TRIS Rating Co., Ltd. has affirmed the company rating of Vinythai PLC (VNT) at A- with stable outlook. The rating is based on VNT s efficient and fully-integrated production facility, strong financial profile, capable management team, and support from 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 and high price fluctuations. Increased capacity based on acetylene process particularly from Chinese producers may affect future market prices and the supply/demand balance. Currently, with low ethylene price, the ethylene-based processing cost is more competitive.
The stable outlook reflects the expectations that VNT will maintain its low-cost position and there will be no major threats to the PVC industry. TRIS Rating expects VNT s management to continue the conservative financial policy, especially while the firm is making new investments.
TRIS Rating reported that VNT is Thailand s second largest polyvinyl chloride (PVC) manufacturer, with capacity of 280,000 metric tonnes per annum (mtpa), or 29% of total domestic capacity. Major shareholders have extended full support to VNT s operation: Solvay provides technical support and an international distribution channel, PTTCH supplies ethylene, and CP Group is a key customer. VNT s PVC plant is fully backward integrated, yielding an operating margin premium over rivals. In 2009, VNT s operating margin improved, rising to 17.56%, compared with 15.78% in 2008, as the company maintained a high level of production capacity and effective cost control. For the first quarter of 2010, the increase in petrochemical prices, a lower price for by-product, caustic soda, and an unplanned shutdown in late February caused the operating margin to fall to 11.80%. The company is in the process of filing an insurance claim for the loss incurred from the shutdown incident. Petrochemical prices continue to be highly volatile in 2010, corresponding to oil price movements. In the first quarter of 2010, the price of ethylene rose, but a sharp drop was noticed in May. The ethylene price is expected to remain at a low level, as new capacity is scheduled to come on stream. PVC consumption in Thailand is supported by the prospect of gross domestic product (GDP) growth. As a result, the operating margin for all of 2010 is expected to be better than in the first quarter.
TRIS Rating said, VNT s financial profile remained strong, supported by operating cash flow and low leverage. Sales volume in 2009 increased by 13% from 2008. However, sales revenue decreased by 11% versus the prior year, due to lower average product prices. During the first quarter of 2010, total sales volume slightly decreased by 2% year-on-year (y-o-y), mainly from a decline in PVC production volume. However, the average prices of PVC and VCM (vinyl chloride monomer) have risen by 40%-50% y-o-y, resulting in a 14% y-o-y increase in sales value. With the improvement in operating margin in 2009, funds from operations (FFO) stood at Bt1,997 million. However, FFO fell to Bt372 million in the first quarter of 2010 from Bt461 million in the first quarter of 2009. As there was no debt at the end of 2009 and March 2010, the company has continued to report strong cash flow protection, as illustrated by the high ratios for FFO to total debt and earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage.
In 2010, VNT has started a new investment project worth approximately Bt8,000 million to expand the production capacities of chlorine and caustic soda and to produce epichlorohydrin (ECH). The capacity expansion project for chlorine and caustic soda was subject to the Central Administrative Court s injunction regarding compliance with the 2007 Constitution (B.E. 2550). However, VNT plans to do the environmental and health impact assessments (EHIA) for all of its projects whether or not the studies are required. The ECH project is expected to be completed in 2012. The project should allow higher profit margins and diversify the product line. The project will be partly funded with new debt.
However, the ratio of total debt to capitalization, though increasing, remains low. The ratio is projected to be at less than 30% over the next three years. This low level of leverage reflects very conservative financial management, yielding a cushion for the company, especially during an economic crisis, said TRIS Rating.
The stable outlook reflects the expectations that VNT will maintain its low-cost position and there will be no major threats to the PVC industry. TRIS Rating expects VNT s management to continue the conservative financial policy, especially while the firm is making new investments.
TRIS Rating reported that VNT is Thailand s second largest polyvinyl chloride (PVC) manufacturer, with capacity of 280,000 metric tonnes per annum (mtpa), or 29% of total domestic capacity. Major shareholders have extended full support to VNT s operation: Solvay provides technical support and an international distribution channel, PTTCH supplies ethylene, and CP Group is a key customer. VNT s PVC plant is fully backward integrated, yielding an operating margin premium over rivals. In 2009, VNT s operating margin improved, rising to 17.56%, compared with 15.78% in 2008, as the company maintained a high level of production capacity and effective cost control. For the first quarter of 2010, the increase in petrochemical prices, a lower price for by-product, caustic soda, and an unplanned shutdown in late February caused the operating margin to fall to 11.80%. The company is in the process of filing an insurance claim for the loss incurred from the shutdown incident. Petrochemical prices continue to be highly volatile in 2010, corresponding to oil price movements. In the first quarter of 2010, the price of ethylene rose, but a sharp drop was noticed in May. The ethylene price is expected to remain at a low level, as new capacity is scheduled to come on stream. PVC consumption in Thailand is supported by the prospect of gross domestic product (GDP) growth. As a result, the operating margin for all of 2010 is expected to be better than in the first quarter.
TRIS Rating said, VNT s financial profile remained strong, supported by operating cash flow and low leverage. Sales volume in 2009 increased by 13% from 2008. However, sales revenue decreased by 11% versus the prior year, due to lower average product prices. During the first quarter of 2010, total sales volume slightly decreased by 2% year-on-year (y-o-y), mainly from a decline in PVC production volume. However, the average prices of PVC and VCM (vinyl chloride monomer) have risen by 40%-50% y-o-y, resulting in a 14% y-o-y increase in sales value. With the improvement in operating margin in 2009, funds from operations (FFO) stood at Bt1,997 million. However, FFO fell to Bt372 million in the first quarter of 2010 from Bt461 million in the first quarter of 2009. As there was no debt at the end of 2009 and March 2010, the company has continued to report strong cash flow protection, as illustrated by the high ratios for FFO to total debt and earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage.
In 2010, VNT has started a new investment project worth approximately Bt8,000 million to expand the production capacities of chlorine and caustic soda and to produce epichlorohydrin (ECH). The capacity expansion project for chlorine and caustic soda was subject to the Central Administrative Court s injunction regarding compliance with the 2007 Constitution (B.E. 2550). However, VNT plans to do the environmental and health impact assessments (EHIA) for all of its projects whether or not the studies are required. The ECH project is expected to be completed in 2012. The project should allow higher profit margins and diversify the product line. The project will be partly funded with new debt.
However, the ratio of total debt to capitalization, though increasing, remains low. The ratio is projected to be at less than 30% over the next three years. This low level of leverage reflects very conservative financial management, yielding a cushion for the company, especially during an economic crisis, said TRIS Rating.
