SCCC's ratings also reflect its solid financial position which has, in the past few years, provided financial flexibility amid weakened cement demand and its continued high dividend payout. Although SCCC's financial leverage rose in the past four years due to its higher capex and continued high dividend payout, the company's leverage ratio remained stable at 0.50x at end-2009 (end-2008: 0.54x). Financial leverage is likely to rise gradually in the medium-term due to expected negative free cash flow after dividend payouts. EBITDAR declined 2.6% while EBITDAR margin remained stable at 25% in 2009 helped by cost saving measures.
Bangkok-based SCCC also benefits from technical support, know-how and expertise from Holcim Ltd (Holcim, 'BBB'/Stable), a strategic partner and major shareholder. Holcim's established sales network, with a presence in over 70 countries, helps to support SCCC's exports.
Fitch expects SCCC's earnings to improve moderately in 2010-2011 supported by the economic recovery and growth in residential and commercial property development. Higher government spending, such as the construction of new mass-transit electric-train lines and roads, should also boost demand.
SCCC's ratings take into account the large excess cement capacity in Thailand where intensified price competition and rising energy costs could impact the company's margins. Other rating constraints include SCCC's high historical dividend payout, its revenue concentration in a single market and its relatively small revenue base.
The Stable Outlook reflects Fitch's expectation that SCCC should be able to maintain its domestic market share, generate strong cash flow to support capex and dividend payout, and maintain its financial profile consistent with the current credit ratings over the medium term. A sizable increase in operating scale, along with a sustained low leverage, could positively affect the ratings. Conversely, SCCC's ratings could be negatively impacted in the event of the following: a sustained decline in margins; substantial debt-funded investments; higher-than-expected dividend payment leading to adjusted net debt to EBITDAR of over 2.0x on a prolonged basis.
Established in 1969, SCCC has a total cement production capacity of 14.5 million tons per annum. It is also a leading producer of ready-mixed concrete in the domestic market with 60 owned plants. The company is also a producer and distributor of wood replacement construction materials under the 'CONWOOD' brand. Holcim and the Ratanarak family, each hold about a third of the company's total shares.
Applicable Criteria available on Fitch's website at www.fitchratings.com: 'Corporate Rating Methodology', dated November 24, 2009 and 'National Ratings - Methodology Update', dated December 18, 2006.
- Fitch has made major improvements to its credit research on EMEA and AsiaPac corporates. To view these improvements, visit our 'Clear Thinking' web page at http://clearthinking.fitchratings.co.uk/Index.html
Contacts: Pimrumpai Panyarachun, Somruedee Chaiworarat, Vincent Milton, Bangkok, +662 655 4755.