STA registers debenture upgrade

STA registers debenture upgrade

Tris Rating is upgrading Sri Trang Agro-Industry (STA) and the rating on STA's senior unsecured debenture to "A-" from "BBB+", and revising the rating outlook to stable from negative. The upgrade reflects STA's strengthened financial profile following the IPO of Sri Trang Gloves Thailand (STGT) on the Stock Exchange of Thailand (SET) in July 2020, and the expectation of an improvement in the company's operating performance the next few years.

The ratings continue to reflect STA's leading position in the natural rubber (NR) industry, its competitive edge in vertical integration and the strong track record of the management team, said Tris Rating. However, STA's business profile is constrained by the cyclical and volatile nature of NR prices, as well as the challenges the NR industry is facing amid a weak and highly uncertain global economy.

STA's capital structure strengthened significantly after STGT, a subsidiary of STA, successfully completed its IPO on the SET in July 2020 and received net proceeds of 14.6 billion baht from the fundraising.

STA's total debt-to-capitalisation ratio improved significantly to 11.3% as of June 2020 from 51.7% as of December 2019. Under the base-case scenario, STA's total debt-to-capitalisation ratio is projected to be in the 20%-30% range during 2020-2022.

STA's total operating revenue grew by 9% year-on-year to 32.8 billion baht in the first half of 2020. The revenue contribution from the glove segment rose to 27% following strong demand induced by the pandemic, compared with 20% in 2019.

STA's gross margin (including gains or losses from derivatives instruments) improved to 15.3% during the first six months of 2020, up from 6.6% over the same period of the prior year.

Tris Rating forecasts STA's total operating revenues will grow by 29% year-on-year in 2020, and will grow by 5% in 2021 and 1% in 2022.

Gross margin is expected to reach 22% in 2020, dropping to 10-12% per year in 2021-22. As a result, STA's earnings before interest, taxes, depreciation and amortisation margin is forecast to improve to 19% in 2020, then fall to 8-9% range per year in 2021-22.

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