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

Good morning, ladies and gentlemen. Welcome to the SCG Earnings Conference for the third quarter and the 9 months of 2024. I'm [indiscernible], I will be the moderator for today's section. We highly appreciate to welcome the guest joining online today. Our management are here to provide you the third quarter and the 9 months of 2024 for the financial performance as well as the business updates. After that, we will open the floor for the questions after the presentation finished. Today's presenter comprise of SCG management led by Khun Thammasak Sethaudom, the CEO of SCG, who will walk you through for the consolidated results and provide highlights of the SCG Cleanergy; and SCGC management led by Khun Sakchai Patiparnpreechavud, the CEO of SCG Chemicals. Next are our management from the business related to the Cements and Construction business, beginning with Khun Surachai Nimlaor, President of SCG Cement and Green Solution business; and Khun Wiroat Rattanachaisit, President of SCG Smart Living and SCG Distribution and Retail businesses; followed by Khun Chantanida Sarigaphuti, CFO of SCG, who will be presenting for the SCG Packaging and financials part. Then for the sustainability part will be highlighted by Khun Chana Poomee, Chief Sustainability Officer. Thank you. And now let's start for today's presentation, beginning with Khun Thammasak.

Good morning, and thank you for joining us this morning to discuss about the third quarter performance. Third quarter is one of the challenging quarter for us. And in detail, we will discuss about the Chemical. Chemical business was in a deeper bottom and if you look at HDPE-Naphtha cap, this last quarter is around $300 per tonne and sometimes it's below the $300 per tonne. So this is far below the industry cash cost. So that's the situation we are facing with. And it amplified with the fact that this time, we have three tracker in operation. So that's why the impact of chemical is amplified 3x. So one of the key reasons that chemical is in the deeper bottom is because of the China weaker demand, which we will discuss later. Cement-Building Materials was in a slower in the third quarter due to flood. And I guess that many of analysts already listened to [ PVSHAN ] yesterday, the Packaging business, especially the paper business. It softer due to the regional demand soften. So let's get into the presentation. First of all, look at the sales revenues, the third quarter this year, we registered at THB 128 billion flat Q-on-Q, but up 2% year-on-year. The flat Q-on-Q because we have higher sales revenue of the Chemical business, but we have weaker sales revenue of the Packaging. But if you look at 9 months, sales revenue reduced at THB 380 billion. This is the fat year-on-year. On the 9 months sales revenue, Chemical and Packaging is increased year-on-year, but Cement-Building Materials business decreased year-on-year. On the EBITDA, third quarter EBITDA registered at THB 9.8 billion. And later on I will discuss on the onetime of the IRS interest as unwinding. But just look at the third quarter EBITDA it dropped 11% year-on-year mainly because of the Chemical and Packaging and the assortment of the Cement-Building Materials as we discussed. In the third quarter, we have the inventory loss around THB 940 million. And again, the spread of the Chemical, if you compare year-on-year, the spread of HDPE-Naptha dropped by $40 per tonnes. 9 months, the EBITDA registered at THB 38.7 billion, dropped 10%. You could see that EBITDA on the year-on-year drop are smaller Q-on-Q, because Q-on-Q we have the dividend season in the second quarter. For the profit, we reduced the profit in the third quarter of THB 721 million. And just to explain it, this include the unwinding of the Interest Rate Swap around THB 2.1 billion that reaches -- if you adjust that one out because that's a onetime, our performance will be negative THB 1.4 billion, so that the situation we are facing in the third quarter. For 9 months, our profit registered at THB 6.8 billion. Let compare with the THB 12.8 billion last year, because I just adjust the - last year we have the [indiscernible] deconsolidation and the [ Knock Knock ]. So if you adjust that one last year, we -- 9 month profit was THB 12.8 billion So compared to THB 12.8 billion profit 9 months declined 46%. So let's get deeper, dig deeper on what really happened in the third quarter, you could see second quarter, our profitability stand at THB 3.7 billion, but in the third quarter, Chemicals is the business unit that soften -- the largest soften in the performance, you could see the Chemicals decline by about THB 2.4 billion on a Q-on-Q basis, mainly because of the inventory loss, FX loss and of course, the lower spread that we have, and we have a full operation of the Long Son Petrochemicals for 1 month. So that's why Chemical has declined in terms of the profitability, the most. Cement-Building Materials and Packaging also declined on the performance. But we have onetime gain of the IRS unwind of THB 2.1 billion, so that's why this quarter -- third quarter, we still can make a profit at THB 721 million. For sector level, you could see that Cements and Green Solution, Smart Living, and Distribution, and Decor on the year-on-year profit rate increase. However, that smaller than the decrease of the Chemical and Packaging. So that's why overall profitability decline. Management has taken several action, and this action will be taken further not only for short-term but also for the medium-term. But if we just focus in the second half of this year, we will manage the debt. And we reduce the debt, especially the U.S. dollar loan that we have planned to repair, to reduce the interest rate cost. And we steam line, trim down the working capital, we target at THB 10 billion reduction of the working capital by early of next year. So you could see that if you can free up cash flow THB 10 billion. Basically, it will reduce the debt for us. And of course, over the past few months, we already streamlined nonprofitable operation and discontinue many noncompetitive unit and wind out. That's also saved us the cost. And the CapEx also tightened -- CapEx spending also tightened, we still have some investment, but it's mainly on the very quick return and also the green investment our LSP CapEx and debt profile also restructuring. In the shot-term target, I think what we have done and we try to do, we have to take the target after the short-term management will take the asset divestment because yesterday, we already informed the stock market that we will invest in the ethane and addition in the LSP, which Khun [indiscernible] will explain in the detail. But in order to control the overall debt level, we are aiming for the asset divestment to control our overall debt and ensure the financial stabilities. And cost-cutting, we also added further cost cutting, we will also target at THB 5 billion next year. That will come from the closing down of further nonprofitable operation and also reduction of the SG&A, net debt and working capital that will contribute for THB 5 billion gain from that short-term operation. But in order to solve this issue, we have to also look at the medium term. And medium term, we still -- we will have to refocus on the core asset that operation that we will have to improve the competitiveness and the efficiency, for example, like a Long Son, we improved the efficiency. The ethane project will be a key piece of the medium-term improvement that will ship our competitiveness to a quarter -- competitive quartile in the cost curve -- global cost curve. And we still boost the high-value added of the chemical, which over the next few months, we will release more and more of the high-value-added expansion because this is the one that really help the Thailand operation to stay competitive in the deeper bottom that we are facing. Hence, for the Cement-Building Materials which have looking brighter future, especially, not only in Thailand, with is we see an improvement in the construction demand due to the going budget spending that's already taken into the FX, but also the regional demand there start to improve in Vietnam, Indonesia and Philippines. So that's why we will accelerate our position in the low-carbon cement because this will not only improve our long-term position, but also improve our cost position, which [indiscernible] will give further details. So that is a quick highlight. I will come back on this again toward the end of the presentation. But let's get into the detail first. So may I pass to [indiscernible].

Good morning. Let's start with the market situation in quarter 3. Throughout the third quarter, polymer demand has remained sluggish. Falling short of expectations for the high season, reflecting broader trend of cautious consumer behaviors and economic uncertainties, only C4 by products benefit from limited naphtha cracker [indiscernible]. Look at the price and gaps. Crude oil price also saw a little bit down to [ 79 ] minus $6 per value. Also, naphtha is also weak, minus $16 per tonne down to $672 per tonne. Also, the product gaps, look at these quarters, PE dropped down USD 41 per tonne. Also PP cap dropped down USD 13 per tonne. As Khun Thammasak mentioned, this gap is very, very low and also make the producer is very difficult. For sale volume in the third quarter, it seems that the volume overall is more than the last quarters and also higher than the last year, contributed by LSP. For 9 months, we achieved 1.3 million tonnes. That's the portion of LSP about 220,000 tonnes. Look at Vinyl chains. Vinyl chain is also weak. There going to our price erosions caused by the weak construction in the regions, especially in China. The market cap dropped to $322 that's about $12 per tonne from the last quarters. Sales volumes is also dropped down a little bit to 168,000 tonnes. For 9 months, it's also dropped on from the last year 9 months this year, we have sold 500,000 tonnes. For financials of SCG Chemicals of the third quarter, the revenues is increasing from the last year because of LSP start-ups. Total sales revenues in the third quarter, THB 53 billion for 9 months, it's THB 151 billion. EBITDA the third quarter still positive is about THB 1.5 billion. That's already including the onetime gain from IRS. For 9 months, the EBITDA is actually THB 6 billion, actually, it's about half of the last year. Look at the profit. The profit in the third quarter is totally lost about THB 1.5 billion. that mainly cost by subsidiary as Khun Thammasak already mentioned. This quarter, we have the stock loss, and strong baht and narrow gap including LSP startup. Also, the third quarter normally is the low contribution from dividend from associated companies. For 9 months profit, minus THB 4.5 billion, mainly because of, as I mentioned, LSP and the subsidiaries. For the associated company this year is also the dividend and last year. Going forward to the next quarters Q4, the outlook are still weak. Actually, the supply side, especially from China's capacity addition and sluggish demand persists. Let's make the polymer market in the fourth quarter is still challenging. Vinyl business is also -- actually, Vinyl is where you must depend on the constructions. And we do hope the stimulus China would be effective. Otherwise, you will see the products export from China to Asia. At the end of the year, normally, the cargo from U.S. there every year, they export to Asia. And that's why the fourth quarter is obviously the overall is still very challenging. Also, the cost, we know well at the end of the year as the energy price is getting higher because of the coming winters. We also forecast the naphtha price, crude oil and naphtha price are still strong. At the same time, the product price probably maintained. Next, I would like to update LSP. LSP already a start-up in September 30. We already test line all the mode operations. The plans performance in the good conditions. The product is also distributed to our target market or the product quality is well accepted. Unfortunately, the market at the third quarter, especially right now, is under pressured. That's why we decided to shut down some of the LSP in order to mitigate the loss. So right now, we will look closely in the market improvement. So we will bring three cracker in the carefully optimization. And also, we will focus more on domestic customers. And also, we try to increase the HVA products extended from Thailand to Vietnam. Also, we will look at the cost, how do we reduce the cost in SG&A and also the working capital? This is the main focus from now on, on the market improvement. So I used to explain the reason why we decided to have the eating into our asset in Vietnam, LSP. This is the cost curve, you look at the right-hand side, the producers on the right-hand side, considering it's less competitiveness compelling with the producer on the left-hand side. Just to make it simple, the right-hand side is, represent LSP, that's why we will bring detail from U.S. That will make the economics of the LSP will be better. Our competitiveness will improve from the fourth quarter to the mid second to third quarter -- I'm sorry, move to about third quartile, not the third quarter. This is a little bit details of LSPE. Yesterday's SCC already made announcement to the public. Overall, investment needs about USD 700 million given to THB 23 billion. Funding from SCC's internal sources. The major CapEx is Ethane tank storage that will be expected completion in the end of 2027. Another major tasks that we are going to do is we will apply for the permits. According to Vietnamese law and regulation, we have to submit and to get the certificates and permit before we move forward. In short, the rationale that we are going to improve the competitiveness of LSP. The key reasons that we would like to bring in the competitive feedstock ethane from U.S. And LSP basically decide for gas base, it means that if we introduce another gas, we can get advantage in terms of the modification will be less and also the execution of this modification will be faster. Definitely, if we could get the ethane as the feedstock. Our costs will be lower as about USD 250 per tonne. This curve that already happened in the past. Look at our naphtha price and ethane price, majority is the price difference on average USD 250 per tonne. And so this also can make our carbon footprint from this asset will be lower. This is the last -- I just want to update SCG Chemical, we still pursue the green initiatives and introduce new products into the market. In the past quarters, we have collaborated with several plant owners. And our product is already launched in the market in both the consumer products and also some linked to the construction. Thank you.

I start on the financial highlights. Revenue from sale in the third quarter and up by 3% year-on-year. And in the first 9 months, revenue from sales dropped by 6% year-on-year. Mainly from soft demand in consumption market. Even though we have a pan maintenance, [indiscernible] the third quarter, but EBITDA and profit in the third quarter improved when compared to year-on-year. And EBITDA and profit in the first 9 months increased by 13% and 95% year-on-year. And thank to our energy transmission and our efficiency improvement project that we have done in the first half of this year. For the Thai market, overall cement demand in the third quarter decreased 0.5% year-on-year, significantly improved compared to the previous quarter. And ready-mixed concrete demand also increased 1% alive with our 70 micro. While the situation in ASEAN also improve compared to the same period last year, as Khun Thammasak mentioned earlier. In the first 9 months, we used alternative fuel reach up to 46% increased 6% from the same period last year, mainly from developing a new decarbonization project and our technology. And we also replaced our ordinary partnering with a low carbon cement. The low carbon cement has increased from 58% last year to 86% in the first 9 months. And we also successfully implement ongoing cost reduction strategy focused on our alternative fuel users and renewable energy and low carbon product. So we can achieve total cost savings almost THB 1.2 billion in this year. And moreover, we are the first company in Thailand, that we successfully expand environmental product elation certify to cover all the mortar products. And for the outlook, we foresee a recovery in Thailand construction market in the fourth quarter, driven by our government projects and private investment. And why we still see continued growth in regional and recovery in other market also. And we continue working on cost reduction by increasing alternative fuel and renewable energy users. Additionally, to secure our biomass users, we enter into a partnership with the Forest Industry Organization or FIO, to for more energy cultivation on their land. So that's all for the Cement and Green Solution business.