Thai Rating and Information Services Co., Ltd. (TRIS) announced Thursday 1 March 2001 that it has assigned a "A+" rating to Charoen Pokphand Foods PLC's (CPF) Bt7,000 million senior debentures. The rating reflects the company's leading position in Thailand's agriculture industry, its operating and geographic diversity, and its proficient management team. The rating also reflects increased competition in the global agribusiness market and concerns over the company's ongoing restructuring plan.
TRIS reported that CPF is the largest agribusiness company in Thailand and regarded as the flagship agribusiness of the Charoen Pokphand Group, which holds 33% of CPF directly. Currently, Charoen Pokphand Group Co., Ltd. (CPG) is almost 100% held by the Chearavanont family. CPF has captured more than 60% of the shrimp feed market and approximately 35%-40% of the animal feed market in Thailand. Its fully integrated chicken operation helps its products meet international standards, qualifying it to export into the European and Japanese markets. Its shrimp operations selectively focus on feed production and exporting value-added products. Geographic diversity, increasing the contribution of exports from 9% of sales in 1997 to 17% in 1999, has reduced the company's reliance on the domestic economic environment.
The livestock industry was in a down cycle in 2000, resulting in declining prices in the domestic and global markets. The current oversupply situation for livestock is expected to gradually improve in 2001 as the stockpile is depleted. Aquaculture products, however, significantly benefited from a supply shortage of shrimp, a situation that is projected to remain over the next couple of years before demand-supply reaches equilibrium. Slowing economies in major export markets, the USA and Japan, may lessen demand for the products while stricter health and environmental controls make it more difficult to enter those markets. Various forms of trade barriers imposed by importing countries are also a concern in competing in the global market.
The restructuring of the CP Group from 1998 onward has resulted in consolidation of most of CP Group's agricultural and food-related companies into CPF. The 1998 and 1999 financial results are partly consequences of the consolidation of the livestock and meat processing businesses while the weaker 2000 financial operations partly resulted from the inclusion of the newly acquired subsidiary, Charoen Pokphand (USA), Inc. The consolidated operating margin declined to 8.5% for the first nine months of 2000 from 13.8% in 1999. Its funds from operation-to-total debt ratio also dropped to 13.1% from a peak of 38.5% in 1999. Its EBITDA interest coverage ratio, however, remained healthy at 4.6 times while its debt-to-capitalizaion ratio of 46.7% for the first nine months of 2000 is acceptable. TRIS sees that CPF's policy to focus on growing its core businesses to reach regional and global scale is prudent. Management's intention to dispose of non-core businesses is clearly stated and evidenced by the actual divestment of "Lotus Supercenter" in 1998. However, its ongoing restructuring plan to acquire more agricultural and food companies from CPG in the future raises concern over how the acquired companies will affect CPF's performance. The source of financing, the price paid and the method of acquisition could weaken CPF's balance sheet if debt financing is heavily used.
Charoen Pokphand Foods PLC (CPF) Issue Rating CPF#1/2001: Bt7,000 million senior debentures due 2006 A+
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TRIS reported that CPF is the largest agribusiness company in Thailand and regarded as the flagship agribusiness of the Charoen Pokphand Group, which holds 33% of CPF directly. Currently, Charoen Pokphand Group Co., Ltd. (CPG) is almost 100% held by the Chearavanont family. CPF has captured more than 60% of the shrimp feed market and approximately 35%-40% of the animal feed market in Thailand. Its fully integrated chicken operation helps its products meet international standards, qualifying it to export into the European and Japanese markets. Its shrimp operations selectively focus on feed production and exporting value-added products. Geographic diversity, increasing the contribution of exports from 9% of sales in 1997 to 17% in 1999, has reduced the company's reliance on the domestic economic environment.
The livestock industry was in a down cycle in 2000, resulting in declining prices in the domestic and global markets. The current oversupply situation for livestock is expected to gradually improve in 2001 as the stockpile is depleted. Aquaculture products, however, significantly benefited from a supply shortage of shrimp, a situation that is projected to remain over the next couple of years before demand-supply reaches equilibrium. Slowing economies in major export markets, the USA and Japan, may lessen demand for the products while stricter health and environmental controls make it more difficult to enter those markets. Various forms of trade barriers imposed by importing countries are also a concern in competing in the global market.
The restructuring of the CP Group from 1998 onward has resulted in consolidation of most of CP Group's agricultural and food-related companies into CPF. The 1998 and 1999 financial results are partly consequences of the consolidation of the livestock and meat processing businesses while the weaker 2000 financial operations partly resulted from the inclusion of the newly acquired subsidiary, Charoen Pokphand (USA), Inc. The consolidated operating margin declined to 8.5% for the first nine months of 2000 from 13.8% in 1999. Its funds from operation-to-total debt ratio also dropped to 13.1% from a peak of 38.5% in 1999. Its EBITDA interest coverage ratio, however, remained healthy at 4.6 times while its debt-to-capitalizaion ratio of 46.7% for the first nine months of 2000 is acceptable. TRIS sees that CPF's policy to focus on growing its core businesses to reach regional and global scale is prudent. Management's intention to dispose of non-core businesses is clearly stated and evidenced by the actual divestment of "Lotus Supercenter" in 1998. However, its ongoing restructuring plan to acquire more agricultural and food companies from CPG in the future raises concern over how the acquired companies will affect CPF's performance. The source of financing, the price paid and the method of acquisition could weaken CPF's balance sheet if debt financing is heavily used.
Charoen Pokphand Foods PLC (CPF) Issue Rating CPF#1/2001: Bt7,000 million senior debentures due 2006 A+
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