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

Good morning, ladies and gentlemen. Welcome to SCG Analyst Conference for the Fourth Quarter of 2023. I am Pisanu [indiscernible], and I will be the moderator for today's session. We highly appreciate to welcome the guests who come on site today and also the guests attending online as well. Our management are here today to provide the fourth quarter and year-end results and also the business update. We will later open the floor up for the questions after the presentation. Today's presenters comprise of SCG management led by Khun Thammasak Sethaudom, the CEO of SCG, who will walk you through the consolidated results and provide highlights on renewable energy business. And SCGC management led by Khun Tanawong Areeratchakul, the President of Chemicals business. He will be supported by Khun Sakchai Patiparnpreechavud, Chief Commercial Officer and Executive Vice President in vinyl chain business. Next, management from CBM business, beginning with Khun Surachai Nimlaor, President of SCG Cement and Green Solutions business. And Khun Wiroat Rattanachaisit, President of SCG Smart Living and SCG Distribution and Retail business, followed by Khun Chantanida Sarigaphuti, CFO of SCG, who will be presenting SCGP and Financial part. And last but not least, the sustainability part will be highlighted by Khun Chana Poomee, Chief Sustainability Officer. Thank you. And now on to today's program, starting from Khun Thammasak.

Good morning, and probably not too late to say Happy New Year, maybe close to the Chinese New Year, I guess. And for those of you who come a little bit early, you can see our booth, which show the innovation, the new solution and present -- represent some of the direction that we are moving forward. So we want to show you that our -- moving forward to the low carbon society and eventually go to the net zero is real. We are pushing all the envelope in every business towards that direction, which I hope that today, we will touch on the performance of the Q4 last year. And later on, we're going to have a separate session on the medium-term and long-term direction of the SCG, but let's start with the Q4. Last year was the quite interesting year. I have to say it's quite challenging. So start from the macro outlook macro situation. Surprisingly, the Thai construction demand is quite okay. That's -- thanks to the tourists. And also the FDI that start to coming in. You could see that Thailand in -- like in Phuket, in Chiang Mai all those city with -- for the hub of the tourism, you could see that construction get going. And premium segment market actually grew very fast. But of course, in the other cities, we see the shrinking. Overall demand is -- overall country may not be -- I think it's too fast. Okay. Sorry. So the -- that's the situation of the construction demand for regional market. If you look at the Indonesia, surprisingly, get better, probably come from the FDA that are still flowing in. Vietnam still struggle due to the real estate issue and a very slow recovery. We will show the highlights and the direction later on. Cambodia is still challenging because it's linked to Mainland China. And the chemical industry definitely is in the trough. And if you look at the player in the region now landing at only 75% of the operating net, it is quite low. The tractor we land below 75% is very, very challenging, okay? So that's the situation we were facing last year. You could say that the impact from the war in Russia, Ukraine, the war in Middle East and in Myanmar and just recently, the Red Sea situation also play a major role in this situation. SCG in the fourth quarter last year, if we remove the noncash cement asset impairment in Myanmar, if we remove that one, actually, we have the profit of THB 502 million. And this already take into account the SPS start-up costs. Later on, Peter Tanawong will explain that our cooperation of the chemical actually improved. I mean, the profitability is better. Our cement operation in Thailand, Peter will explain that actually is better. okay? So if you look at Q-on-Q, the core operation is improved. However, we have to accept that Long Son is a really big project. And when we start up, there is a start-up cost, there's the depreciation, there's the interest that we really have to better the cost. With this in every startup of the big complex, this will happen. So that's the way it's worked. So Peter will highlight that the cooperation and if we include the LSP. So again, the cement business in fourth quarter improved to THB 559 billion. This excludes the MCR. MCR is noncash. The minimal operation is noncash. The good thing is the LSP already complete. This -- the major project that we decided a few years ago and facing the crisis of -- many crisis like COVID and the oil price and everything now is already complete. So in terms of the management will, we believe that we can move this forward to the point that it's already up and run. Based on our talent, we land at close to 95% already for the whole complex. And thanks to Peter that really lead the whole team to deliver the LSP project within budget even facing other challenges. Green Polymer, we registered at 218 kilotons last year, which is a good growth from the 2022. And green polymer is very important because the margin, I would say green polymer have a better margin than commodities. So Peter will highlight that the margin is quite okay. Our strategy is to grow this green polymer further. You can see the project like Braskem, Denka and recycled in Europe that we still keep growing. HVA, we list the constraint of the SCG Chemical performed very well at 39% in sale. And of course, this is adding more than $100 per tonne margin over the commodities. Low carbon cement, which used to be a kind of a dream in the past few years, that is real. Last year, Peter already moved 80% of our sale revenue in Thailand with the low carbon cement. And surprisingly, cement, which a very long time that we cannot export to a country like U.S., we can now. There is an order to buy low carbon cement from the U.S. That means they are comparing to buying low carbon cement from Europe and from Thailand, which one is more competitive. The testimony is that we are more competitive on that part. And we still have a very strong dividend from our investment portfolio. We will not expand that much in terms of our investment in holding. But this is as big as the BU as we -- as one business unit and very steady and growing. So the dividend is very, very strong. Our financial strength, especially cash on hand is still pretty strong. We used to have almost THB 100 billion in cash. And now people already pay back some of the expensive loan and reduce the financing cost, but we still have close to THB 70 billion in cash. So we still have a very strong cash position and balance sheet. So -- and we announced the dividend payout, of course, this is to exclude noncash extra item that paid out at 54.1%. So that's the current situation. I spend a little bit more time on that part. In terms of the revenues, THB 120 billion for the fourth quarter, down 4% Q-on-Q and down 1% year-on-year, that's come from the ROC turnaround and the chemical business. EBITDA registered at close to THB 11 billion and that's down 2% Q-on-Q, but up 8% year-on-year. So the profit record, of course, we registered the loss at THB 1,134 million on this fourth quarter, but mainly because of the impairment of the MCL and also the LSP start-up costs that we're still adding. So the -- in terms of the full year, our revenue from sale registered close to THB 500 billion and 57% is from the Thai operation. EBITDA is THB 54 billion and this THB 8 billion from the dividend from the associated company. Profit 20 -- close to THB 26 billion. We have noncash asset revaluation on the spinoff of our SCG logistics. If you remember that THB 200 billion that's noncash. But if you look at the core profit, it's THB 13.3 billion. And in terms of the segment, you could see that cement and building materials are -- actually, our segment is reducing. Chemical is the one that suffered most because of the LSP that we made -- or the start-up costs. And of course, the chemical cycle that also still -- we are still in the trough cycle. And if you look at the destination, of course, the regional in ASEAN is a slowdown. China also slowed down. So you see that the proportion of China and ASEAN are shrinking, but we are expanding in South Asia, like India and the other country around and also the new destination beyond Asia that we have to diversify our market portfolio well. And in terms of the HVA, we still maintained 34% and HVA really help us the trough of the chemical this time is in a better situation if you compare to the trough 10 years ago because of the -- we have the stronger HVA proportion. But if you look at the situation of -- beyond the chemical business, you see the situation of deflation in Mainland China. And the situation of slow economic growth, we start to see that customer for the value for money segment are growing. So that's why we have to launch a new product development, especially in the building material. So the -- our new product developments increased from 17% to 19%. And the Service Solutions grew to 7%. SCG still intend to create the organization that's more flexible, more agile. This is very important for the future competitiveness because in every segment, they will face the different situation and we will have the different opportunities. We need agility for every business unit to be able to cap those opportunities and improve the competitiveness, cement, smart living, distribution and retail, chemical and packaging and even the decor that we just IPO. So everyone have their own challenges and opportunities. We try to create the organization structure that we decentralized the decision making as much as we can but we still preserve the core value of the ESG, the long-term election of overall risk management and financial strength, governance that are still very, very strong governed by the group. So that is something we are working on. And you're going to see us create the organization that's more flexible, more agile into the future. And we -- yesterday, we had an announcement of the chain of the new executive. Basically, Peter stepped down from the CEO of the SCG Chemical. Peter has accomplished a very important task, which is #1 is the long term. As I mentioned, this is a very, very big project that we have to concentrate. And this is one of the master piece that we can complete it within the budget and within the time line, even facing all the tough situation. So that's the first mission already accomplished. Embark on the green polymer. This is setting the cost of the SCG chemical towards the green polymer. And you see the demonstration that we already show. Of course, this is a long way to go. We still endeavor to confirm our part really to the green polymer. And another mission on Peter tried to deliver last year is the IPO of the SCG Chemical, of course, this is not too few, but not because of Peter, but because of the overall market situation, that's not in favorable of the IPO. So that's why we pulled back on the start. And we take time. If we take time before we move to the IPO again. As you know, the chemical cycle will take at least this year and next year in order to fully recover, then the -- after a consultation and discussion, Peter decided probably this is a good time for him to transition to the new generation of executive. And he will stay with us as the adviser, of course, helping us to coach the new management team as our way, like Peter already retired, but still helping us behind the scene. Peter will do the same by first half of May. So that's a -- the timing is a little bit different from the SCC, mainly because of -- they have their own bot. They have their own tempo and agenda. So we need to console on the bot and make sure that the transition is right a lot. And now it's the high time. I just want to recognize Peter. And [indiscernible] is not a new face. He is very, very experienced on this chemical for more than 30 I think, more than 34, 35 roughly. He looks younger, but actually, he's very experienced. And he has an experience ranging from production, marketing new product, green polymer, everything that he already passed on the key importance. So [indiscernible] will step in on the May 1. But during this time, we will need time to transition and do all the necessary handover. So a little bit of lengthy discussion this morning. So may I pass to Peter Tanawong.

Good morning. Thank you for people to mention. And I think I will meet you this quarter and maybe one more time in the few. So too early to say goodbye now. So let's meet again in APO. So let me start for the fourth quarter last year. I think in term of the macroeconomic, you still see that market is still quite volatile. And if you look at product price. Product price slightly decreased mainly on the slowing demand from the economic slowdown. So they set a big picture of the economic situation. And look at the crude oil price, what we have seen here that in the fourth quarter, compared to third quarter crude oil price, they're lower than the third quarter and mainly from the slowing demand from the concern of the economic slowdown. However, the naphtha price slightly increased because of high supply. Actually, there is a shutdown from the mid [indiscernible] for the Middle East refinery. And at the same time, there's less [indiscernible] volume from the West. So that's why the naphtha price still high in the fourth quarter. So that's why the PE and PP naphtha gap little from the back quarter. And look at the volume, the sale volume decreased from the last quarter. But if we compare year-on-year, the 5% improvement compared to fourth quarter last year and look at the whole year, the sale volume reduced 4% year-on-year. And again, in the fourth quarter last year, we have a healthy [indiscernible] in the mid of November. Vinyl chain. Vinyl chain, again if we look at the gap PVC and EDC, actually, the demand in the fourth quarter is lower than what we expect mainly due to the -- this is like winter season, the construction activity slowdown. And at the same time, the EDC supply tight and mainly from the Middle East producer, they have a problem. And I mean the maintenance activity for the EDC plant. So that's why the EDC price went up. But however, I think one thing that I would like to mention here, if you remember that in our case, we have the PVC application, for example, like a PVC pipe and fitting the window profile, and we can capture those value in -- on one hand, leasing price lower than what we expect. But on the other hand, we can capture the value because we have the whole chain indication. And in terms of the volume, the volume in the fourth quarter lowered than third quarter and 11% mainly from the same plant shut down and look at the whole year, the volume is 10% lower than last year. Financial revenue of cost reduced compared to last year and mainly from the lower sale volume and lower product price. But if you look at the EBITDA from operation, even though we already include LSP start-up, some part of their base start-up costs, our EBITDA from operations in the fourth quarter seem positive, and we also have the dividend from the associated company. So total EBITDA around THB 2,500. And if you look at the whole EBITDA from operation significantly improved compared to last year. And profit in the fourth quarter is we have lost THB 2,500. And like people mentioned that typically for the cracker startup, I mean the whole complex, normally, during the start-up, we have the start-up costs and so on. And also, we -- as you know, that we already [indiscernible] at our fourth quarter last year, so we have some depreciation and also some interest. And if you look at the whole year, after we include those start-up costs, we still have profit around THB 600 million. And if I just give you more information, maybe you may ask that there are -- if we [indiscernible]. Actually, with subsidiary, we have to part -- the first part, the main exciting operation will still make a profit allow to THB 12,100 million. And actually, the loss is approximately THB 5 billion. And THB 5 billion include THB 1 billion from the depreciation and THB 1 billion from the interest. And you can see that we have inventory lost, another THB 1 billion from inventory loss on LSP because when we purchased the feedstock and when the -- our price come down, so we had to do that -- to have -- what we call NRV for the feedstock. So it means that on the other hand, this year, our feedstock cost will be lower. And we have some start-up costs as well. So approximately around THB 1 billion. So that's -- again, I try to give you the idea that in terms of the existing cooperation, we'll still make a really good profit compared with the last year. And what we plan for LSP -- every week, we have more information, but to give you a quick information. Now we'll earn SPS approximately 95%, and we plan to conduct the [indiscernible] and plan to complete those tests, and we have to cast 70% naphtha and 30% propane. And vice versa wise, we have to conduct 70% propane and 30% naphtha. And those tests will be completed within the first quarter. So it means that the commercial operation will be a few onward. Outlook, I would say that in a big picture, the global economic still quite volatile. And internationally, I think you may have heard about the late cut. So it means that what we have to monitor when they start to cut interest. And in terms of the industry, the demand we think that at the second half of this year, the demand should improve. Actually, now we monitor the situation after Chinese New Year. And the supply -- in terms of supply compared with this year and last year. Last year, we had additional capacity growth approximately 5%. And this year, it's about half, about 2.5%. So it means that supply -- additional supply this year is lower than last year. And for [indiscernible], I think the demand, what we foresee is that after winter, when the construction activity resume, the demand will improve. And naphtha price, I would say that if -- like I mentioned earlier now, now you may have heard about Panama and Sui whatsoever that happened and made shipment costs higher. So if everything comes back to normal, so we will see more volume that EBITDA volume from the western part. So we see the big picture of naphtha. EGC supply. In the first quarter, we have to monitor that if the Middle East, they can solve their problem and they can start up. So additional supply -- I mean, the supply for Middle East will come back to normal. So this is the outlook. If we compare like between last year and this year, what's going to happen? Last year, like people mentioned, we completed the startup. Actually, we start up LSP. I mean, the tractor [indiscernible] December and we may go up on spec within the 72 hours. So this is quite good. I mean this is with a very good safety record, like I mentioned last time that our safety is quite important. And for green polymer, we achieved 200 -- I mean, more than 200,000 tonnes. And also HVA, people already mentioned. Other than that, I think that for our industry, we know that the economic slowdown still remain. And for this year, like I mentioned earlier, that after we complete our test on, so we start commercialized as we will be a few onward. And green polymer, I think we still pursue this one. You may have heard that we already have joint venture with Braskem. Now we are in the process to do the bidding, and we plan to have the FID allow the -- I think the fourth quarter of this year. So it means that at 2026, I mean it may take about 2 years. So 2026, we will have bio PE 200,000 tonnes. And for other PE and PP and PVC, I already mentioned, green polymer actually, in terms of demand, I would say that if we compare with the working demand growth may be around 3%, 4%, but for green polymer roughly about 7% to 8%. So this is the big picture of the 2024. And LSP, like I mentioned, I think in addition to the start-up sales and marketing, I would say that we did pre-marketing since 2021. And we have the 4 teams that already prepare everything for commercial operation. And optimization, of course, as we have stock flexibility. And at the same time, we can do like a product channelization. So it means that which product that we believe that we can produce for LSP for a longer period so we can produce on LSP and some product we can produce from our operation in Thailand. So this is a big picture of the LSP. For green polymer, I think a few years ago I said the target 1 million tonnes for 2030. And last year, we can achieve 200,000. I don't know maybe after a PSA maybe the target coming up, I cannot guarantee, so let's see what we're going to do. So in terms of the green polymer, like I said, Braskem, we completed. Now we are in the bidding process and plan for the FID in the fourth quarter. For the recycle, we have 2 operations, one in the Portugal surplus, we expand capacity around 9,000 tonnes. And this one, we put new technology. Actually, when you're talking about the recycle leasing, sometimes you can have what can I say, not a good smell? So we put a new technology to remove smell from the [indiscernible]. So the land owner will be looking for those type of polymer. So this one, we already complete the expansion. So the new capacity from surplus will be 45,000 tonnes for this year. And at [indiscernible] recycle, actually, now we have our customer and we already got ISCC plus certification. Now we are in the process of the expansion of the [indiscernible] recycle. So we collaborate with the Toyo Engineering. So this one, we can expand the capacity, reduce SMX technology. Actually, now our SMX technology, we have the potential, if we can develop the application which customer, our met capacity, we can develop the SMX technology for green polymer up to 400,000 tonnes. So it means that if I mentioned about 1 million tonne, you can say that 400,000 tonnes from SMX, 200,000 tonnes from the Braskem. I mean, SCG Chemical and another -- now we have approximately 60,000 tonnes for recycle and we are still looking for opportunity to expand furthermore. So it means that I do believe that 1 million tonne we can achieve. And the -- then I think this one we call a settling black. This one, I would like to update that we have already completed bidding and we award the contract to the Toyo Engineering and we plan to finish the plan in the, I think, first half of 2026. So capacity is for the acetylene black is 11,000 tonnes. If you compare -- I mean, to give you an example, what 11,000 tonnes mean? So it means that you can produce the EV battery for THB 60 million. So this is roughly the idea that for Acetylene black. Typically, you need only 3% to 5% to put acetylene black to the cathode . Cathode is the main active material for the EV battery. And I can give you the idea that -- I would say that the acetylene black -- actually, the price of a acetylene black is around 15 to 30 times to the C2 commodity. So it means that their price quite high compared to the typical commodity C2. When we remove Acetylene -- normally acetylene, we convert acetylene back to ethylene. So this one, we move acetylene out of the process and produce acetylene black. So it means that we add that -- we add the value to the -- our backorder. So that's all I have for the chemical. So may I pass to Surachai Nimlaor.

Okay. Thank you, Tanawong. Good morning. I will start from CBM. I think at this time, it's the last time for the CBM performance announcement. On the -- from the first quarter onwards, we will only particularly for the cement and distribution business and also smart living business. So I would like to start from the revenue in the fourth quarter. We continue to put our effort and execution. So core EBITDA margin has improved compared to last quarter and last year. And in terms of revenue, we also have increased cement serving pipes, 10% to 15%. And we also have achieving 81% of low-carbon penetration rate in the last quarter. And in terms of cost reduction, alternative fuel users grew up to 42%, and we are still on the path to target allow 45% to 50% in this year. And revenue from solar also increased to 47% in the fourth quarter. And we reached almost 190 megawatts, and we still continue increasing capacity in this year. For the revenue, the revenue from sale slightly dropped by 2%, mainly from regional situation, but we can increase Thailand revenue -- Thailand sale of operation to 68%, although the situation in Vietnam and Cambodia were still challenging. EBITDA in the fourth quarter is THB 2.3 billion, slightly up by 2%. If we exclude impairment, EBITDA would be THB 4 billion, 25% more than last year. And for the whole year, the EBITDA would be THB 18,000 million, dropped by 7%. And for the profit, the profit which excludes extra item in the fourth quarter, it would be THB 500 million, and it would be THB 3.7 billion for the whole year. So I will move to cement and concrete, cement and green solutions business. For the Thai market, overall cement demand in last year slightly improved from the 2020. I expect to see the positive growth in the first half of this year, mainly from infrastructure project and tourism sector and ready-mixed concrete increased 4%, mainly from infrastructure project. For the ASEAN market, we can see Indonesia cement demand strongly increased 2% year-on-year, mainly from economic and Vietnam and Cambodia demand still saw, but you can see is less in comparison. And revenue from sale in the fourth quarter dropped by 7% due to weak regional demand, particularly in Vietnam and Cambodia that I have mentioned earlier. And for the EBITDA, EBITDA dropped by 57% from the regional asset impairment. With now extra item, the EBITDA would increase by 22%. And for the whole year, the revenue from sales slightly dropped by 2% while EBITDA increased by 1% with our extra item. For the highlight, alternative fuel users in the domestic population has increased up to 47% -- 42% in the last quarter and low carbon cement has reached 81% in replacement of Portland cement. And we also expand our low carbon cement sale to overseas market. For example, we have made the first shipment of 35,000 tonnes with the Environmental Product Declaration certify to our customer in U.S. And for the outlook in terms of market and overall demand in Thailand should we see a healthy in the second quarter onward, while we can see continued growth in Indonesia and continuing recovery in Vietnam and Cambodia also. In terms of our effort, we continue to work on cost reduction by increasing alternative fuel usage. And for the regional, our cost reduction by using alternative fuel usage is our common strategy. And for each country, we also have a different marketing strategy regarding to the competition landscape. And the last one, for the decarbonization, we also -- we are going to launch the second generation of low carbon cement in this year, and we are still on the pathway to achieve the net zero. So that's all for cement and green solution business. May I pass to Wiroat Rattanachaisit.