TRIS Rating Co., Ltd. has announced an affirmation to the company rating of Mitr Phol Sugar Corporation Ltd. (MPSC) and the ratings of MPSC’s senior secured debentures at “A” with “stable” outlook. The ratings reflect the company’s proven record in the Thai sugar and sugarcane industry, its leading position as the second largest sugar producer in China, a well-accepted brand name, efficient sugar mill operations, and diversification into related businesses. The ratings also take into consideration the company’s exposure to regulatory and operational risks of overseas sugar operations, as well as the volatility of sugar prices and sugarcane supply.
The “stable” outlook reflects TRIS Rating’s expectation that the MPSC Group will maintain its leading position in both the Thai and Chinese sugar industries. With a solid position in the sugar business and reliable cash flow from the energy business, the company should be able to weather the wide fluctuations in global sugar prices and declining demand for sugar-related products.
TRIS Rating reported that MPSC, established in 1946 by the Vongkusolkit family, is the leader in the Thai sugar and sugarcane industry. Currently, the Vongkusolkit family collectively holds 100% of the company’s shares through Mid-Siam Sugar Co., Ltd. MPSC operates a total of five sugar mills, with a combined cane crushing capacity of 119,000 tonnes of cane per day. For the 2007/2008 production period, sugar production across the MPSC Group was 1.5 million tonnes, up by 13% from the previous year, which was slightly less than the 16% average growth of the industry. However, the MPSC Group has maintained the largest market share of sugarcane in Thailand at 18.3%, followed by Thai Roong Ruang Group (17.0%), Thai Ekkalak Group (12.8%), and KSL Group (7.8%). The MPSC Group’s crushing yield of 109.34 kilograms (kg.) per cane tonne remained better than the industry average of 106.63 kg.
Apart from the sugar business in Thailand, MPSC currently owns and operates seven sugar mills in China with total sugar production of 1.2 million tonnes for the 2007/2008 period. The company had an 8% market share in the 2007/2008 period, making it the second largest sugar producer in China. The crushing yield in China was 123.5 kg. per cane tonne in the 2007/2008 period, which was higher than sugar yields in Thailand. Revenue from the sugar business in China accounted for 41.3% of total sales of Bt32,845 million in 2007, and contributed 45.3% of MPSC’s total earnings before interest, tax, depreciation and amortization (EBITDA) of Bt7,077 million. Due to the oversupply of sugarcane in China, the sugar price dropped sharply from RMB4,436 per tonne in the 2005/2006 period to RMB2,802 per tonne in August 2008. The gross profit margin in China decreased from a peak of 38.5% in 2006 to 30.3% in 2007 and to 24.8% for the first nine months of 2008. EBITDA from the sugar business in China for the first nine months of 2008 decreased by 15% from the same period in 2007 to Bt2,299 million.
MPSC’s sugar mill in Lao PDR started operation in December 2008 with an initial cane crushing capacity of 5,000 tonnes of cane per day for the 2008/2009 period. The company started its sugarcane plantation in Lao PDR in 2006. MPSC plans to sell raw sugar produced in Lao PDR at higher prices to the European Union (EU) under the Everything But Arms (EBA) scheme in 2009. MPSC also received land concessions for its sugar business in Cambodia and began sugarcane plantation in early 2008.
MPSC has expanded along the sugar value chain to maximize the utilization of sugarcane in both Thailand and China. These businesses include electricity generation, ethanol production, particle board, and paper production. The ethanol plants in Thailand have a current production capacity of 400,000 liters per day. The EBITDA from the ethanol business increased from Bt642 million in 2007 to Bt1,139 million for the first nine months of 2008, as a result of a doubling of production capacity and improved demand for ethanol. Revenue from the company’s electricity generation, ethanol production and particle board production accounted for 14.1% of total sales for the first nine months of 2008.
MPSC’s financial performance has been satisfactory. For the first nine months of 2008, total sales were Bt30,020 million, up by 15.6% from the same period in 2007, due mainly to the increased sales from the sugar and ethanol businesses. The total debt to capitalization ratio improved from 54.18% in 2006 to 46.87% in 2007, but increased to 55.45% as of July 2008, partly due to working capital seasonality requirements and expansions in both China and Lao PDR. The operating income before depreciation and amortization to sales ratio declined from 25.23% in 2006 to 21.55% in 2007 and to 17.74% for the first nine months of 2008, mainly due to the decrease in the sugar prices in China.
In China, due to the government’s policy to promote sugarcane plantations, and favorable weather conditions, sugar produced from cane increased from 11.5 million tonnes in the 2006/2007 period to 14.6 million tonnes in the 2007/2008 period. Coupled with lower-than-expected GDP growth in China, the sugar price in China is expected to remain under pressure in the coming year. — End
Company Rating: Affirmed at A Issue Ratings: MPSC09OA: Bt500 million senior secured debentures due 2009 Affirmed at A MPSC09OB: Bt500 million senior secured debentures due 2009 Affirmed at A MPSC10OA: Bt500 million senior secured debentures due 2010 Affirmed at A MPSC11OA: Bt500 million senior secured debentures due 2011 Affirmed at A MPSC12OA: Bt500 million senior secured debentures due 2012 Affirmed at A Rating Outlook: Stable
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