Bangkok--11 Apr--Fitch Ratings
Fitch Ratings has affirmed Thailand-based Siam City Cement Public Company Limited’s (SCCC) National Long-Term Rating at ‘A(tha)’, its National Short-Term Rating at ‘F1(tha)’, its National Long-Term Rating on its senior unsecured debentures at ‘A (tha)’. The Outlook is Stable.
Key Rating Drivers
Leading Market Position: SCCC has maintained its position as Thailand’s second-largest cement producer with a stable market share of 28% in 2013. Its strong brands in cement and ready-mixed concrete have underpinned SCCC’s healthy EBITDA and EBITDA margins over the past ten years. Moreover, the company’s exports have been supported by the strong marketing network of its 27.5% shareholder, Holcim Ltd. (BBB/Stable).
Solid Financial Profile: SCCC has strong credit metrics with net adjusted debt/EBITDAR staying well below 1.0x (2013: 0.6x). SCCC’s low financial leverage should provide sufficient flexibility for its high capex associated with its planned expansions over the next two years. Fitch expects the company’s net adjusted debt/EBITDAR to remain below 1.5x during 2014-2015 and FFO interest coverage to remain solid at above 10x (2013: 28x).
Slow Domestic Demand Growth: Growth of domestic cement demand is likely to soften in 2014, due to slower economic growth and political instability reining in consumer confidence. However, demand should recover in the medium term, in line with the country’s economic recovery, increasing property development and the government’s plan for infrastructure expansion. Fitch expects SCCC’s sales to grow at a mid-single digit rate (compared to the double-digit growth recorded over the last few years) in 2014, driven by increasing exports.
Vulnerable to Energy Prices: SCCC’s EBITDA margin is highly sensitive to energy costs, mainly coal and electricity. Fuel and electricity costs accounted for over 75% of the total production cost in 2013. However, margin compression from increasing costs is expected to be milder in 2014 as coal prices are currently lower than last year’s and predicted to be less volatile in 2014.
Single-Market Concentration: SCCC’s ratings are constrained by a lack of geographical diversification. Most of its earnings come from cement and related products sold in Thailand. Excess capacity is likely to be moderately absorbed by the strong growth in cement demand in the medium term. But additional capacity could be created from bottlenecks in existing kilns, along with the construction of new kilns by major local producers.
Rating Sensitivities
Positive: Future developments that may, individually or collectively, lead to positive rating action include
- a significant increase in operating scale or revenue diversification, which helps improve SCCC’s business profile while maintaining net adjusted debt/EBITDAR below 1.0x
Negative: Future developments that may, individually or collectively, lead to negative rating action include
- a large decrease in profit margins, a large debt-funded investment, or higher-than-expected dividend payouts, which lead to an increase in net adjusted debt/ EBITDAR to over 2.0x on a sustained basis