TRIS Rating Co., Ltd. has affirmed the company rating of I.C.C. International PLC (ICC) at “AA” with “stable” outlook. The rating reflects ICC’s position as Thailand’s leading distributor of lingerie, men’s apparel, and cosmetics; capable management team; a diverse portfolio of products and brands; and solid relations with department stores and discount stores. The rating also takes into consideration the debt free position under the conservative financial policy and the operating stability. However, the rating is restrained by the low profitability typically associated with trading companies, and the complex shareholding structure of the Saha Group.
The “stable” outlook reflects TRIS Rating’s expectation that ICC will sustain its solid market positions across its product lines, despite intense competition. A diverse product portfolio and conservative financial policy helps support the company’s credit quality. Future investments, if aggressively made, could be negative to the credit rating.
TRIS Rating reported that ICC is one of Thailand’s largest wholesalers and distributors which markets and distributes consumer products, particularly lingerie, apparel, and cosmetics. The company offers more than 80 brands covering international licensed brands and its own brands. The international brands under the ICC umbrella, such as Wacoal, Arrow, Lacoste, Guy Laroche, and ELLE, are well-accepted by Thai consumers. ICC’s products are available in department stores, discount stores and shops in more than 3,700 locations nationwide. The competence and experience of ICC’s management team, together with support from suppliers within the Saha Group, have allowed the company to maintain its market-leading positions.
The three major contributors to ICC’s top line are lingerie, men apparel, and cosmetic. During the last three years and the first quarter of 2011, lingerie and men apparel each generated around 26%-28% of ICC’s total revenue, while cosmetic provided approximately 13% contribution. In lingerie segment, ICC has dominated the middle- to high-end lingerie market, with a combined market share over 60% in 2010, measured by sales through department stores. Wacoal has remained as a leading lingerie brand more than a decade with the market share of 56% in 2010. Although gradually declining over the years due to aggressive competition and new brand launches, Wacoal’s market share was more than double of the second largest competitor. The Wacoal product line alone has generated 21%-22% of total sales since 2008. The strength of ICC’s men apparel segment is derived from Lacoste and Arrow which contributed average 10% and 8% of ICC’s total sales, respectively. BSC Cosmetology, ICC’s own brand, is the core product in the cosmetics segment with annual sales of approximately Bt750-Bt800 million for the past three years.
TRIS Rating said, ICC recorded a revenue increase of 6.1% in 2010 and 14.7% year-on-year
(y-o-y) in the first quarter of 2011. The increase has been supported by the improving economic sentiment since the second half of 2010. In addition, this result is in line with the management’s initiative to challenge for an aggressive growth. ICC is expected to enforce more active marketing campaign, expand market coverage, and continue product development. One critical factor which must be monitored is operating costs. By nature, operating costs are fairly high and squeeze the profitability of the trading business. Moreover, a promotional and marketing expenses is necessary to impulse demand for consumer products. After a drop of ICC's operating margin to 4.9% in 2009 affected by hamburger crisis and domestic political turmoil, it was gradually improved to 5.9% in 2010 and 7.4% for the first three months of 2011. Thanks to the support of supply chain within the Saha Group and the well diversified product portfolio, ICC's operating margin was, at some extent, sustained in the range of 6%-7% during the past decade.
ICC’s financial profile and liquidity remain strong, underpinned by its debt-free position and stable operating cash flow. ICC has continued a very conservative financial policy as the company has had no major capital investment since 2002. ICC has made some guarantees to related companies in order to strengthen its supply chain. The total amount of outstanding guarantees was gradually reduced and remained at Bt152 million at the end of March 2011. Funds from operations (FFO) amounted to Bt833 million in 2009 and Bt863 million in 2010. FFO for the first three months of 2011 was Bt223 million, up
34% from the same period in the prior year. The return on permanent capital has remained low since ICC has continued to build up its equity base over the years and has maintained a moderate dividend payout. However, for the first three months of 2011, ICC’s pretax on permanent capital ratio improved to 2.4% (non-annualized), up from 1.6% (non-annualized) for the same period a year earlier.
In April 2011, ICC invested in Issara United Co., Ltd. (Issara United), a property developer. The share purchase was made in order to develop seaside condominium and resort in Cha-am-Hua Hin. The investment is in a total amount of Bt19.99 million or 25% of Issara United’s paid up capital. Two other investors joint ICC in this project: Charn Issara Group purchased a 50% stake, and Saha Pathanapibul PLC (SPC) bought a 25% stake. From ICC’s viewpoint, the project is expected to provide benefits in two ways: dividend income, and the chance to explore business opportunities in the real estate development industry.
In TRIS Rating's view, entering the property development business investment could expose ICC to more risk. The residential property industry is intensely competitive. The Hua Hin area has long been popular and most major developers are already established. ICC has to rely on the partner’s expertise to develop the project. Finally, any future financial support for the property development venture, such as debt financing or contributing additional equity capital, may be needed. TRIS Rating expects that any future financial support in the project or further investments should be prudently considered so as to maintain ICC’s conservative financial policy and maintain an ample liquidity reserve at all times.
ICC and other Saha Group companies have a complex cross-holding structure. TRIS Rating expects that all transactions between ICC and companies in the group should conform to the regulations of the Stock Exchange of Thailand (SET) and the Securities and Exchange Commission (SEC). -- End
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