TRIS Rating Co., Ltd. has assigned the rating of "BBB+" to United Farmer & Industry Co., Ltd. (UFIC). As a sugar producer under the Mitr Phol group, UFIC's rating reflects the Mitr Phol group's leading position in the Thai sugar industry, its above-average sugar mill operations, and its well-accepted brand name in sugar markets. Despite more than 60% of UFIC's revenue coming from export markets, its exposure to sugar commodity price risk is partly mitigated by the 70:30 revenue sharing system. However, these strengths are partially offset by UFIC's and the group's highly leveraged balance sheets. The "stable" outlook reflects TRIS Rating's expectation that UFIC and the Mitr Phol group will continue to maintain their leading position in the Thai sugar industry and UFIC's profitability is expected to remain stable, as a result of the revenue sharing system in the Thai sugar and sugarcane industry.
TRIS Rating reported that UFIC is the major sugar producer within the Mitr Phol Group, the leader in the Thai sugar industry. Among five sugar mills within the group, UFIC operates three sugar processing plants located in Northeastern Thailand which is the largest sugarcane planting area: Chaiyaphoom, Khon Kaen, and Kalasin. The combined processing capacity of 67,000 tons of cane per day and 3,000 tons of refined sugar per day represent approximately 60% of total Mitr Phol group capacity. In the 2003/2004 production period, Mitr Phol group was the largest sugar producers with 18.5% market share, followed by Thai Roong Ruang group (15.4%), Thai Ekkalak group (12.2%), and Wang Kanai group (10.4%). UFIC's current major shareholders are Mitr Phol Sugar Corp., Ltd. (87.56%), owned by the Vongkusolkij family, and Eastern Sugar Co., Ltd. (8.97%), belonging to the Wattanawakin family. Its major sugar products are raw sugar, very high POL raw sugar, white sugar, refined sugar, and super refined sugar. UFIC aims to focus more on white and refined sugar, constituting approximately 70% of its sugar volume, due to its higher value and lower price volatility.
TRIS Rating said, according to the sugar and sugarcane industry regime in Thailand, there are currently 46 sugar mills in operation. The government has frozen the capacity expansion of sugar mills, making competition less intense. However, the supply of white sugar in the domestic market, Quota A, is determined by a company's actual sugar production. Therefore, cane procurement is a very important factor to the revenue of each company. UFIC has contracted with cane growers to secure its supply of sugarcane. The company has consistently supported cane growers both financially and operationally including advancing funds and fertilizer, technical support regarding breeding development, and irrigation development. The Mitr Phol group has its own research and development company aiming to improve the quantity and quality of sugarcane, particularly breeding improvement. UFIC's sugar production in the 2003/2004 crushing period was approximately 830,000 tons. Its crushing yield is better than the industry average. While the sugarcane processing period is normally four to five months, UFIC can extend its sugar production to approximately 11 months by remelting stored raw sugar in its refinery process. The lengthened operating period helps UFIC spread out its fixed operating cost.
Though facing less price risk in the domestic market, UFIC continues to face price volatility in export markets. The company has partly priced its export products in line with the industry benchmark price of the Thai Cane and Sugar Corporation (TCSC). The 70:30 revenue sharing system between cane growers and sugar producers partially stabilizes UFIC's gross margin. The company strategy to focus on industrial users has partly reduced its commodity price risk. UFIC's highly leveraged balance sheet partly came from the de facto devaluation of the baht in 1997 and the transfer of assets among companies in the Mitr Phol group. Its total debt to capitalization ratio was 86.71% in 2003 based on consolidated data. The company has a policy to fund each project separately and to maintain its long-term debt to equity ratio at 2.5 times or less. Its consolidated earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio of 4.29 times in 2003 was acceptable. UFIC's consolidated operating income before depreciation and amortization to sales ratio stood at 21.80% in 2003, while its gross margin remains stable in the range of 20%-30% due to the 70:30 revenue sharing system, TRIS Rating said. -- End
United Farmer & Industry Co., Ltd. (UFIC) Company Rating: BBB+ Rating Outlook: Stable
TRIS Rating reported that UFIC is the major sugar producer within the Mitr Phol Group, the leader in the Thai sugar industry. Among five sugar mills within the group, UFIC operates three sugar processing plants located in Northeastern Thailand which is the largest sugarcane planting area: Chaiyaphoom, Khon Kaen, and Kalasin. The combined processing capacity of 67,000 tons of cane per day and 3,000 tons of refined sugar per day represent approximately 60% of total Mitr Phol group capacity. In the 2003/2004 production period, Mitr Phol group was the largest sugar producers with 18.5% market share, followed by Thai Roong Ruang group (15.4%), Thai Ekkalak group (12.2%), and Wang Kanai group (10.4%). UFIC's current major shareholders are Mitr Phol Sugar Corp., Ltd. (87.56%), owned by the Vongkusolkij family, and Eastern Sugar Co., Ltd. (8.97%), belonging to the Wattanawakin family. Its major sugar products are raw sugar, very high POL raw sugar, white sugar, refined sugar, and super refined sugar. UFIC aims to focus more on white and refined sugar, constituting approximately 70% of its sugar volume, due to its higher value and lower price volatility.
TRIS Rating said, according to the sugar and sugarcane industry regime in Thailand, there are currently 46 sugar mills in operation. The government has frozen the capacity expansion of sugar mills, making competition less intense. However, the supply of white sugar in the domestic market, Quota A, is determined by a company's actual sugar production. Therefore, cane procurement is a very important factor to the revenue of each company. UFIC has contracted with cane growers to secure its supply of sugarcane. The company has consistently supported cane growers both financially and operationally including advancing funds and fertilizer, technical support regarding breeding development, and irrigation development. The Mitr Phol group has its own research and development company aiming to improve the quantity and quality of sugarcane, particularly breeding improvement. UFIC's sugar production in the 2003/2004 crushing period was approximately 830,000 tons. Its crushing yield is better than the industry average. While the sugarcane processing period is normally four to five months, UFIC can extend its sugar production to approximately 11 months by remelting stored raw sugar in its refinery process. The lengthened operating period helps UFIC spread out its fixed operating cost.
Though facing less price risk in the domestic market, UFIC continues to face price volatility in export markets. The company has partly priced its export products in line with the industry benchmark price of the Thai Cane and Sugar Corporation (TCSC). The 70:30 revenue sharing system between cane growers and sugar producers partially stabilizes UFIC's gross margin. The company strategy to focus on industrial users has partly reduced its commodity price risk. UFIC's highly leveraged balance sheet partly came from the de facto devaluation of the baht in 1997 and the transfer of assets among companies in the Mitr Phol group. Its total debt to capitalization ratio was 86.71% in 2003 based on consolidated data. The company has a policy to fund each project separately and to maintain its long-term debt to equity ratio at 2.5 times or less. Its consolidated earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio of 4.29 times in 2003 was acceptable. UFIC's consolidated operating income before depreciation and amortization to sales ratio stood at 21.80% in 2003, while its gross margin remains stable in the range of 20%-30% due to the 70:30 revenue sharing system, TRIS Rating said. -- End
United Farmer & Industry Co., Ltd. (UFIC) Company Rating: BBB+ Rating Outlook: Stable