Will the Packaging Business Fuel SCC’s Profit?

Most people know Siam Cement Public Company Limited (SCC) as Thailand’s largest cement and building materials producer, but its core businesses have 3 parts which include cement and building materials unit, petrochemical unit and packaging unit.

Among 3 businesses, the packaging unit is the most remarkable star to be focused. When looking at the third quarter of 2019 , it was the only business still having growth. The two others, building materials and petrochemicals, which are the most supporters of the company, have instead a decrease of income.

 

In the latest movement, SCC spinned off SCG Packaging Public Company (SCGP) in order to fully penetrate the packaging market. The company has raised funds to invest and expand into the domestic and overseas packaging markets. Moreover, there was a financial restructure of SCGP to be ready for future business expansion.

This might be called the spinning off to grow, though it will leave SCC with two businesses.

 

However, SCGP still remains a subsidiary of SCC, which holds SCGP’s shares more than 70% and being able to control SCGP’s balance sheet at 100%. More importantly, SCC will no longer have a burden on SCGP’s investment fund.

As for SCGP, the company will have more flexibility in management and no need to rely on SCC’s funding because the company will have more options to access to funding sources, either issuing debentures, lending from the banks or increasing capital.

What causes SCC to push into the packaging business is the potential growth both in domestic and ASEAN markets, especially high growth online trade. There is an opportunity to make more value from the packaging as well, including durable boxes for electronic products.

At the same time, the packaging business will also support SCC’s logistics business. SCC has previously made a joint venture with Yamato group, a Japanese parcel delivery company which has the symbol of a black cat biting a dart. Both companies created Yamato Asia Company Limited in order to provide fast-track parcel delivery services, called SCG Express.

Which means the higher SCGP grows, the better looking of SCC’s balance sheet.

 

Penetrating to the packaging industry is an interesting strategy to make a profit but while SCGP has a brightening trend, its parents’ company SCC is in the worrisome situation. If the cement and building materials and petrochemical businesses don’t recover, it will be another year that the shareholders will be hurt. Let’s pray that it will not be like that.