TRIS Rating Co., Ltd. has affirmed the company rating of Khon Kaen Sugar Industry PLC (KSL) and the ratings of KSL’s senior debentures at “A-” with “stable” outlook. The ratings reflect the company’s long track record in the Thai sugar and sugarcane industry, diversification into sugar-related businesses, and efficient sugar mill operations. The ratings also take into consideration the company’s business expansion, regulatory and operational risks of sugar operations in Laos and Cambodia, and the volatility of sugarcane supply and sugar prices.
The “stable” outlook reflects TRIS Rating’s expectation that KSL will maintain its market position in the Thai sugar industry. The recent drop in profitability as a result of the losses from derivatives is expected to be an unusual event in FY2010 only. Sugarcane plantations and sugar mills in Laos and Cambodia are expected to break even in FY2012, while the new sugar complex in Bo Ploy should strengthen KSL’s sugarcane procurement ability once it starts operations. The company is expected to maintain a healthy financial position to accommodate higher business risk from foreign operations. T
RIS Rating reported that KSL is one of the leading sugar producers in Thailand, established in 1945 by the Chinthammit family and associates. Currently, the Chinthammit family collectively holds 67.9% of the company’s shares. The company owns and operates four sugar plants in Khon Kaen, Kanchanaburi, and Chonburi provinces, with a combined cane crushing capacity of 64,000 cane tonnes per day. During the last five years, the KSL Group has been able to procure 4-5 million tonnes of sugarcane per year and produce an average of 500,000 tonnes of sugar per year. For the 2009/2010 production period, the KSL Group has maintained the fourth largest share (6.32%) of sugar production in Thailand, following the Mitr Phol Group (18.57%), the Thai Roong Ruang Group (17.90%), and the Thai Ekkalak Group (13.93%). The company’s crushing yield for the 2009/2010 growing season, based on standard sugarcane, was 93.97 kilograms (kg.) per cane tonne, better than the industry average of 91.20 kg. T
RIS Rating said, since 2006, KSL has expanded along the sugar value chain to maximize the utilization of sugarcane. The related businesses include electricity generation and ethanol production. During the fiscal years (FY) 2007-2009, revenue from the energy business (ethanol and electricity) accounted for an average of 10% of total sales, while the energy business contributed an average of 29% of total net profit. KSL’s new sugar plants in Laos and Cambodia have already started commercial production in the 2009/2010 production period. Sugarcane procurement for both plants was approximately 102,000 tonnes, lower than expectations due to the lack of skilled labor and difficulties in farm management. All raw sugar produced from these two plants is exported to the European Union (EU) under the EBA (Everything But Arms) scheme. KSL expects these two plants to break even in the 2011/2012 period.
In order to strengthen its sugarcane procurement ability, KSL is relocating and then expanding a new sugar complex in Bo Ploy, Kanchanaburi province, with a budget of Bt7,250 million. The new sugar complex consists of a sugar plant, an ethanol plant, and a power plant. The first phase of the project is scheduled to start in the 2010/2011 season and the second phase in the 2011/2012 season.
In FY2009 (November 2008-October 2009), KSL’s total sales were Bt11,517 million, up by 6.96% from FY2008, due mainly to higher prices of sugar and ethanol. The operating income before depreciation and amortization to sales ratio remained relatively stable, ranging from 13%-17% during the last five years, due partly to the revenue sharing system of Thailand’s sugar and sugarcane industry. For the first six months of FY2010, ending April 2010, total sales grew by 16.34% from the same period in the previous year to Bt6,466 million, as the sugar price increased sharply. However, KSL’s net profit dropped to Bt303 million, down by 56.49% from the same period in the previous year. The sharp decline was due to losses from derivatives, high raw material costs from lower than expected sugarcane supply, the one-year delay of the Bo Ploy project, and the operational losses from the sugar businesses in Laos and Cambodia. As of April 2010, total debt increased to Bt13,308 million and the total debt to capitalization ratio was relatively high at 56.32%, due to the investments in the new sugar complex and the seasonal working capital requirements during the sugarcane crushing period. The leverage ratio is expected to improve after the new sugar complex in Bo Ploy is completed.
Sugarcane production and sugar prices are typically volatile and far from prediction. Sugarcane production in Thailand for the 2009/2010 season was 68.5 million tonnes, 8.67% lower than the initial estimate of 75 million tonnes. The world sugar price has been rising during the last several years. However, the price was very volatile in 2010, declining sharply from a peak of 28.94 cents/pound (lb) in January 2010 to 18.07 cents/lb in May 2010. The price has currently rebounded to 25.29 cents/lb in August 2010, said TRIS Rating. -- End
Company Rating: Affirmed at A- Issue Ratings: KSL10NA: Bt1,000 million senior debentures due 2010 Affirmed at A- KSL11NA: Bt780 million senior debentures due 2011 Affirmed at A- KSL12NA: Bt500 million senior debentures due 2012 Affirmed at A- Rating Outlook: Stable
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