KSL was established in 1945 by the Chinthammit family and associates. Currently, the Chinthammit family collectively holds 70.0% of the company’s shares. The company owns and operates five sugar plants in Thailand, with a combined cane crushing capacity of 102,000 cane tonnes per day. The KSL Group procured 7.7 million tonnes of sugarcane in the 2012/2013 growing season and produced 738,952 tonnes of sugar. The quantity of sugar that KSL produced ranked it fourth in the Thailand’s industry. KSL has a market share of 7.4% based on production volume, trailing the Mitr Phol Group (19.9%), the Thai Roong Ruang Group (16.3%), and the Thai Ekkalak Group (9.3%).
Since 2006, KSL has expanded along the sugar value chain to maximize the utilization of sugarcane. Revenues and the earnings before interest, tax, depreciation and amortization (EBITDA) from power and ethanol rose gradually during fiscal year (FY) 2007-FY2013. In FY2013, KSL’s revenue from the energy segment (ethanol and electricity) accounted for 17% of total sales. EBITDA from the energy segment comprised around 40% of total EBITDA during the same period. Sugar operation in the Laos PDR and Cambodia are currently small, compared with the size of its sugar operations in Thailand. KSL’s plants in these two nations produced only 35,000 tonnes of sugar during the 2012/2013 growing season, representing less than 5% of the amount of sugar KSL produces in its Thai factories. The sugar operations in the Laos PDR and Cambodia generated a combined net loss of Bt58 million in 2012/2013 season.
KSL’s financial performance for FY 2013 was under the pressure of falling sugar price and higher cost. Total revenue dropped by 15% to Bt18,941 million in FY2013, from Bt22,212 million in FY2012. Sales volume fell by 9.1% and the selling price of sugar fell by 11%. However, revenue in energy segment partly helped alleviate the drop in sugar business. Sales of ethanol jumped by 196.2% to Bt1,961 million and power sales rose by 19.7% to Bt1,029 million. EBITDA for FY2013 declined by 25.8% to Bt3,399 million, compared with a record high of EBITDA of Bt4,580 million in FY2012. KSL’s operating profit margin before depreciation and amortization contracted to 13.8% in FY2013 from 18.4% in FY2012 due to falling sugar prices. In addition, KSL’s cost of sugar rose abnormally because KSL’s crushing yield for FY2013 dropped more than the industry average on the back of mechanical problem of its sugar plant.
For the first three months of FY2014 (November 2013-January 2014), KSL’s operating profit margin climbed to 25.0% of the total sales, compared with 14.8% of the total sales for the same period of FY2013. The improvements in margin came from the lower cost of sugar production because of improved crushing yield while the average selling prices of sugar was relatively flat compared to the same period of prior year. In addition, ethanol segment, which made of 16% of total revenues in the first quarter of FY2014, contributed higher margin. Strong demand for gasohol drove the selling prices of ethanol notably higher. The reference prices of ethanol in Thailand during October 2013 to January 2014 jumped to Bt27.40 per litre, compared to an average reference price of Bt21.77 per litre during the same period of the prior year. The rising profitability drove EBITDA in the first quarter of 2014, increasing by 21.9% over the same period of the prior year to Bt986 million despite a 17% drop in total revenues.
KSL’s financial leverage was moderately high with a debt to capitalization ratio of 57.3% on 31 October 2013, the end of FY2013. The total debt to capitalization ratio rose in FY 2013 because of investments in an office building, expansion of cane crushing capacity, and more funding for working capital needs. The total debt to capitalization has continued to rise, climbing to 60.3% at the end ofJanuary 2014 due to high working capital funding during the production period. However, the EBITDA interest coverage ratio was considered satisfactory at 5.2 times in FY2013 and 5.4 times in the first quarter of FY2014. In FY2014, sugar business remains under pressure of low sugar prices. However, the healthy performance of energy segment and normal cost of sugar production from efficient crushing yield would support EBITDA of KSL to be approximately Bt3,500 million per year. KSL plans to spend about Bt2,500 million in FY2014 for ongoing and maintenance capital expenditures. With such modest capital expenditures, the company’s leverage is expected to improve gradually in the coming years.
Global sugarcane production volumes and sugar prices are both very volatile. For the 2013/2014 growing season, sugarcane production in Thailand totaled 102.8 million tonnes through mid April 2014. Sugarcane in Thailand was projected to reach 105 million tonnes at the end of production period for the crop year 2013/2014, increasing from 100 million tonnes in the 2012/2013 crop year. The current crushing yield is 109.2 kilograms per tonne cane, compared with 100.2 kilogram per tonne cane in 2012/2013 crop year. After falling to 14-15 cents per pound, the world price for raw sugar gradually recovered to 17-18 cents per pound because of the drought in Brazil, the world biggest sugar producer.
Khon Kaen Sugar Industry PLC (KSL)
Company Rating: A
Issue Ratings:
KSL14DA: Bt1,500 million senior debentures due 2014 A
KSL15DA: Bt1,000 million senior debentures due 2015 A
Up to Bt1,000 million senior debentures due within 2017 A
Rating Outlook: Stable