Thailand’s SCG 2019 earnings to be supported by good chem margins, non-chemical units

Nurluqman Suratman

31-Jan-2019

SINGAPORE (ICIS)–Siam Chemical Group’s (SCG) earnings will continue to be supported by solid petrochemical margins and contributions from non-chemical businesses this year amid relatively low oil prices, according to analysts.

Performers in Thailand tourism parade (Source: DIEGO AZUBEL/EPA-EFE/REX/Shutterstock)

“Investors expect oil prices to stay low for some time. This will help support [SCG’s] chemical margins,” Naphat Chantaraserekul, an analyst at Thailand-based brokerage Krungrsi Securities, said in a note on Thursday.

The company on Wednesday reported a 17% year-on year drop in its net profit to Thai baht (Bt) 10.5bn, with sales up by 3% at Bt117.2bn.

SCG’s earnings before interest, tax, depreciation and amortisation (EBITDA) fell by 24% year on year to Bt20.1bn in the fourth quarter.

The drop in fourth-quarter EBITDA was “mainly due to the decline in performance from the chemicals business in light of the market volatility which resulted in decreased margins and inventory loss of Bt2.2bn,” the company said in a filing to the Stock Exchange of Thailand.

The chemicals business contributed 52% to the group’s overall EBITDA in the fourth quarter of last year, down from 77% in the previous quarter, due to the inventory loss and softer spreads of high density polyethylene (HDPE), polyvinyl chloride (PVC) and butadiene (BD) products, Chantaraserekul said.

SCG’s equity income fell by 21% year on year in the fourth quarter, mostly due to weaker contributions from chemical associates, and this dragged down the firm’s full-year results, he said.

For the full year of 2018, SCG’s net profit fell by 19% year on year to Bt44.7bn while sales were up by 6% at Bt478.4bn. EBITDA fell by 15% to Bt86.6bn.

“We expect SCC to resume its positive earnings growth from 2019 onwards,” Singapore-based DBS Group Research said in a recent note.

“Despite our more conservative view on the petrochemical business on narrower product spreads arising from new supply and concerns over a US-China trade war, SCC’s solid 2019 performance is likely to be driven by the non-chemical businesses,” it said.

This includes the company’s cement and building materials business as well as its packaging unit, according to DBS Group Research.

Focus article by Nurluqman Suratman

($1 = Bt31.24)

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