Bangkok--14 Mar--TRIS Rating
TRIS Rating Co., Ltd. has affirmed the company rating of Vinythai PLC (VNT) at “BBB+” with “stable” outlook. The rating is based on VNT’s efficient fully-integrated production, low leverage, a capable management team and support from its principal shareholders, Solvay S.A. of Belgium, PTT Chemical PLC (PTTCH), and Charoen Pokphand Group (CP Group). However, these strengths are partially offset by the cyclical nature of the petrochemical industry, increasing competition from Chinese producers, and declining profitability that is the result of rising ethylene prices.
The “stable” outlook reflects the expectations that VNT will be able to maintain its low cost position and there will be no major threats to the PVC industry. TRIS Rating expects VNT’s management to continue its conservative financial policy in the intermediate and long term.
TRIS Rating reported that VNT is Thailand’s second largest polyvinyl chloride (PVC) manufacturer, with capacity of 210,000 metric tons per annum accounted for 26% of total domestic capacity. Major shareholders have extended full support to VNT’s operation: Solvay provides technical support and a distribution channel for the international market, PTTCH supplies ethylene, and CP Group is one of the company’s key customers. The PVC plant is fully backward integrated, yielding VNT a premium operating margin compared with its rivals. However, due to a substantial rise in the price of ethylene over PVC in 2006, VNT’s operating margin dropped significantly. If this pricing trend persists, VNT’s profitability will be threathened. The competition is more severe in both the domestic and international markets, which China remains as the main driver. Huge supply in China has come online, which has both pressured PVC prices and reduced PVC exports to China.
In 2006, while VNT’s financial profile was weaker than in 2005, it remained strong. Although its operating margin was negatively impacted by the increasing cost of ethylene and the reduction of PVC production due to the plant shut down, thanks to low leverage, VNT’s cash flow protection and liquidity is satisfactory. VNT’s vinyl chloride monomer (VCM) expansion was under the commissioning and is expected to be completed in the first quarter of 2007. Hence, in 2007, VNT should recognize greater income from VCM sales and additional caustic soda capacity. The company plans to expand PVC capacity by 70,000 metric tons per annum. The project cost is Bt840 million, with a scheduled completion in mid 2008, said TRIS Rating.