TRIS Rating Co., Ltd. has affirmed the company rating of Vinythai PLC (VNT) at “A-” with “stable” outlook. The rating is based on the company’s efficient and fully-integrated production facility, strong financial profile, capable management team, and support from principal shareholders, Solvay S.A. of Belgium and PTT Global Chemical PLC (PTTGC). However, these strengths are partially offset by the cyclical nature of the petrochemical industry, fluctuations in price for its products and feedstock, and the global economy downturn. The “stable” outlook reflects the expectations that VNT will maintain its low-cost position and there will be no major threats to the PVC industry. TRIS Rating expects VNT’s management to continue the conservative financial policy and maintain sufficient liquidity at all times, especially while the firm is making new investments.
TRIS Rating reported that VNT is Thailand’s second largest polyvinyl chloride (PVC) manufacturer, with capacity of 280 thousand metric tonnes per annum (KTA), or 29% of total domestic production capacity. VNT’s major shareholders have extended their full support to VNT’s operation: Solvay provides technical support and an international distribution channel, while PTTGC is a long-term supplier of ethylene, a key raw material. VNT’s PVC plant is fully backward integrated, yielding an operating margin premium over rivals. Currently, the company produces PVC with capacity of 280 KTA, caustic soda (266 KTA) and vinyl chloride monomer (VCM; 400 KTA). VCM is mainly used by VNT as a feedstock to produce PVC. In the first nine months of 2011, VNT’s sale volume comprised 177 thousand metric tonnes (KT) of PVC, 164 KT of caustic soda, and 79 KT of VCM. The sale volume for all products in the first nine months of 2011 dropped by approximately 3%, compared with the same period of last year. The drop was due to the lower production volume, as a result of plant shutdown for regular major maintenance scheduled in the first quarter of 2011. Although the volume of sale fell, the company’s revenue increased by 12%, driven by the spike in petrochemical price. Worldwide demand growth for PVC seems to soften, pressured by weaker economies in many nations. However, PVC consumption in Thailand may climb, as gross domestic production (GDP) is expected to rise in 2012. In addition, construction activity is expected to increase in the aftermath of the recent severe flooding.
In 2010, VNT started a new investment project worth approximately Bt8,000 million. The project comprises three elements; a new plant for producing epichlorohydrin (ECH) with capacity of 100 KTA, plus expansion to add 90 KTA of chlorine and 100 KTA of caustic soda. The expansion of chlorine and caustic soda production capacity will be used in part to provide feedstock for ECH plant. The ECH plant is expected to launch commercial operation by January 2012, while the other two expansions are expected to be completed in mid-2012. The project should yield higher profitability and diversify the product line. The project is partly funded with debt.
VNT’s financial profile remained strong, supported by solid operating cash flow and low leverage. In the first nine months of 2011, revenue increased by 12% year-on-year (y-o-y) to Bt10,869 million. The operating margin before depreciation and amortization also improved, rising to 22.8% from 17.6% in 2010. The margin improved because VNT benefits from being backward integrated. Specifically, the spread between prices of PVC and Ethylene widened, while the price of by-product caustic soda rose. As a result, funds from operations (FFO) leaped to Bt2,517 million in the first nine months of 2011, higher than the full year of 2010 at Bt2,399 million. Total debt increased to Bt1,400 million in the first nine months of 2011, in tandem with the rising investment for ECH plant and chlorine and caustic soda expansion. However, the company has continued to report strong cash flow protection, as illustrated by the high ratios for FFO to total debt and earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage. Although the ratio of total debt to capitalization rose at the end of September 2011 compared with the level at the end of 2010, the ratio remains low. VNT’s low level of leverage reflects a conservative financial policy, yielding a cushion for the company, especially during an economic slowdown. The ratio is expected to rise moderately in the medium term. As VNT is served as the regional center of the Solvay Group, the company will be an investment arm to capture business opportunities in Asian region, said TRIS Rating. -- End
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