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 full vertical integration across diverse product lines, and its growth strategy which emphasizes value-added products and strategic partnerships. The ratings also take into consideration the inherent cyclicality of commodity-type products, exposure to disease outbreaks, the uncertainty of weather conditions, and changes in import tariffs imposed by importing countries. The “stable” outlook reflects the expectation that BTG will be able to maintain its leading positions in the Thai agribusiness and food industries. The contributions from BTG’s feed and value-added food products should partially offset the price fluctuations in its farm products.
Established in 1967 by the Taepaisitphongse family and associates, BTG is one of the leading agribusiness and food companies in Thailand. As of April 2013, 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 seven segments comprising feed, poultry, swine, food, regional, animal health and technology, and overseas operations. From 2008 through 2012, the poultry segment contributed 39% of BTG’s total revenues, followed by feed (37%), and swine (15%). Revenues from domestic sales contributed 86% of total sales in 2012, 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 terms of sales of chicken meat. Currently, the company’s chicken and swine operations are fully vertically integrated, from feed to food products. Fully-integrated operations help BTG’s 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. From 2008 through 2012, BTG’s value-added food products comprised 15%-18% of total sales each year. BTG also created its own domestic distribution channel, “Betagro Shops”, to serve industrial and food service companies. As of December 2012, there were 97 stores nationwide. BTG plans to have 127 stores by the end of 2014.
Producers in the poultry and swine industries enjoyed a peak year in 2011. As a result, many livestock producers expanded their production capacities, leading to over-supply situations in the livestock industry in 2012. According to the Thai Feed Mill Association, the average price of broiler in 2012 shrank by 21% compared with 2011, and the average price of fattener fell 16% over the same period. Moreover, the cost of soybean meal, one of the major components of animal feed, also increased due to a drought in the United States (US). According to the Thai Feed Mill Association, the price of imported soybean meal surged by 34% from Bt14.3 per kilogram in December 2011 to Bt19.1 per kilogram in December 2012.
Despite the drop in livestock prices, BTG’s sales in 2012 increased moderately, rising by 10% from Bt58,850 million in 2011 to Bt64,632 million. However, falling meat prices, coupled with rising raw material prices, cut BTG’s gross margin to 7.6% in 2012, compared with the levels ranging from 11.2% to 14.6% from 2008 through 2011. BTG’s earnings before interest, tax, depreciation, and amortization (EBITDA) dropped by 62% to Bt2,158 million in 2012, from a record high of Bt5,656 million in 2011. The financial profile of BTG deteriorated in 2012. BTG’s debt escalated from Bt8,355 million at the end of 2011 to Bt14,499 million at the end of 2012. The sharp rise in debt was mainly to finance BTG’s inventory and ongoing investments. The debt to capitalization ratio increased to 63.0% at the end of 2012, from 48.5% at the end of 2011.
For the first half of 2013, the company’s total sales increased by 15% year-on- year (y-o-y) to Bt35,081 million. The growth was driven by rising livestock prices following supply cut from the Saha Farm Group, one of Thailand’s leading poultry producers. Moreover, an increase in revenue was also attributed to the company’s capacity expansion and the rising volume from export markets. During the first six months of 2013, BTG’s financial performance partially recovered from the poor performance in 2012. BTG’s gross margin improved to 9.6% during the first half of 2013, from a low of 7.6% in 2012. EBITDA increased by 15% y-o-y to Bt1,691 million for the first six months of 2013, from Bt1,468 million during the same period of 2012. The debt to capitalization ratio improved to 60.7% at the end of June 2013, from 63.0% at the end of 2012.
During 2013-2015, the company will require capital expenditures of Bt2,000-Bt4,000 million per year. The expansion plans include new farms, new feed and processed food plants, as well as the expansions of its distribution channels. BTG plans to fund its capital expenditures mainly by its cash flow from operations. The company’s EBITDA are expected to be Bt4,000-Bt5,000 million per year. The debt to capitalization ratio of BTG is expected to remain moderate over the next few years.
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