TRIS Rating has affirmed the company rating of Sub Sri Thai PLC (SST) at “BBB-”. The outlook remains “negative”. The rating reflects SST’s long track record in the warehouse industry, recurring income from document storage and warehouse rental fees. The rating is partially offset by the volatility and weak performance of SST’s soybean segment. The rating also takes into consideration the recent acquisitions of several international quick service restaurant chains: Dunkin’ Donuts, Au Bon Pain, and Baskin Robbins. The “negative” outlook reflects SST’s deteriorating financial profile after a series of acquisitions. However, the outlook could be revised back to “stable” if SST demonstrates its ability to integrate the newly acquired food businesses smoothly, and if SST gradually improves its capital structure. On the other hand, the rating could be downgraded if the company continues making losses and takes more time to restore the group’s financial position and operating performance.
TRIS Rating reported that SST was established in 1976 and was listed on the Stock Exchange of Thailand (SET) in 1987. The company initially operated warehouse and wharf businesses in Samutprakarn province and expanded its line of business to include document storage services. As of May 2012, the Chinthammit family and affiliates held 60.5% of SST’s total shares. Currently, the company is one of the leading providers of storage services for goods and documents. It owns and operates 51 warehouses and two wharfs, with a total storage area of 81,769 square meters (sq.m.). Nearly one-fourth of SST’s warehouse space is used for document storage, while 75% is used for goods warehousing. The amount of revenue generated by the storage segment has increased continuously over the past three years, rising from Bt195 million in 2009 to Bt217 million in 2011 and Bt109 million for the first half of 2012. However, the amount of earnings before interest, tax and depreciation (EBITDA) generated by the storage segment dropped by 33% to Bt84 million in 2011, compared with Bt125 million in 2010. The drop in EBITDA was because SST incurred a higher cost when it leased back the properties it previously sold to Sub Sri Thai Property Fund (SSTPF) for Bt33 million in 2011. The amount of EBITDA generated by the storage segment for the first half of 2012 was Bt43 million, excluding some extra expenses that SST incurred from acquiring the food business.
TRIS Rating said, in September 2011, SST acquired 100% ownership of Industrial Enterprises Co., Ltd. (IE); the producer of “TIP” brand vegetable oil. The equity investment was worth Bt200 million. As part of the acquisition, SST assumed Bt716 million in debt owed by IE after completing a rehabilitation process. After the acquisition, SST received the revenue from IE amounting to Bt82 million, but this business segment reported an operating loss of Bt22 million from September to December 2011. For the first half of 2012, IE recorded Bt62 million in revenue and an operating loss of Bt27 million. The operating loss in soybean segment was caused mainly by the flood in late 2011 and fluctuations in soybean prices. The flood caused a long halt in soybean crushing and oil production, as the production machines were damaged. However, most of the damages will be covered by insurance. As an energy crop and commodity product, soybean prices were notably volatile in 2011. In addition, soybean meal produced domestically has to compete with imported soybean meal from major producers in Brazil and Argentina.
In January 2012, SST acquired 100% of three firms, Mudman Ltd., Golden Donuts (Thailand) Co., Ltd. (GD), and ABP Caf? (Thailand) Co., Ltd. (ABP) for a total investment of Bt1,454 million. GD is the country’s master franchisee of “Dunkin’ Donuts”, a top international quick service restaurant chain. ABP is the country’s exclusive franchisee of “Au Bon Pain”, a global caf? and dining chain. As of June 2012, there were 222 Dunkin’ Donuts outlets and 51 Au Bon Pain outlets nationwide. The combined revenue of Dunkin’ Donuts and Au Bon Pain was Bt1,150 million in 2010 and Bt1,380 million in 2011. The combined EBITDA was Bt135 million in 2010 and Bt184 million in 2011. For the first half of 2012, the combined revenue of the two brands was Bt767 million and the combined EBITDA was Bt118 million. In July 2012, SST expanded further in the food segment. The company completed the acquisition of assets relating to Thailand’s Baskin Robbins operation, including 17 existing outlets, from Big Scoop Co., Ltd. through its wholly-owned subsidiary, Golden Scoop Co., Ltd. (GS). The transaction was worth Bt47 million.
Due to the acquisitions during the past two years, SST’s business profile has changed significantly. For the first six months of 2012, SST recorded consolidated revenue of Bt898 million: 81% was from the food segment, 12% from the storage segment, and 7% from the soybean segment. In terms of EBITDA, the food segment generated 86% of total EBIDTA, with 34% coming from the storage segment, and -20% from the soybean segment, due to its continued operating losses.
The operating performance of SST weakened significantly in the first six months of 2012. Despite the increases in revenue due to several acquisitions, SST’s performance suffered because of the operating loss in the soybean segment, a higher interest burden, and Bt46 million in acquisition-related expenses in the food segment. SST recorded a net loss of Bt67 million for the first half of 2012.
SST’s financial profile has been deteriorating, following the series of acquisitions. The company financed its acquisitions mainly via long-term loans from a bank. SST’s total debt had increased significantly, rising from Bt572 million in 2010 to Bt2,390 million in June 2012. The total debt to capitalization rose from 37% in 2010 to 59% in June 2012. A rise in the debt burden, weaker earnings, as well as the extra acquisition-related expenses, caused the EBITDA interest coverage ratio to fall from 2.5 times in 2011 to 1.5 times at the end of June 2012, said TRIS Rating. — End
TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand Copyright 2012, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.