter total revenues was THB 125 billion, which is roughly about equal to the last quarter, however, declined by about 18% from the same period of last year. This was partly from the drop in the chemical prices. And at the same time, we have seen softened demand regionally in all products. Secondly, in terms of EBITDA, keep in mind that in the second quarter, normally, we receive a lot of dividends from associated companies. Total EBITDA in the second quarter was roughly around THB 20 billion. Operating EBITDA was THB 13.9 billion, which is significantly -- which has improved from the first quarter, however, declined from the second quarter of last year. If you look at first half EBITDA, it stood at THB 32 billion, which is dropped by about 24% from the same period of last year. In terms of profit, in the second quarter, we reported a profit of THB 8 billion of which about THB 3 billion came from the NocNoc change of status from the 100% owned company to 50% owned company, which became the associated company. As you know, we have a new partner in NocNoc which is from the ThaiBev and a Fraser Property group. Without that, our profit, excluding extra item was THB 5.2 billion. In the first half of this year, the reported profit was THB 24.6 billion, of which, again, about THB 15 billion came from the SCGJWD and also NocNoc in the second quarter. So the profit, excluding extra items, was THB 9.7 billion, which is dropped by about 50% from the same period of last year. In terms of the segmentations of profit, as you can see on the right-hand side, the Cement and Building Materials slightly dropped from the first half of last year. This is mainly from the weakness in the regional operations. In terms of Chemicals, is dropped, because last year, situation was much better than this year. Nevertheless, we're still showing some improvement from the second half of last year. In terms of packaging, we started to see the more stabilized performance. And on the others, this included profit from the NocNoc transaction. In terms of the sale distribution. As you can see, very weak ASEAN demands and operations. Also on the bottom right, you see that export to China also declined both in the absolute term and also from the percentage term. I'd like to show you a little bit of our operating metrics. HVA stayed more or less the same. Keep in mind that when we do start-up the LSP complex. The first few years, the majority of the products will continue to be the commodity. So we do expect that the HVA as a percentage of the total products will drop probably in the second half of this year. New Product Development, we have seen the improvement in terms of the percentage of the new products. In terms of Service Solution, the revenues from the Service Solutions accounted for about 7% of the total revenues. Now I'd like to turn over to Khun Tanawong for the Chemical Business please?

Good morning. Let me begin with market situation. In the big picture, the global market still have been quite volatile. You can see that actually, it had bought feedstock -- I mean, oil and naphtha, also would acquire volatility as well, pressure by the economic concern especially in the Western Europe and U.S. And if we look at the industry, the situation, the demand still will again volatile and weak. And operatingly continue to be volatile in some players, they put their plan for turnaround and some of them reduced the rate. And if we look at olefin chain, like I mentioned, oil price pressured by the economic concern and lower global on manufacturing. And naphtha price also declined from -- as I mentioned earlier, that some cracker, they have -- they were in the turnaround period. And there's a new supply from the Kuwait refinery. And PE and naphtha gap improved and mainly from limited supply and at the same time the lower the naphtha price. And PP and naphtha gap, slightly dropped, and mainly from the additional supply of China. In terms of volume. Sales volume, we have sale volume compared to last quarter, it went up 7% Q-on-Q and mainly come from, as I mentioned last time that we started olefin plant at the end of January. So that's why the volume in the second quarter is higher than the first quarter. And for Vinyl chain, the gap lower than the first quarter, mainly from the higher inventory actually, the demand in China is not -- was weaker than what we expected and EDC price increased from the tight supply from U.S. and from the Middle East. In terms of volume, we have some of the maintenance activity at VCM plant so that's why the compare volume between the second quarter is -- was lower than the first quarter, approximately 9%. Look at Financial. Financial revenue increased Q-on-Q from higher polyolefin sale volume. And like I mentioned, we start up ROC at the end of January. And EBITDA, look at EBITDA, we have EBITDA about 6,000 -- actually about 3,000 from the dividend from the associated company. And EBITDA from operation more or less the -- actually a little bit higher than the first quarter. Look at the Profit. Profit, the earning without inventory loss was THB 2,600 million compared to THB 1,400 million in the first quarter. So if we look at the first half, the total profit will be THB 2,000 million. Outlook, like I mentioned, crude oil still remained volatile as -- now there is a carbon demand -- a concern on the economic recession in the Europe and U.S. But at the same time, OPEC+, they also try to control the supply. So now we have to monitor the situation closely. And for the market, in terms of big picture, we -- what we have seen that the global demands seem to be slow based on the economic concern, as I mentioned earlier. Look at olefin demand in Asia. We -- what we have seen that we expect the demand will rebound from manufacturing and agricultural season and together with China's stimulus package that's what they announced recently. And in the lot supply, we still see additional supply from the ramp-up capacity after the turnaround period. So vinyl demand tend to be improved and mainly from India and also improved from the real estate the stimulus package in China. And for naphtha costs, again, like I mentioned, I think this one, we have to monitor closely. The naphtha we see the pressure from the prolonged weak demand and increased supply from the Middle East. And EDC seem to be stable. Now we see that in terms of supply tightness that what I mentioned earlier. Now the situation seem to be improved so this is the outlook. For LSP update. Last time, like I mentioned earlier, that we have -- even though we -- I mean, we have a construction during the COVID, but we still can catch up the construction activity. So we can complete Downstream test run in the second quarter. And for Upstream now, we are in the process of the mechanical completion and commissioning, and we plan to complete in -- within August and September. There are so many activity, and we have to make sure in terms of safety and efficiency of the -- to do the commissioning. And for Upstream test run we plan -- I mean, after that -- means that roughly after all the second half of September, we plan to do the test run. Typically, it will take maybe a few months because of the LSP we decide for feedstock flexibility. So it means that test run, we have to [indiscernible] between naphtha and propane. So like I mentioned, I think we may take a 2 to 3 month -- after start-up, we have to ramp up the capacity and conduct the test run. For Green Polymer update. I think last time, we -- this time, we tried to give you a clear picture that when we mentioned about green polymer, actually, we -- our focus -- I mean, strategic focus will be low waste and low carbon. If you look at our 4 pillar of the SCG Green Polymer, reduce, recyclable and recycle. We try to move for the low waste approach and renewable and carbon reduction to fit low carbon. You can see from the picture and I think this one quite clear that, for example, if you look at the first one, the low carbon. Now we -- I will give you more detail now. We -- like I mentioned last time, we started the project with Braskem. So if everything okay, so this one we can produce the bio-ethylene that we can put in our unit to produce bio-polyethylene. And follow ways, we can have both advanced recycling and mechanical recycling that I already mentioned last time. So this is an example for bio-ethylene. Now we are in the process to finalize our joint venture agreement with Braskem, so if it -- we have a good focus. For advanced recycling now, we are in the process. I think last time, I mentioned that we collaborate with Toyo Engineering, now the basic design and engineering work has already been done. And we are in the process of the procurement. So we do hope that sometime in the second half of next year, we can start up the -- I mean a bigger unit. Actually, now we -- I mean, capacity, we have allowed -- I think we can expand about 4x compared to our demonstration unit, that's what we're learning now. And mechanical recycling in Europe. I think we have already mentioned that we expand capacity, our plan in Portugal and we plan to complete a lot at the end of this year. So it's been capacity, we will increase from 36,000 to be 45,000 tonnes in the in Sirplaste in Portugal. And for KRAS, this one -- we have merger and partnership with our partner in Netherland. So they can supply their plastic waste, capacity allow 160,000 tonnes. And this one, we can expand our PCR capacity. This is some example that what I mentioned about our 4 pillars. The first one reduce, we developed the application with our customer. And this one, as you can see, packaging that we developed with Colgate Palmolive. So we will still continue our activity to develop the application. And on the right-hand side, you can see that this is also another development that we developed with the machine maker. Actually, now in Europe, they have a regulation that if you have like a drinking bottle you need to make sure that cap will be stick with bottle. So this one, they can collect and recycle easily. So this one when we develop it with the machine maker, what does it mean? So whenever the brand owner, they buy the machine. So it means that we, at the same time, we can supply our polymer with their machine. So this is something that we develop further -- so that's all I have. May I pass to Khun Nithi.

Thank you. For CBM business. I would like to start with updating you about key execution this quarter. We successfully maintained our profitability while the weak overall original market as our EBITDA margin came in the same as first quarter and the same as last quarter of last year. This was achieved by key execution. As follow -- First, we can increase cement price 10% to 15% from a year ago, while Smart Living business achieved higher margin for our HVA products. Second, we can increase the alternative fuel from 38% to 41% compared to the last quarter. Third, we can increase solar generating 40% capacity. So total self-generating power right now about 35% of business power consumption. And last, we continue to lean operation, automation, digitization as well as supply chain management to minimize costs and increase productivity. And today, we will highlight our performance by going into each team, three pillars under CBM structure, first, Cement and Green Solution business by myself; second, Smart Living Business by Khun Wiroat; and third, Distribution and Retail Business by Khun Paramate. So I would like to start with Thai Cement Market. Cement demand increased by 1% year-on-year. Ongoing infrastructure projects are the key engines that drove demand while commercial and residential sector slightly flat compared to last year. Ready-mixed concrete grew about 1% year-on-year in line with Cement demand growth. For the ASEAN cement market -- the ASEAN market remained relatively weak due to negative impact from higher inflation and higher interest rate, resulting in delay construction activities. You Can see the country drop 10%, 17% and 3%. Key financial highlights for Cement and Green Solution. Revenue from sale second quarter dropped 2% compared to the same period of last year due to weak regional cement demand, while EBITDA was flat. Actually, EBITDA from operation grew slightly year-on-year. This is -- thanks to lower energy costs and our effort on the cost saving and revenue management. For the first half, revenue from sales slightly decreased, while EBITDA decreased by 7% due to higher energy cost this year. So next, I will pass to -- okay so one more slide, key business highlights. We have 3 key business highlights. First, the Siam Refractory Industry under CBM business has joined Rondo Energy, a heat battery company in U.S.A. in production of zero carbon of industrial heat and co-develop high-efficiency thermal media to reach 12,000 tonnes per year by 2027. Second, as I already mentioned, we successfully increased our alternative field from 38% in the first quarter to 41%. And third, we can promote ecofriendly cement by increasing the replacement of OPC with hybrid cement from 51% to 56% in this quarter. I would like to pass to Wiroat.

Good morning. For Smart Living Business. Let me begin with the situation of the Thai building material market. Overall market in the second quarter is in there -- this half year dropped 2% and 0.3% year-on-year, respectively, from the lower purchasing power in medium-to-low income segment. However, there is still significant demand in medium-to-high housing projects and in the provinces that are tourist destinations. For the key financial -- in above the key financials, revenue from sale improved year-on-year in both second quarter and half year. Year-on-year EBITDA also grew 25% in second quarter and 14% in the first half. There was the -- it was driven by higher margin from HVA and NPD sales, cost efficiency and growth of smart solution. For the -- this is the highlight. I would like to show you about highlights. First, Smart Building Material and System, we still embedded HVA and NPD has a business strategic growth. Consequently, revenue from HVA and NPD sales in the first half grew 3% year-on-year. We also continued developing new product and to create value to customers. For example, in the picture is EXCELLA, digital printing, the key feature is the uniqueness and durability. And next is in order to ensure the hot efficiencies from -- apart from the solar installment, we installed solar roof 33.7 megawatt. We expand the energy and raw material resilience with the alternative source. Second, Smart Solutions, we raised Smart Solutions sales in the first half, up 20% year-on-year, then to full-time growth to solar roof sales. Furthermore, in order to estimate a sustainable society and lead business, we continue to look forward to new customer use the Air Scrubber Solution in commercial building. Now is our existing customer at Terminal 21 Pattaya and KLOUD building by KBank that's all for the Smart Living Business update. May I pass to Paramate.

Good morning, krap. For the Construction Market in Thailand continue to expand slightly and we continue to see new launches of private sector projects, especially the low rise residential projects, some department stores in the tourist destination, some hospitals, renovation and hotel innovation. And of course, there are a lot of new investment in EV and food industries, some construction of new factories and the projects of the government continue to be executed. So we still see demand there. But on the country, the demand in the regional market is quite soft, mainly due to the weak export of many countries and also the local demand is low because of the high inflation and cost of living. So for the second quarter, our revenue came in at THB 31 billion, which is about 8% drop from last year and 6% drop from the last quarter. As of the first half, it will end up will at THB 64 billion, a drop of 3% from last year. And again, mostly from the slowdown in international and regional market which affect our trading business, our export and also operations in those countries. EBITDA came in at THB 456 million for the second quarter, which is a drop of 35% from last year. And for the first half, it was THB 547 million, a 50% decline from the first half of last year, again, mainly from the EBITDA from operation due to the softness in international and national markets. But we still see some increase in our dividend income from last year. As for equity income in second quarter, it was THB 314 million and THB 778 million in the first half of the year and that slight drop was mainly from operation of our subsidiary, both in Thailand and in the region. As for the highlight of the -- beginning of this month, we announced the investment of THB 610 million for preemptive rights to purchase newly issued share of our [indiscernible] Indonesia, PT Catur Sentosa Adiprana of CSA which is the largest building material distribution and retail in Indonesia. And this -- the proceeds from this issue will enable CSA to expand outlets of Mitra10 from 45 in 2022 to about 100 locations within 2030, that should help maintain the leading position of CSA in Indonesia.