TRIS Rating has affirmed the company and senior debenture ratings of Mitr Phol Sugar Corporation Ltd. (MPSC) at “A+” with “stable” outlook. The ratings reflect the company’s leading market position in the regional sugar industry, well-accepted brand name, efficient sugar mill operations, and diversification into related businesses. The ratings also take into consideration the company’s exposure to the regulatory and operational risks of its overseas sugar operations, as well as the volatility of sugar prices and supply of sugarcane. The “stable” outlook reflects TRIS Rating’s expectation that the MPSC Group will maintain its leading position in both the Thai and Chinese sugar industries. Its lengthy experience in the sugar business and more diversified source of revenue from producing ethanol and power should help MPSC weather the currently low sugar prices worldwide.
MPSC was established in 1946 by the Vongkusolkit family. The Vongkusolkit family collectively holds 100% of the company’s shares through Mid-Siam Sugar Co., Ltd. MPSC owns and operates sugar mills in Thailand, China, Lao PDR and Australia. For the growing season 2011/2012, MPSC and the companies in the group (MPSC Group) produced in total 3.5 million tonnes of sugar.
The company has long been the leader in the Thai sugar and sugarcane industry. The volume of sugar produced in Thailand by the MPSC Group for the 2011/2012 growing season amounted to 1.96 million tonnes, earning MPSC the highest market share at 19.1%. Behind MPSC was the Thai Roong Ruang Group (18.3%), the Thai Ekkalak Group (11.2%), the KSL Group (7.3%), and the Wangkanai Group (6.4%). The cane crushing yield of the MPSC Group was 108.46 kilograms (kg.) per cane tonne, higher than the industry average of 104.63 kg. per cane tonne.
In China, MPSC currently owns and operates seven sugar mills, which produced 1.04 million tonnes of sugar for the 2011/2012 period. The company is currently the second largest sugar producer in China, with a 9.0% market share and a crushing yield of 124.5 kg. per cane tonne in the 2011/2012 period. MPSC has continued to expand its sugar business geographically during the past five years. It started up sugar mill in Lao PDR in 2008. In April 2012, MPSC successfully acquired 100% of MSF Sugar Ltd. (MSF), the third largest sugar miller in Australia. The investment cost in MSF totaled A$302 million or approximately Bt9,500 million. MSF owns four sugar mills located in Far North and South East Queensland, with a crushing capacity of 35,000 tonnes per day. MSF added 0.5 million tonnes of sugar, accounting for 13% of MPSC’s sugar production in 2011/2012.
In the first nine months of 2012, MPSC’s total sales were Bt72,131 million and total earnings before interest, tax, depreciation and amortization (EBITDA) were Bt17,205 million. The sugar segment contributed the highest portion of earnings, accounting for 70% of total MPSC’s EBITDA. The sugar business in China comprised 36% of total EBITDA while sugar business in Thailand contributed 32% of the total EBITDA. The sugar businesses in Lao PDR and Australia made marginal contributions to MPSC earnings. MSF contributed only Bt48 million of EBITDA in the first nine months of 2012 because it earned lower margin and because only six months of operation were consolidated with MPSC after acquisition. Mitr Lao provided EBITDA of about Bt266 million in the first nine months of 2012.
Apart from the sugar business, MPSC has expanded along the sugar value chain to maximize the utilization of sugarcane. MPSC’s related businesses include electricity generation, ethanol, wood substitute material, paper production, and logistics. As of December 2012, MPSC’s ethanol plants in Thailand had a combined production capacity of 690,000 liters per day. MPSC owns installed electricity generating capacity of 322 megawatts (MW). The EBITDA from the ethanol and power businesses have continued to increase, rising to Bt4,313 million in fiscal year (FY) 2011 from Bt3,792 million in FY2010 and Bt2,268 million in FY2009. The earnings from the ethanol and power businesses accounted for 22% of total EBITDA in FY2011.
MPSC’s revenue continued to grow in the first nine months of 2012. Total revenue was Bt72,131 million in the first nine months of 2012, up by 12.4% from Bt64,158 million in the same period of 2011. The growth was due mainly to higher selling prices of sugar business in Thailand, the consolidation of MSF, and growth in most business units. In China, domestic sugar prices fell as the supply of sugar increased and sugar prices declined worldwide in the first nine months of 2012. MPSC’s ratio of operating income before depreciation and amortization to sales declined to 22.2% in the first nine months of 2012 from 26.3% in the same period last year. The falling sugar prices led to the drop. Although the ratio softened, the margin is considered healthy, compared with margins ranging from 15.6% to 21.0% during FY2007-FY2010. Cash flow protection throughout FY2010 and FY2011 was also strengthened. However, the debt rose because of the expansion projects and the acquisition of MSF. The ratio of funds from operations (FFO) to total debt declined to 32.1% in the first nine months of 2012, compared with 48.0% in the same period last year. MPSC’s financial leverage rose to a moderate level. The total debt to capitalization ratio increased to 47.7% as of September 2012, from 39.4% at the end of FY2011. MPSC has planned extensive capital expenditures for expansion, totaling Bt13,500 billion during 2013-2014. Based on expected EBITDA of Bt17,000 million per annum, MPSC’s financial leverage is anticipated to remain moderate in the medium term.
Global sugarcane production volumes and sugar prices are both very volatile. For the 2012/2013 season, sugarcane production in Thailand was estimated to be around 90-95 million tonnes, down from 98 million tonnes in the crop year 2011/2012. Sugar yield is expected to decline due to the unfavorable weather. In addition, after peaking at 36.11 cents per pound (lb) in January 2011, the world price for raw sugar fell gradually and has hovered around 18 cents/lb since January 2013 because production volume in many major sugar producing countries have increased. In China, sugar prices typically reflect the domestic demand/supply balance and have been managed by the Chinese government. The sugar price in China plunged to approximately RMB5,500 per tonne currently from a peak about RMB7,400 per tonne in September 2011.
Rating Outlook: Stable
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