TRIS Rating has assigned a company rating of “BBB” to PTG Energy PLC (PTG) with “stable” outlook. The rating reflects the company’s track record in oil marketing business, its efficiency in controlling operating cost, and a nationwide distribution network. The rating also takes into consideration the current excess supply of refined oil products in Thailand and PTG’s limited exposure to oil price fluctuations. The rating is partially weighed down by the thin operating margin nature for an oil trader, PTG's supplier concentration risk, and government intervention in the oil retailing business. The “stable” outlook reflects the expectation that PTG can maintain its current market position in the oil marketing business. PTG is also expected to manage and control operating costs and selling, general, and administrative (SG&A) expenses during the expansion.
The downside factors for PTG’s rating are deterioration in marketing margin for a prolonged period, or inefficient cost control due to rapid expansion. An aggressive investment plan, should it increase the ratio of total liabilities to total equity above 2 times, is also a negative factor for PTG’s credit rating.
The upside factors for PTG’s rating are a significant improvement in its financial performance, or the successful efforts to diversify its sources of income.
PTG was established in 1988 as Paktai Chueplerng Co., Ltd. to operate oil distribution center and oil trading. In 1992, the company became an oil retailer when it opened oil service stations under its own “PT” brand. The company was listed on the Stock Exchange of Thailand (SET) in 2013. As of December 2014, the company’s major shareholders comprised the Ratchakitprakarn family (33%), Mr. Sakanan Wijitthanarak (18.5%), and the Vachirasakpanich family (9.4%). PTG operates 886 service stations nationwide under the “PT” trademark, or about 4% of all service stations in Thailand as of September 2014.
PTG’s business profile is satisfactory. PTG purchases refined products from refineries in Thailand, and then sells the products through its own distribution network. Currently, PTG purchases most of the refined products from Thai Oil PLC (TOP). About 85% of PTG’s total sales volume is sold through “PT” service stations. The remainder (15%) is sold directly to industrial customers. Different from other service stations of major oil companies, PTG mostly owns and operates its service stations (so called COCO). For the first nine months of 2014, PTG sold 1,316 million liters (ML) of refined oil products, of which 70% was sold through its own stations, 14% was sold through dealer’s stations and the rest of 16% was sold directly to industrial customers. PTG also has support facilities for its distribution network. As of September 2014, it owned and operated nine oil distribution centers with a capacity of 200.7 ML. The company also owns 330 trucks. Having its own fleet of trucks, helps manage its inventory and logistics more efficiently.
During the past five years, PTG has expanded its petrol station rapidly. The number of PTG’s service station has increased from 248 stations at the end of 2009 to 886 stations at the end of September 2014. Most stations are located on local roads rather than highway. The company recently launched a member card, the PT MAX Card, to boost sales. As of September 2014, there were 2.14 million PT MAX card members. The increase in its stations and the PT MAX card pushed PTG’s sales volume from 391 ML in 2009 to 1,316 ML for the first nine months of 2014. PTG’s marketing margin improved continuously from approximately Bt1.16 per liter in 2009 to approximately Bt1.61 per liter in the first nine months of 2014. An improvement in marketing margin is due in part to PTG’s strategy to sell more products through its owned stations. At the end of September 2014, PTG's own stations accounted for about 76% of total stations, compared with 40% in 2009.
PTG’s financial profile is average. As the company rapidly expanded its network during the past five years, revenue increased from Bt9,677 million in 2009 to Bt47,694 million in 2013. For the first nine months of 2014, PTG’s revenue was Bt40,018 million, increasing by 8.7% year-on-year (y-o-y) from Bt36,799 million for the first nine months of 2013. However, as an oil marketing operator, PTG’s operating margin (operating profit before depreciation and amortization as a percentage of sales) hovered around 1%-2% during the past five years. The company’s leverage ratio is satisfactory. PTG raised funds totaling Bt1,638 million from its initial public offering in 2013. Despite a focus on its own service station expansion, PTG’s strategy calls for it to lease existing service stations rather than to build new stations. At the end of September 2014, PTG’s total debt was Bt823 million, or Bt1,898 million if included lease obligations. The company’s total adjusted debt to capitalization ratio was approximately 35% at the end of September 2014. PTG’s funds from operations (FFO) increased from Bt171 million in 2009 to Bt686 million in 2013. For the first nine months of 2014, the company’s FFO was Bt840 million. The increase in FFO was due to the expansion of its service station network and sale growth of existing service stations. The adjusted FFO to total debt ratio has stayed above 35% since 2010.
During 2015-2017, TRIS Rating expects that PTG will continue to add more owned service stations. FFO will rise above Bt900 million per year. Based on its focus on cost control and economies of scale benefit, the operating margin is not expected to be lower than the current level. The capital expenditures will be an average of Bt1,600 million per year to expand and renovate its service stations and oil distribution centers. This budget also includes Bt640 million of equity investment in the palm complex project. The company’s adjusted total debt to capitalization may increase to 50%-55% during 2015-2017, given PTG’s stated policy to pay out 30% of profits as dividends.
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