Bangkok--7 Jul--TRIS Rating
TRIS Rating Co., Ltd. has assigned the company rating of Siamgas and Petrochemicals PLC (SGP) at “BBB+” with “stable” outlook. The rating reflects SGP’s strong position as the second-largest liquefied petroleum gas (LPG) distributor in Thailand, robust distribution network, and geographically diverse customer base. The rating also takes into consideration the supplier concentration risk, regulatory uncertainty, and the increasing amount of business risk as international LPG trading becomes a larger portion of SGP’s business.
The “stable” outlook reflects the expectation that SGP will be able to maintain its position as the second-largest LPG distributor in Thailand. The company is expected to maintain its financial profile and sufficient liquidity to accommodate higher business risk from its overseas LPG trading activities.
TRIS Rating reported that SGP was established by the Weeraborwornpong family on 17 January 2001, and was listed on the Stock Exchange of Thailand (SET) on 3 June 2008. As of March 2011, the Weeraborwornpong family remained the largest shareholder, holding 66.7% shares of the company. SGP has remained the second-largest LPG distributor in Thailand. Its operations in Thailand cover LPG trading under the “Siam Gas” and “Unique Gas” brands with 29.9% market share in 2010, behind PTT PLC (40.4% share). The company also sells ammonia and other petrochemical products. SGP’s nationwide distribution network is considered strong, with seven LPG storage terminals, 179 LPG filling stations and 414 LPG auto-gas stations, as of December 2010. SGP also has a wide range of transportation facilities, including sea freight transportation services, to support its LPG trading business.
TRIS Rating said, during the last three years, SGP’s LPG trading volume in Thailand averaged one million tonnes per year. The cooking segment accounted for 60.7% of total LPG volume sold, with the automotive segment (30.0%) and industrial segment (9.3%) making up the balance. Approximately 9% of SGP sales volume is exposed to changing regulations in the LPG market in Thailand. Recently, the government allowed the price of industrial LPG to rise in order to reduce the oil fund subsidy. This action will lower LPG demand for industrial users in the medium term because industrial users may switch from LPG to natural gas or fuel oil. However, the switching will take some time as some customers must modify their production facilities to use different types of fuel.
In 2010, SGP expanded its LPG trading business into several countries: China, Vietnam and Singapore. During the first three months of 2011, the volume of LPG sold to international customers accounted for 26.3% of total sales volume. The company aims to increase its international LPG trading volume to 50% of total sales volume by 2014. After acquiring a 100% stake in BP Zhuhai LPG Co., Ltd., worth US$101 million in December 2010, the company plans to utilize the Chinese facilities as hubs for LPG trading in China and Southeast Asia. Although international acquisitions provide business opportunities for SGP, they expose the company to greater business risk caused by the unfamiliar business environments and the volatility of LPG prices in the global market. The ability of the management team to cope with these challenges needs times to be proved.
TRIS Rating said about SGP’s financial performance that it has been satisfactory. However, the balance sheet has weakened due to the aggressive expansion in 2010. In the first three months of 2011, SGP’s LPG sales volume increased by 31.2% year-on-year (y-o-y) and its total revenue increased by 58.2% (y-o-y) mainly due to a higher contribution from overseas LPG trading. However, the ratio of operating income before depreciation and amortization as a percentage of sales decreased to 6.2% in the first three months of 2011 from 9.5% in 2010 due to higher competition in the auto-gas segment in Thailand and higher operating costs in overseas trading. The acquisition during 2010 pushed total debt to Bt6,804 million at the end of March of 2011. The leverage ratio has weakened, with the total debt to capitalization ratio increasing to 51.8% at the end of March 2011. This ratio is expected to gradually improve after the contribution from overseas trading has been fully realized.
Siamgas and Petrochemicals PLC (SGP)
Company Rating: BBB+Rating Outlook: Stable
TRIS Rating Co., Ltd./www.trisrating.com
Contact:
[email protected], Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand