TRIS Rating Assigns Company Rating to “SST” at “BBB” with “Stable” Outlook

TRIS Rating Co., Ltd. has assigned the company rating of Sub Sri Thai PLC (SST) at “BBB” with “stable” outlook. The rating reflects SST’s long track record in the warehouse industry, recurring income from document storage and rental fees as well as a strong balance sheet. However, these strengths are partially offset by the company’s reliance on major customers due to its small business size, the maturing stage of traditional warehousing business and price competition in document storage business.

The “stable” outlook reflects TRIS Rating’s expectation that the storage fee and rental income will generate stable revenue to SST. Growing demand for document storage will mitigate any slowdown in demand for goods warehousing.

TRIS Rating reported that SST is one of the leading storage providers for goods and documents. It was established in 1976 and listed on the Stock Exchange of Thailand (SET) in 1987. The company was initially authorized by the Ministry of Commerce to operate warehouse and wharf businesses in Samutprakarn province. Its business scope was expanded to provide document storage services in 1995. Currently, SST owns and operates 51 warehouses and 2 wharfs with a total storage area of 81,769 square meters. Nearly one-fourths of total space is used for document storage while 75% is used for goods warehousing. In the first nine months of 2009, document storage business contributed nearly 60% of SST’s total revenue and earnings before interest, tax, depreciation and amortization (EBITDA), while goods warehousing contributed approximately 40%.

TRIS Rating said, over the past three years, total revenue of SST has increased continuously to Bt177 million in 2008 from Bt138 million in 2006, or a 13% compound annual growth rate. The document storage business was the major driver. Document volume grew by 22% annually during 2006-2008, 80% from existing customers while 20% from new customers. For goods warehousing business, though storage fee dropped from declining demand of big customers during 2007-2008, SST can rent the warehouse space and maintain total revenue from the goods warehousing business at Bt72-Bt74 million during 2007-2008.

SST’s operating margin was very strong. The margin improved to 63.4% in the first nine months of 2009 from 56.6% in 2006 due to better utilization of its warehouses. SST’s balance sheet is healthy. As of September 2009, the company’s total debt was Bt151 million and its debt to capitalization was 22.8%. Looking forward, with operating cash flow of Bt90-Bt100 per year and the planned capital expenditures of Bt30-Bt50 million per year, leverage would continue to remain low.

According to TRIS Rating, sophisticated logistic and modernized supply chain management which aim to enhance efficiency and cost saving for manufacturing might lower demand for traditional warehouse. For document storage business, this sector continues to have bright prospects despite facing long-term threat from a transition to digital storage. Document storage expansion of big players is expected to intensify price competition and put more pressure on operator’s margin. -- End

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