The “stable” outlook reflects TRIS Rating’s expectation that MPSC will maintain its leading position in both the Thai and Chinese sugar industries. The revenue sharing arrangement established for the Thai sugar industry and MPSC’s diversified source of income will help MPSC weather the current period of low sugar prices. The downside factor for MPSC’s ratings is a prolonged fall in sugar prices and operating margin. Any large, debt-funded investments that would weaken the debt to capitalization ratio for an extended period, is also a negative factor for MPSC’s credit ratings. The credit upside for MPSC’s rating is limited as long as sugar prices remain low.
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 growing season, MPSC produced sugar 4.08 million tonnes across all its locations.
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 owns and operates seven sugar mills, which produced 1.17 million tonnes of sugar in the 2013/2014 season. The company remains 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.
In 2014, MPSC’s total sales were Bt89,378 million. The sugar segment accounted for 80% of MPSC’s revenues. Sugar production in Thailand comprised 44% of total revenues while sugar production in China made up 29%. The operations in the Lao PDR and Australia contributed 7% of total revenues.
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 a wood substitute material and paper. MPSC has gradually expanded production capacities for ethanol and electricity. At the end of 2014, MPSC’s ethanol plants had a production capacity of 974,500 liters per day. MPSC’s electricity generating plants have a combined capacity of 442.8 megawatts (MW). In 2014, power and ethanol segment contributed about 15% of MPSC’s revenues. MPSC is planning to develop more bagasse-fired power plants during 2015-2016. The new plants will add 126 MW of power generating capacity to MPSC’s power segment. In addition, by 2020, MPSC aims to have 200 MW of new electricity generating capacity from alternative fuels.
Sugar prices worldwide continued to dive in 2014. Worldwide, sugar supply exceeded demand for the fourth consecutive year. Despite more than 10% drop in sugar prices, MPSC’s revenue was satisfactory in 2014. Total revenue grew by 6.0% from 2013 to Bt89,378 million in 2014. The growth in revenue was mainly driven by a 12.3% rise in the volume of sugar sold in Thailand and a 25.5% rise in sales of the ethanol and power segment. However, the profitability of the sugar operations declined because sugar prices have continued to fall. In addition, MPSC’s sugar operations in China suffered because the Chinese government set the cost of cane relatively high in a bid to help cane growers and stabilize the prices paid to growers. MPSC’s ratio of operating income before depreciation and amortization to sales, including gains from its futures contracts, declined to 14.5% in 2014, compared with 16.8% in 2013. Earnings before interest, tax, depreciation, and amortization (EBITDA) declined by 4.0% to Bt14,803 million in 2014, compared with Bt15,424 million in 2013. The strong demand for ethanol in Thailand and rising revenue in power segment shored up profits even though sugar prices remained low. During the first quarter of 2015, MPSC’s earnings remained satisfactory. Revenues grew by 3.1% year-on-year (y-o-y) to Bt22,515 million. EBITDA was Bt7,027 million, a 14.9% increase over the same period of the prior year. MPSC’s EBITDA interest coverage ratio was acceptable during the down cycle of the industry. In 2014, the ratio declined to 6.0 times, compared with 6.7 times in 2013. The funds from operations (FFO) to total debt ratio remained adequate at 19.1% in 2014 and 18.5% (annualized with trailing 12 months) in the first quarter of 2015. MPSC’s financial leverage was moderate. The total debt to capitalization ratio increased to 51.0% as of December 2014, from 49.0% as of December 2013. MPSC plans capital expenditures of about Bt6,000-Bt8,000 million per year during 2015 and 2016. MPSC’s financial performances will stay soft as long as the current sugar industry downturn continues. EBITDA is expected to be about Bt13,000-Bt15,000 million per year. MPSC’s cash flow from operation is sufficient to fund its planned capital expenditures and pay an annual dividend. As a result, MPSC’s financial leverage and cash flow protection are projected to remain at an acceptable level.
For the 2014/2015 season, sugarcane production in Thailand remained healthy at 106.0 million tonnes, a historical record high due to increasing plantation area. Sugar yield declined to 106.66 kilograms (kg.) per tonne cane, compared with 109.32 kg. per tonne cane in the prior year. As a result, total sugar production in Thailand was at 10.33 million tonnes, closed to 2013/2014 level. However, sugar industry remains under pressure because of low sugar price. Raw sugar prices worldwide continued to plunge in 2015, sliding by 15% during the first four months of 2015 to 13.84 cents per pound, compared with an average price of 16.34 cents per pound in 2014. The abundant sugar inventories worldwide kept the pressure on sugar prices. In addition, the value of Brazilian real has depreciated significantly against the US dollar. Brazil is the largest exporter of sugar worldwide. However, MPSC will be partly protected from the sugar industry downturn because of its diversification. The china operation is expected to rebound from the low level in 2014. The drought in China has raised domestic sugar prices by about 10%, compared with the average selling price in 2014. The cost of cane in China fell by 9% to RMB400 per tonne as announced by the Chinese government. MPSC’s power segment and ethanol segment are expected to provide healthy earnings. The Thai government policy to promote the usage of alternative energy in Thailand helps support the ethanol demand.
Mitr Phol Sugar Corporation Ltd. (MPSC)
Company Rating: A+
Issue Ratings:
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+
Up to RMB126 million senior unsecured debentures due within 2018 A+
Rating Outlook: Stable