TRIS Rating has assigned the company rating to Saha Pathana Inter-Holding PLC (SPI) at “AA” with “stable” outlook. The rating reflects SPI’s well-diversified investment portfolio and strong group network. The rating also takes into consideration its conservative financial policy, which in line with its investment strategy and level of dividends receipt. However, these strengths are partially offset by the intense competition faced by SPI’s affiliates in the consumer products, garment, and food industries.Its small cash flow generation was partly supported by financial flexibility from the various investments in listed holdings, though exposed to volatile and unpredictable stock market movements. The “stable” outlook reflects the company’s conservative financial policy and high level of financial flexibility. The ratio of net debt to the market value of its listed holdings is expected to remain low. TRIS Rating also expects that Saha Group will maintain strong operating performance and its leading position in the core markets.
SPI is the main holding company of Saha Group. The company was founded in 1972 by the Chokwatana family which remains the major shareholder with direct and indirect holdings of 68.6% as of December 2013. Saha Group is a leading conglomerate in Thailand, which manufactures and distributes a wide range of products spanning from food, garment, cosmetics to consumer products. SPI is responsible for facilitating industrial parks and infrastructure, and providing financial support and consulting services for group investment. Key distribution channel is handled by Saha Pathanapibul PLC (SPC), I.C.C International (ICC), and Better Way (Thailand) Co., Ltd. (BWT). At manufacturing level, Saha Group has typically invested with partners to produce the products it sells. Saha Group has long-term relationships with many of its partners; many are large Japanese corporations. Saha Group has complex group structure by cross-holding among group members. Moreover, the investment of SPI in each affiliate is mostly less than 50% shareholding in each company. The revenue of Saha Group through three key distributors was over Bt50 billion in 2013, across all its product lines nationwide. Saha Group structure has built a strong network, from the supply chain for raw materials, through manufacturing and distribution. The product portfolio includes many leading brands in many market segments, such as Mama, Wacoal, Pao, Essence, Mistine, BSC, and more. However, the competitive nature of these industries has challenged Saha Group’s ability to maintain its market positions and operational efficiencies.
As at the end of December 2013, SPI had invested in 148 companies across a range of industries. There are 22 companies in its investment portfolio listed on the Stock Exchange of Thailand (SET), and one company listed on the Tokyo Stock Exchange. The shareholding structure of Saha Group has allowed SPI to benefit from a diversified product portfolio which cushions against the economic cycles. However, SPI’s cash flow relies heavily on the dividends it receives from the affiliates which SPI currently does not have full control over their dividend policies.
For industrial park operation, SPI operates three sites which mainly serve the group’s manufacturing activities. The revenue generated was from the sale of utility and service fees. Revenues from land sales are negligible as SPI rarely sells land to companies outside Saha Group. The operating cash flow from SPI’s industrial park business is sufficient to cover nearly all of SPI’s operating and administrative expenses. Dividends received then represent the free cash flow available for capital investment and financing activities. Dividends received have constituted nearly 100% of SPI’s earnings before interest, tax, depreciation, and amortization (EBITDA) in the past. However, in 2012 and 2013, SPI sold land worth Bt200-Bt300 million each year, compared with land sales of Bt323 million for the five-year period during 2007-2011. Hence, the industrial park business contributed 9% and 22% of SPI’s total EBITDA in 2012 and 2013, respectively.
SPI’s total revenue gradually increased from Bt2,992 million in 2009 to Bt4,114 million in 2013. Revenue rose by 2.2% in 2013, much less than in 2012 and 2011, due mainly to weaker operating results in the apparel segment. Revenue in the industrial park segment, mainly the sales of utility services, was fairly stable and grew moderately. Funds from operations (FFO), including cash dividends received, ranged from Bt500-Bt660 million during 2009-2012. Dividends received grew to Bt746 million in 2013, reflecting SPI’s ability to partly influence its affiliates’ dividend policies. In 2013, about half of SPI’s affiliates paid a dividend, but the five largest dividend payers accounted for 55% of the total amount of dividends SPI’s received. However, from the past record, the amount of dividends SPI’s received was considered stable.
SPI’s liquidity profile is considered sufficient supported by conservative leverage policy. Total debt (including guarantees to related companies) increased from Bt977 million in 2009 to Bt1,684 million in 2013. During the last five years, the EBITDA interest coverage ratio was over 14 times while the FFO to total debt ratio was more than 45%. In addition, SPI’s financial flexibility is enhanced by its liquid investment portfolio. The market value of SPI’s holdings in 23 listed firms was Bt16,348 million as at the end of 2013. The ratio of net debt to the market value of the listed holdings ranged from 7%-10% during the last five years. The ratio of total debt as a percentage of capitalization has been low and stood at 8.9% in 2013. As of March 2014, the company had 1,565 rai of land available for sale in three industrial parks. The company also has available uncommitted financial facilities of approximately Bt2,000 million.
SPI’s future ability to generate cash hinges on the operating performance of its affiliates and their respective dividend policies. Its strategy to increase land sales will further support its liquidity. TRIS Rating expects that SPI will maintain its current investment philosophy: making joint ventures with expert partners and utilizing its core competence in project management. Base on the projection, TRIS Rating does not incorporate unplanned sizable investments in the medium term.
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