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BANGKOK
RUBBER PCL
BRC
<Bt3.30>
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Recommendation
New
: SPECULATIVE
BUY
Previous : HOLD
Fair Value : Bt4.80
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Debt to
equity swap very positive, but earnings outlook still isn't
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Bangkok Rubber (BRC) informed
the SET this morning details of its debt restructuring plan.
The company will issue 83mn shares in a Bt1.4bn
debt-to-equity swap at Bt17 per share. When this deal is
completed by April, we estimate BRC's gearing ratio will
improve from 8.3x at the end of December to approximately
0.8x.
BRC's share price has hit the
30% ceiling in early morning trading to Bt4.28. Although
this is quite positive for BRC's shares, we caution
investors that Bt17 swap price does not reflect BRC's true
value and the company still faces fairly gloomy earnings
prospects for this year. Secondly, investors should be aware
that creditors swapping into equity could dump their shares
into the market, as we have recently seen in other shares.
Even after factoring in
interest savings from the debt restructuring, we have still
revised down our 2003 forecast by 30% from Bt309mn to
Bt218mn. Also, we have change our valuation method from DCF
projection to a PER multiple, which we believe is a more
suitable and conservative valuation on its reduced earnings
base. Assigning a 2003 PER of 4x and assuming full dilution
after debt-equity conversion, we value BRC shares at Bt4.80
apiece. We believe this is a fundamental base, however,
there remains a quite speculative element to this share.
Accordingly, we can only rate BRC as a SPECULATIVE BUY.
BRC earnings
forecast
|
Financial ratios |
1999 |
2000 |
2001 |
2002 |
2003F |
|
Sales (Bt mn) |
5,241 |
5,803 |
6,185 |
4,678 |
4,257 |
|
EBITDA (Bt mn) |
686 |
853 |
856 |
581 |
438 |
|
EBITDA margin (%) |
13.1 |
14.7 |
13.8 |
12.4 |
10.3 |
|
Normalized profit (Bt mn) |
(191) |
224 |
325 |
171 |
218 |
|
Net profit (Bt mn) |
(585) |
48 |
333 |
(1,828) |
218 |
|
EPS (Bt) |
(6.0) |
0.5 |
3.4 |
(18.8) |
1.2 |
|
PER |
N.A. |
25.3 |
1.0 |
N.A. |
2.7 |
|
EV/EBITDA (x) |
6.1 |
4.8 |
4.7 |
5.3 |
4.1 |
|
Gearing (x) |
1.6 |
1.5 |
1.5 |
8.3 |
0.8 |
|
ROA (%) |
(6.5) |
0.6 |
4.1 |
(29.2) |
4.8 |
|
ROE (%) |
(17.6) |
1.6 |
11.7 |
(116.8) |
18.3 |
*2003 EPS is based on full dilution of 180.5mn shares after debt-equity
swap
A couple of weeks ago, BRC announced a
disappointing 2002 net loss of Bt1,828mn due to Bt2,003mn in provisions and
write-offs from 1) long-term loans and interest receivables to a related
company of Bt1,686mn, 2) guarantee obligations to related companies of
Bt224mn, 3) write-off of obsolete stock written off of Bt64mn and 4)
allowance for obsolete stock of Bt29mn totaling of Bt2,003mn.
Excluding the extraordinary items, BRC still
posted 47% yoy decline in normalised earnings to Bt171mn. Revenues fell 24%
yoy as a result of decreasing orders from Nike following the economic
slowdown in the US and the appreciation of the baht. Gross margins narrowed
from 13% to 10%.
BRC quarterly income
statement (Bt mn)
|
Income Statement (Mn Bt) |
4Q02 |
3Q02 |
QOQ |
4Q01 |
YOY |
FY01 |
FY02 |
% |
|
Sales |
886 |
1,013 |
(13%) |
1,034 |
(14%) |
6,185 |
4,678 |
(24%) |
|
COGs |
812 |
923 |
(12%) |
1,003 |
(19%) |
5,365 |
4,199 |
(22%) |
|
Gross profits |
74 |
90 |
(18%) |
31 |
141% |
820 |
479 |
(42%) |
|
Gross margin (%) |
8% |
9% |
N.A. |
3% |
N.A. |
13% |
10% |
N.A. |
|
SG&A |
90 |
72 |
25% |
83 |
8% |
571 |
342 |
(40%) |
|
EBITDA |
72 |
120 |
(40%) |
58 |
24% |
856 |
581 |
(32%) |
|
EBITDA margin (%) |
8% |
12% |
N.A. |
6% |
N.A. |
14% |
12% |
N.A. |
|
Interest expense |
30 |
59 |
(48%) |
62 |
(51%) |
333 |
218 |
(34%) |
|
Net profit before extra item |
(16 ) |
9 |
N.A. |
(62) |
(74%) |
325 |
171 |
(47%) |
|
Extra ordinary gain (loss) |
|
|
|
|
|
|
|
|
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- Forex gain (loss) |
1 |
(7 ) |
N.A. |
3 |
(64%) |
8 |
4 |
(52%) |
|
- Other (loss) |
(847 ) |
(5 ) |
16840% |
(53) |
1501% |
1 |
(2,003 ) |
N.A. |
|
Net profit |
(862 ) |
(3 ) |
26688% |
(112) |
667% |
333 |
(1,828 ) |
N.A. |
|
EPS (Bt) before extra item |
(0.16) |
0.09 |
N.A. |
(0.64) |
(74%) |
3.33 |
1.76 |
(47%) |
|
EPS (Bt) |
(8.84) |
(0.03) |
26688% |
(1.15) |
667% |
3.42 |
(18.75) |
N.A. |
Investors should notice that
the auditor did not provide a comment on the financial
statement for the year ending December 2002 due to
uncertainties regarding the liabilities under the
debt-restructuring plan. The major concern has been
liabilities arising from law suits brought about by banks
and financial institutions totaling Bt3,762mn in loan
guarantees BRC issued on behalf of its related companies.
BRC has made a provision of only Bt171mn for these loan
guarantees.
As part of its
debt-restructuring plan, BRC has restructured loans to
related companies amounting to Bt3,478mn and has set a
provision for doubtful debt total of Bt1,755mn. There is the
chance that BRC may need to set higher provisions for its
remaining loans to affiliated companies.
We assume BRC will have to
set aside additional provisions this year, but will be able
to also book debt-restructuring gains. We have not yet
factored these into our forecasts.
We have, however, factored in
interest savings. We still expect BRC to face a difficult
operating environment due to further strengthening of the
baht and rising raw material prices, particularly natural
and synthetic rubber. We have reduced our 2003 forecast
normalised earnings by 30% from Bt309mn to Bt218mn.
BRC earnings revision (Bt mn)
| |
2002 |
2003F |
% |
| |
|
previous |
new |
change |
|
Normalised earnings |
171 |
309 |
218 |
-30% |
|
Normalised EPS |
1.76 |
1.71 |
1.21 |
-30% |
BRC is in the process of
restructuring total principal of Bt7,689mn and interest of
Bt2,230mn. Part of this plan involves a Bt1.4bn
debt-to-equity swap involving 83,001,047 shares at Bt17 (par
Bt10). After debt-to-equity swap, we expect its could help
the company to decrease outstanding debt around Bt1.4bn and
gearing would lower from 8.3x to 0.8x.
BRC
debt-equity swap by creditor group
|
Creditor
group |
Total
shares (Not exceed of) |
|
Financial institution
creditors |
66,004,559 |
|
Tax creditors |
9,770,840 |
|
Public utility
creditors |
124,666 |
|
Related companies
creditors |
7,100,982 |
|
Total |
83,001,047 |
Group of creditors and amount of
debt (Bt mn)
|
Creditors |
Amount
of principal debt |
Interest |
|
1.Creditors supporting
revolving credit |
855.44 |
5.70 |
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2. Financial creditors |
2,032.16 |
428.00 |
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3. Creditors who issued
letters of guarantee |
118.60 |
0.30 |
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4. Guarantee obligation
creditors |
4,231.20 |
1,626.51 |
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5. Trade creditors |
0.00 |
0.00 |
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6. Tax creditors |
322.56 |
150.59 |
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7. Public utility
creditors |
7.82 |
0.53 |
|
8. Labor creditors |
0.26 |
0.36 |
|
9. Related companies |
120.72 |
17.58 |
|
Total |
7,688.76 |
2,229.57 |
Source : BRC
Methods of repayment and group of
creditors
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Methods of debt restructuring |
The creditors applying for
method of debt restructuring |
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1. Creditors will receive repayment of debt as per
the existing contract and/or agreement |
Group 1 and 5 |
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2. Creditors agree to discharge BRC from accrued
interest and other fees |
Group 2, 3, 4, 6, 7, 8 and 9 |
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3. Creditors will receive repayment of principal of
debt from operational cash flow, not more than the
amount of Bt2,200mn, together with interest within
10yrs from the date on which the court approves the
plan |
Group 2, 3, 4, 6 and 7 |
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4. Creditors will receive repayment of principal of
debt in cash derived from BRC ‘s exercising claim
based on evidence of loan owed by affiliates, not more
than the amount of Bt300mn, together with interest
within 10yrs from the date on which the court approves
the plan |
Group 2, 3, 4, 6 and 7 |
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5. Creditors will receive repayment of principal by
debt to equity conversion, for debt not more than the
amount of Bt1,290mn, at the price of Bt17 per share
within 150 days from the date on which the court
approves the plan |
Group 2, 3, 4, 6, 7 and 9 |
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6. Creditors will receive repayment of principal
out of the proceeds from sale of assets of affiliates
against which BRC exercise claim under the relevant
loan agreements executed with affiliates, and by way
of assumption of right under the relevant guarantees,
not more than the amount of Bt600mn, without interest,
within 5yrs from the later of the date on which the
court approves the plan and the date on which the
court issues final order to receive repayment of debt |
Group 2, 3, 4, 6 and 7 |
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7. Creditors agree to suspend principal, not more
than the amount of Bt370mn, for repayment from excess
cash flow for a period of 10yrs without interest. If
BRC is able to make repayment in the amount of not
less than 50% of this portion of debt, creditors agree
to discharge BRC from the whole remaining debt. |
Group 2, 3, 4, 6 and 7 |
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8. Creditors will receive repayment of principal
from cash flow of the company, not more than the
amount of Bt256,090, without interest within 1yr from
the later of the date on which the court approves the
plan and the date on which the court issues final
order to receive repayment of debt |
Group 8 |
Source : BRC
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Analyst:
Kitichan Sirisukarcha (Ext. 1570)
Email: kitichan.s@kimeng.co.th
If you have
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Copyright © March 2000,
Kim Eng Securities (Thailand) PLC. All rights reserved.
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