TRIS Rating has affirmed the company rating of Sub Sri Thai PLC (SST) at “BBB-”. The outlook remains “negative”. The rating reflects the ability of the quick service restaurant (QSR) segment, acquired in 2012, to generate cash. The rating also reflects SST’s track record in the warehouse industry, plus the growth prospects ahead in the document storage segment. These strengths are offset by the intense competition in the QSR industry and the losses SST has incurred since 2010 from its investments in the soybean and vegetable oil segment. The “negative” outlook reflects SST’s deteriorating financial profile and weaker operating performance due to the ongoing losses in the soybean and vegetable oil segment. However, the outlook could be revised to “stable” if SST can stem the losses in the soybean and vegetable oil segment or divest the trouble businesses. SST’s operating performance and financial profile would then improve. However, the rating could be downgraded if the losses continue and if it takes more time to restore SST’s business and financial profile.
SST was established in 1976 and was listed on the Stock Exchange of Thailand (SET) in 1987. As of May 2013, the Chinthammit family and affiliates held 67.5% of SST’s total shares. The company initially operated warehouse and wharf businesses in Samutprakarn province and expanded its line of business to include document storage services. SST expanded into the soybean and vegetable oil business in 2010. However, this segment has shown weak performance and operating losses. In 2012, SST expanded into QSR segment by acquiring Golden Donuts (Thailand) Co., Ltd. (GD), ABP Caf? (Thailand) Co., Ltd. (ABP), and Golden Scoop Co., LTd. (GS). 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. GS is the country’s master franchisee of the global ice cream brand, “Baskin Robbins”.
SST’s business profile has changed significantly due to a series of acquisitions made during the past few years. In 2013, the QSR segment was the main revenue contributor, providing 86% of total revenue. The storage segment and the soybean and vegetable oil segment contributed 11% and 3% of total revenue, respectively. At the end of 2013, SST reported total revenue of Bt2,131 million, a slight drop from Bt2,147 million in 2012. The drop in revenue has been mainly due to the discontinuance of the soybean and vegetable oil segment since the floods in late 2011.
At the end of 2013, there were 246 Dunkin’ Donuts outlets, 60 Au Bon Pain outlets, and 23 Baskin Robbins outlets nationwide. Despite intense competition and a slowdown in domestic consumption in 2013, SST’s QSR segment posted a 12% growth in revenue in 2013. Revenue rose to Bt1,829 million in 2013, compared with Bt1,627 million in 2012. The growth came from increases in the number of outlets of all three brands. Dunkin’ Donuts and Au Bon Pain are relatively strong brands and provide positive cash flows. However, the Baskin Robbins brand needs time to revive and rebuild its operations.
In the warehouse industry, SST 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.). The amount of revenue generated by the storage segment was Bt242 million in 2013, up by 9% compared with 2012. Over 60% of revenue in this segment was from document storage services. Going forward, the prospects for SST’s storage segment will be driven mainly by the document storage services.
Despite the increases in revenue due to several recent acquisitions, the operating performance of SST has weakened. The company posted a net loss for two consecutive years. The losses were Bt181 million in 2012 and Bt107 million in 2013. The losses were caused mainly by operating losses and impairments related to the investments in the soybean and vegetable oil segment. SST financed its acquisitions mainly via long-term bank loans. As a result, SST is incurring a high interest burden, another factor contributing to the losses. SST’s financial profile was below average during the past two years. Its leverage profile continued to weaken in 2013. The total debt to capitalization ratio peaked at 59.9% in 2013. However, despite deterioration, SST’s liquidity profile is still acceptable. Thanks to the steady cash flows from the QSR and warehouse segments, earnings before interest, tax, depreciation and amortization (EBITDA) was Bt284 million in 2013. This is a 7% rise, compared with EBITDA of Bt265 million in 2012. The EBITDA interest coverage ratio stood at 2.3 times in 2013. The ratio of funds from operations (FFO) to total debt improved from 6.3% in 2012 to 7.9% in 2013.
The soybean and vegetable oil segment remains a burden. This segment generates no operating income, yet this segment is incurring fixed costs and financial obligations of approximately Bt90 million per annum over the next three years. SST plans to divest the soybean segment. However, the execution has not been taken yet. If the company can divest the loss-making businesses, its financial profile will improve notably.
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