Sampyo Cement Improves Profitability in Mature Cement Market through Cost Reduction

Roadmap to Strengthen Competitiveness through Production Efficiency and Circular Resource Utilization
Positive Trend in Cement Industry Price Increases

[Asia Economy Reporter Hyungsoo Park] SAMPYO Cement, which experienced a downturn last year, is expected to see a significant improvement in performance this year. Along with the base effect, profitability is likely to improve due to the cost reduction plan initiated last year.

According to the Financial Supervisory Service's electronic disclosure system on the 15th, SAMPYO Cement recorded cumulative sales of 393.7 billion KRW and operating profit of 24.5 billion KRW for the third quarter of last year. Compared to the same period the previous year, sales decreased by 9.3%, and operating profit fell by 13.2%.

Researcher Sera Park of Shin Young Securities explained, "One-off factors such as a decrease in cement shipment volume and suspension of production facilities overlapped, resulting in relatively poor performance compared to other cement companies."

SAMPYO Cement owns a factory in Samcheok-si, Gangwon-do, capable of producing 11 million tons of cement annually. Cement is produced at the Samcheok plant and sold nationwide through shipment bases, including cement and secondary products. The Samcheok plant is located near a limestone mine, the main raw material, and a port supplying bituminous coal, the primary fuel. In November last year, SAMPYO Cement surpassed a cumulative clinker production of 300 million tons. It took 63 years since the Samcheok plant began operations in 1957. Achieving 300 million tons of clinker production is the first for a single cement plant in Korea. Clinker is a semi-finished product of cement that becomes the final cement product when ground.

Since 2004, SAMPYO Cement has operated a waste heat power plant that generates electricity using waste heat from the kiln. The largest shareholder of SAMPYO Cement is SAMPYO, holding 54.96% of the shares.

Last year, SAMPYO Cement established a strategic roadmap to strengthen competitiveness. The goal was to enhance the company's structure through production efficiency utilizing vertical integration advantages, cost reduction investments, and discovering new growth engines. They are investing in production efficiency through facility investments, which had been delayed under creditor management for a long time, and cost reduction through the use of recycled resources.

Researcher Park analyzed, "Investments in waste heat power generation facilities to reduce electricity costs and the installation of energy storage systems (ESS) are expected to save nearly 10 billion KRW annually in electricity expenses. Using alternative fuels derived from recycled resources can reduce bituminous coal purchase costs."

The reason SAMPYO Cement strives to reduce costs is that the domestic cement market has limited growth potential. It is difficult for new entrants to enter due to the secured mines and logistics bases and the heavy burden of large-scale initial facility investments. However, the possibility of rapid growth in domestic cement demand is also low. Housing starts decreased from 880,000 units in 2015 to 480,000 units in 2019. Last year, housing starts were recorded at 420,000 units up to November. With the government planning large-scale housing supply, housing starts are expected to exceed 600,000 units this year.

NICE Credit Rating stated that cement demand shows a high correlation with government annual SOC budget allocations and housing and real estate-related policy indicators such as construction starts, judging the risk level of the cement industry as "moderate (average)."

Efforts to reduce costs, combined with the price increase trend in the cement industry, are likely to lead to profit growth for SAMPYO Cement. Researcher Minjae Lee of NH Investment & Securities said, "It appears that major domestic cement companies raised prices by an average of 7% per ton starting from deliveries in December last year," and added, "Price increase negotiations are expected to proceed across the cement, ready-mixed concrete, and construction industries in the first half of this year."