Siam Cement stock upgraded by Citi on improved capital allocation plan

Citi upgraded Siam Cement PCL (OTC:SCVUF) to Neutral from Sell, increasing the price target to THB180.00 from THB145.00, based on an improved capital allocation strategy. The upgrade is driven by Siam Cement's plan to reduce its stake in Chandra Asri, potentially generating THB18.2 billion in proceeds and lowering the FY25E net debt-to-equity ratio by 6 percentage points. Furthermore, Siam Cement may no longer need to book equity losses from Chandra Asri, which could raise FY25-26E earnings per share by approximately 10% and 7%, respectively.

Analysis

Citigroup has upgraded Siam Cement PCL (OTC:SCVUF) from Sell to Neutral, concurrently raising its price target to THB180.00 from THB145.00, signaling a more constructive view based on the company's improved capital allocation strategy. The core driver for this revision is Siam Cement's plan to divest a portion of its 10.57% stake in Chandra Asri, reclassifying the remaining holding from an associate company to an 'other investment'. This strategic shift is projected to generate substantial financial benefits, with Citi estimating potential disposal gains of approximately THB5.7 per share, or roughly THB18.2 billion in proceeds, assuming the transaction valuation does not fall below the 2021 equity offering price. Consequently, Siam Cement's forecasted net debt-to-equity ratio for FY25 is expected to improve by 6 percentage points, decreasing to 71%. Furthermore, the divestment is anticipated to eliminate the need for Siam Cement to book equity losses from Chandra Asri, potentially boosting its FY25-26 estimated earnings per share by approximately 10% and 7%, respectively. Citi's new THB180 price target is based on a sum-of-the-parts valuation methodology, reflecting these anticipated improvements in Siam Cement's financial profile.

Key Decisions for Investors

• Investors should recognize that while Citi's upgrade to Neutral and increased price target for Siam Cement are positive, the Neutral rating suggests a balanced risk-reward profile rather than a strong buy signal, primarily driven by improved capital allocation and deleveraging prospects.
• Closely monitor the final terms and execution of the Chandra Asri stake reduction, as the actual proceeds and the impact on the balance sheet will be key to realizing the forecasted financial improvements.
• Consider the potential for enhanced FY25-26 earnings per share due to the cessation of equity loss booking from Chandra Asri, but weigh this against the company's remaining leverage and the execution risks associated with the divestment strategy.