OREANDA-NEWS. Fitch Ratings (Thailand) Limited has affirmed The Siam Cement Public Company Limited's (SCC) National Long-Term Rating at 'A(tha)', National Short-Term Rating at 'F1(tha)' and its senior unsecured debentures at 'A(tha)'. The Outlook is Stable.

KEY RATING DRIVERS
Leading Market Positions: SCC is one of Thailand's largest conglomerates with three diversified core businesses in cement and building materials, chemicals, and paper. SCC is the largest manufacturer of cement, ceramic tiles, downstream chemicals and packaging paper in Thailand and some south-east Asian countries, based on capacity and market share. Fitch Ratings expects the company to maintain its leading market positions in Thailand and south-east Asia in each of its core businesses over the next five years.

Business Diversification: The ratings are supported by SCC's well-diversified sources of revenue from its various businesses. SCC's focus on regional expansion and new product development is positive for SCC's business profile over the longer term, although the earnings contribution from regional operations is likely to remain small in 2015.

High Capex: SCC's capex is expected to remain high in 2015-2016 at about THB50bn-THB60bn a year. This will mainly be used to expand overseas, particularly in south-east Asia, via investment in greenfield projects and acquisitions. Fitch expects SCC's net adjusted debt/EBITDAR, including dividends from associates, to stay at about 3.0x in 2015-2016 (2014: 2.7x), and trend below 3.0x thereafter as the regional operations start to ramp up.

Growing EBITDA: Fitch expects SCC's operating EBITDA in 2015 to continue to grow at the same pace as 2014 (2014: operating EBITDA growth 8.7%). The chemicals business is likely to remain a key earnings driver in 2015, driven by a higher polyethylene spread, while operating EBITDA growth for cement and building materials will remain in the low single digits due to a slow recovery of domestic construction activities.

Cyclicality Hinders Ratings: The ratings also factor in SCC's inherent exposure to the cyclicality of the chemicals and paper businesses, and a lack of pricing power because the majority of its products are commodities.

KEY ASSUMPTIONS
Fitch's key assumptions within our rating case for the issuer include:
- Operating EBITDA to increase in 2015, driven by higher petrochemical product-feed margin;
- Operating EBITDA of cement and building materials business to be maintained or increase slightly;
- Capex of THB50bn- THB60bn per year in 2015-2016; and
- Dividend payout ratio of 40%-50%.

RATING SENSITIVITIES
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
- a large increase in cash flow generation from regional operations
- a FFO net adjusted leverage sustained at below 2.75x. (2014: 2.81x)

Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- a weakening of the company's business and financial profile resulting in FFO net adjusted leverage sustained at above 3.75x.