TRIS Rating has affirmed the company rating of PTG Energy PLC (PTG) at “BBB” with “stable” outlook. The rating reflects the company’s track record as an oil retailer, efficient control of operation costs, and nationwide distribution network. The rating is partially weighed down by the thin operating margin common for oil traders, supplier concentration risk and the risk of government intervention in the oil retailing segment.
The “stable” outlook reflects the expectation that PTG can maintain its current market position in the oil retailing industry. PTG is also expected to manage and control its operating costs and selling, general, and administrative (SG&A) expenses while it expands.
The major downside factors for PTG’s rating are deterioration in the marketing margin for a prolonged period, or inefficient control of costs due to a rapid expansion. An aggressive investment plan, which pushes the ratio of total liabilities to total equity above 2 times on sustainable basis, would also be a negative factor for PTG’s credit rating.
The upside factors for PTG’s rating are a significant improvement in its operating cash flow, or successful efforts to diversify its sources of income.
PTG was established in 1988 as Paktai Chueplerng Co., Ltd. to operate an oil distribution center. In 1992, PTG became an oil retailer when it opened service stations under its own “PT” brand. The company was listed on the Stock Exchange of Thailand (SET) in 2013. At the end of 2015, the company’s major shareholders comprised the Ratchakitprakarn family (33.7%), Mr. Sakanan Wijitthanarak (16.0%), and the Vachirasakpanich family (8.9%). PTG operates 1,095 service stations nationwide under the “PT” trademark, or about 5% of all service stations in Thailand at the end of September 2015.
PTG’s business profile is satisfactory. PTG purchases refined petroleum products from refineries in Thailand, then sells the products through its distribution network. Currently, PTG purchases most of the refined products from Thai Oil PLC (TOP). PTG sold petroleum products through two types of “PT” service stations: company owned, company operated service stations (COCO stations) and dealer owned, dealer operated service stations (DODO stations). PTG also sells petroleum products, directly to industrial customers. Different from the strategy employed by other major oil companies, PTG has expanded its service networks through COCO stations.
For the first nine months of 2015, PTG sold 1,645 million liters (ML) of refined oil products, of which 74% was sold through COCO stations, 13% was sold through DODO stations and the rest (13%) was sold directly to industrial customers. PTG’s competitive advantage is supported by an efficient logistics and inventory management systems because PTG has a fleet of 352 trucks and nine oil distribution centers as of September 2015.
PTG has continued to expand its network of petrol stations. The number of service stations increased to 1,150 stations at the end of 2015, an increase of 199 stations from the end of 2014. Almost all new stations are COCO stations. PTG offers customers a member card, the PT MAX Card, as a way to boost sales. As of September 2015, there were 3.4 million PT MAX cardholders. The recent fall in oil prices boosted demands. During the first nine months of 2015, oil consumption in Thailand rose to 29,363 million liters, up by 6.0% over the same period of the prior year. The increase in the number of PTG stations and rising demand pushed PTG’s sales volume to 1,645 ML for the first nine months of 2015, an increase of 24.9% over the same period of the prior year. The overall marketing margin was well maintained at Bt1.60 per liter, despite the recent plunge in oil prices. Earnings before interest, tax, depreciation and amortization (EBITDA) rose to Bt1,150 million, a rise of 21.5%.
The PTG’s leverage ratio is moderate. PTG’s strategy calls for it to lease existing service stations rather than build new stations. At the end of September 2015, total debt was Bt1,365 million, or Bt3,052 million including lease obligations. Total adjusted debt to capitalization ratio rose to 44.9% at the end of September 2015, from 36.5% as of December 2014. The increase was due to the rapid increase in the number of PTG service stations. Despite a rise in leverage, liquidity and cash flow protection remained satisfactory. The adjusted FFO to total debt ratio was 45.2% (from the trailing 12 months) during the first nine months of 2015, compared with values ranging from 30% to 60% during 2012-2014. The adjusted EBITDA interest coverage ratio was satisfactory at 9.3 times, compared with values of 8.9-10.9 times during 2012-2014.
During 2016-2018, PTG plans to add about 300-400 COCO stations per year. Capital expenditures will range from Bt2,800-Bt3,500 million per year for existing retailing business. The company has diversified its investment into related business. PTG announced in 2015 an investment in the Palm Complex project. PTG plans to invest Bt622 million in AMA Marine Co.,Ltd., a logistics company which transports liquids in bulk, and plans to invest Bt398 million in Fuel Pipeline Transportation Limited in 2016. Including these investments, PTG’s capital expenditures could reach Bt3,000-Bt4,000 million per year during 2016-2018. TRIS Rating expects PTG will manage its capital structure carefully so that the ratio of total liabilities to equity will stay below 2 times in the medium-to long-term.
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