TRIS Rating Co., Ltd. has assigned the company rating of Betagro PLC (BTG) at “A” with “stable” outlook. The rating reflects the company’s proven record in the Thai agribusiness and food industry, a full vertical integration across its diverse product lines, and solid strategy to grow through partnerships. The rating also takes into consideration the relatively low operating profit margins, exposure to climate change, and volatile commodity prices.
The “stable” outlook reflects an expectation that BTG will be able to maintain its leading market position in the Thai agribusiness and food industries. The strong partnerships with Japanese companies should support BTG’s effort to develop new products and export distribution channels. The contributions from food products should partially offset the price fluctuations in its commodity-like products.
TRIS Rating reported that BTG was established in 1967 by the Taepaisitphongse family and associates. The company is one of the leading agribusiness and food companies in Thailand. As of May 2011, the Taepaisitphongse family directly held 14.33% of the company’s shares and also held 69.45% indirectly through Betagro Holding Co., Ltd., BTG’s parent company. The company’s business is divided into six segments, comprising regional and feed, poultry, swine, food products, animal health, and other businesses. During 2006-2010, the poultry segment contributed 41% of BTG’s total revenues, followed by feed (37%), and swine (13%). Revenue from domestic sales contributed 86% of total sales in 2010, with the remaining 14% derived from export sales.
TRIS Rating said, since the first joint venture with a Japanese company in 1980, BTG has continuously expanded through joint ventures, mostly with Japanese partners. Apart from being export channels, the partnerships provide BTG with the opportunity to make operational improvements and for technology transfers, especially the Specific Pathogen Free (SPF) technique for swine farming. With this collaboration, BTG has become an industry leading producer of high-quality pork meat in Thailand, while it ranks number two in market share in sales of chicken meat. Currently, the company’s chicken and swine operations are fully vertically integrated from feed to food products. Fully-integrated operations help its products meet food safety and traceability standards. BTG’s main export markets are Japan and the countries of the European Union (EU). The products exported to Japan are mostly distributed via its partners.
In 2010, BTG’s total sales was Bt50,441 million and earnings before interest, tax, depreciation and amortization (EBITDA) was Bt4,393 million. Revenue from poultry products contributed 39% of BTG’s total sales, followed by feed (37%), swine products (15%), sausage and meatballs (4%), animal health (4%), and others (1%). Although its major customers are industrial and food services companies, BTG increasingly focuses on creating value-added products and building its brands to overcome the cyclical commodity nature of its products. During 2006-2010, its value-added food products comprised 16%-20% of total sales each year. The company’s performance during 2008-2010 was impressive, in line with the industry upturn. Sales grew to Bt50,441 million in 2010, up by 7.85% from 2009, due mainly to higher sales volume in the regional and feed segment. The gross margin dropped slightly from 14.58% in 2009 to 12.63% in 2010, due to higher raw material costs compared with 2009. To manage its raw material costs, BTG has bought many of its major raw materials in advance, through purchases of the physical products and forward contracts. Some livestock farms were affected by flooding in the South during early 2011. As a result, domestic meat prices are expected to remain high in 2011.
BTG’s capital structure is currently satisfactory. The total debt to capitalization ratio improved from 73.58% in 2008 to 54.72% in 2009 and to 51.14% in 2010. The improvement came mainly from the company’s policy to repay its debt with operating cash flow during 2008-2010. Total debt decreased, falling from Bt13,199 million in 2008 to Bt9,180 million in 2010. The funds from operations (FFO) to total debt ratio was high at 39.14% in 2010, though down from 46.55% in 2009. During 2011-2013, the company will require total capital expenditures of approximately Bt2,000 million per year. The expansion plans include a new feed plant, a new food plant with its joint venture partner, and expansion of its distribution channels. EBITDA are expected to be Bt4,000-Bt5,000 million per year, and thus the capital expenditures can be financed mainly by operating cash flow, said TRIS Rating. — End
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