CAMBODIAN BUILDING BOOM A RICH OPPORTUNITY FOR SCG
The outlook remains bright for the construction and building-materials industries in Asean, except in Indonesia where heavy competition, economic turbulence and exchange-rate volatility are all taking a toll, says Aree Chavalitcheewingul, vice-president for regional business of the cement building materials unit of Siam Cement Group (SCG).
“Economic conditions in Indonesia are slowing, notably with the immense depreciation of the rupiah,” he said, noting that the currency had slid from 11,500 rupiah to the US dollar a year ago to around 14,330 now, its weakest since July 1998.
The cement market in Indonesia in the first half of this year contracted by 4.2%, the worst performance among Asean members, he noted.
“In the first six months of this year, SCG’s sales value in Asean countries excluding Thailand grew by an average of almost 5%, but Indonesia experienced a slump,” Mr Aree said.
Last year, Thailand’s biggest industrial conglomerate reported overall sales in Asean of 100 billion baht (US$2.7 billion), including each country’s local operations and intraAsean exports, accounting for 23% of SCG’s total revenue.
Currently, a plant in Kampot, Cambodia, is the group’s only cement operation outside of Thailand. A new cement plant is scheduled to open in Sukabumi city in Indonesia later this year. It will be followed by a plant in Mawlamyine, Myanmar, and another plant in Laos in mid-2017.
Indonesia accounts for SCG’s largest investment in Southeast Asia outside Thailand, with expansion into product lines including ceramic tile, fibre cement board, gypsum and ready-mixed concrete.
In Vietnam, meanwhile, the company has 22 operations in all three of its core businesses of cement and building materials, chemicals, and packaging.
Demand for cement in Vietnam last year was around 50 million tonnes, against a capacity of 80 million tonnes. However, exports of 15-20 million tonnes helped absorb some of the oversupply.
“Asean is the market where world class-players are focusing, and we at SCG are looking to expand in Asean as well. To compete with those world-class players, we have to boost our capabilities,” Mr Aree said.
“Human resources are the key success factor for SCG in expanding our businesses and rivalling other world-class players.”
The company currently employs about 16,000 non-Thai staff and 307 Thai staff abroad, or 32% of its total headcount in the whole group.
KEEN ON CAMBODIA
SCG first entered Cambodia in 1992 and opened the first of its 14 ready-mix concrete plants in the country in 1995.
Kampot Cement, majority-owned by SCG and located 120 kilometres south of Phnom Penh, was the first SCG cement plant outside of Thailand. A second $120-million production line started running in June this year and is expected to reach its full annual capacity of 1 million tonnes in the next 3-4 years. That will double its annual cement output in Cambodia to 2 millions tonnes, with the new capacity replacing some imports from Thailand.
Kampot Cement manufactures Portland cement, which represents 87% of total output, and plastering cement. Both are distributed under the K Cement brand to the domestic market.
K Cement products sell for around $100 a tonne and the premium Elephant brand, which will be renamed with the SCG brand next year, for $103-105. However, K Cement will continue to be the main mass-market product, accounting more than 50% of total cement sales in the country, according to Somwang Manpimonchai, country director for Cambodia for cement building materials.
“The brand awareness survey depicts that Thai products are perceived as having high quality, second to Japan. That’s why we’re bringing in the SCG brand. And we’re associating the K Cement brand with the Khmer identity for Cambodians to be proud of their own national products,” he said.
Under its five-year investment plan, SCG expects to spend $200-300 million in Cambodia, including a plan to double its ready-mix concrete business, and possibly to install a third production line at Kampot to meet rising national demand.
Currently, the company employs 31 Thai staff and 461 local staff in Cambodia.
“We will continuously expand our businesses in Cambodia as we see opportunity and huge potential for cement demand, especially this year. The demand has increased significantly compared to last year,” Mr Aree said.
Cement demand in Cambodia rose 12% year-on-year in the first half, reflecting more homebuilding to serve the growing middle class, and state support for investment, tourism and infrastructure development.
The Asian Development Bank estimates cement demand in the country at 4 million tonnes per year, so SCG’s Kampot facility could capture 50% of the market once operating at full capacity.
Most of the demand is from the residential sector, followed by commercial, industrial, and infrastructure projects. Demand from publicly funded infrastructure projects is still low at around 10%.
For the first half of 2015, cement and building material exports to Cambodia accounted for 15% of its total export revenue. Revenue from production in Cambodia was 16% of total revenue generated from all of Asean excluding Thailand.
This year, the company’s total sales in Cambodian market are likely to reach around 12 billion baht, up 5-10% from last year. The figure comprises sales from local operations and exports from Thailand, with 80-90% coming from cement, 10-15% from ready-mix concrete, and the rest from concrete roofing products.
Mr Aree expects sales growth to average 5-10% annually in the next five years. “In the past few years, Cambodia’s economy has grown so well that it has maintained its GDP growth at 7% consecutively, and it is highly possible that it can maintain this rate for the next five years,” he said.
However, he acknowledged that new Chinese players that compete on cheap pricing had pushed SCG’s sales growth this year below the market average of 10%. Huaxin Cement Co, which also owns a plant in Kampot and started sales earlier this year, charges 10% less than SCG for its products.
Overall, SCG is in competition with 20 cement brands in Cambodia, but with a large distribution network of 47 exclusive dealers and about 1,000 sub-dealers, Mr Somwang says the Thai conglomerate leads the market and is poised to acquire any potential opportunities ahead.
About half of all of construction activity in Cambodia is now concentrated in Phnom Penh, followed by Siem Reap and Battambang. In rural areas, galvanised steel sheets and wood still predominate.
In Phnom Penh, opportunities for both foreign and local construction materials players abound, notably in modern development such as Diamond Island where housing development flourishes. The number of highrise buildings is also increasing, with notable examples being the Vattanac Capital and Canadia Bank towers in central Phnom Penh.
In other provinces, most of the large infrastructure projects such as roads and bridges are being developed by Chinese contractors. Other big projects include a “second Hong Kong” in Koh Kong in the Gulf of Thailand, and the 400-megawatt Stung Treng hydroelectric dam in the North, a co-investment with China.