TRIS Rating Affirms Corporate Rating and Unsubordinated Bonds There is no collateral of Sri Trang Agro-Industry (STA) at the “A-” rating with a “stable” or “stable” outlook. TRIS Rating also rated the credit rating of unsubordinated bonds. There is no new collateral in the amount of not more than 3.5 billion baht of the company at the “A-” level as well.
The rating also reflects the company’s leading position in the natural rubber business. As well as competitiveness from the natural rubber entrepreneurship from the upstream to the downstream upstream products (Vertical Integration) and the strong track record of the company’s management team. But that strength has been partially offset by the cyclical nature and volatility of natural rubber prices. Including various challenges in the natural rubber industry amidst the global economic environment is still uncertain.
In the first nine months of 2020, the company’s total operating income and net profit remained in line with TRIS Rating’s forecast for the full year 2020, with the company’s operating income growing at 8.4%. Compared to the same period of the previous year, or at 49.5 billion baht, the company’s revenue from the rubber glove business rose to 34% on the back of surging demand during the 2019 coronavirus epidemic (CO Wid 19) resulted in the gross profit margin. (Including profit or loss from derivatives, rubber prices) increased significantly to 20.7% from 7.2% in the same period last year. This was due to the higher proportion of high-margin products and lower raw material costs.
In the meantime Earnings before interest, taxes, depreciation and amortization also improved, reaching Bt5.5bn in the first nine months of 2020, compared with Bt2.5 billion in the same period. Of the previous year As a result, the company reported a net profit of 4 billion baht, compared with a net loss of 223 million baht for the same period of the previous year.
Its capital structure has been greatly strengthened after its subsidiary, Sri Trang Gloves (Thailand) Plc. (STGT), has successfully raised capital through an initial public offering. In the Stock Exchange of Thailand (SET) in July 2020, the net income from the offering of new shares of the said subsidiary amounted to 14.6 billion baht, resulting in a dramatic decrease in the debt to capitalization ratio of the company. This is at 8.1% as of September 2020 from 51.7% as of December 2019.Under the assumption of TRIS Rating, the Company’s debt to capitalization ratio is 19% -31% during the Year 2020-2022
TRIS Rating expects the company to maintain strong liquidity over the next 12-18 months, with the firm’s debt obligations of Bt1.1-1.4 billion per year during 2020. -2022 By the end of September 2020, the Company has cash on hand and short-term investments amounting to 18.9 billion baht and over 25.7 billion baht of borrowing from financial institutions.
The “stable” outlook reflects TRIS Rating’s expectation that the company will continue to maintain its competitiveness in the natural rubber industry with a significant portion of the revenue generated from the business. In addition, TRIS Rating expects the company to have a careful management of risks arising from natural rubber prices and foreign exchange rates. It will also maintain sufficient liquidity to accommodate the impact of natural rubber price fluctuations.
Factors that may change the credit rating Upgrades remain limited in the near term as the firm’s credit rating was revised in 2020, while a downgrade can occur in the event of a weaker performance of the company. For a continuous period of time, the adjusted net financial debt to earnings before interest, taxes, depreciation and amortization ratio exceeds 4 times. Large loans, which will continually weaken the company’s financial statements and debt financing cash flow, could also result in a downgraded rating.
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