Siam Cement Using Cash Pile to Accelerate Growth: Southeast AsiaAnuchit Nguyen
Siam Cement Pcl, Asia’s biggest cement producer by market value, plans to buy as many as five companies in Southeast Asia as rising incomes boost demand for homes and governments increase spending on infrastructure.
Bangkok-based Siam Cement is in talks with companies including a building-materials producer in Vietnam, President Kan Trakulhoon said, without naming them. The value of each deal will be between a few billion baht and 10 billion baht ($321 million), he said in an interview yesterday.
Kan said he will spend as much as 250 billion baht over the next five years buying companies and expanding existing plants in countries including Thailand, Vietnam and Indonesia, where governments have pledged to increase spending on overburdened roads, railways, ports and airports.
“Our priority will be acquisitions,” Kan, 58, said. “When we talk to our potential target company, they believe that we have the cash to buy. We settle the deal, then we agree and it goes to the board and we pay the money. No need to get financing from banks. Nothing at all.”
Siam Cement has bought about 60 companies since 2007 using its own cash, and will finance new acquisitions with existing reserves of about 40 billion baht, he said.
“Siam Cement is the only Thai company that has achieved aggressive expansion in the region,” Chatree Srismaicharoen, an analyst at Krungsri Securities Co. in Bangkok, said by phone. “There is vast potential in countries such as Indonesia, Vietnam and Myanmar because of their large population, urbanization and infrastructure development.”
Indonesia’s government plans to spend about $53 billion to improve the nation’s airports, ports and railways, and Thailand’s parliament is debating a proposal to spend $64 billion on roads and railways over the next seven years. Myanmar needs to spend $320 billion on infrastructure by 2030 to lift economic growth to 8 percent, according to estimates by the McKinsey Global Institute.
Siam Cement, founded by Thailand’s King Vajiravudh in 1913 and controlled by the asset-management arm of the country’s present monarch, Bhumibol Adulyadej, has businesses ranging from cement and petrochemicals to paper and building materials. It has plants in Thailand, Cambodia, Indonesia and Vietnam.
The company’s shares fell 1.4 percent as of 10:10 a.m. in Bangkok. The stock is down by the same amount so far this year, compared with a 4.9 percent gain in the benchmark SET Index and a 0.3 percent increase in the Stock Exchange of Thailand Construction Materials Index. The stock rose 41 percent in 2012.
Siam Cement is investing more than 18 billion baht to build new cement plants in Myanmar and Indonesia, and in September 2011 the company paid about $418 million for 30 percent of Indonesia’s PT Chandra Asri Petrochemical.
Acquisition opportunities are more limited in Myanmar, because there are so few existing businesses in the country, and in the Philippines, Kan said.
“In the Philippines, it’s quite difficult because the energy cost is very high,” he said. “Our main focus in the Philippines will be on distribution and marketing, and we will produce elsewhere.”
Construction of the company’s biggest new project, a $4 billion petrochemical complex in Vietnam, will begin in 2015, he said. The plant, first announced in 2008 and delayed by a lack of funding caused by the global financial crisis, will start commercial production about three years after building begins, Kan said.
Qatar Petroleum and Vietnam’s government are partners in the project, which is being built in the southern Vietnamese province of Ba Ria-Vung Tau and will have the capacity to produce 1.4 million tons of olefins a year. Olefins are most often used in the production of polymers used for plastics.
The “worst time” for the petrochemical business has passed, and the industry will continue to recover in the second half, Kan said. Siam Cement’s profit in the third quarter showed “positive growth” because of increased contributions from its petrochemical unit, he said.
Profit will rise 35 percent to 8.69 billion baht in the third quarter, according to the average of nine analysts’ estimates compiled by Bloomberg. Of the analysts that cover the stock, 26 recommend buying the shares and four have a sell recommendation. The company is scheduled to report third-quarter earnings on Oct. 30.
Acquisition negotiations can take as long as three years, and Siam Cement sometimes offers company founders a minority stake in a business to make a deal more attractive, Kan said.
“We spend two or three years talking to the owners, to the founders, until they feel comfortable,” he said. “When we acquire a company, immediately we can transfer best practices for plant operations and also we can rationalize the equipment as well. Usually the company will be doing much better within a year, and the founder can see that.”