TRIS Rating has assigned the company rating of “BB” to Petroleum Trading Lao Public Company (PTL) with “stable” outlook. The rating reflects the company’s leading position as an oil marketer in the Lao People's Democratic Republic (Lao PDR), its nationwide distribution network, and well-known brand name. The rating is partially weighed down by low barriers to entry in the oil marketing industry, competition from oil smugglers, and more exposure to commodity price risk in re-export business.
The “stable” outlook reflects TRIS Rating’s expectation that PTL will be able to sustain its current market position in the oil marketing business in the Lao PDR. PTL is also expected to control selling, general and administrative (SG&A) expenses as it expands.
PTL’s credit downside scenario may arise if the company’s marketing margin deteriorates due to oil price fluctuations from re-exporting activity, or if the company's financial profile deteriorates significantly due to heavy debt funded investment and capital expenditure for its expansion.
The upside factors for PTL’s rating is a significant improvement in its cash flow generation, while its cash flow protection is not weaker than the current level.
PTL was established in 2008 to import and distribute petroleum products in the Lao PDR. The company launched its first service station in 2009 under the "PLUS" trademark. PTL was listed on the Lao Securities Exchange (LSX) in 2014. The company's major shareholders is Mr. Chanthone Sitthixay’s family, the Phongsavanh Group, with a 73.8% stake as of December 2015, while the rest of the shares are held by the public. At the end of 2015, PTL had 102 service stations operating under the "PLUS" trademark.
PTL's business profile is fair. The company imports petroleum products from refineries in Thailand and then sells the products through its own distribution network in the Lao PDR. In 2015, PTL's purchased about two-thirds of the petroleum products it sold from IRPC and about one-third from Chevron, ESSO, and Shell. For 2015, about 42% of PTL's total sales volume was sold through "PLUS" service stations, 19% sold to project customers, 19% sold to industrial customers, and the rest (20%) sold to logistics customers and re-exported to Myanmar. All of PTL's service stations are dealer operated. As a result, PTL and its dealers share the marketing margin. PTL earns a margin for importing and wholesaling the fuel, while dealer earns the retailing margin. PTL owns eight of 102 service stations. At these eight stations, PTL earns rental income in addition to its share of the marketing margin.
PTL has built brand recognition by expanding its retail network nationwide, offering fuel with good and reliable quality, and making on time deliveries, especially to industrial and project customers. The company rapidly expanded its service station network, growing from the one station in 2009 to 102 stations at the end of 2015. Including fuel sales to industrial customers, PTL's total sale volume grew at a compound annual growth rate of 10.6%, rising from 98 million litres (ML) in 2011 to 147 ML in 2015. Its success in oil retailing and wholesaling has made the company the second-largest oil marketing company in the Lao PDR since 2011. In 2015, the company had a market share of 17% in the oil marketing business, behind only Lao State Fuel Company (LSFC), a state-owned enterprise, which had 19.7% market share. The barriers to entry for oil trading are generally low. The number of competitors grew from about 14 companies in 2009 to nearly 26 companies in 2016. The oil smuggling further intensifies the competitive environment in the oil marketing business in the Lao PDR.
PTL's sales volume was moderately volatile due in part to fluctuations in sales to project and industrial customers. Each segment accounts for 15%-20% of PTL's annual sales volume. In 2014, sales to industrial customers plunged by 67.9%, cutting PTL's sales volume by 8.9% to 118 ML. PTL's total sales recovered in 2015, increasing by 24.7% to 147 ML. An increase in the number of industrial customers and re-exports of fuel helped offset the slowdown in retail sales in 2015.
Oil prices in the Lao PDR are tied to the import price, which is linked to a well-known benchmark, the Mean of Platts Singapore (MOPS). The retail prices of fuel are regulated and adjusted by the Ministry of Industry and Commerce of Laos. Normally, the price structure provides a marketing margin for oil importers and distributors. During 2011-2015, PTL’s marketing margin was in the range of Kip550 to Kip650 per liter, or about Bt2.1 to Bt2.7 per liter, higher than the marketing margin in Thailand. PTL's operating margin (operating income before depreciation and amortization as percentage of sales) ranged from 3.6%-6.6% over the same period. PTL's earnings before interest, tax, depreciation and amortization (EBITDA) ranged from Kip38,091 million (or Bt144 million) in 2011 to Kip57,419 million (or Bt239 million) in 2015. This cash flow generation is considered relatively smaller than an oil marketing operator in Thailand. The company’s leverage ratio is satisfactory. Total debt increased from Kip75,801 million (Bt287 million) at the end of 2011 to Kip175,245 million (Bt729 million) at the end of 2015. The increase in debt funded a rise in working capital and funded the assets needed to expand the distribution network. Despite the rise in total debt, the ratio of total debt to capitalization improved from 44.2% at the end of 2011 to 26.4% at the end of 2015. The improvement was due to an increase in equity capital after the 2014 initial public offering. PTL raised about Kip147,639 million (Bt613 million) in new equity in 2014. Cash flow protection and liquidity are fair. The EBITDA interest coverage ratio hovered around 3.2-4.5 times during 2012-2015 while the FFO to total debt ratio ranged from 16.1% to 22.4%.
During 2016-2020, PTL plans to speedily expand its service station network by opening about 34 new stations per year. With a mission to become a leading oil trader in this region, the company plans to import refined oil in bulk, sourced from oil traders in the Middle East, and re-export the fuel to neighboring countries such as Myanmar, Thailand, Vietnam, and Southern China. With the long credit terms from supplier, PTL expects that it can offer better credit terms to its customers as a strategy to penetrate new markets. The volume of refined oil sold through PTL's trading operation is expected to grow more than four-fold compared with the current level. However, the success of re-export trading has to be seen as the company will expose to greater commodity price risk and credit risk.
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