Management Discussion and Analysis
Management Discussion and Analysis Yearly Ending 31 December 2022
Management Discussion & Analysis
The 2022 operating results of Chow Steel Industries Public Company Limited and its subsidiaries ("the Group") reflect the result of investment in subsidiaries engaged in overseas renewable energy business. The Group recorded a total investment gain of Baht 1,425 million, which is in line with the Group's business strategy. The Group more invested in renewable solar systems in Thailand due to rising of electricity prices. The Group has been selected to generate and distribute electricity in accordance with the Power Purchase Agreement (PPA) and Engineering Procurement and Construction (EPC) contracts from business partners in various business areas. The group is ready in all respects e.g., it has more than 10 years of experience in solar power plant developers, knowledgeable staff and source of fund to support the company's operations and grow steadily and sustainably together with business partners. Based on the above operational strateges, the Company has a solar power project with a total capacity of Commercial Operation Date (CCD) 30.56 MW(DC) (The projects COD in the Q4'2022 total 23.9 megawatts). The Group also has solar power plant projects under construction waiting for COD in 2023 in both Thailand Japan and Australia.
The Steel Business improved year-on-year in terms of demand for steel in the Thailand's market. The company also expanded a new business area, trading, by leveraging its own knowledge and experience from more than 20 years in the steel business. As a result, the steel business is generating additional profits from trading unit. OEM service, where the Group has improved the production process and added new steel products since 2021, is leading to more production orders both in terms of production volume and more finished product in 2022.
Cryptocurrency Business, the Group has started a new cryptocurrency business with low CAPEX costs for the cryptocurrency mining system, including facilities and network, for the Group's long-term profit opportunities. However, the vulnerability to market volatility resulting from the efforts to reduce the inflation rate in oversee has led to a decline in the market price of all cryptocurrencies. The Group has set up allowance for the value of cryptocurrency coins and cryptocurrency system to reflect the current market price in accordance with the accounting standard.
The Group's overall performance showed a net profit of Baht 1.165.74 million for 2022, an increase from the previous year's loss of Baht 112.44 million. The EBITDA of Baht 1,479.38 million reflects the business strategy of the Group and ready to prosper in the current business and the possibility of making profits when new business opportunities arise.
The Group Performance Analysis
|Consolidated Operating Results||YTD 31 December 2022 (Mb)||YTD 31 December 2021 (Mb)||Changes|
|Steel and othes BU||Renewable Energy BU||Total||Steel and othes BU||Renewable Energy BU||Total||Mb||%|
|Revenue from sales and services||1,138.31||243.81||1,382.12||194.26||862.32||1,056.58||325.55||30.81%|
|Less: Cost of sale and services||(1,024.22)||(180.01)||(1,204.23)||(80.72)||(568.57)||(649.29)||(544.94)||85.47%|
|% Onus Profit Margin fa Revenue||10.0%||48.8%||12.9%||58.4%||34.1%||38.5%||-25.7%|
|Gain on sales of investments in subsidiaries and solar power plants||-||1,425.28||1,425.28||4.05||47.46||51.51||1,373.77||2667.13%|
|Share of loss from investments in joint ventures||-||(0.41)||(0.41)||-||(0.21)||(0.21)||(0.20)||-97.62%|
|Grain (loss) on exchange rate||(2.11)||63.15||61.04||(2.12)||(1.27)||(3.40)||64.44||-1896.94%|
|Profit before finance cost and income tax||26.72||1,265.45||1,292.17||63.67||211.22||274.89||1,017.28||370.06%|
|Net profit (loss) for the year||(16.68)||1,182.42||1,165.74||(41.43)||(78.02)||(112.44)||1,278.19||1136.73%|
|Earning (loss) per share (Baht per share)||1.28||(0.13)|
|Weighted average number of common shares (shares)||800.0||800.00|
In 2022, the Group has total revenue of Baht 1,382.13 million, increasing by Baht 325.55 million from prior year or 30.81% equivalent, Profit margin was Baht 177.90 million or 12.99% of revenue due to the sale mix of the Company were difference as follow:
Steel Business :
- Trading : Total trading revenue in current year was Baht 645.02 million compared to Baht 0.5 million in prior year. The revenue in this sector contributes additional margin for Baht 9.8 million
Renewable Energy Business :
- PPA oversea : Revenue from sale of electricity according to PPA contract in oversea significantly decreased according to strategic divestment investment in subsidiaries and solar power plant in Japan (capacity of 56.9 Megawatts) since 2021. The Group completely transferred the projects in mid of Q1'2022, the Group recognized revenue from sale electricity for 2 months in 2022 compared to 12 months in 2021.
- OEM : Revenue from OEM service increased from Baht 192.89 million in 2021 to Baht 473.01 million in 2022. The increasing was resulting from additional order received from customer In various type of products in which the Group have been Improved the production process in 2021.
- PPA domestic : The Group more success in operate solar power plant and reached to COD during Q4'2022 for another 23.9 Megawatts. As a result, more revenue from sale electricity recognized in this period. There are total of 30.5 Megawatts of Solar Power Plant in Thailand which already reached to COD as of 31 December 2022.
- EPC : รRevenue from solar consulting and installation, another area in which the company has expertise. In the current year, the company received more projects, which resulted in higher revenue recognition than in the previous year. In addition, in the current year, the company provides management and maintenance of power plant projects in Japan in a short period (4 months) for investors, resulting in additional revenue of Baht 4.2 million in 2022.
Cryptocurrency Business : Other revenue of Bah: 20.29 million in the current year comes front the provision of cryptocurrency mining services. They receive digital currency coins in return and sell the coin at the right time, Although the value of cryptocurrencies has been very volatile and declining in the current year. The company's still making profits from the operation of this unit, with a total profit of Baht 2.7 million in 2022.
Profit Margin : Overall, the company generated gross profit of Baht 177.9 million, representing a gross profit margin of 12.9%, which decreased year-on-year due to the sales mix of sales and gross profit margin. As a result, the total gross profit margin of the Company changes in the same way according to the main revenue and gross profit margin of the main revenue. In other words, in 2022, the Group's main revenues was the steel business (Equivalent to 81 percent of total revenues), which were made up of trading units and customized production units. And compared to 2021, the Group's actual main revenues were from electricity sales according to PPA agreement (76% of total revenues). The changes of profit margin were variance depending on the type of revenue.
Sale mix of the Group for the year 2022 and 2021 can be separate as follow:
Administrative expenses : Overall, selling, general and administrative expenses increased by Baht 218.65 million (YoY), mainly due to the renewable energy business, which incurred expenses for financial advisor, tax and legal, consulting expenses and other direct costs which were related to divestment of 4 investment in oversea subsidiaries and sold solar power plant project total of Baht 153.24 million. There were allowance for impairment specific to cryptocurrency mining system amount of Baht 36 million to reflect the declined of cryptocurrency coin market price according to accounting standard.
Gain on sale investments and solar power plants : The Group successful transferred 4 solar power plants under 4 investments in subsidiaries in Japan and recognized gain on divestment total of Baht 1,425.28 million in Q1' 2022 (2021: Baht (17.46 million). The divestment transaction was in accordance with the strategic operation of the Group.
Gain on exchange rate : Foreign exchange gains mainly derived from short-term loans from related parties granted in JPY currency by the Renewable Energy Business Unit. The THB currency appreciated by 10.2% against the JPY currency as of 31 December 2022, resulting in the Group recognizing foreign exchange gains and lower related party liabilities.
Financial expenses of the consolidated group of companies decreased by Baht 244.53 million, mainly due to the repayment of loans from financial institutions following the sale of power plants and subsidiaries in Japan and the repayment of debentures of group companies totaling of Baht 2,531 million, which reduced interest expenses.
Analysis of Consolidated Statement of Financial Position as of 31 December 2022
|Consolidated Statement of Financial Position||31-Dec-22||31-Dec-21||Changes||%|
|Non current Assets||2,320.87||2,201.77||129.40||5.9%|
|Total Liabilities and shareholders' Equity||4,702.97||9,898.99||(5,196.02)||-52.5%|
|- Current Ratio||0.94||0.86|
|- Debt to Equity Ratio||1.43||11.13|
|- Debt to Equity (adjusted)||0.71||9.69|
Noted: (Debt to Equity (adjusted): calculate by adjustment total debt deducted by bank deposits pledged as collateral for loans.
As at 31 December 2022. The Group's total assets and total liabilities were Bah: 4,702.97 million and Baht 2,766.90 million, which were decreased from prior year amounting to Baht 5,196.02 million and Baht 6,316.11 million, respectively. The decreasing can be analyzed as follow:
- The Group divestment and solar power plants in Japan according to the strategy operation. As a result, total assets decreased from these transactions total of Baht 6,114.30 million.
- The cashflow from sale of investment in subsidiaries and solar power plants had been utilized on
- Loan repayment to domestic and oversea financial institutions and payment liabilities related to the solar power plants in Japan. Resulting of total current liabilities decreased by Baht 7,288.27 million.
- the remaining cash in JPY currency were deposit in oversea financial institution and used them as collateral for credit facilities for the Group in Thailand. The credit facilities have been partially drawdown for working capital of the Group and support new investment for various type of business expansion.
- During the period, the Group have been supported by local financial institution on project finance of solar power plants project total of Baht 171 million.
As at 31 December 2022, total equity was Baht 1,936.08 million increased from prior year by Baht 1,120.09 million which resulting from strategic divestment of solar power plants in Japan.
Analysis of Consolidated Statement of Cash Flow
|Consolidated Statement of Cashflow||Mb|
|Cash flows used in operating activities||(431.59)|
|Cash flows from investing activities||1,878.90|
|Cash flows used in financing activities||(1,426.22)|
|Net cash flows from cash and cash equivalent (beore translation exchange rate)||21.09|
|Translation adjustments exchange rate||(66.68)|
|Net decrease in cash and cash equivalents||(45.59)|
|Cash and cash equivalents at beginning of period - Continued operation||107.04|
|Net cash and cash equivalents - Discontinued operation||6.23|
|Cash and cash equivalents at end of period - Continued operation||67.68|
Cash flow used in operating activities.
During the current period, the Group had cash outflow from operating activities of Baht 431.59 million, comprising cash flows from operating activities of Baht 233.41 million and interest and income tax paid of Baht 208.18 million.
Cash flow from investing activities.
The Group had cash inflow from investing activities of Baht 1,878.90 million, mainly comprised of cash proceed from sale of subsidiaries and solar power plants Baht 3,300 million, increasing of bank deposit for the purpose of bank collateral against loan facilities of the group at Baht 748.46 million and cash outflow for construction of solar power plant at Baht 645.98 million.
Cash flow used in financing activities.
The Group had net cash outflow from financing activities of Baht 1,426.22 million, resulting from repayment of loans from financial institutions, bond redemption and repayment of loans from third party amount of Baht 2,643.71 million. The Group had cash inflow from short term loan of Baht 1,070.76 million and long-term loan amount of Baht 171.75 million.