Bangkok--31 Jan--Fitch Ratings
Fitch Ratings (Thailand) Limited has affirmed The Siam Cement Public Company Limited's (SCC) National Long-Term rating at 'A(tha)', its National Short-Term rating at 'F1(tha)' and its senior unsecured debentures at 'A(tha)'. The Outlook is Stable. The ratings reflect SCC's well-diversified business which helps support cash flow generation, particularly during the difficult operating period of its chemical unit in the past two years. Likely strong cement and packaging paper sales should partly compensate for the slow recovery of chemical earnings in 2013. Over the medium term, earnings contribution from cement and building materials is likely to increase (2011:39%) and help reduce the impact from the cyclical chemical business.
SCC's leading positions in each of its core businesses; petrochemical, cement, paper and building materials, are its key competitive advantage. The company should be able to maintain its number-one market share in PVC, cement, paper and building materials in Thailand over the next five years, based on its strong market position and high barriers of entry.
Fitch expects SCC's EBITDA margin to improve in 2013 from the previous year, helped by expected improvement in chemical EBITDA margin in H213 and higher earnings contribution from the cement and building material businesses. In particular, the recovery of petrochemical product-to-feed margins will drive the extent of EBITDA margin improvement. Fitch notes that poor petrochemical margins drove SCC's EBITDA margin down to 8.4% in 9M12 from 9.5% in 2011.
Fitch expects SCC's net adjusted debt/EBITDAR including dividend from associates to remain high in 2013 due to high capex. SCC's financial leverage is likely to be around 3.25x-3.5x in 2013 and 2014, compared with an estimated 3.4x for 2012.
Factors constraining SCC's ratings are its exposure to the cyclical chemical business, lack of pricing power due to the commodity nature of most of its products, and earnings sensitivity to energy prices.
The Stable Outlook reflects Fitch's expectations that SCC's financial leverage will remain commensurate with the current ratings over the next 24 months, based on flexibility over its investment plan and divestment options.
What Could Trigger A Rating Action?
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
-a significant increase in cash flow generated from regional operations
-large improvement in EBITDA margin
-net adjusted debt/EBITDAR (including dividend from associates) of less than 2.5x on a sustained basis
However, Fitch does not expect any positive rating action in the next 18 months due to the company's high capex.
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
-a sustained EBITDA margin deterioration together with a decline in EBITDA
-a prolonged chemical downturn or aggressive acquisition which results in net adjusted debt/ EBITDAR (including dividend from associates) rising above 3.5x on a sustained basis