Other markets beckon if rise refused

Thailand's leading soybean processor, Thai Vegetable Oil (TVO), yesterday hinted it could shift its sales focus from the domestic market for soybean cooking oil if the Commerce Ministry rejected its application for a big price hike.

TVO plans to ask Internal Trade Department for permission to increase the retail price of its A-ngoon-brand bottled soybean cooking oil by Bt8.5 per litre bottle next month, which would push the price up from Bt49 per bottle to Bt57.50.

At present, the A-ngoon brand controls 57 per cent of the domestic cooking-oil market.

However, executive director Sethasan Sethakarun said there would be only a slight effect on the company's revenue if the request was turned down. He said company was flexible and could shift sales of its soybean oil to any one of four channels: the food industry, domestic consumers, exports or non-food (biofuel) industries, whichever offered the greater margin.

The company was able to allow the world market for soybean oil to drive its growth, since it was a commodity in demand for food use and biofuel use. The revenue contribution from domestic cooking oil sales was only 13 per cent of TVO's total sales, he said.

Sethasarn said the company needed to increase its retail prices because new supplies of imported soybean materials were about to be delivered to the company at a cost of US$600 (Bt20,100) per tonne. Old stock was priced at $540 per tonne.

"Under the company's business strategy, we have room to manage revenue contributions from other channels, such as exports and non-food industries," he said.

TVO's revenue comes from two products: soybean meal and soybean oil. About 62 per cent by value comes from soybean meal and the other 38 per cent from soybean oil products. Of the latter, 13 per cent comes from domestic sales, mostly of bottled cooking oil.

In response to market demand bolstered by increasing food and biofuel use, TVO has spent Bt2.2 billion to expand its soybean-processing capacity by 2,000 tonnes a day. The new facilities are expected to begin operation in 2010.

At present, the company's three soybean-processing plants in Thailand are running near full capacity at 4,000 tonnes per day.

Part of the investment in expansion will come from an issue of capital-increase shares. The company has announced plans to increase its paid-up capital by Bt185 million to Bt809 million. Fifty million of the new shares, at a par value of Bt1, will be allocated for existing shareholders. The share-offer price has not yet been fixed.

Last year, TVO posted sales of Bt18.23 billion and a net profit of Bt1.26 billion. In this year's first quarter, it recorded Bt5.76 billion in sales for a net profit of Bt585 million.