Bangkok--19 Jul--Fitch Ratings
Fitch Ratings (Thailand) Limited has affirmed Siam City Cement Public Company Limited’s (SCCC) National Ratings at Long-Term ‘A(tha)’ and Short-Term ‘F1(tha)’. The Outlook is Stable. At the same time, Fitch has affirmed SCCC’s senior unsecured debentures at ‘A(tha)’.
SCCC’s ratings reflect its leading position as the second-largest cement producer in Thailand, with strong brands in cement, ready-mix concrete and wood replacement products. This has helped the company to maintain its domestic cement market share at about 27% in the past 10 years. Moreover, one of its majority shareholders, Holcim Ltd (Holcim; ‘BBB’/Stable), provides operational support and a strong global marketing network, helping to underpin SCCC’s exports.
SCCC has maintained financial leverage at low levels relative to peers, with net adjusted debt to EBITDAR below 1.0x during 2004-2011. Strong cash flow from operation is likely to keep net adjusted debt to EBITDAR below 2.0x over the medium-term despite expected increasing capex and high dividend.
SCCC’s profitability is highly sensitive to energy prices as fuel costs and transportation cost account for about 50% of its total cash costs. Excess capacity for cement in the domestic market also constrains the company’s ability to pass on rising costs to customers. Nonetheless, the company’s cost saving measures such as increasing usage of alternative fuel, waste heat generators and machine efficiency improvement could partly ease the pressure from rising energy costs.
SCCC’s business profile is tempered by its earnings concentration within the domestic market. The domestic market accounted for more than 80% of SCCC’s total EBITDA in 2011, despite increasing exports to neighbouring countries. Intense competition resulting from the excess capacity in the domestic market also leads to price competition from time to time, constraining the company’s profitability.
What Could Trigger A Rating Action?
Positive: Future developments that may, individually or collectively, lead to positive rating action include
-a significant increase in operating scale and geographical diversification, along with sustained low financial leverage and no material deterioration in its business profile
Negative: Future developments that may, individually or collectively, lead to negative rating action include
-significant deterioration in credit metrics with net adjusted debt to EBITDAR higher than 2.0x
-a sharp decline in operating profits for a prolonged period