TRIS Rating Co., Ltd. has affirmed 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 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 the regulatory and operational risks of its 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.
TRIS Rating reported that MPSC was established in 1946 by the Vongkusolkit family and is the leader in the Thai sugar and sugarcane industry. 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 in Thailand, with a combined cane crushing capacity of 130,500 tonnes of cane per day. For the 2008/2009 production period, sugar production across the MPSC Group in Thailand was 1.3 million tonnes, down by 11.33% from the previous year, compared with a drop of 8.06% for the industry. The MPSC Group has maintained the largest market share of sugarcane in Thailand at 17.95%, followed by the Thai Roong Ruang Group (17.65%), Thai Ekkalak Group (14.45%), and KSL Group (6.74%).
TRIS Rating said, apart from the sugar business in Thailand, MPSC currently owns and operates seven sugar mills in China with total sugar production of 1.11 million tonnes for the 2008/2009 period. The company had an 8.85% market share in the 2008/2009 period, making it the second largest sugar producer in China. The crushing yield in China was 128.93 kilograms (kg.) per cane tonne in the 2008/2009 period, which was higher than the crushing yield in Thailand of 109.24 kg. Total sales were Bt35,989 million for the first nine months of 2009 with revenue from the sugar business in China accounting for 42.56%. MPSC’s total earnings before interest, tax, depreciation and amortization (EBITDA) were Bt5,871 million for the first nine months of 2009. The China operations contributed 45.91% of total EBITDA. Due to the oversupply of sugarcane in China in 2008, the sugar price dropped sharply to a low of RMB2,746 per tonne in October 2008. The price gradually recovered to an average of RMB3,586 per tonne for the 2008/2009 period, after the supply decreased both in China and in other countries. However, the gross profit margin in China decreased from a peak of 38.5% in 2006 to 22.8% for the first nine months of 2009.
MPSC’s sugar mill in Lao PDR started operation in December 2008 and produced 22,940 tonnes of raw sugar for the 2008/2009 period. In May 2009, MPSC successfully exported the first shipment of raw sugar produced in Lao PDR to the European Union (EU) at an average price of EUR448.80 per tonne.
MPSC has expanded along the sugar value chain to maximize the utilization of sugarcane in both Thailand and China. Related businesses include electricity generation, ethanol production, particle board, and paper production. MPSC’s ethanol plants in Thailand have a current production capacity of 600,000 liters per day, up by 50% from the previous year, after the opening of the latest plant in Dan Chang, Suphanburi, in December 2009. The EBITDA from the ethanol business increased from Bt642 million in 2007 to Bt1,662 million in 2008, and to Bt1,547 million for the first nine months of 2009, as a result of an increase in production capacity and higher market prices.
TRIS Rating said that MPSC’s financial performance has been satisfactory. For the first nine months of 2009, total sales were Bt35,989 million, up by 19.88% from the same period in 2008, due mainly to the higher prices of sugar and ethanol. The operating income before depreciation and amortization to sales ratio slightly improved from 16.11% in 2008 to 16.75% for the first nine months of 2009, mainly due to the recovery of sugar prices in China. During 2010-2011, capital expenditures for new projects will be approximately Bt5,000 million to expand the sugar refinery in China and build new power plants in Thailand and China. The company plans to fund these expansions by using a combination of cash flow from operations and new borrowings. The total debt to capitalization ratio is expected to be maintained close to the current level of 54.45% as of July 2009.
Global sugarcane production volume has been very volatile, depending on the weather and cane prices relative to competing products. The global sugar supply has declined recently due to lower sugar production in India and other countries. As a result, the world raw sugar price rose sharply from 12.99 cents/pound (lb) in December 2008 to 22.96 cents/lb in November 2009. Sugar prices are expected to hold at this high level for the 2009/2010 period, said TRIS Rating. -- End
Company Rating: Affirmed at A Issue Ratings: 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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