Sri Trang Agro Industry (STA), Thailand's major exporter of natural rubber, has targeted to increase its global market share to 20% over the next five years, as it forecasts long-term strong rubber demand from emerging markets.
"Thailand has the potential to grow its natural rubber segment as we are a major supplier of rubber alongside Indonesia, Vietnam, and India, who are also major rubber producers in the global market," said STA director Veerasith Sincharoenkul.
Since the natural rubber market is expected to grow by 3% annually, the company has set a target to increase its global market share to be 20% in the next five years, he said.
STA is a major supplier to the global natural rubber market, controlling a 12% stake in the global market share, with global rubber production registering at 12 million tonnes a year. It has 33 natural rubber factories and four medical rubber glove factories in Thailand and neighbouring countries.
The company plans to play an aggressive role in this niche market since it expects high gross margins and strong growth in demand over the next ten years as people become more concerned about hygiene, especially in emerging markets.
However, rubber prices are well below the 148 baht per kilogramme seen in 2011, when they hit a record high due to strong demand at a time when oil prices were surging, pushing up the price of synthetic rubber, an alternative to petroleum-based rubber.
The recent natural rubber price dip is due largely to an export halt from China, the world's biggest rubber consumer, in the past few months. China imported a lot of rubber during the first quarter, when prices slumped, leaving millions of tonnes of imported rubber at the port of Qingdao.
"Rubber gloves contributes to only 10% of the total revenue but it has a double-digit gross margin, while the margin of natural rubber is 1-3%," said Mr Veerasith.
Global demand amounts to around 200 billion pieces of medical rubber gloves per year and a conservative growth estimate is projected at 6-8% annually, according to Mr Veerasith.
STA has 7% of the global medical rubber gloves market, with a production capacity of 14 billion pieces of medical rubber gloves annually.
The company is ranked among the top five medical rubber glove producers, a category which sees the top 10 dominated by Malaysian companies.
STA reported a total revenue of 77.27 billion baht and a net loss of 758 million baht in 2016.
The business expansion plan came before STA share prices dropped after the announcement of a capital increase by issuing 256 million shares following concerns about debt repayment.
"The net debt-to-equity ratio at the end of the first quarter was 1.86 times, which is quite high compared with 1.5 times, a level that many companies with good management usually maintain. Hence the company has raised new capital to keep the [debt] ratio [down]," Capital Nomura Securities analyst Ploenjai Jirajarus said.
Market sentiment responded negatively to STA raising capital for debt-servicing, she said.
On Monday, the STA board approved a capital increase through issuing 256 million new shares, which will be offered to existing shareholders at a ratio of five existing shares for one new share at 10 baht per share, raising 2.56 billion baht. Total new registered capital is valued at 1.54 billion baht, from 1.28 billion previously.
The company aims to spend 1.5 billion baht to repay the loan it took out to acquire Sri Trang Gloves Thailand, and repay 500 million baht in short-term debt by this year.
STA will spend 150 million baht in the first quarter of 2018 to invest in Chinese and US medical rubber glove distributors. The will expand natural rubber manufacturing in Thailand and Indonesia, worth a combined 410 million baht, by the fourth quarter of 2018.
STA shares closed yesterday on the Stock Exchange of Thailand at 12.80 baht, up 10 satang, in trade worth 135 billion baht.