SCG in ambitious expansion plan despite profit decline

SCG in ambitious expansion plan despite profit decline

Siam Cement Group (SCG), Thailand's top industrial conglomerate, expects a weaker net profit this year.

The forecast stems from the Chinese slowdown and turbulent European economy causing a slower-than-expected turnaround in its core petrochemical business.

"Our equity revenue fell by 6 billion baht in the first nine months of this year, with nearly all of the decline stemming from petrochemicals," Kan Trakulhoon, the president and chief executive, said yesterday.

"Absolutely, we're anticipating a lower net profit this year."

SCG's 2011 net profit was 27.2 billion baht.

Petrochemicals, which account for nearly half of group revenue, contributed only 14% of net profit in the first nine months of this year.

During the period, the group's consolidated profit shrank by 31% year-on-year to 16.7 billion baht despite sales surging by 10% to 308 billion.

In the third quarter alone, SCG posted a net profit of 6.42 billion baht, down by 13% year-on-year, as margins on petrochemical products narrowed amid slowing global economic growth.

Revenue for the period nonetheless increased by 11% year-on-year to 104 billion baht.

The high-density polyethylene-naphtha spread has weakened slightly from the second quarter to US$420 a tonne at present.

"We expect the spread will stay within a range of $430-450 a tonne at the end of this quarter," said Mr Kan.

He said SCG's board yesterday approved 11 billion baht to build an integrated cement plant in Indonesia's West Java province, with annual capacity of 1.8 million tonnes. Another 5.5 billion baht will be spent to expand annual capacity at its cement plant in Kampot, Cambodia by 900,000 tonnes, with both projects starting in mid-2015.

Mr Kan said Indonesia and Cambodia expect annual growth of 5-10% in cement demand over the next decade.

Plans for a cement plant in Myanmar remain pending, given the delay by the neighbouring country to enforce its new foreign investment law. However, Mr Kan insisted that project remains on track to begin construction at year-end.

SCG will also spend 6.7 billion baht to expand annual capacity at its Kanchanaburi and Ratchaburi packaging paper plants to reach a combined 400,000 tonnes.

Once that is completed in 2014, the group will be the largest manufacturer throughout the paper chain, with annual capacity of 2.3 million tonnes compared with just over 1 million for its Indonesian rival.

SCG's combined Asean operation recorded third-quarter revenue growth of 44% to 8.3 billion baht, accounting for 8% of the group's total turnover.

Shares of Siam Cement (SCC) closed yesterday on the Stock Exchange of Thailand at 365 baht, down one baht, in heavy trade worth 1.31 billion baht.

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