TRIS Rating has assigned the rating of “A” to the proposed issue of up to Bt300 million in senior debentures of Betagro PLC (BTG). At the same time, TRIS Rating has affirmed the company and senior debenture ratings of BTG at “A”. The outlook remains “stable”. The proceeds from the debentures will be used to fund the company’s planned capital expenditures. The ratings reflect the company’s proven record in the Thai agribusiness and food industries, full vertical integration across diverse product lines, and the 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 the commodity-like farm products. The “stable” outlook reflects the expectation that BTG will be able to maintain its leading position in the Thai agribusiness and food industries. The profit contributions from food products should partially offset the price fluctuations in BTG’s commodity-like products. The company is expected to keep its debt to capitalization ratio at 50% over the medium to long term.
Established in 1967 by the Taepaisitphongse family and associates, BTG is one of the leading agribusiness and food companies in Thailand. As of December 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. BTG has six lines of business 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.
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 full vertically integrated, from feed to food products. Full vertical integration helps 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, BTG’s 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 2012, there were 97 stores nationwide. The company sets a target of 147 stores by the end of 2014.
BTG’s performance in 2011 was impressive, in line with the industry upturn. BTG’s 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 high product prices. The gross margin jumped to 14.3% in 2011, from 12.9% in 2010, thanks to the record high prices obtained for both chicken and pork products. Earnings before interest, tax, depreciation, and amortization (EBITDA) in 2011 jumped to Bt5,656 million , a 29% rise over 2010.
After meat prices reached a cyclical peak in 2011, a down cycle followed in the poultry and swine industries. The financial performances of all livestock producers sagged in 2012. Many producers expanded their production capacities leading to an over-supply situation in the livestock industry. According to the Thai Feed Mill Association, the average price of poultry in 2012 fell to Bt35.50 per kilogram (kg.), a drop of 20.8% compared with the average price in 2011. The average price of swine shrank to Bt53.99 per kg., falling by 16.1% from 2011. In addition to the falling meat prices, the cost of feed also jumped significantly in the second half of 2012, due to the widespread drought in the US, the world largest producer of soybeans. The challenges from falling meat prices and increasing feed cost are expected to dampen the profitability of BTG, as well as other livestock producers, in 2012. Total debt is likely to rise significantly in 2012, compared with a balance of Bt8,355 million at the end of 2011 due to the ongoing expansions and more working capital needs following higher raw material prices. The price of imported soybean meal at the end of 2012 jumped by 33.5% from the end of 2011 level to Bt19.11 per kg. The price of corn at the end of 2012 increased to Bt10.25 kg., a rise by 3.3% from the end of 2011. Looking forward, BTG’s operations are expected to gradually improve in 2013. The price of poultry during the first two months of 2013 hovered around Bt40 per kg., an increase of 12.6% from the average price in 2012. The swine price also increased, climbing to Bt60 per kg. during the first two months of 2013, an 11.1% increase from the average price in 2012. At the same time, the cost of soybean meal gradually eased because of more production of soybean in Brazil and Argentina, the second and third largest soybean producers. The debt to capitalization ratio is expected to gradually fall to moderate level over the medium term.
Company Rating: A Issue Ratings: BTG14NA: Bt1,500 million senior debentures due 2014 A BTG16NA: Bt500 million senior debentures due 2016 A BTG18NA: Bt500 million senior debentures due 2018 A Up to Bt300 million senior debentures due within 2018 A Rating Outlook: Stable
TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand Copyright 2013, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.