TRIS Rating Assigns Rating to New Senior Debt Worth Up to Bt600 Million of “TRT” and Affirms Company Rating at “BBB+/Stable”

TRIS Rating Co., Ltd. has assigned the rating of “BBB+” to the proposed issue of up to Bt600 million in senior debentures of Tirathai PLC (TRT). At the same time, TRIS Rating has affirmed the company rating of TRT at “BBB+”. The outlook remains “stable”. The proceeds from the debentures will be used to construct a new distribution transformer plant and a transformer tank factory. These two investments will need a total budget of around Bt500 million. Another Bt100 million of the proceeds will be used for TRT’s working capital. The ratings reflect the company’s position as the leading electrical transformer manufacturer in Thailand, the ability to provide transformers across a diverse range of capacities and system voltages of both power and distribution transformers, and the strong balance sheet. TRT’s competitive edge is enhanced by a license contract with Siemens Transformers Austria GmbH & Co KG (Siemens) from Austria. Siemens mainly supports TRT’s product design development and market reference for power transformers. The ratings also take into consideration the growth prospects for electricity demand, potential in various export markets, and high barriers to entry for the power transformer segment. These strengths are partially offset by customer concentration risk, as more than one thirds of TRT’s revenue depends on sales to electricity authorities. The strengths are also constrained by TRT’s reliance on local agents for export markets, reference requirements in new markets especially for power transformers, and more intense competition. The “stable” outlook reflects the expectation that TRT will be able to maintain and stabilize its profitability, despite facing more intense competition in both the power and distribution transformer segments. Liquidity should be sufficiently reserved at all times. Considering future investments, TRT’s financial leverage is expected to stay at an average level.

TRIS Rating reported that TRT was established in 1987 and listed on the Market for Alternative Investment (mai) in May 2006. Mr. Sumpan Vongphan, the managing director, and key managers, remained the company’s major shareholders with a combined stake of 34% as of March 2012. TRT is one of the two transformer manufacturers in Thailand which produces both power and distribution transformers. Its products cover power transformers with capacities from five to 300 megavolt-amperes (MVA) at system voltages up to 230 kilovolts (kV). TRT also manufactures distribution transformers with capacities of one KVA-100 MVA at system voltages up to 36 kV. In 2011, 65% of total revenue came from sales of distribution transformers, 32% from power transformers, and 3% from sales of transformer components and services. TRT’s customer base comprises state enterprises (44% of total revenue), private companies (37%), and export customers (16%).

TRIS Rating said, in the power transformer segment, TRT is one of the four players, but only TRT and another producer that can manufacture 300 MVA 230 kV transformers. The competition is considered less intense in this segment compared with the distribution transformer segment due to the more complicated engineering feature requirements. The users of power transformers are in the high technology industry or require specific engineering design transformers. Hence, the reliability and quality of the transformers are key criteria which past record and reference are normally required as condition precedent. Price competition plays a more important role in the distribution transformer segment where the products are simpler and there are more suppliers. For the domestic market, electricity authorities are the direct and main users of the transformers as their roles are charged with the development of the electrical generating and power transmission system of the country. They normally allocate an annual budget to develop the power stations and substations and improve the transmission capacity. Other users are the industrial factories, for most of which the transformers are critical components in their factories. Demand for electrical transformers thus depends partly on electricity consumption. However, the demand is more volatile as the new demand also hinges on the investment policy of the government and private sectors.

TRT’s revenue in 2010 was Bt1,492 million, a 33% drop from Bt2,223 million in 2009 due to the unfavorable events during 2009-2010 which negatively impacted the Thai economy and caused drops in the investments of both public and private sectors. Demand for transformers recovered in 2011, as customer orders climbed to Bt2,137 million in 2011, much higher than received orders in 2010 and 2009. Around 60% of the orders received in 2011 were for distribution transformers. Accordingly, TRT’s revenue in 2011 rose by 24% year-on-year (y-o-y) to Bt1,855 million. Received order during the first quarter of 2012 dropped by 33% y-o-y to Bt467 million. However, all of the backlog worth Bt1,129 million as of March 2012 was scheduled to be delivered in 2012. Hence, TRT’s revenue in 2012 is partly secured. TRT’s operating profit margin had been in the range of 14%-16% during 2007-2011, rising from 10%-13% during 2002-2006. This rise came as the company changed its pricing strategy with shorter quotation periods. Cash flow protection had been stronger as the ratio of funds from operations (FFOs) to total debt improved to 59%-63% during 2010-2011 from 49% in 2009. TRT’s financial leverage had been maintained at an acceptable level of 28.87% and 33.33% at the end of 2010 and 2011, respectively, said TRIS Rating. — End

Company Rating: Affirmed at BBB+ Issue Rating: Up to Bt600 million senior debentures due within 2015 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 Copyright 2012, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.