TRIS Rating Co., Ltd. has upgraded the company and issue ratings of Mitr Phol Sugar Corporation Ltd. (MPSC) to “A+” from “A”, with “stable” outlook. The upgrades reflect MPSC’s strong market position in the sugar industry both in Thailand and China, its strengthened operating and financial performance, and the ability to maintain an acceptable leverage level during expansions. The ratings also reflect the company’s well-accepted brand name, efficient sugar mill operations, and diversification into related businesses. The ratings take into consideration the company’s exposure to the regulatory and operational risks of its overseas sugar operations, as well as the volatility of sugar prices and sugarcane supply.
The “stable” outlook reflects TRIS Rating’s expectation that the MPSC Group will maintain its leading position in both the Thai and Chinese sugar industries. With long experience in the sugar business and more diversified sources of cash flow from sugar and related businesses, the company should be able to weather the wide fluctuations in global sugar prices and unpredictable government measures in China.
TRIS Rating reported that MPSC was established in 1946 by the Vongkusolkit family. The company is the leader in the Thai sugar and sugarcane industry. The Vongkusolkit family collectively holds 100% of the company’s shares through Mid-Siam Sugar Co., Ltd. MPSC operates a total of five sugar mills in Thailand, with a combined cane crushing capacity of 132,500 tonnes of cane per day. For the 2009/2010 production period, the MPSC Group’s sugar production in Thailand was 1.29 million tonnes, ranking number one with 18.57% market share. The MPSC Group has maintained its market share in sugarcane procured at 18.09%, which was slightly lower than the Thai Roong Ruang Group (18.23%), but higher than the Thai Ekkalak Group (13.73%), and the KSL Group (6.42%). Apart from the sugar business in Thailand, MPSC currently owns and operates seven sugar mills in China with total sugar production of 954,460 tonnes for the 2009/2010 period. The company has been ranked as the second largest sugar producer in China with 8.91% market share for the 2009/2010 period. The crushing yield in China was 125.57 kilograms (kg.) per cane tonne in the 2009/2010 period, which was higher than the crushing yield in Thailand of 103.87 kg. per cane tonne. For the first nine months of fiscal year (FY) 2010, MPSC’s total sales were Bt44,826 million and total earnings before interest, tax, depreciation and amortization (EBITDA) were Bt11,282 million. Because of favorable sugar prices in China, the sugar business in China accounted for 40.58% of the Group’s total revenue and contributed 54.14% of the Group’s total EBITDA.
TRIS Rating said, MPSC has expanded along the sugar value chain to maximize the utilization of sugarcane. Related businesses include electricity generation, ethanol production, particle board, and paper production. MPSC’s ethanol plants in Thailand have a current production capacity of 600,000 liters per day. The utilization rate was down to 71% for the first nine months of FY2010, due mainly to a shortage of molasses, a key raw material. However, the EBITDA from the ethanol business continued to increase, rising from Bt1,815 million in FY2009 to Bt2,103 million for the first nine months of FY2010, as a result of higher prices.
MPSC’s financial performance has strengthened. For the first nine months of FY2010, total sales were Bt44,826 million, up by 24.56% from the same period in FY2009, due mainly to the higher prices of sugar and ethanol. The operating income before depreciation and amortization to sales ratio improved sharply, rising from 15.35% in FY2009 to 25.11% for the first nine months of FY2010. During FY2011-FY2012, capital expenditures for new projects will total approximately Bt9,000 million. The major projects planned include an increase in sugar capacity and construction of new power plants in Thailand, an investment in a medium-density fiberboard project, and an investment in a sugar company in Australia. The company plans to fund these projects by using a combination of cash flow from operations and new borrowings. The total debt to capitalization ratio is expected to be maintained at around 50% during FY2011-FY2012.
Global sugarcane production volume and sugar prices are very volatile. For the 2010/2011 season, sugarcane production in Thailand is expected to reach at least the same level as last year, while the global sugar supply will largely depend on sugar production in Brazil and India. The world raw sugar price in 2010 has been very volatile, declining sharply from a peak of 28.94 cents/pound (lb) in January 2010 to 18.07 cents/lb in May 2010, before climbing to 35.44 cents/lb in November 2010. For the China market, sugar prices typically reflect the domestic demand/supply balance and have been managed by the Chinese government. Due to the supply shortage in China, the sugar price rose from RMB2,746 per tonne in October 2008 to more than RMB7,000 per tonne in November 2010. Sugar prices in China are expected to be lower, after the government implements price controls and releases sugar reserves for sale on the open market, said TRIS Rating. -- End
Company Rating: Upgraded to A+ from A Issue Ratings: MPSC116A: Bt600 million senior debentures due 2011 Upgraded to A+ from A MPSC11OA: Bt500 million senior secured debentures due 2011 Upgraded to A+ from A MPSC126A: Bt600 million senior debentures due 2012 Upgraded to A+ from A MPSC12OA: Bt500 million senior secured debentures due 2012 Upgraded to A+ from A MPSC136A: Bt500 million senior debentures due 2013 Upgraded to A+ from A MPSC136B: Bt100 million senior debentures due 2013 Upgraded to A+ from A MPSC13DB: Bt1,500 million senior debentures due 2013 Upgraded to A+ from A MPSC146A: Bt600 million senior debentures due 2014 Upgraded to A+ from A MPSC156A: Bt600 million senior debentures due 2015 Upgraded to A+ from A Rating Outlook: Stable
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