TRIS Rating Co., Ltd. has downgraded the ratings of Charoen Pokphand Foods PLC (CPF) and its Bt7,000 million senior debentures (CPF063A) to "A" from "A+". The downgrades are based upon an increased risk in the agribusiness industry which resulted in CPF's declining profitability. The inherent volatility of the commodity prices, exposure to disease outbreaks, and stricter regulations imposed by importing countries are among risk factors affecting CPF's performance. The ratings, however, continue to reflect CPF's competitive advantages stemming from its leading position in Thailand's agribusiness industry, its product and market diversification, and its management's ability to respond to a changing business environment.
TRIS Rating reported that CPF is the largest agribusiness company in Thailand and regarded as the flagship agribusiness of the Charoen Pokphand Group. Currently, Charoen Pokphand Group Co., Ltd. (CPG) and related companies hold 49.30% of the shares in CPF. CPF has captured more than 50% of the shrimp feed market and approximately 38% of the animal feed market in Thailand. Its fully integrated chicken operation helps its products meet international standards, qualifying the company to export to Europe and Japan. CPF's shrimp operations selectively focus on feed production and exporting value-added products. Its focus on value-enhanced products in both the livestock and aquaculture businesses allows the company to charge a premium for its products and avoid the volatility of commodity prices. CPF's revenues from exports have increased from 18% of total sales in 1999 to 22% during 2000-2003. The company has diversified operations into several countries such as China for aquaculture and Turkey for chicken operations. CPF's new US$22 million investment in C.P. Standart Gida Sanayi ve Ticaret Anonim Sirketi (CPS) diversifies CPF's geographic coverage. CPS has the largest market share in both chicken meat and animal feed in Turkey. As a result of the increased focus on exports and foreign investments, CPF is less vulnerable to changes in the domestic economy.
TRIS Rating said CPF's performance in 2003 was negatively affected by the decline in domestic livestock prices during the first quarter of 2003. However, the cooperation between the government and chicken producers to control domestic supply improved the situation in the remainder of the year, making CPF's total sales increase 10.60% from 2002. In the first quarter of 2004, the avian influenza outbreak significantly cut poultry consumption both domestically and internationally. There have been bans on imported frozen chicken from Thailand, while processed products continue to be accepted by major markets, the European Union (EU) and Japan. Thai chicken exporters are expected to shift their focus to processed products. This shift will support CPF's performance due to its existing processed production capacity compared to its competitors. A recent U.S. anti-dumping lawsuit against Thai shrimp exporters negatively affects CPF's performance. The uncertainty of the anti-dumping duty discouraged farmers from shrimp farming and lowered demand for shrimp feed.
CPF's consolidated operating margins decreased to 5.15% in 2003 from 6.96% in 2002 and its funds from operations to total debt ratio decreased to 15.73% from 18.16% in 2002. CPF's liquidity during 2004-2006 should be tighter due to its scheduled debt repayment of Bt4,000-Bt6,000 million per year. However, given its sufficient financial flexibility and moderate leverage level as shown by a debt-to-capitalization ratio of approximately 50%, CPF is expected to face no difficulty in refinancing parts of its debts.
TRIS Rating also said that the tight competition in the agribusiness industry partly comes from the stricter health regulations and other forms of trade barriers such as quotas which have been imposed by importing countries. These regulations affect CPF and all other companies competing in the global marketplace. -- End
Charoen Pokphand Foods PLC (CPF) Company Rating: Downgraded to A from A+Issue Rating:CPF063A: Bt7,000 million senior debentures due 2006 Downgraded to A from A+
TRIS Rating reported that CPF is the largest agribusiness company in Thailand and regarded as the flagship agribusiness of the Charoen Pokphand Group. Currently, Charoen Pokphand Group Co., Ltd. (CPG) and related companies hold 49.30% of the shares in CPF. CPF has captured more than 50% of the shrimp feed market and approximately 38% of the animal feed market in Thailand. Its fully integrated chicken operation helps its products meet international standards, qualifying the company to export to Europe and Japan. CPF's shrimp operations selectively focus on feed production and exporting value-added products. Its focus on value-enhanced products in both the livestock and aquaculture businesses allows the company to charge a premium for its products and avoid the volatility of commodity prices. CPF's revenues from exports have increased from 18% of total sales in 1999 to 22% during 2000-2003. The company has diversified operations into several countries such as China for aquaculture and Turkey for chicken operations. CPF's new US$22 million investment in C.P. Standart Gida Sanayi ve Ticaret Anonim Sirketi (CPS) diversifies CPF's geographic coverage. CPS has the largest market share in both chicken meat and animal feed in Turkey. As a result of the increased focus on exports and foreign investments, CPF is less vulnerable to changes in the domestic economy.
TRIS Rating said CPF's performance in 2003 was negatively affected by the decline in domestic livestock prices during the first quarter of 2003. However, the cooperation between the government and chicken producers to control domestic supply improved the situation in the remainder of the year, making CPF's total sales increase 10.60% from 2002. In the first quarter of 2004, the avian influenza outbreak significantly cut poultry consumption both domestically and internationally. There have been bans on imported frozen chicken from Thailand, while processed products continue to be accepted by major markets, the European Union (EU) and Japan. Thai chicken exporters are expected to shift their focus to processed products. This shift will support CPF's performance due to its existing processed production capacity compared to its competitors. A recent U.S. anti-dumping lawsuit against Thai shrimp exporters negatively affects CPF's performance. The uncertainty of the anti-dumping duty discouraged farmers from shrimp farming and lowered demand for shrimp feed.
CPF's consolidated operating margins decreased to 5.15% in 2003 from 6.96% in 2002 and its funds from operations to total debt ratio decreased to 15.73% from 18.16% in 2002. CPF's liquidity during 2004-2006 should be tighter due to its scheduled debt repayment of Bt4,000-Bt6,000 million per year. However, given its sufficient financial flexibility and moderate leverage level as shown by a debt-to-capitalization ratio of approximately 50%, CPF is expected to face no difficulty in refinancing parts of its debts.
TRIS Rating also said that the tight competition in the agribusiness industry partly comes from the stricter health regulations and other forms of trade barriers such as quotas which have been imposed by importing countries. These regulations affect CPF and all other companies competing in the global marketplace. -- End
Charoen Pokphand Foods PLC (CPF) Company Rating: Downgraded to A from A+Issue Rating:CPF063A: Bt7,000 million senior debentures due 2006 Downgraded to A from A+