Tirathai Public Company Limited - trt-th.listedcompany.comtrt-th.listedcompany.com/misc/creditRating/... · 1/25/2011 · company’s leading position in transformer manufacturing

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N eN eN eN e w s f o r I n v e s t o r sw s f o r I n v e s t o r sw s f o r I n v e s t o r sw s f o r I n v e s t o r s

Announcement No. 758 25 January 2011

Tirathai Public Company Limited Company Rating: BBB+ Rating Outlook: Stable

Rating Rationale TRIS Rating assigns the company rating of Tirathai PLC (TRT) at “BBB+”. The rating reflects the

company’s leading position in transformer manufacturing industry in Thailand, ability to provide a diverse capacity and system voltage of both power and distribution transformers, and strong financial profile since 2007. TRT’s competitive edge is enhanced by license contract with Siemens Transformers Austria GmbH & Co KG from Austria, which mainly supports on design development and market reference. The rating also takes into consideration the growth prospects for electricity demand, potential in various export markets, and high barriers to entry for the manufacture of power transformers. These strengths are partially offset by customer concentration risk as around one-third of revenue depends on electricity authorities, a reliance on local agents for export markets, reference requirement in new market especially for power transformer with high capacities and system voltages, and fierce competition in the distribution transformer segment. 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 management team remain the company’s major shareholders with a combined stake of 39% as of July 2010. TRT has been the only transformer manufacturer in Thailand which produces both power and distribution transformers. Its products cover power transformer with capacities from 5 to 300 megavolt-amperes (MVA) at system voltages up to 230 kilo Volts (kV). TRT also manufactures distribution transformers with capacities of 1-100 MVA at system voltages up to 36 kV. During the first nine months of 2010, 49% of total revenue came from sales of distribution transformers, 46% from power transformers, and 5% from services. TRT’s customer base comprises state enterprises (36% of total revenue), private companies (30%), and export customers (29%). In power transformer market, TRT is one of the three players with the market share of approximately one-third. The competition is considered less intense than distribution transformer due to the more complicate engineering structure. The user of power transformer is in the high technology industry or whose operation requires specific engineering design transformer, hence, the reliability and quality transformer are necessary. Normally, past record and reference is set as condition precedent. Price competition plays more important role in the distribution transformer market where the product is simpler and there are a number of suppliers. For domestic market, electricity authorities are the direct and main users of the transformers as their roles are to develop the generating facility and 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 which transformers are the significant parts for most plants. Therefore, the demand of electric transformer industry depends partly on the electricity consumption; however, it is more volatile due to the investment policy of the government and private sectors. TRT reported a revenue growth from Bt1,409 million in 2007 to Bt2,106 million and Bt2,223 million in 2008 and 2009, respectively. The growth reflected the good economic condition in 2007 and 2008 as transformer sales normally lags about six to nine months after receipt of order due to the production period. Received order grew from the value of Bt1,531 million in 2006 to Bt2,198 million in 2007 and Bt2,381 million in 2008. However, it plunged to Bt1,305 million in 2009, falling by 45% from the previous year. The drop was the result of global economic crisis since late 2008 and suspending the industrial projects in the Map Ta Phut (MTP) area announced in September 2009. The gloomy environment affected through the first three quarters of 2010 as received order further declined 4.6% year-on-year (y-o-y) to Bt1,008 million from Bt1,057 million during the same period of 2009. As a result, total revenue in the first nine months of

_______________________________________________________________________________________ Tirathai PLC 2 25 January 2011

N e w s f o r I n v e s t o r s

2010 declined by 26% y-o-y to Bt1,132 million. As at the end of September 2010, TRT reported the backlog of Bt822 million. Full year performance in 2010 is likely to be much softer than in 2009 though the received order and sales were slightly rebound in the fourth quarter corresponding to the economic recovery during the earlier 2010. TRT’s operating performance has improved from 2007 onward due to the adjustment of cost management. The operating margin has been in the range of 14%-16% since 2007, up from 10%-13% during 2002-2006. Funds from operations (FFO) gradually improved from Bt116 million in 2003 to Bt335 million in 2009, and stood at Bt190 million for the first nine months of 2010. TRT's leverage level was slightly fluctuated since the company needs short-term loan to finance trade transactions. Its long-term debt was gradually declined upon the repayment schedule. The debt to capitalization ratio had maintained at less than 50% during 2007 through the first nine months of 2010. Cash flow protection was satisfactory, supported by FFO to total debt ratio of 40%-50% and earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio of 8-9 times during 2009 through the first three quarters of 2010.

Rating Outlook The “stable” outlook reflects an expectation that TRT will be able to maintain and stabilize its operating profitability, despite facing global renowned competitors in power transformer and intense competition in local distribution transformer. Liquidity should be sufficiently reserved at all time. Financial leverage is not expected to deteriorate to over 50%, taking into consideration the future investment. The rating for proposed unsecured debenture, if any, is possibly lower than the company rating if the proportionate of the secured indebtedness is over the threshold.



Key Rating Considerations Strengths/Opportunities

� Proven track record and experienced management team

� Technology transferred from Siemens � Provide the maximum capacity and

system voltage of power transformer � Strong balance sheet � High barriers to entry for power

transformer � Growth prospect derived from electricity

demand

Weaknesses/Threats � Customer concentration risk � Reliance on local agents for export

markets � License needed to penetrate new power

transformer market � Risk on raw material prices and foreign

currency exchange rate � Intense competition in distribution

transformer segment

Corporate Overview TRT was established in August 1987 by Mr.

Sumpan Vongphan and a group of engineers who have a long experience in electric transformer industry. TRT was listed on the Market for Alternative Investment (mai) in May 2006. As of July 2010, Mr. Sumpan Vongphan, the managing director, and the founder group who are also the key management held 39% of the shares.

TRT manufactures and distributes both power transformers and distribution transformers. Distribution transformers have capacities of 1 to 100 MVA with system voltages up to 36 kV. Power transformers cover capacities of 5 to 300 MVA with system voltages up to 230 kV. which TRT is the only local manufacturer being able to supply this product category. TRT also offers services relating to electric transformers such as erection and installation, oil filling, maintenance, modification and repairing, testing, and equipment rental.

TRT’s customer base covers three groups: state enterprises, private companies, and export customers. State enterprises include Metropolitan Electricity Authority (MEA), Provincial Electricity Authority (PEA), and Electricity Generating Authority of Thailand (EGAT). Private customers are mostly construction contractors, large buildings, and industrial factories. TRT exports mainly to countries in South and Southeast Asia.

Table 1: TRT’s Revenue Breakdown by Customer and Product

Unit: %

Source: TRT

Revenue from state enterprise used to comprise the major portion of total revenue in the past. However, the proportion lowered to averagely one third from 2006 when the export sales was successfully executed. Roughly, each of the three main customer groups contributed about one-third of revenue in 2009. During the first three quarters of 2010, 36% of total revenue came from state enterprises. Revenues from private and export customers were 30% and 29%, respectively. Sales of power transformers and distribution transformers were each in the range of 44%-50%. Transformer components and services generated 3%-9% of annual revenue during past six years.

Recent Developments

� New distribution transformer manufac-turing plant In October 2010, TRT acquired a nine-rai

land plot at Bangpoo Industrial Estate Soi 1, which the company formerly rented as a

Revenue 2005 2006 2007 2008 2009 Jan-Sep

2010

State Enterprises 47 34 29 35 31 36

- Power 11 6 4 9 17 17

- Distribution 36 28 25 26 14 19

Private 37 31 44 26 33 30

- Power 22 17 28 16 21 21

- Distribution 15 14 16 10 12 9

Export 7 29 22 32 33 29

- Power 3 21 13 24 12 8

- Distribution 4 8 9 8 21 21

Subtotal by Customer

91 94 95 93 97 95

Power transformers

36 44 45 49 50 46

Distribution transformers

55 50 50 44 47 49

Subtotal by Product

91 94 95 93 97 95

Transformer components

5 1 1 3 - -

Revenue from services

4 5 4 4 3 5

Total revenue 100 100 100 100 100 100

Total revenue (Bt mil.) 1,079 1,642 1,409 2,106 2,223 1,132



warehouse, for a purchase price of Bt57 million. The company plans to build a new distribution transformer plant. Construction will begin in 2012 and need an investment of around Bt120 million. The construction is expected to be completed within one year. The new plant will improve the efficiency of the distribution transformer production process.

� Certified for power transformer with

capacity of 300 MVA TRT previously accredited to power

transformers with maximum capacity of up to 200 MVA with system voltages up to 300 kV and distribution transformers with maximum capacity of up to 30,000 kVA with system voltages up to 24 kV from Thai Industrial Standards Institute (TISI). At the end of November 2010, TRT’s power transformer was considered to qualify for a certificate of capacity up to 300 MVA which is the highest capacity produced in Thailand. The certificate helps not only guarantee the product quality but also enhance the market opportunity. Customers who require high reliability and quality grant a priority to manufacturer with certified capacity and system voltage.

INDUSTRY ANALYSIS Electrical transformers are important devices in an electrical distribution system. An electrical transformer alters voltage, generally from high to low, so that electricity can be transported from the generating site more easily and efficiently over long distances. Although power line electrical transformers are common and easily recognizable, there are various types and sizes of transformers. The transformers which are used to transform the very high system voltage and huge power capacity mostly from the generating unit are referred as power transformers. Distribution transformers will then receive electricity from power transformer which still carry the fairly high voltage and adjust down to match with the required voltage for the end user. In addition, small transformers are used in equipment or appliances in the home or work place while tiny transformers are used in items like microphones and other electronics. � Prospect on power generation The major consumption of power transformers in Thailand derived from power plants, whether operated by public or private companies, and transmission system. In Thailand, the power generation is managed and regulated by

Electricity Generating Authority of Thailand (EGAT) while Metropolitan Electricity Authority (MEA) and Provincial Electricity Authority (PEA) are responsible for electrical transmissions. These three agencies have been the sole owners of the power grid in Thailand. At the end of November 2010, the handling capacity of electrical transformers belonging to EGAT, a state-owned enterprise responsible for generating the nation’s electricity, totaled 75,155.19 MVA. Over the past decade, EGAT’s electrical transformer capacity increased by 4% per annum, corresponding to 4.8% growth in EGAT’s newly installed electricity capacity and 4.9% growth in electricity consumption during the same period.

Chart 1: Installed Power Generating Capacity and Transformer Capacity

Source: Energy Policy and Planning Office (EPPO)

The latest Power Development Plan 2010 (PDP2010) forecasted total new installed electricity generating capacity in Thailand to be 21,564 MW during 2010-2020. Existing power plants that will be retired during this period equaled 5,933 MW. The amount of installed capacity between 2010 and 2030 as forecast in the PDP2010 is shown in the chart below.

Chart 2: Projected Installed Capacity

and Peak Demand

Source: PDP2010



� Recovery on electricity consumption Electricity consumption generally has a growing trend following the expansion of economic activities and usable areas. Total domestic power consumption in Thailand during 2009 was affected negatively by unfavorable economic conditions during the first half of the year. Electricity sales grew by only 0.28% year-on-year, the slowest growth rate since 1998. As economy recovered strongly in 2010, so did electricity consumption, rising by 10.32% year-on-year from 2009. The increase in power consumption in 2010 was due in large part to higher demand from industrial and business users which constitute 70% of total power consumption.

The historical sales of electricity through MEA and PEA are shown in the charts below. The economic crisis in 2009 negatively affected both metropolitan and provincial areas, also in industrial and business users. The international economic contraction lowered demand for export products which production base is scattered nationwide. The sluggish growth in electricity consumption had resulted in a delay of investment in transformers. In 2010, demand for electricity improved together with domestic economy.

Chart 3: Electricity Consumption in the

Bangkok Metropolitan Area

Source: MEA

Chart 4: Electricity Consumption in Provincial Areas

Source: PEA

Chart 5: National Electricity Consumption and Growth Rate

Source: EPPO � Demand for electrical transformers linked

to future expansion projects Electricity distributors in Thailand, including MEA and PEA, set annual business plan which covers the development of transmission systems



and power generating sub-stations in Bangkok and upcountry. According to interviews with the officers of these organizations, about Bt1,000 million for each operator was allocated for the purchases of new electrical transformers every year.

To sell the products to EGAT, MEA and PEA, the transformer manufacturers must enter bidding processes as announced by the three agencies. The winner will be chosen based on meeting the required product specifications and the price. Demand for electrical transformers comprises replacements and purchases for new projects. � More intense competition in smaller size

segment The power transformer industry in Thailand

is dominated by three companies: Asea Brown Boveri Ltd. (ABB), Daihen Electric Co. Ltd., and Tirathai Plc. All produce power transformers, but only ABB and TRT could supply transformer capacities up to 300 MVA, to sell to power producers and industrial firms. In contrast, there are around 25 transformer producers which specialize in distribution transformers. Only TRT can produce both power transformers and distribution transformers. In addition to competition among domestic producers, large-scale producers of power transformers also face with competition from overseas producers such as multinational companies like Siemens Group, Alstom, and ABB Group.

An electrical transformer generally has a long life, ranging from five to more than twenty years. Transformers with high power capacity or high voltage transformation or required specific design could be costly. Therefore, after-sale service and product quality are important factors that buyers consider when choosing the product. Brand image and price are also crucial factors. � International sales of power transformers

affected by global economic slump There were Bt29.48 billion worth of electrical transformers imported into Thailand between January and November 2010, up 4.7%, compared with annual growth of 2.07% in 2009. Electrical transformers were imported primarily from China and Japan followed by Malaysia and Korea. The economic slowdown in 2009 affected the export sector greatly. Electrical transformer exports in 2009 dropped by over 14% year-on-year but recovered remarkably the following year.

Exports rose by 38.36% year-on-year in January-November 2010. Major importing countries include China, Hong Kong and the US. Thailand’s producers have the potential to export electrical transformer overseas based upon their products’ technical reliability, cost competitiveness, and quality of service. Thailand’s major competitors in international markets include China, Vietnam, Philippines, Malaysia and other major multinational producers.

Chart 6: Electrical Transformer Imports and Exports

Source: Customs Department

BUSINESS ANALYSIS TRT’s competitive edge is derived from its

ability to provide a range of capacities and system voltages for both power and distribution transformers. However, TRT relies on bids with electricity authorities, local agents for export markets, and a license from an international manufacturer of power transformers. The company is challenged to compete with the international power transformer manufacturers and a number of local producers of distribution transformers.

� Providing a broad range of transformers Although TRT has been making electric transformers for 23 years, most of key management team who are also the company’s founders have almost 40 years experience in transformer industry. The company is a manufacturer of made-to-order transformers for domestic and overseas distribution and service provider of transformer installation, maintenance, and testing. The company has two manufacturing plants; one for manufacturing power transformer and the second one for distribution transformer. At present, TRT is the sole local manufacturer of transformers in Thailand, which has



manufactured both power transformers and distribution transformers and has received the transfer of manufacturing technology from Siemens Transformers Austria GmbH & Co KG of Austria who is the world's leading manufacturers of transformers. Since 2005, TRT supplies power transformers with capacities ranging from 5 MVA to 300 MVA and system voltages up to 230 kV, the highest capacity and system voltage produced in Thailand. The competitors are ABB (Thailand) Co.,Ltd. and export product. TRT provides distribution transformers with capacities between 1 to 100 MVA and system voltages up to 36 kV. Additionally, the company can manufacture special transformers, including rectifier transformers and induction furnace transformers which are needed by specific industries. The market of distribution transformer is fairly competitive with a large number of producers. TRT focuses on premium customer which requires high reliability and design development. � Good prospect with electricity consumption,

but hurt by economic crisis and Map Ta Phut project suspension

In general, transformer demand is likely to grow along with the transmission development, reflecting electricity consumption. Hence, the key users are the electricity authorities. The demand, however, is more volatile than that of electricity as the transformer demand also hinges on private sector and the investment climate.

Orders TRT’s received reached Bt2,381 million in 2008, up from Bt2,198 million in 2007 and Bt1,531 million in 2006. Orders received for power transformers had averaged Bt1,200-Bt1,400 million per year during 2007 and 2008. Orders for distribution transformers rose to Bt1,139 million in 2008 from Bt700-Bt800 million per annum during 2006 and 2007. Although orders received from both state enterprises and private customers continuously increased during 2006-2008, export orders fell to Bt736 million in 2008 from Bt1,020 million in 2007. In 2009, the global economic slowdown and suspension of 76 projects in the Map Ta Phut area affected orders for transformers. Orders received in 2009 declined by 45% to Bt1,305 million affected by both local and export markets. Orders for both power and distribution transformers shrank to Bt562 million and Bt743 million, respectively, in 2009. The effect of the global economic crisis and the project halts continued through the first three quarters of 2010.

Orders received decreased by 5% to Bt1,008 million in the first nine months of 2010 from Bt1,057 million in the same period of previous year. Although the Thai economy began to recover in the second half of 2010, transformer manufacturers will need around two to three quarters to return to a normal level of customer orders.

Chart 7: TRT’s Orders Received by Product Unit: Bt Million

Source: TRT Revenue reached a record high of Bt2,223 million in 2009, improving by 6% from Bt2,106 million in 2008. The growth in revenue was due to a high volume of orders received in 2008. Revenue from power transformers increased to Bt1,105 million in 2009 from Bt1,042 million in 2008. Sales of distribution transformers generated revenue of Bt1,034 million in 2009, a 11% growth from 2008. The growth was mainly derived from private and export customers. Revenue from state enterprises dropped by 8% in 2009 as the political turmoil delayed the bidding process. Received orders fell during 2009 through the first three quarters of 2010, cutting revenue in the first nine months of 2010 to Bt1,132 million, a 26% drop from the same period of the previous year.

Chart 8: TRT’s Orders Received by Customer

Unit: Bt Million



Source: TRT

Chart 9: TRT’s Total Revenue by Product Unit: Bt Million

Source: TRT

Chart 10: TRT’s Total Revenue by Customer Unit: Bt Million

Source: TRT � Declining production capacity during the

first nine months of 2010 TRT’s current power transformer manufac-

turing plant has a production capacity of up to 5,000 MVA or sales of around Bt2,000 million per year. The capacity for the distribution transformer manufacturing plant is up to 1,000 MVA or around Bt1,000 million per annum. The existing production capacity of the two plants is enough for 6,000 MVA of products or sales of Bt3,000 million per year.

The capacity utilization of the power transformer plant grew by 64% to 2,666 MVA in 2008 from 1,627 MVA in 2007 and peaked at 3,107 MVA (or 88 units) in 2009. The rise in production capacity resulted from a large amount of orders received for power transformers during 2007-2008. A power transformer normally requires 4-6 months per unit to build. The capacity utilization for distribution transformers reached 80% of total capacity in 2009 due to more orders received in the third quarter of 2008. Distribution transformers take less production time.

As a result of fewer orders received during 2009 through the first nine months of 2010, production of power transformers fell to 808 MVA in the first three quarters of 2010, a 66% drop from 2,394 MVA in the same period of 2009. Production of distribution transformers decreased by 30% to 411 MVA in the first nine months of 2010 from the same period of 2009.

Table 2: Production of Power and Distribution Transformer Manufacturing Plants

Year Power Transformer

Production Units

Total MVA % Growth MVA / Unit

2004 60 1,560 26.00

2005 43 1,029 -34% 23.93

2006 74 2,092 103% 28.27

2007 63 1,627 -22% 25.82

2008 65 2,666 64% 41.06

2009 88 3,107 17% 35.32

9M09 67 2,394 35.73

9M10 32 808 -66% 25.24

Year Distribution Transformer

Production Units

Total kVA % Growth kVA / Unit

2004 1,921 628,064 327.00

2005 1,688 364,652 -42% 218.61

2006 2,364 809,723 122% 342.52

2007 1,683 668,636 -17% 397.29

2008 3,073 689,262 3% 224.30

2009 2,864 829,902 20% 289.77

9M09 2,479 586,278 236.50

9M10 1,695 411,867 -30% 242.99

Source: TRT � Backlog partly secures future revenue

stream The backlog measures the orders received

from customers plus the delivery period. A large amount of power transformer orders came during 2007-2008, pushing the backlog above Bt1,000 million at the end of both 2007 and 2008. As of September 2010, TRT had a backlog of Bt822 million. About two-thirds (66%) of the backlog comprised power transformers, whereas the rest was distribution transformers. Sales to private companies make up 43% of the backlog with 35% to export customers and 22% to state enterprises. Backlog orders worth Bt478 million are scheduled to be delivered to customers in the fourth quarter of 2010, while the rest (Bt344 million) is expected to be fulfilled within 2011. The backlog partially guarantees revenue during the next two quarters. Chart 11: TRT’s Orders Received, Total Revenue,

and Backlog Unit: Bt Million



Source: TRT � Customer concentration risk

Around one-third of TRT’s revenue depends on three state enterprises responsible to develop the domestic power system, namely MEA, PEA, and EGAT. TRT is exposed to customer concentration risk as these organizations have been the top customers for years making sizable orders. Sales to state enterprises are made by bid. MEA, PEA, and EGAT set the standard prices and grant orders to manufacturers which offer the lowest prices. The electricity authorities have the power to set prices. Hence, the competition is fairly intense. TRT has the risk of bids being rejected or getting a thinner margin order. However, the credit profile of those electricity authorities is considered excellent with good payment record. They also have consistent demand with annual budget regularly allocated by the government.

� Export sales hinge on agents

TRT first expanded overseas 12 years ago. The company initially entered countries in Southeast Asia. Currently, export customers are spread among the countries in South Asia, the Republic of Korea, Australia, Austria, Canada, Ghana, South Africa, Iran, Trinidad and Tobago, the United Arab Emirates, and Oman. The key success in receiving orders from overseas customers is the cooperation with local agent in each country. Similarly to domestic market, success with export customers requires a relationship with end users, TRT signed commercial agency agreements with overseas agents in order to execute the duties of providing orders from customers. The commercial agents are exclusive representatives of TRT. At present, there are 12 agents covering Southeast Asia, South Asia, and the Middle East. With its reliance on local agents, TRT’s revenue from export market is yet consistent.

� Power transformer sales partly depend on license from Siemens TRT has signed a manufacturing license

contract to obtain technical assistance for the production of power transformers with capacities of 20 to 300 MVA and system voltages of 66-230 kV. The license is with Siemens Transformers Austria GmbH & Co KG (VA Tech EBG Transformatoren GmbH & Co), Austria. Siemens granted an exclusive license for the transformers destined for sale in the countries in Southeast Asia. Under the license, TRT is entitled to mount the “License EBG-LinZ/Austria” plate to the transformers produced. For power transformers, the license from a well-known international brand could be entailed as product reference, especially required in the state enterprise bidding and high standard market. The license also helps the image of product reliability and enhances marketing efforts. Most power transformer customers highly consider manufacturers which have a recognized brand or licensed manufacturing process. During the past three years, approximately 60% of TRT’s revenues were from its own brand, whereas 36% came from power transformers produced under the Siemens license. To continue to gain orders from customers, TRT expects to extend the license contract with Siemens after the contract expires in November 2011.

Table 3: TRT’s Revenue Breakdown by Brand

Unit: % Revenue 2005 2006 2007 2008 2009 Jan-Sep

2010 Tirathai 66 66 70 57 64 58 Siemens 32 28 20 40 30 38 Fuji 2 6 10 3 6 4 Total revenue from sales of goods

100

100

100

100

100

100

Total revenue from sales of goods (Bt mil.)

1,036

1,567

1,354

2,028

2,147

1,077

Source: TRT

� High barriers to entry for power transformer Since the production of power transformer is

more complicate than distribution transformer, technical know-how is needed in manufacturing the power transformer. Additionally, reference requirement from well-recognized international licensor is considered to be crucial to enter the new market of power transformer. Customers prioritize manufacturer who has accepted track record with good reputation as power transformer is high valuable and an important component in generating electricity. Manufacturer needs to have good relationship to achieve orders from existing



and new customers. Huge investment cost required also creates high barrier to entry for power transformer market. Currently, there are three power transformer manufacturers in Thailand; only TRT is local power transformer manufacturer.

FINANCIAL ANALYSIS TRT’s financial profile has improved since

2007. Higher profitability is a benefit of efficient cost control. The level of debt has remained at a satisfactory level, below 50% of total capitalization. A low financing burden enhances liquidity and cash flow protection.

� Profitability rises from efficient cost control

Before 2007, TRT maintained a quoted selling price for three to six months after receiving an order because customers had high bargaining power and the prices of the main raw materials were not so volatile. TRT’s ability to command a high profit margin was low. In 2007, the prices of some main raw materials began to be unpredictable. Consequently, the policy of adjusting selling prices every 15 days was replaced. To mitigate the risk of fluctuating raw material prices, TRT set selling prices based on the cost plus method. Accordingly, the risk from raw material price rises is passed through to customers. The company’s gross margin improved to 26%-29% of total revenue from 2007 through the first nine months of 2010, rising from 20%-25% during 2002-2006. The operating margin before depreciation and amortization also improved to 14%-16%, up from 10%-13% during the same period. The pretax return on permanent capital was satisfactory at 20%-29% during 2007-2009, however, dropping to 11.29% (non-annualized) in the first nine months of 2010 from 13.44% (non-annualized) in the same period of 2009. Profitability is expected to be at an acceptable level although the company competes with internationally known manufacturers of power transformers. Intense competition in distribution transformers could hurt its overall profit margin.

� Leverage to remain at an acceptable level The company normally finances its working

capital with short-term bills of exchange (B/Es) and trade finance credit facilities from banks. Six-month B/Es are backed up by undrawn credit lines and TRIS Rating expects the company to maintain the efficient cushion at all time. Long-term loans are used to repay debts from restructure and for long-term investments. Total debt declined to Bt445 million as of September 2010 from Bt685 million at the end of 2009. The lower debt level resulted from repayments of short-term borrowings from banks. Accordingly, the total debt to capitalization ratio reduced to 32.92% at the end of the third quarter of 2010 from 46.66% as of December 2009.

Although TRT’s financial leverage is satisfactory at the current level, it is likely to deteriorate as the company plans to grow. The investment in a new distribution transformer plant in 2012 or other future investment may drive leverage higher. TRIS Rating expects that the debt to equity ratio will be less than two times as is the company policy.

� Lower debt level strengthened cash flow

protection Funds from operations (FFO) slightly

decreased to Bt190 million during the first nine months of 2010 from Bt205 million during the same period of 2009 following a drop in revenue. Despite lower FFO, the drop in debt strengthened cash flow protection. The ratio of FFO to total debt was 42.79% (non-annualized) in the first three quarters of 2010, stronger than 29.48% (non-annualized) in the same period of the previous year. The earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio was 8.71 times in the first nine months of 2010, higher than 6.81 times in the same period of 2009. The company’s liquidity is sufficient, supported by collateral deposit of around Bt200 million and unused committed facilities of Bt1,089 million as of September 2010.



Financial Statistics and Key Financial Ratios*

Unit: Bt million ----------------Year Ended 31 December --------------- Jan-Sep

20102009 2008 2007 2006 2005

Sales 1,132 2,223 2,106 1,409 1,642 1,079 Gross interest expense 21 37 69 37 41 35 Net income from operations 111 213 203 122 77 73 Funds from operations (FFO) 190 335 344 244 116 142 Capital expenditures 35 20 46 18 16 25 Total assets 1,674 1,967 1,916 1,307 1,325 952 Total debt 445 685 512 406 621 483 Shareholders’ equity 906 784 665 498 402 167 Operating income before depreciation and amortization as % of sales

15.03 14.04 15.74 15.24 9.90 12.98

Pretax return on permanent capital (%) 11.29 ** 23.02 29.30 19.72 15.83 15.49 Earnings before interest, tax, depreciation and

amortization (EBITDA) interest coverage (times) 8.71 9.23 4.89 6.35 4.30 4.23

FFO/total debt (%) 42.79 ** 48.92 67.25 60.09 18.70 29.46 Total debt/capitalization (%) 32.92 46.66 43.50 44.91 60.73 74.27

* Consolidated financial statements ** Non-annualized



Rating Symbols and Definitions TRIS Rating uses eight letter rating symbols for announcing medium- and long-term credit ratings. The ratings range from AAA, the highest

rating, to D, the lowest rating. The medium- and long-term debt instrument covers the period of time from one year up. The definitions are: AAA The highest rating, indicating a company or a debt instrument with smallest degree of credit risk. The company has extremely strong

capacity to pay interest and repay principal on time, and is unlikely to be affected by adverse changes in business, economic or other external conditions.

AA The rating indicates a company or a debt instrument with a very low degree of credit risk. The company has very strong capacity to pay interest and repay principal on time, but is somewhat more susceptible to the adverse changes in business, economic, or other external conditions than AAA rating.

A The rating indicates a company or a debt instrument with a low credit risk. The company has strong capacity to pay interest and repay principal on time, but is more susceptible to adverse changes in business, economic or other external conditions than debt in higher-rated categories.

BBB The rating indicates a company or a debt instrument with moderate credit risk. The company has adequate capacity to pay interest and repay principal on time, but is more vulnerable to adverse changes in business, economic or other external conditions and is more likely to have a weakened capacity to pay interest and repay principal than debt in higher-rated categories.

BB The rating indicates a company or a debt instrument with a high credit risk. The company has less than moderate capacity to pay interest and repay principal on time, and can be significantly affected by adverse changes in business, economic or other external conditions, leading to inadequate capacity to pay interest and repay principal.

B The rating indicates a company or a debt instrument with a very high credit risk. The company has low capacity to pay interest and repay principal on time. Adverse changes in business, economic or other external conditions could lead to inability or unwillingness to pay interest and repay principal.

C The rating indicates a company or a debt instrument with the highest risk of default. The company has a significant inability to pay interest and repay principal on time, and is dependent upon favourable business, economic or other external conditions to meet its obligations.

D The rating for a company or a debt instrument for which payment is in default. The ratings from AA to C may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within a rating category. TRIS Rating’s short-term ratings focus entirely on the likelihood of default and do not focus on recovery in the event of default. Each of

TRIS Rating’s short-term debt instrument covers the period of not more than one year.The symbols and definitions for short-term ratings are as follows: T1 Issuer has strong market position, wide margin of financial protection, appropriate liquidity and other measures of superior investor

protection. Issuer designated with a “+” has a higher degree of these protections. T2 Issuer has secure market position, sound financial fundamentals and satisfactory ability to repay short-term obligations. T3 Issuer has acceptable capacity for meeting its short-term obligations. T4 Issuer has weak capacity for meeting its short-term obligations. D The rating for an issuer for which payment is in default.

All ratings assigned by TRIS Rating are local currency ratings; they reflect the Thai issuers’ ability to service their debt obligations, excluding the risk of convertibility of the Thai baht payments into foreign currencies.

TRIS Rating also assigns a “Rating Outlook” that reflects the potential direction of a credit rating over the medium to long term. In formulating the outlook, TRIS Rating will consider the prospects for the rated company’s industry, as well as business conditions that might have an impact on the fundamental creditworthiness of the company. The rating outlook will be announced in conjunction with the credit rating. In most cases, the outlook of each debt obligation is equal to the outlook assigned to the issuer or the obligor. The categories for “Rating Outlook” are as follows: Positive The rating may be raised. Stable The rating is not likely to change. Negative The rating may be lowered. Developing The rating may be raised, lowered or remain unchanged.

TRIS Rating may announce a “CreditAlert” as a part of its monitoring process of a publicly announced credit rating when there is a significant event that TRIS Rating considers to potentially exerting a substantial impact on business or financial profiles of the rated entity. Due to an insufficient data or incomplete developments of the event, such as merger, new investment, capital restructuring, and etc., current credit rating remains unchanged. The announcement aims to forewarn investors to take a more cautious stance in investment decision against debt instruments of the rated entity. CreditAlert report consists of a “Rational” indicating warning reasons, a “CreditAlert Designation”, and a current credit rating. Rating Outlook is withheld in the announcement.

CreditAlert Designation illustrates a short-term rating outlook indicative of the characteristics of impacts on the credit rating in one of the three directions (1) Positive (2) Negative and (3) Developing.

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Tirathai Public Company Limited - trt-th.listedcompany.comtrt-th.listedcompany.com/misc/creditRating/... · 1/25/2011 · company’s leading position in transformer manufacturing

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