Khonburi Sugar plans shift towards ethanol business

Economy June 20, 2014 00:00

By The Nation

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Khonburi Sugar plans to invest Bt4.3 billion in ethanol business and expansion of its cane-processing capacity to boost revenue by 20-30 per cent in the next two years, targeting 10-per-cent growth for this year.

Khonburi is preparing to go on an overseas road show to attract investors amid Thailand’s improving business and investment climate. 
Company president Thaus Vanakornkul said it wanted to lower its heavy reliance on sugar for revenue by moving towards ethanol production because of strong demand for it as an alternative to petrol. Other sugar manufacturers have gradually turned towards ethanol business. The Bt4.3-billion investment will comprise two parts. 
First will be construction of an ethanol factory with production capacity of 200,000 litres per day, with investment of Bt1.18 billion. 
The remaining Bt3.12 billion will be used to increase cane-processing capacity by 12,000 tonnes a day. The construction will take 15 months. 
The Bt4.3-billion investment should help raise the company’s revenue by more than 50 per cent and boost gross profit margin to 25 per cent. The funds for this investment will come from financial institutions (Bt2.7 billion to Bt3.1 billion) and the remainder from the company’s working capital. 
Khonburi Sugar’s debt-to-equity (D/E) ratio would be at 1 time after the loan has been secured, well within the company’s maximum D/E limit of 1.5 times. As for this year’s operational results, the company expects the figures to improve with revenue growth of around 5-10 per cent over the Bt5.9 billion earned last year, thanks to improved quality of sugar cane this year, which resulted in a 10 per cent higher yield of 106-107 kilograms of sugar for 1 tonne of sugar cane. Sugar output this year is projected at 2.5 million tonnes, slightly lower than last year’s 2.55 million tonnes. 
The sugar price has passed its lowest mark for this year, and is currently 17 US cents per pound, up slightly from the lowest point of 14 cents a pound. 
Furthermore, the company will recognise proceeds of about Bt80 million from the sale of electricity to the Provincial Electricity Authority in the fourth quarter. This would boost this year’s gross profit to 21 per cent from last year’s 18 per cent. 
The outlook for improving sugar prices should enhance the appeal of sugar sector stocks. Hence Khonburi Sugar will participate in a road show hosted by Thanachart Securities in Singapore, where Khonburi’s modest business-operations scale and high growth rate might appeal to investors.