TRIS Rating Co., Ltd. has affirmed the company rating of Tirathai PLC (TRT) at “BBB+” with “stable” outlook. The rating reflects the company’s position as the leading electrical transformer manufacturer in Thailand, its ability to provide transformers across a diverse range of capacities and system voltages of both power and distribution transformers, and its strong financial profile. TRT’s competitive edge is enhanced by a license contract with Siemens Transformers Austria GmbH & Co KG from Austria. Siemens mainly provides product design development and market reference for power transformer. The rating also takes into consideration the growth prospects for electricity demand, the potential in various export markets, and the high barriers to entry for power transformer segment. These strengths are partially offset by customer concentration risk, as more than one-third of revenue depends on sales to electricity authorities. The strengths are also offset by TRT’s reliance on local agents for export markets, reference requirements in new markets, especially for power transformers, and more intense competition. The “stable” outlook reflects the expectation that TRT will be able to maintain and stabilize its profitability, despite facing more intense competition in both the power and distribution transformer segments. Liquidity should be sufficiently reserved at all times. Considering future investments, financial leverage is not expected to rise above 50%.
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 managers remained the TRT’s major shareholders with a combined stake of 34% as of November 2011. TRT is one of two transformer manufacturers in Thailand which produces both power and distribution transformers. Its products cover power transformers 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 KVA-100 MVA at system voltages up to 36 kV. During the first nine months of 2011, 66% of total revenue came from sales of distribution transformers, 31% from power transformers, and 3% from sales of transformer components and services. TRT’s customer base comprises state enterprises (46% of total revenue), private companies (35%), and export customers (16%).
TRIS Rating said, in the power transformer segment, TRT is one of four players, but only TRT and another producer could manufacture 300 MVA 230 kV transformers. The competition is considered less intense in this segment compared with the distribution transformer segment, due to the more complicated engineering feature requirements of power transformers. The users of power transformers are in the high technology industry or are users which require specific engineering design transformers. Hence, the reliability and quality of the transformers are key criteria which past record and reference are normally required as condition precedent. Price competition plays a more important role in the distribution transformer segment where the product is simpler and there are more suppliers. For the domestic market, electricity authorities are the direct and main users of the transformers as their roles are charged with developing the electrical generating and power 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, for most of which the transformers are critical components. Demand for electrical transformers thus depends partly on electricity consumption. However, demand is more volatile as the new demand also hinges on the investment policy of the government and private sectors.
TRT’s received order further declined by 14% year-on-year (y-o-y) to Bt1,122 million in 2010 from Bt1,305 million in 2009. The drop was the result of the global economic crisis since late 2008, and the suspension of industrial projects in the Map Ta Phut (MTP) area announced in September 2009. Additionally, the political turmoil in the first half of 2010 caused slow investment. With low received order during 2009-2010, TRT’s revenue in 2010 was Bt1,492 million, a 33% drop from Bt2,223 million in 2009. Demand for transformers recovered in 2011 as customer orders climbed to Bt1,821 million during the first nine months of 2011, much higher than all orders in 2010 and 2009. Around 60% of the orders received in the first nine months of 2011 were for distribution transformers. Accordingly, TRT’s revenue during the first nine months of 2011 rose by 26% y-o-y to Bt1,424 million, up from Bt1,132 million during the same period of 2010. At the end of September 2011, TRT reported a backlog of Bt924 million. Approximately half of the backlog was scheduled to be delivered in the fourth quarter of 2011. Hence, TRT’s topline is expected to rebound over a 20% growth compared with the previous year. TRT’s operating profit margin had been in the range of 14%-16% from 2007 through the first nine months of 2011, rising from 10%-13% during 2002-2006 as the company changed the pricing strategy with shorter quotation periods. Cash flow protection had been stronger as the ratio of funds from operations (FFO) to total debt improved to 63.03% in 2010 from 48.92% in 2009. The ratio during the first nine months of 2011 was 49.76% (non-annualized), up from 42.79% (non-annualized) during the same period of 2010. TRT’s financial leverage had been maintained at an acceptable level of less than 50% during 2007 through the first nine months of 2011, said TRIS Rating. - End
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