Sharp dip in earnings of petrochem unit of SCC could derail its planned public offering

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Plans of undertaking an initial public offering (IPO) of the petrochemical unit of Siam Cement Plc (SCC), seems to be in doldrums after the company’s star performing unit reported a sharp decline in its profitability.

Siam Cement, the country’s largest industrial conglomerate which is also considered to be the bellwether of the performance of the industrial sector in Thailand, had hoped that its star performing unit that was started nearly 2-decades ago, would be listed on the Stock Exchange of Thailand (SET). To this plan, SCC has filed with the Securities & Exchange Commission (SEC) to sell up to 3.854 billion new shares of 10 Baht a piece par value.

The planned IPO, which would have taken place (likely within 2022) would have seen 25.2% of the company’s shares sold in the IPO. Read more details of this filing of the IPO in Thai only (Click Here).

SCG Chemical Plc, which is the petrochemical arm of the conglomerate, accounted for 60% of the profits during the 1st half of 2021, but it has shrunk to a mere 33% during the 1st half of 2022. In terms of value the profits from the petrochemical sector accounted for a mere 7.29 billion Baht for the 1st six months of 2022 against 19.22 billion Baht during the same period of 2021.

The 62% decline in profitability of the petrochemical sector of Siam Cement is likely to have an impact on the IPO.

Headwinds

Siam Cement during its quarterly earnings announcement came out to say that there were many headwinds for the group, among them was volatile oil prices that has swung US$ 65/barrel in the 1st six months of 2021 to US$ 90+/barrel during the same period of 2022.

The fact that the Thai Baht has depreciated against the US$ from 30.64 in H1 2021 to 33.56 to the US$ in 1st six months of this year, has not helped the company either.

To add salt to the wounds is the fact that the margins on the products saw a sharp decline due to higher feedstock costs.

The lower earnings from petrochemical unit dragged the entire group’s earnings down during the quarter. SCC reported a net profit of just 9.94 billion Baht for Q2 2022 against 17.14 billion Baht seen during the same period of 2021. For the 6-months ending June 2022 the net profits were a mere 18.78 billion Baht against 32 billion Baht seen during the same period of 2021.

Despite all this the company announced that it was paying 6 Baht interim dividends for the profits during the 6-months of 2022.

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