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

Ladies and gentlemen, welcome again back to SCG Analyst Conference as of Third Quarter of 2023. My name is [indiscernible], and I will be your moderator for the session. We highly appreciate today for all the guests who have made their efforts today to meet us at Bang Su today. And of course, those participants in the Zoom meeting as well. Our management are here to provide you with the business results, qualification and also the business updates. And we will open the floor up to the questions after our management presents. Now on to this morning's program, today's presenter are as follows in the presentation sequence, beginning with the CEO of SCG, Khun Roongrote Rangsiyopash. The President of the Chemicals business or SCGC, Khun Tanawong Areeratchakul, he will be supported by Khun Sakchai Patiparnpreechavud, the Chief Commercial Officer and Executive Vice President in Vinyl Chain business. And next are our management from the CBM business, beginning with the President Khun Nithi Patarachoke. And may I introduce you to Khun Surachai Nimlaor, who will take over as the Head of the Cement and Green Solutions business next year. Next is Khun Wiroat Rattanachaisit, Head of Living Solutions business. And last but not least, Khun Paramate Nisagornsen, Head of Distribution and Retail business. Followed by Khun Thammasak Sethaudom, EVP of SCG will be presenting sustainability and renewable energy business. And lastly, Khun Chantanida Sarigaphuti. CFO of SCG will be presenting SCGP and financials part. Thank you. And now on to today exciting program beginning with Khun Roongrote.

Morning. The third quarter result actually is weaker when compared to the previous quarter. I think the regional market is relatively soft. And as a lot of you probably aware, the Chinese market also has not recovered. At the same time, chemical cycle is still at the trough. We also have seen the increase in the cost of naphtha in line with the oil prices, particularly in the past few weeks because of the tension in the Middle East. We also had higher interest. At the same time, we didn't have the dividend income from the associated companies. Surprisingly, as you will see throughout the presentations, the Thai situation is actually slightly better than the rest of the region. So starting off with the revenues, we had THB 125.6 billion in terms of sales in the third quarter, more or less equal to the prior quarter, but down by about 12% from the same period of last year. At the same time, the 9-month year-to-date sales declined by about 15%, partly from the deconsolidation of the logistics business, but partly because of the decline in the regional market. EBITDA also declined partly because of the absence of the dividend from the associated company. As you can see, we had about THB 6 million dividend from associated company in the second quarter. This quarter, we didn't have that. At the same time, Chemicals also recognized about THB 800 million negative EBITDA from the Long Son start-up of the downstream operations. On the 9-month period, the EBITDA actually declined by about 17% from the same period of last year. In terms of profit, we're showing the profit of THB 2.4 billion in the third quarter. That included the cement regional asset impairment around THB 600 million. I'd also like to note that that's also included about THB 1.5 billion loss from the LSP project. You will see more details when we have the presentations in the Chemical segment. In terms of the segmental profit, if we just take the operating profit without the extra items, the profit was about THB 12.8 billion, down by about 40% from the same period of last year. And as you can see in the segmented result, Chemicals also down, Packaging down slightly, while the others remained relatively constant from the 9-month period of last year. And Chemicals down partly because of the Long Son recognition of the start-up costs. For the 9-month period, the Long Son registered THB 2.5 billion of loss for this year. In terms of the sales destination, a few notes. The total export, including the regional operations down by about 28%. And you can also see that the weakness of the regional operations actually included Indonesia, Vietnam and Cambodia. Export to China also was weaker when compared to the same period of last year. In terms of the operating metrics, HVA stayed at 34%, whereas the new product introduction in terms of the percentage actually increased from 17% last year to 19% this year. And the Service Solution also increased slightly from 6% to 7%. And these are the product example and service examples of our New Products and the Service Solution. I'd like to pass this along to Khun Tanawong for the Chemical segment.

Good morning. For Chemical business in the third quarter, let me begin with market situation. As Khun Roongrote mentioned that actually the global market is still quite volatile. And what we saw the higher oil price, mainly from the OPEC production cut. And at the same time, what you have seen that now there's geopolitical tension in the Middle East. And if we look at product price, product price also improved and mainly due to the cost push. Look at PE- and PP-naphtha gap, like I mentioned, actually, the price -- product price improved, but at the same time, the feedstock cost also increased compared to the second quarter. And actually, the demand for the PE in some certain applications still okay because of the seasonal demand. And -- but for PP, like I mentioned, I mean, some segment, like some HVA that we still have some portion that we can maintain our sale volume this. This is the sale volume for -- I mean, polyolefin, especially for the PE, what we saw that in the third quarter, demand for some applications improve. And this one can help that we can increase the sale volume. And for PP, we still can maintain the sale volume as well, even though the gap squeezed as I mentioned in the previous page. Look at the vinyl, vinyl split improved due to the PVC -- the tightening of PVC supply from the producer maintenance. And at the same time, the soften of the EDC price. So in the third quarter, the gap was quite okay. Sale volume also improved compared to the second quarter. We had VCM maintenance -- minor maintenance in the second quarter. That's why the third quarter the volume improved when we compare with the second quarter. Financial revenue improved Q-on-Q and mainly from the sale volume, I mean, higher sale volume. And look at the EBITDA, EBITDA from operation also improved compared -- I mean slightly improved actually compared with the second quarter. And again, like I mentioned, some HVA and some application, the demand still okay. And that's why we have -- and this is also from higher sale volume and some stock gain as well. Look at profit. Profit, like Khun Roongrote mentioned, our net profit was THB 1 billion, but we include expense from LSP of [ THB 145 million ]. So if we exclude, the net profit will be around THB 2.6 billion in the third quarter. Look at outlook, outlook for macroeconomic, I would say that economic -- I mean the situation is still quite volatile. And crude oil price still depend on the many factors like -- I mean, if OPEC still maintain the production cut. And at the same time, as we have seen that the geopolitical tension also still there. So this is something that what we have to monitor. And we look at olefin and polyolefin demand, demand seem to be softened because typically, in the fourth quarter, the demand will be soft and supply, there's still additional supply in the fourth quarter. So this one will be one factor that will impact in terms of the economic and gap for the polyolefin. For vinyl, demand for vinyl tend to be weaker compared to the third quarter. And actually, in terms of supply, typically, if you remember that normally, the U.S., they will export PVC during the year end. So there will be additional supply from the PVC from other suppliers. And in terms of cost, of course, naphtha price will follow the oil movement. But at the same time, the demand -- the naphtha demand remain weak because of petrochemical demand still weak. And EDC price tend to be move upward as a result of the tightening supply from the Middle East producer. And some -- actually, what we -- actually, we can show you more information. But of course, we will continue out effort for the HVA and our clean polymer, and also we also do our optimization. And for -- if we look at LSP, we will give you a picture that now we are in the process to start up and conduct test run. And another information, ROC, we plan for turnaround in the mid of November this year. Actually the turn, ROC, we learn for 7 years. Typically, a cracker, we normally learn allow 5 to 6 years. And after that, we have to do the what we call the major turnaround. So this year, we will start the turnaround mid of November, and it may take 40, 45 days for turnaround. This is the update, LSP update. We will -- we plan to complete the mechanical completion in October and start our test run activity in November, December. And whole complex operation, we plan to finish maybe sometime early next year. This depends on the situation. Actually, when we start up the big plan, sometime if you face some problem, it may take some time. But this is to give you the idea that what we plan for LSP. And Green Polymer, actually SCG Chemical, we're focusing on the low waste, low carbon approach. And one of our low waste we call SCGC Green Polymer. We have target 1 million ton in 2030. And this year now, we can achieve 170,000 ton and -- I mean for 9 months. And you may have heard that we have joint venture with Braskem that we plan to produce the bio-PE. And this one will be completed in 2026. So this is something that what we plan. So that's all I have. May I pass back to P. Nithi.

Thank you, Tanawong. Good morning, everyone. I would like to start with highlight of CBM in third quarter. As you can see, we continue to place effort for execution, and we can see that our EBITDA margin are holding up. First, we were able to achieve 69% penetration rate of low carbon cement volume in Thailand now in the market as we continue to decarbonization. Secondly, our cement price are holding up, gaining about 10% to 15% year-on-year. Thirdly, alternative fuel usage now account for 40% energy requirement -- of energy requirement in Thailand, increased from 34% in 9 months last year. We also increased our self-generation solar power capacity by 42% since December 2021. We're now at 182 megawatt. And lastly, we continue to emphasize on lean operation, automation and digitization as well as supply chain management to remain competitive. Next, we turn to the financial -- on the consolidated basis, third quarter revenue increased 1% Q-on-Q despite the raining season in Thailand. I would like to highlight that on a 9-month basis, revenue was down by only 2% year-on-year if we include the SCG Logistics deconsolidation. Furthermore, on the 9-month basis, sales from Thai operation are at similar level as the previous year, which is about THB 100 billion. For the EBITDA, we record third quarter EBITDA of THB 3,430 million, which includes regional asset impairment. If we exclude the deconsolidation of SCG Logistics and regional impairment -- asset impairment, third quarter EBITDA would be up 1% year-on-year. Profit. In term of net profit, we can -- if we exclude the regional asset impairment of THB 578 million, our third quarter earning would be THB 402 million. On a 9-month basis, net profit was THB 14.5 billion, which increased about 170% year-on-year. Without -- if without fair value adjustment and impairment, profit would be THB 3,159 million. There are additional details that I would like to pass to [ Khun Nim ] for more detail. Please, krap.

Thank you, P. Nithi. I will start from the cement demand market in Thailand. For the Thai market, cement demand increased 0.2% year-on-year. Ongoing infrastructure projects are the key driver that drove our demand in Thailand. And while residential and commercial projects were slightly declined due to the lending season in Thailand. For the ready-mix concrete, grew 7% year-on-year. Infrastructure projects, the key driver, which align with our cement demand growth. For the ASEAN market, cement demand in Indonesia showed positive growth above 5% year-on-year, driven by big infrastructure project, while cement demand in Vietnam and Cambodia remains soft compared to the same period of last year. However, it showed improvement if compared to the first half of this year. For the revenue, revenue from sale in the third quarter dropped 1.6% compared to the same period last year due to weak regional demand in Vietnam and Cambodia, as P. Nithi has mentioned, while EBITDA dropped 20% from asset impairment mainly from cement operation in Myanmar. However, if excluding extra items, EBITDA would grow slightly year-on-year, thanks to our effort on cost and revenue management. For the first 9 months, revenue from sales slightly increased, while EBITDA decreased 10% and 4% if excluding extra items. For the key highlight in this quarter, we have utilized unused land of Siam Cement Ta Luang by collaborating with biomass supplier to plant our energy crop, such as Napier. The first phase will cover around 1,000 rai with the estimation of allow 30,000 ton of energy crop for this year. And we also plan to scale up sustainable bioenergy supply to promote sustainable agriculture in the future. And for the first 9 months, our alternative fuel uses reached 40% compared to 34% of the same period last year. And in this quarter, our replacement of Portland cement with low carbon cement has also increased to 69%. So I would like to pass the next session to Khun Wiroat.

Good morning, krap. Let me start with Thai building material market experienced slightly 1% decline. In the third quarter and the last 9 months, driven by the medium to low income segment. However, the project sector remain active, especially in medium to high segment and tourist destination. In term of the financials, despite the challenging market condition, the Smart Living outperformed the market with revenue increasing 3% and 6% year-on-year in the third quarter and the first 9 months, respectively. EBITDA also grew year-on-year by 40% in the third quarter and 72% in the first 9 months from the rebalance product portfolio and competitive cost reduction and efficiency effort. For the key highlight -- business highlight, I divided into 3 parts. First, we continue to develop innovate smart building material and system to improve the quality of light. For example, our Metal Roof, Stone Coat helped reduce noise and protect against heat. We will also recognize as the Most Admired Brand and #1 brand in Thailand in Rood and Smart Board category. Second, our smart solution grew 18% year-on-year in the last 9 months, driven by a threefold increase in solar roof sales and 24% year-on-year increase in energy management solution. We recently expand our customer base into the CPN, Central Pattana, for smart energy management. Lastly, in action to develop innovation for better living. We improved our cost competitive, contributing THB 200 million to EBITDA in the first 9 months with the use of alternative energy with mainly the solar. As of the September this year, our solar energy consumption had reached 34.2 megawatt, accounting for the 18% of the total energy use and process the efficiency optimized to lean and automation. That is my part of Smart Living. I'll pass to Paramate.