TRIS Rating has assigned the rating of “A+” to the proposed issue of up to Bt7,500 million in senior debentures of Mitr Phol Sugar Corporation Ltd. (MPSC). At the same time, TRIS Rating has affirmed the company and current senior debenture ratings of MPSC at “A+”. The outlook remains “stable”. The proceeds from the new debentures will be used to refinance existing debt and for planned capital expenditures. The “A+” 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 risks and operational risks of its overseas sugar operations, as well as the volatilities of sugar prices and sugarcane supply. 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. The revenue sharing arrangement established for the Thai sugar industry, and the solid demand for gasohol and ethanol, will help support MPSC’s operations while sugar prices remain low.
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. In July 2013, MPSC has acquired a 25% stake in Singburi Sugar Co., Ltd., a sugar mill held by Vongkusolkit family. MPSC paid at par value for the shares. The investment was worth Bt93.5 million in total. MPSC will consolidate Singburi Sugar’s operation into its portfolio starting in 2013. For the 2012/2013 growing season, MPSC, including Singburi (MPSC Group), produced in total 4.0 million tonnes of sugar.
The company has long been the leader in the Thai sugar and sugarcane industry. In the 2012/2013 growing season in Thailand, the MPSC Group produced 2.00 million tonnes of sugar, earning MPSC the highest market share (19.9%) in the industry, based on production volume. MPSC’s market share increased from 19.1% in the previous year because its expansion project in Loei province has started operation. Behind MPSC was the Thai Roong Ruang Group (16.3%), the Thai Ekkalak Group (9.3%), the KSL Group (7.4%), and the Wangkanai Group (6.6%). The cane crushing yield of the MPSC Group was 105.9 kilograms (kg.) per cane tonne, higher than the industry average of 100.24 kg. per cane tonne.
In China, MPSC currently owns and operates seven sugar mills, which collectively produced 1.14 million tonnes of sugar for the 2012/2013 season. The company is currently the second largest sugar producer in China, with a 9.0% market share and a crushing yield of 123.2 kg. per cane tonne in the 2012/2013 period. MPSC’s sugar mill in Lao PDR produced 0.34 million tonnes in 2012/2013 and the sugar mill in Australia or MSF Sugar (MSF), which is during crushing cane, is expected to add 0.55 million tonnes of sugar to MPSC Group’s production totals in 2013.
The sugar segment contributed the highest portion of MPSC’s revenues and total earnings before interest, tax, depreciation, and amortization (EBITDA). In 2012, MPSC’s total sales were Bt89,572 million and EBITDA was Bt15,581 million. The sugar business accounted for 67% of total MPSC’s EBITDA. The sugar business in China contributed 37% of total EBITDA and the sugar business in Thailand contributed 28% of total EBITDA. The sugar businesses in Lao PDR and Australia made marginal contributions to MPSC’s earnings. Mitr Lao provided EBITDA of about Bt416 million in 2012. MSF contributed only Bt64 million of EBITDA in 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 production, wood substitute materials, and paper. MPSC also offers logistics services. As of June 2013, MPSC’s ethanol plants in Thailand had a combined production capacity of 960,000 liters per day. MPSC owns electricity generating plants which have combined capacity of 322 megawatts (MW). The EBITDA from the ethanol and power generating businesses of MPSC have increased gradually during the past few years. The EBITDA from ethanol and power generating businesses rose to Bt4,833 million in fiscal year 2012, doubled the figure of Bt2,425 million in fiscal year 2008. The earnings from the ethanol and power generating businesses accounted for 31% of total EBITDA in the fiscal year 2012.
Despite falling sugar prices worldwide, MPSC’s revenue remained healthy in the first six months of 2013. Total revenue was relatively flat at Bt47,400 million during the first six months of 2013, compared with Bt46,899 million in the same period of 2012. The healthy growth in the ethanol segment and the power segment, as well as higher sales volume in China, helped offset the drop in sugar prices. However, profitability of the sugar businesses, in Thailand and China, has weakened. MPSC’s ratio of operating income before depreciation and amortization to sales, including gains from the future contracts, declined to 22.5% in the first six months of 2013, compared with 25.3% in the same period last year. EBITDA sank to Bt11,333 million in the first half of 2013, down 10% from Bt12,570 million in the same period of last year. A 53% rise in EBITDA from the electricity segment and the ethanol segments helped offset the drop in EBITDA from the sugar business. The EBITDA interest coverage ratio continued to be strong at 9.5 times despite weaker sugar prices. MPSC’s financial leverage rose to a moderate level. The total debt to capitalization ratio increased to 47.0% as of December 2012. The leverage climbed to 52.0% as of June 2013 because of seasonal factors. MPSC needs more working capital during the crushing period in the first half of the year.
The raw sugar prices worldwide remained at low level even though recovered modestly to around 18 cents per pound from about 16 cents per pound in the past several months. In addition, MPSC was challenged by high cane cost in China due to Chinese government’s cane policy. As a result, MPSC’s operating results are expected to be soft. However, cash flow will remain at acceptable level. The prices for all sugar exports from Thailand for the year 2013 have already been fixed, at prices close to the reference selling prices made by Thai Cane and Sugar Co., Ltd. The average price of sugar sold by Thai Cane and Sugar Co., Ltd. was about 21 cents per pound for the 2012/2013 crushing season. In addition, the healthy demand for ethanol and higher profit from power businesses will partly make up for the weak sugar business. MPSC has plans to expand its production capacity, which will require capital expenditures, totaling Bt17,500 million during 2013-2015. This capital needs are expected to be met by EBITDA of Bt15,000-Bt17,000 million per annum. As a result, MPSC’s financial leverage is anticipated to remain moderate in the medium term.
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