MPSC was established in 1946 by the Vongkusolkit family. The Vongkusolkit family collectively holds 100% of the company’s shares through Mid-Siam Sugar Co., Ltd. MPSC owns and operates sugar mills in Thailand, China, the Lao PDR, and Australia. For 2013/2014 season, MPSC produced sugar totally 4.08 million tonnes.
MPSC has long been the leader in the Thai sugar and sugarcane industry. In the 2013/2014 growing season, MPSC’s six sugar mills in Thailand produced 2.3 million tonnes of sugar, earning MPSC the highest market share (20.3%) in the industry, based on production volume. In China, MPSC currently owns and operates seven sugar mills, which collectively produced 1.17 million tonnes of sugar in the 2013/2014 season. The company remained the second-largest sugar producer in China, with an 8.7% market share. MPSC’s sugar mill in the Lao PDR produced 0.04 million tonnes of sugar in the 2013/2014 season while its sugar mill in Australia, MSF Sugar (MSF), produced 0.56 million tonnes. MPSC also has one sugar project in Cambodia, which was suspended a few years ago. In October 2014, MPSC decided to terminate the project. MPSC is expected to write down its investment of about Bt200-Bt300 million.
The sugar segment contributed the highest portion of MPSC’s revenues. In 2013, MPSC’s total sales were Bt84,331 million. The sugar segment accounted for 81% of MPSC’s revenues. Sugar production in Thailand comprised 41% of total revenues while sugar production in China made up 33%. The operations in the Lao PDR and Australia made marginal contributions to MPSC’s earnings.
Apart from producing sugar, MPSC has expanded along the sugar value chain to maximize the utilization of sugarcane. MPSC’s related businesses include generating electricity as well as producing ethanol and wood substitute materials and paper. MPSC has gradually expanded production capacity of ethanol and electricity. On September 2014, MPSC’s ethanol plants had production capacity of 960,000 liters per day. MPSC also owns electricity generating plants with a combined capacity of 442.8 megawatts (MW). In the first nine months of 2014, power and ethanol segment contributed about 15% of MPSC’s revenues. By 2020, MPSC aims to increase electricity generating capacity from alternative fuels to 200 MW, on top of 100 MW from bagasse fuel, which is currently under development.
Sugar prices worldwide continued to dive in 2014. Worldwide sugar supply exceeded demand for the fourth consecutive year. According to the United States Department of Agricultural (USDA), the price of raw sugar further slid to an average price of 16.34 cents per pound in 2014, a 6.4% year-on-year
(y-o-y) decline. Despite falling sugar prices, MPSC’s revenue was satisfactory in the first nine months of 2014. Total revenue grew by 4.5% y-o-y to Bt71,489 million during the first nine months of 2014. The growth was mainly driven by the 25.2% y-o-y higher sales volumes of sugar in Thailand and Australia and a 31.2% rise in the combined sales of the ethanol and power segments. These factors offset in part a 21.7% drop in revenue of MPSC’s sugar operations in China. However, the profitability of the sugar operations has weakened because sugar prices have continued to fall. In addition, MPSC’s sugar operations in China suffered because of the relatively high cost of cane set by the Chinese government. The cane price is set in order to stabilize cane growers’ benefit. MPSC’s ratio of operating income before depreciation and amortization to sales, including gains from the futures contracts, declined to 15.8% in the first nine months of 2014, compared with 17.9% in the same period last year. Earnings before interest, tax, depreciation, and amortization (EBITDA) was relatively flat at Bt13,133 million in the first nine months of 2014, compared with Bt13,177 million in the same period last year. The strong demand for ethanol in Thailand and rising revenue in the power segment units shored up profits while sugar prices remained low. The higher dividend income was also another factor to buttress EBITDA. MPSC’s EBITDA interest coverage ratio remained satisfactory during the industry down cycle. In 2013 and the first nine months of 2014, the ratio fell modestly to 7.0 times, compared with 8.8-9.2 times in 2010 and 2012, two years with normal operations. The fund from operations (FFO) to total debt ratio remained acceptable at 20.5% (annualized from the trailing 12 months) in the first nine months of 2014. MPSC’s financial leverage was moderate. The total debt to capitalization ratio increased to 51.7% as of September 2014, from 48.7% as of September 2013 because MPSC issued debentures worth Bt6,100 million in September 2014. MPSC has planned to spend capital expenditures about Bt6,000 million per year during 2015 through 2016. This level is lower than in the recent past. MPSC spent approximately Bt10,000-Bt20,000 million per annum during 2011-2013. MPSC’s financial performances will stay soft as long as the current sugar industry downturn continues. However, MPSC is expected to maintain its financial leverage and cash flow protection at an acceptable level, given the moderate level of capital expenditures planned for the next two years.
For 2014/2015 season, sugarcane production in Thailand was estimated to be around 95-100 million tonnes, down from 103.7 million tonnes in the 2013/2014 season. The sugar yield is expected to decline due to drought and unfavorable weather. Sugar prices are expected to remain low for the next 12 months because sugar inventories remain high around the world. For the 2014/2015 growing season, the USDA forecasted that worldwide production would decline to 172.5 million tonnes from 175.0 million tonnes in 2013/2014. Production would decrease in Brazil, China, and Thailand. Global consumption is forecasted to rise by 2.2% to 171.0 million tonnes, driven by growing demand in China and India. The USDA projected the ending stock would shrink marginally after piling up for four years. However, abundant sugar inventories worldwide, which were estimated at about 43.6 million tonnes for 2013/2014, will keep sugar prices low for the foreseeable future.
Mitr Phol Sugar Corporation Ltd. (MPSC)
Company Rating: A+
Issue Ratings:
MPSC155B: Bt500 million senior unsecured debentures due 2015 A+
MPSC156A: Bt600 million senior unsecured debentures due 2015 A+
MPSC15OA: Bt1,000 million senior unsecured debentures due 2015 A+
MPSC165A: Bt600 million senior unsecured debentures due 2016 A+
MPSC16OA: Bt1,000 million senior unsecured debentures due 2016 A+
MPSC16OB: Bt3,500 million senior unsecured debentures due 2016 A+
MPSC175A: Bt600 million senior unsecured debentures due 2017 A+
MPSC185A: Bt700 million senior unsecured debentures due 2018 A+
MPSC18OA: Bt2,150 million senior unsecured debentures due 2018 A+
MPSC199A: Bt900 million senior unsecured debentures due 2019 A+
MPSC20OA: Bt1,000 million senior unsecured debentures due 2020 A+
MPSC20OB: Bt1,850 million senior unsecured debentures due 2020 A+
MPSC219A: Bt2,000 million senior unsecured debentures due 2021 A+
MPSC21OA: Bt2,000 million senior unsecured debentures due 2021 A+
MPSC22OA: Bt2,000 million senior unsecured debentures due 2022 A+
MPSC233A: Bt2,500 million senior unsecured debentures due 2023 A+
MPSC249A: Bt3,200 million senior unsecured debentures due 2024 A+
MPSC256A: Bt2,400 million senior unsecured debentures due 2025 A+
Rating Outlook: Stable