Bangkok--8 Oct--TRIS Rating
TRIS Rating Co., Ltd. has assigned the rating of “A+” to the proposed issue of up to Bt4,000 million in senior debentures to Thai Union Frozen Products PLC (TUF). At the same time, TRIS Rating has affirmed the current company and issue ratings of TUF at “A+”. The rating outlook remains “stable”. The ratings reflect TUF’s strong market position as one of the world’s leading tuna processors, its product and geographic diversity, and solid valuable “Chicken of the Sea” canned tuna brand. The ratings also take into consideration the management team’s proven track record in the seafood export business and conservative business expansion policy. These factors are partially offset by the economic slowdowns in major import countries, maturity of the canned tuna industry in the US, high exposure to tuna price fluctuations, and threats from manufacturers in low-cost countries, as well as the implementation of import trade barriers by major trading countries, Thai baht fluctuations, and exposure to changes in consumer dietary habits.
The “stable” outlook reflects TRIS Rating’s view that TUF will continue to maintain its competitive strength through economies of scale and production efficiency, expand business operations in a conservative manner, and improve its financial profile in the intermediate term.
TRIS Rating reported that TUF is Thailand’s leading processor and exporter of canned and frozen seafood products with 2007 total sales of Bt55,507 million. As of June 2008, TUF’s canned tuna production capacity was 309,000 tonnes per annum, making it one of the top tuna processors in the world. Its supply chain value has been strengthened through the integration of packaging and distribution networks. The company product portfolio is highly diverse. For the first half of 2008, canned tuna generated the largest revenue, about 50% of total sales, followed by frozen shrimp at 18%, canned seafood at 8%, and canned pet food at 8%. The company primarily exports to the US (51%), Europe (13%), and Japan (9%).
Management has over two decades of experience in the seafood processing industry. The company has a solid position in canned tuna, “Chicken of the Sea”, as the third-largest brand of canned tuna in the US. The full acquisition of the brand in 2001 enhanced TUF’s business profile and almost doubled its revenue base. The brand strength also enables the company to capitalize on and introduce premium, value-added seafood products. Although the company’s historical performance has been quite stable, various uncontrollable factors, including foreign exchange rates, climate change, and trade policies implemented by foreign governments, stand as threats to its operating performance. TUF’s final anti-dumping (AD) rate announced by the US Department of Commerce in August 2008 was encouraging. The new rate was set at 2.85%, lower than preliminary rate at 15.3% and average rate for Thai exporters at 3.18%. This ensures a continuing competitive strength in the company’s shrimp export to the US. TUF’s shrimp export to the US accounts for about 7% of its total revenues.
TRIS Rating said, TUF’s financial profile weakened slightly. Record high tuna prices have exerted significant pressures on the company’s operating margins and cash flow generations. In the first half of 2008, TUF’s operating margin was 5.3%, dropped from 5.9% in 2007. Debt to capitalization ratio as of June 2008 was 47.0%, compared with 49.2% in 2007 and 39.9% in 2006. The ratio is expected to increase slightly from the new bond issuance, part of the proceeds will be used to replace short-term financing. Liquidity remains acceptable despite slightly weakened. Earnings before interest, tax, depreciation, and amortization (EBITDA) interest coverage for the first half of 2008 was 7.3 times, up from 6.3 times in 2007. TRIS Rating expects that TUF’s financial performance will continue to be under pressures from tuna price spikes, higher energy costs, and baht fluctuations over the intermediate term. TUF’s margin has reached the point where it does not have much cushion left for further leverage increases without weakening its credit profile. Current global economic turmoil places TUF in an increasingly difficult market environment in terms of dampened household spending, tighter short-term financing and greater volatility of Thai baht. However, the company’s cash flow is not expected to be severely impacted given a broad diversification and inexpensive product offerings.
Thai Union Frozen Products PLC (TUF)
Company Rating: Affirmed at A+
Issue Ratings:
TUF116A: Bt3,200 million senior debentures due 2011 Affirmed at A+
Up to Bt4,000 million senior debentures due within 2013 A+
Rating Outlook: Stable