TRIS Rating Co., Ltd. has affirmed the company rating of "BBB" to Advance Agro PLC (AA) with "stable" outlook. The rating reflects the company's strong position as the leading short fiber pulp and printing & writing paper (P&W paper) producer in Thailand and its fully integrated and efficient plant facility. The rating also takes into consideration increasing demand for pulp and paper in both the domestic and export markets. However, these strengths are partially offset by the company's ongoing high financial leverage, inherent price volatility in the pulp and paper industry, and AA's limited product line compared with its major competitor.
While the "stable" outlook reflects the expectations that AA would be able to improve its financial status as a result of improving operating performance largely from favorable pulp and paper demand worldwide. The outlook also assumes that the company will use its cash surplus mainly to pay outstanding debt obligations. Any large investments that might cause the financial profile of the company to deteriorate would result in a rating or outlook revision.
TRIS Rating reported that in terms of capacity, AA is the largest pulp and P&W paper producer in Thailand. The company and its subsidiaries own two pulp mills, with total production capacity of around 500,000 tonnes per year (tpy), and three paper machines that provide total capacity of around 564,000 tpy. The company has a 29% share in the domestic P&W paper market, ranked second behind Thai Paper Co., Ltd. The company is the largest exporter of short-fiber pulp in Thailand, exporting around 125,386 tonnes of pulp in 2004 and 49,228 tonnes in the first half of 2005. In 2004, 78% of AA's total revenue came from the paper business, while 16% came from the pulp business and the rest was from selling electricity.
TRIS Rating said, at the end of June 2005, AA's outstanding debt was Bt16,925 million, a marginal increase from Bt16,262 million in December 2004, but sharply lower than the 2003 level of Bt19,144 million. Although AA's debt to capitalization ratio as of June 2005 improved to 62.8% from 71.2% in 2003 and 63.7% in 2004, its financial leverage is considered high. The large debt reduction in 2004, coupled with the improving operating performance, caused AA's funds from operations to total debt ratio to increase from only 9.8% in 2003 to 17.25% in 2004. However, as short term debt increased to Bt3,866 million in the first half of 2005 from Bt1,786 million at the end of 2004, AA's funds from operations to total debt ratio remained at the 2004 level and is a major concern for TRIS Rating.
Domestic demand for pulp has grown continuously, even during the crisis in 1997. However, demand for P&W paper briefly declined during 1997-1998 from 425,000 tonnes in 1996 to 397,000 tonnes in 1997 and 356,000 tonnes in 1998 before picking up in 1999 and steadily increasing thereafter. The average annual growth rates of demand for pulp and P&W paper during 1999-2004 were 5.8% and 12.2%, respectively. International demand has also increased during the past few years, due mainly to increasing demand from China, TRIS Rating said. - End
Advance Agro PLC (AA) Company Rating: Affirmed at BBB Rating Outlook: Stable