TRIS Rating has affirmed the company and senior debenture ratings of Betagro PLC (BTG) at “A” with “stable” outlook. The ratings reflect the company’s proven record in the Thai agribusiness and food industries, its fully vertical integration across diverse product lines, and strategy to grow through partnerships. The ratings also take into consideration the company’s low operating profit margin, higher grain costs and the inherent volatility of commodity products of agribusiness. The “stable” outlook reflects an expectation that BTG will be able to maintain its leading position in the Thai agribusiness and food industries. The contributions from food products should partially offset the price fluctuations in its other commodity-like products. The company is expected to maintain its capital structure policy of debt to capitalization ratio of 50% over the medium to long term.
TRIS Rating reported that, BTG was established in 1967 by the Taepaisitphongse family and associates. BTG is one of the leading agribusiness and food companies in Thailand. As of April 2012, 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 feed, poultry, swine, regional and food products, animal health, and other businesses. During 2007-2011, the poultry segment contributed 40% of BTG’s total revenues, followed by feed (37%), and swine (14%). Revenues from domestic sales contributed 86% of total sales in 2011, with the remaining 14% derived from export sales.
TRIS Rating said, since its first joint venture with a Japanese company in 1980, BTG has continuously expanded through joint ventures, mostly with Japanese partners. Apart from serving as export channels, the partnerships provide BTG with the opportunity to make operational improvements and the opportunity for technology transfers, especially the Specific Pathogen Free (SPF) technique for swine farming. With these types of collaborative efforts, BTG has become an industry leading producer of high-quality pork meat in Thailand, and it ranks number three in market share in terms of sales of chicken meat. Currently, the company’s chicken and swine operations are fully-vertical integration 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.
BTG is striving to create value-added products and to build its brands in order to overcome the cyclical nature of the industry and the commodity-like nature of the products sold in the industry. During 2006-2011, its value-added food products comprised 16%-18% of total sales each year. BTG also created its own distribution channel, “Betagro shops”, to serve industrial and food service companies in the domestic market. As of December 2011, there were 86 stores nationwide and the company targets to have 147 stores by the end of 2014.
BTG’s performance in 2011 was impressive, in line with the industry upturn. Sales grew to Bt58,850 million in 2011, up by 16.7% from 2010, due mainly to higher sales volume in the feed segment and strong product prices. The gross margin jumped to 14.3% in 2011, from 12.9% in 2010, thanks to the record high prices of both chicken and pork. Earnings before interest, tax, depreciation and amortization (EBITDA) jumped by 29% over the same period of last year to Bt5,656 million.
After meat prices reached a cyclical peak in 2011, the low cycle came into the poultry and swine industries in the first half of 2012. Many livestock producers expanded their production capacities leading to an over-supply situation in the livestock industry in the first half of 2012. The price of poultry fell by 28% on average over the first six months of 2012 compared with the same period of last year, and price of swine shrank by 11% over the same period. The falling meat prices cut the gross margin of BTG to 9.4% in the first half of 2012, compared with the abnormally high level of 14.3% in 2011. BTG’s EBITDA dropped by 51% over the same period of last year to Bt1,468 million. The financial profile of BTG weakened in the first half of 2012. The debt to capitalization ratio increased to 57.4% in the first half of 2012, from 50.9% at the end of 2011. The ratio fell because BTG needed more working capital as sales expanded and because of ongoing capital expenditures for expansions.
A number of countries that import frozen chicken, including the European Union (EU) and the Republic of the Philippines, have gradually removed bans on imported frozen chicken products from Thailand beginning in the second quarter of 2012. If more countries follow suit, such as Korea and Japan, the over-supply situation in the domestic market will ease. Prices for chicken and chicken products are expected to gradually rebound in 2013. However, the cost of grain, which is used as animal feed and typically accounts for more than 30% of the total production cost, may squeeze BTG’s profitability in the short term. The operating margin is expected to remain soft in the second half of 2012 before gradually improving in 2013 after the over- supply situation is reduced.
During 2012-2014, BTG will require total capital expenditures of approximately Bt2,500-Bt3,000 million per year. The expansion plans include new feed plants, new processed food plants, and the expansions of its distribution channels. EBITDA are expected to be Bt3,000-Bt5,000 million per year. BTG plans to fund its capital expenditures with bank loans. The debt to capitalization ratio is expected to remain moderate over the next few years, said TRIS Rating. — End
Company Rating: Affirmed at A Issue Ratings: BTG14NA: Bt1,500 million senior debentures due 2014 Affirmed at A BTG16NA: Bt500 million senior debentures due 2016 Affirmed at A BTG18NA: Bt500 million senior debentures due 2018 Affirmed at A Rating Outlook: Stable
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