TRIS Rating Co., Ltd. has downgraded the company rating of Wiik & Hoeglund PLC (KWH) to "BBB" from "A-" with "stable" rating outlook. The downgrade is based on sharp declining in KWH's sales volume, erosion of the company's profit margin, and increasing leverage. While the "stable" outlook reflects the expectation that KWH's financial position will not deteriorate further than in the first quarter of 2005. In addition, it is expected that the company will continue to receive both technical and financial support from its parent company.
TRIS Rating reported that the sharp reduction in KWH's profit margin was due to the increasing price of the company's raw material and fixed overhead expenses per unit of production. An expansion of KWH's plant during the low production period caused its fixed overhead costs per unit to increase more than 50%. The limited ability to pass on the increasing costs to its customers, due to intense competition in both domestic and export markets, depressed the profit margin of its significantly more than expected. The increasing raw material cost coupled with delayed payments from its customers caused KWH to sharply increase the short-term borrowing used to finance working capital. KWH's debt to capitalization ratio increased from 39% in 2003 to 58% in the first quarter of 2005. Though these negative factors have negatively impacted its performance, KWH has been able to maintain its leading position in the HDPE pipe market with a market share of 50%-60% in 2004. In addition, the company continues to receive strong technical and financial support from its major shareholder, KWH Pipe Ltd. of Finland. This helps partly mitigate the risks faced by the company.
TRIS Rating said that sales volume of 3,493 tonnes in the first five months of 2005 continued to disappoint, as that level was equal to only 28% and 22% of total sales volume in 2004 and 2003, respectively. The price of its major raw material, HDPE resin, continues to fluctuate and is expected to remain at a high level in the second half of this year. In addition, payments and orders have been delayed, causing the average age of KWH's receivables to increase from 192 days in 2004 to 239 days in the first quarter of 2005. In addition, the value of inventory also more than doubled from only Bt132 million in 2003 to Bt293 million in 2004 and Bt346 million in the first quarter of 2005. The higher inventory value was due to the increased raw material price, increased stock of HDPE resin and delayed delivery of its finished goods. Increasing use of short-term debts to finance working capital raises a major concern. -- End
Wiik & Hoeglund PLC (KWH) Company Rating: Downgraded to "BBB" from "A-" Rating Outlook: Stable
TRIS Rating reported that the sharp reduction in KWH's profit margin was due to the increasing price of the company's raw material and fixed overhead expenses per unit of production. An expansion of KWH's plant during the low production period caused its fixed overhead costs per unit to increase more than 50%. The limited ability to pass on the increasing costs to its customers, due to intense competition in both domestic and export markets, depressed the profit margin of its significantly more than expected. The increasing raw material cost coupled with delayed payments from its customers caused KWH to sharply increase the short-term borrowing used to finance working capital. KWH's debt to capitalization ratio increased from 39% in 2003 to 58% in the first quarter of 2005. Though these negative factors have negatively impacted its performance, KWH has been able to maintain its leading position in the HDPE pipe market with a market share of 50%-60% in 2004. In addition, the company continues to receive strong technical and financial support from its major shareholder, KWH Pipe Ltd. of Finland. This helps partly mitigate the risks faced by the company.
TRIS Rating said that sales volume of 3,493 tonnes in the first five months of 2005 continued to disappoint, as that level was equal to only 28% and 22% of total sales volume in 2004 and 2003, respectively. The price of its major raw material, HDPE resin, continues to fluctuate and is expected to remain at a high level in the second half of this year. In addition, payments and orders have been delayed, causing the average age of KWH's receivables to increase from 192 days in 2004 to 239 days in the first quarter of 2005. In addition, the value of inventory also more than doubled from only Bt132 million in 2003 to Bt293 million in 2004 and Bt346 million in the first quarter of 2005. The higher inventory value was due to the increased raw material price, increased stock of HDPE resin and delayed delivery of its finished goods. Increasing use of short-term debts to finance working capital raises a major concern. -- End
Wiik & Hoeglund PLC (KWH) Company Rating: Downgraded to "BBB" from "A-" Rating Outlook: Stable