TRIS Rating Co., Ltd. has assigned the company rating of Tirathai PLC (TRT) at “BBB+” with “stable” outlook. The rating reflects TRT’s leading position in transformer manufacturing industry in Thailand, ability to provide a diverse capacity and system voltage of both power and distribution transformers, and strong financial profile since 2007. TRT’s competitive edge is enhanced by license contract with Siemens Transformers Austria GmbH & Co KG from Austria, which mainly supports on design development and market reference. The rating also takes into consideration the growth prospects for electricity demand, potential in various export markets, and high barriers to entry for the manufacture of power transformers. These strengths are partially offset by customer concentration risk as around one-third of revenue depends on electricity authorities, a reliance on local agents for export markets, reference requirement in new market especially for power transformer with high capacities and system voltages, and fierce competition in the distribution transformer segment.
The “stable” outlook reflects an expectation that TRT will be able to maintain and stabilize its operating profitability, despite facing global renowned competitors in power transformer and intense competition in local distribution transformer. Liquidity should be sufficiently reserved at all time. Financial leverage is not expected to deteriorate to over 50%, taking into consideration the future investment. The rating for proposed unsecured debenture, if any, is possibly lower than the company rating if the proportionate of the secured indebtedness is over the threshold.
TRIS Rating reported that TRT was established in 1987 and listed on the Market for Alternative Investment (mai) in May 2006. Mr. Sumpan Vongphan, the managing director, and key management team remain the company’s major shareholders with a combined stake of 39% as of July 2010. TRT has been the only transformer manufacturer in Thailand which produces both power and distribution transformers. Its products cover power transformer with capacities from 5 to 300 megavolt-amperes (MVA) at system voltages up to 230 kilo Volts (kV). TRT also manufactures distribution transformers with capacities of 1-100 MVA at system voltages up to 36 kV. During the first nine months of 2010, 49% of total revenue came from sales of distribution transformers, 46% from power transformers, and 5% from services. TRT’s customer base comprises state enterprises (36% of total revenue), private companies (30%), and export customers (29%).
In power transformer market, TRT is one of the three players with the market share of approximately one-third. The competition is considered less intense than distribution transformer due to the more complicate engineering structure. The user of power transformer is in the high technology industry or whose operation requires specific engineering design transformer, hence, the reliability and quality transformer are necessary. Normally, past record and reference is set as condition precedent. Price competition plays more important role in the distribution transformer market where the product is simpler and there are a number of suppliers. For domestic market, electricity authorities are the direct and main users of the transformers as their roles are to develop the generating facility and transmission system of the country. They normally allocate an annual budget to develop the power stations and substations and improve the transmission capacity. Other users are the industrial factories which transformers are the significant parts for most plants. Therefore, the demand of electric transformer industry depends partly on the electricity consumption; however, it is more volatile due to the investment policy of the government and private sectors.
TRIS Rating said, TRT reported a revenue growth from Bt1,409 million in 2007 to Bt2,106 million and Bt2,223 million in 2008 and 2009, respectively. The growth reflected the good economic condition in 2007 and 2008 as transformer sales normally lags about six to nine months after receipt of order due to the production period. Received order grew from the value of Bt1,531 million in 2006 to Bt2,198 million in 2007 and Bt2,381 million in 2008. However, it plunged to Bt1,305 million in 2009, falling by 45% from the previous year. The drop was the result of global economic crisis since late 2008 and suspending the industrial projects in the Map Ta Phut (MTP) area announced in September 2009. The gloomy environment affected through the first three quarters of 2010 as received order further declined 4.6% year-on-year (y-o-y) to Bt1,008 million from Bt1,057 million during the same period of 2009. As a result, total revenue in the first nine months of 2010 declined by 26% y-o-y to Bt1,132 million. As at the end of September 2010, TRT reported the backlog of Bt822 million. Full year performance in 2010 is likely to be much softer than in 2009 though the received order and sales were slightly rebound in the fourth quarter corresponding to the economic recovery during the earlier 2010. TRT’s operating performance has improved from 2007 onward due to the adjustment of cost management. The operating margin has been in the range of 14%-16% since 2007, up from 10%-13% during 2002-2006. Funds from operations (FFO) gradually improved from Bt116 million in 2003 to Bt335 million in 2009, and stood at Bt190 million for the first nine months of 2010. TRT's leverage level was slightly fluctuated since the company needs short-term loan to finance trade transactions. Its long-term debt was gradually declined upon the repayment schedule. The debt to capitalization ratio had maintained at less than 50% during 2007 through the first nine months of 2010. Cash flow protection was satisfactory, supported by FFO to total debt ratio of 40%-50% and earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio of 8-9 times during 2009 through the first three quarters of 2010. -- End
Company Rating: BBB+ Rating Outlook: Stable
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