TRIS Rating has affirmed the company rating of Saha Pathana Inter-Holding PLC (SPI) at “AA” with “stable” outlook. The rating reflects SPI’s position as one of core holding companies of the Saha Group, its well-diversified investment portfolio in consumer product companies within the Saha Group, and strong business network. The rating also takes into consideration its conservative business policies and strong financial flexibility resulting from various investments in listed holdings. However, these strengths are partially offset by the intense competition SPI’s affiliates face in the consumer product, garment, and food industries.
The “stable” outlook reflects the company’s conservative financial policy and high level of financial flexibility. TRIS Rating also expects that the Saha Group will maintain its strong operating performance and its leading positions in its core markets. SPI's rating could be upgraded, should Saha Group’s operating performances substantially improve which can significantly enlarge SPI’s cash flow. The rating downside may occur if SPI’s dividend income is substantially lessened due to weak operating results of the Saha Group or it makes an aggressive shift in its leverage policy.
SPI was founded in 1972 by the Chokwatana family which is still the company’s major shareholder with direct and indirect holdings of 71% as of March 2016. SPI is the main holding company of the Saha Group which is a leading consumer product group of companies in Thailand. The Saha Group manufactures and distributes a wide range of consumer products spanning the food, garment, cosmetics and others. The Saha Group has built a strong network, encompassing the supply chains from raw materials through manufacturing and distribution. The Saha Group typically invests with partners and has established long-term relationships with various Thai and international business allies; many of which are large Japanese corporations. Group distribution channel is mainly handled by Saha Pathanapibul PLC (SPC), I.C.C International (ICC), and Better Way (Thailand) Co., Ltd. (BWT). The revenue of the Saha Group, through the three key distributors, was over Bt50 billion for 2015 operation, across all its product lines nationwide. The Saha Group’s 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 the Saha Group’s ability to maintain its market positions and achieve operational efficiencies.
SPI acts as one-stop service provider for the group investment. Its services include providing rental factory and utilitiy services for companies operating in industrial parks, providing consultancy services regarding equity investments, financial support, and so on.
Currently, SPI has been operating industrial parks and investing in 155 companies within the Saha Group. Key revenue contribution is from rental and utility income from its industrial park. However, cash flow is mainly generated by the dividends from its investment portfolio. At the end of March 2016, 23 of 155 companies were listed on the Stock Exchange of Thailand (SET), one company was listed on the Market for Alternative Investment (mai), and one company was listed on the Tokyo Stock Exchange. The shareholding structure of the Saha Group has allowed SPI to benefit from diversified sources of dividend contribution which cushions against bad economic cycles. From the past track record, SPI has recorded a fairly stable dividend receipt, although it did not have full control over dividend policies of all its affiliates.
In 2015, about half of SPI’s affiliates paid dividends, although the five largest dividend payers accounted for 54% of the total amount of dividends SPI received. The top five dividend payers were ICC, SPC, Thai President Foods PLC (TF), Lion (Thailand) Co., Ltd. (LION), and Thai Wacoal PLC (WACOAL).
For the industrial park segment, SPI operates four sites which primarily serve the Group’s manufacturing activities. SPI earned revenues from utility sales and service fees. Revenues from land sales are minimal as SPI rarely sells land to companies outside the Saha Group. The operating cash flow from SPI’s industrial park segment is used mostly to support its operating and administrative expenses.
In 2015, the company’s revenue dropped by 1.9% to Bt4,100 million due to a decline of utility sales resulted from the lower electricity and stream selling price according to the declined fuel gas and oil price. In the first quarter of 2016, revenue grew by 33% y-o-y to Bt1,222 million as it recorded significant industrial park land sales and dividend receipt from its investments.
The company’s balance sheet has been very strong. Although its total debt (including guarantees to related companies) increased from Bt1,572 million in 2014 to Bt1,921 million at the end of March of 2016, the ratio of total debt as a percentage of total capitalization continued to be very healthy at 8.4% at the end of March 2016. Normally, SPI’s investment in each project was not large as SPI’s investment philosophy emphasized on joint ventures (JV) with expert partners and utilization of its core competence in project management. In addition, each project can be supported by several of Saha Group’s companies.
SPI’s liquidity continued to be strong. The dividends SPI receives represent free cash flow available for capital investments and financing activities. Dividends received constitute nearly 100% of SPI’s funds from operations (FFO). In 2015, FFO increased to Bt830 million, compared with Bt758 million in 2014, due to the higher dividends receipt. In the first quarter of 2016, the company’s FFO stood at Bt543 million. The FFO to total debt ratio declined from 48.2% in 2014 to 42.7% in 2015, but improved to 55.8% (annualized, from the trailing 12 months) in the first quarter of 2016. Meanwhile, earnings before interest, tax, depreciation, and amortization (EBITDA) interest coverage ratio increased from 13.7 times in 2014 to 17.2 times in 2015 and 24.5 times in the first quarter of 2016. During the next 12 months, SPI will have debt service obligations of Bt550 million, of which Bt250 million is for short-term promissory notes. Considering SPI’s FFO, its liquidity is well managed. In addition, SPI has an option to sell more land to boost its liquidity if it needs more funds to make sizable investments. At the end of March 2016, the company had 1,545 rai of land available for sale in three industrial parks. The company also has available uncommitted credit facilities of approximately Bt2,190 million as of March of 2016. SPI’s financial flexibility is enhanced by its liquid investment portfolio. The market value of SPI’s holdings in 25 listed firms was Bt16,617 million at the end of March 2016. The ratio of total debt to the market value of the listed holdings was 12% at the end of March 2016.
During the next three years, TRIS Rating expects that the operating performance of the Saha Group companies will gradually grow in tandem with the expected growth of the domestic economy. SPI’s revenue could grow by approximately 3% per annum. SPI’s leverage ratio is estimated to remain below 10%, as its investment budget will be approximately Bt600 million per annum. Liquidity is expected to stabilize with the average FFO to total debt ratio of 50% and the EBITDA interest coverage ratio of 15 times.
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