TRIS Rating Co., Ltd. has assigned the company rating of Oishi Group PLC (OISHI) at “A-” with “stable” outlook. The rating reflects the leading position of OISHI in the Thai ready-to-drink (RTD) tea market, a well-recognized brand, and a healthy balance sheet. The rating also takes into consideration the support from OISHI’s parent company, Thai Beverage PLC (ThaiBev), on an extensive distribution network and the improvement of production facilities. These strengths are partially constrained by an intense competition, high product substitution, and volatile raw material prices. While beverages segment has an access on the nationwide coverage, the market coverage of food segment is considered moderate compared with the peers in chained restaurant industry. The “stable” outlook is based on the expectation that OISHI will be able to maintain its brand equity and strengthen its competitive edge in both food and beverages segments. The future investment, if any, shall be considered to maintain financial strength and sufficient liquidity at all time.
TRIS Rating reported that OISHI was founded in 1999 to start a Japanese restaurant under its own brand “Oishi”. In 2003, the company expanded to produce “Oishi” green tea. In 2006, the Sirivadhanabhakdi family purchased 40.2% of OISHI’s shares from OISHI’s founder. Since 2008, ThaiBev has become OISHI’s major shareholder with over 89% stake by acquiring OISHI’s all shares held by the family and making a tender offer. OISHI operates in two main segments: food and non-alcoholic beverages by leveraging its core brand "Oishi" and focusing on a Japanese style. Beverages segment averagely contributed 55% of OISHI's total revenue and the remaining is from food segment. The company is the market dominant with 60% market share in Thai RTD tea market through "Oishi green tea" product line. The company's beverages product extends to functional drink "Amino Plus", RTD coffee "Oishi Coffio", and newly launched sparkling green tea "Chakulza by Oishi". Green tea is a key contributor accounted over 90% of the beverages sales. The company has emphasized on production innovation and new market segment. For example, Chakulza has crossed category to carbonate drink which is the largest segment in soft drink industry.
For the food segment, the company operates a Japanese restaurant chain, makes frozen and chilled food, and has a food delivery and catering business. OISHI restaurants are well known in Japanese buffet style under brand "Oishi Buffet"; "Oishi Express"; and most popular "Shabushi", serving a shabu-shabu and sushi buffet. The company also offers a Japanese noodle under "Oishi Ramen" and operates a franchise Japanese udon and soba restaurant "Kazokutei". As of June 2011, the company had totally 115 outlets of restaurants mainly clustered in Bangkok. The revenue from the restaurants averagely constitutes over 80% of the food revenue. The company's strategy for food segment is to expand its outlets to increase the market coverage and at the same time to offer variety types of food, i.e., light snack, all-day dining and so on. OISHI has two main plants in Navanakorn and Amata Nakorn industrial estates with a combined annual production capacity of 258 million liters of beverages as of 2010. Navanakorn plant also serves as a central kitchen for food segment.
TRIS Rating said, OISHI receives a great deal of support from its parent. Since September 2010, ThaiBev appointed a full management team to reorganize OISHI's operation and plan for the improvement of its production facilities in order to cope with growing demand. ThaiBev can also leverage its strong distribution network to enhance OISHI’s market coverage nationwide especially in the green tea segment which underpins its market-leading position. OISHI's business profile is further strengthened by its ability to launch new products, its bargaining power in raw material procurement, and economies of scale in production.
The food and beverage industry is considered intensely competitive, with a large number of competitors and the ease of product substitution. Marketing activities and promotional campaigns are often used to boost demand. The RTD tea segment has shown impressive growth during the last five years, luring new competitors as the barriers to entry are fairly low. In the second half of 2011, two new green tea brands from fairly strong rivals were introduced. Competition has intensified, especially price cutting. OISHI has successfully introduced new products and offered attractive marketing campaigns such as Japan tour campaign. However, OISHI will be challenged to continue to initiate efficient campaigns to maintain its leadership position. In the restaurant industry, the Thai market has various established and well-recognized chain restaurants brand, including local brands and international franchises. The major operators have built a large number of outlets. With its moderate market coverage and brand equity, OISHI has good growth prospects in the restaurant segment. However, OISHI faces challenges to find good locations, and continue to develop quality products and capture customer preferences.
OISHI’s revenue has grown strongly over years, rising from Bt3,950 million in 2006 to Bt9,187million in 2010, accounted for a compound annual growth rate (CAGR) of 23.5%. The growth was derived from rising beverage demand, food outlet expansion, and the annual OISHI Japan Tour campaign and marketing activities. Total revenues for the first six months of 2011 was Bt4,926 million, an increase of 11.7% year on year (y-o-y). The contribution from beverage segment was 59% of total revenues, while the food segment generated 41% of revenue. The rising sales was partly driven by the launch of Chakulza. In terms of profitability, the operating margin before depreciation and amortization as a percentage of sales during 2008 through the first half of 2011 was fairly stable at the level of 15%. Although the prices of key raw materials increased, OISHI’s good relationship with suppliers and some medium- to long-term contracts helped mitigate the fluctuate in production cost. Going forward, operating margins will be under pressure, given the rising prices of raw materials and a limited ability to increase prices due to intense competition. However, the new production technology, the Cold Aseptic Filling (CAF) production line for beverages, is expected to sustain OISHI’s cost competitiveness.
OISHI’s financial strength is underpinned by a healthy balance sheet and sufficient liquidity. The funds from operations (FFO) significantly improved from Bt467 million in 2006 to Bt1,454 million in 2010, and stayed at Bt733 million for the first six months of 2011. OISHI’s leverages is considered low which the total debt outstanding was Bt850 million at the end of June 2011. The FFO to total debt ratio was abnormally high at 242% in 2010 and was 86% (non-annualized) for the first six months of 2011. The debt to capitalization ratio ranged from 18%-23% during 2010 through the end of June 2011. As the company has an investment plan to expand its factories, capital expenditures over the next three years are estimated to be Bt1,200-Bt1,600 million per annum. The leverage is expected to rise in the medium term, said TRIS Rating. -- End
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