TRIS Rating has upgraded the company and senior debenture ratings of Minor International PLC (MINT) to “A+” from “A”. The outlook remains “stable”. The upgrade reflects the company’s continued ability to deliver solid operating performance, plus its increasingly diversified portfolios of hotel properties and chain restaurants. The ratings also take into consideration the future growth opportunities of MINT’s asset-light business and prudent management of liquidity. However, these strengths are partially offset by the volatile nature of the hotel industry and the intense competition in the quick service restaurant (QSR) and retail trading segments. MINT’s investment plan may further increase the leverage in the future. The “stable” outlook is based on TRIS Rating’s expectation that MINT’s ability to generate cash will continue to be strong. Its future investment needs must be carefully balanced against its funding sources, so that MINT can avoid becoming overleveraged and maintain its credit quality.
MINT was founded in 1978 by Mr. William Ellwood Heinecke. The company has three main lines of business: hospitality and mixed-use, QSR, and retail trading, which includes contract manufacturing. In 2013, the QSR and hotel segments were the key revenue contributors, comprising 41.3% and 37.1% of total sales, respectively. The retail trading and real estate segments generated 10.4% and 9.6% of total sales, respectively.
At the end of 2013, MINT’s hotel portfolio comprised 103 properties with 12,800 keys in 14 countries spanning over the Asia Pacific region, Africa, and the Middle East. The portfolio comprises 19 hotels it owns directly (2,753 keys), 16 hotels owned through joint ventures (896 keys), 44 hotels under Oaks Hotels and Resorts Limited (5,897 keys), and 24 hotels that MINT oversees under management contracts (3,254 keys). The hotels are managed and operated under well-recognized international brands, such as Four Seasons, Marriott, and St. Regis, and its own brands. MINT’s own brands include Anantara, Oaks, Elewana, Naladhu, Avani, and Per AQUUM. MINT’s hotel operations in 2013 improved in two dimensions: a higher hotel room rate and a higher occupancy rate (OR). At the hotels MINT owns directly, the average daily rate (ADR) rose by 6% year-on-year (y-o-y), from Bt6,035 per night in 2012 to Bt6,385 per night. The occupancy rate increased from 66% in 2012 to 68% in 2013. As a result, revenue per available room (RevPar) increased to Bt4,372 per night in 2013, compared with Bt3,977 per night in 2012. At Oaks, the ADR dropped by 7% y-o-y in 2013, from Bt5,160 per night to Bt4,788 per night. However, the drop was due to the appreciation of the Thai baht. Oaks’s ADR in Australian dollars was nearly flat in 2013. Oaks’s occupancy rate rose slightly, from 77% in 2012 to 78% in 2013.
The Minor Food Group PLC (MFG) is its wholly-owned subsidiary, operating the quick service restaurant business. MFG, established in 1980, is the largest QSR operator in Thailand. MFG operates four international QSR franchise brands, Swensen’s, Sizzler, Dairy Queen, and Burger King, and five of its own brands, The Pizza Company, The Coffee Club, Ribs and Rumps, Thai Express, and Beijing Riverside and Courtyard (Riverside) in China. At the end of 2013, the total outlet was 1,544 located in seven countries, of which 814 equity-owned outlets and 730 franchised and sub-franchised outlets. MINT also invested in S&P Syndicated Public Co., Ltd. (S&P, 30%) and BreadTalk Group Limited (BreadTalk, 11%).
Minor Corporation PLC (MINOR) is responsible for the retail trading segment and contract manufacturing under the MINT umbrella. Within MINOR, the key brands are Esprit, Gap, Bossini, Charles & Keith, Tumi, and Red Earth.
Despite a recent slowdown in domestic consumption and the political instability occurred in the last quarter of 2013, the company delivered a strong operating performance for the year. MINT reported total sales of Bt34,669 million in 2013, up by 11% from 2012. The QSR segment showed the highest growth among MINT’s lines of business. In 2013, revenue from the QSR segment, including franchise fees, increased by 17% to Bt14,309 million. The hotel segment, including spas, and hotel management fees, generated Bt12,878 million in revenue, a 5% rise from a year earlier. The revenue growth was softened due to major renovation and refurbishment of some hotels owned by MINT.
In terms of profitability, MINT reported earnings before interest, tax, depreciation, and amortization (EBITDA) of Bt8,363 million in 2013, up by 20% compared with 2012. The operating margin, or operating profit before depreciation and amortization as a percentage of sales, remained relatively stable at 17.7%. Leverage improved in 2013, reflecting a larger equity base after the exercise of warrants totaling Bt3,602 million. MINT’s capital structure, as measured by the adjusted debt to capitalization ratio, improved from 56.9% in 2012 to 49.7% at the end of 2013. The company’s liquidity profile also improved. The adjusted EBITDA interest coverage ratio improved from 6.1 times in 2012 to 7.7 times in 2013. The funds from operations (FFO) to adjusted debt ratio was 25% in 2013, up from 21.2% in 2012. At the end of 2013, MINT had committed undrawn credit facilities of approximately Bt16,000 million, demonstrating its financial flexibility. MINT has debt service obligations of Bt3,500 million due in the next 12 months. MINT has more than sufficient resources to meet these obligations.
The political instability in late 2013 has affected Thailand’s tourism industry. However, the impact was not material in 2013. According to the Department of Tourism, Ministry of Tourism and Sports, 26.7 million tourists arrived in 2013, a 19.6% rise compared with a year earlier. However, the growth rate has been lower since December 2013, when the number of international tourist arrivals showed a single digit growth rate at 6.7% y-o-y. In 2014, the prolonged political instability has begun to have a greater effect on Thailand’s tourism industry. The number of international tourist arrivals from January to March 2014 dropped by 5.9% y-o-y to 6.6 million arrivals, compared with 7 million arrivals in 2013. The slowdown in domestic private consumption is another concern. According to the Bank of Thailand (BOT), private consumption grew only 0.3% y-o-y in 2013, then dropped by 1.5% in January and fell by 2.5% in February 2014. These two factors will have a negative effect on MINT’s growth prospects. However, due to MINT’s diversification strategy, the impact of the unfavorable conditions will be partially alleviated. In 2013, MINT’s owned hotel operation in Thailand contributed approximately 18% of its total revenue. Its QSR and retail trading operation in Thailand contributed 30% and 10% of total revenue respectively. A significant portion of MINT’s revenue comes from its overseas operations and this proportion is rising. TRIS Rating believes that overseas operations will help minimize the effects of domestic instability. In addition, if the political uncertainty is resolved within the first half of 2014 or before the peak tourist season in the last quarter of the year, Thailand’s tourism industry is expected to pick up, based on the strong fundamentals of the industry. A resolution to the political impasse will also ease the negative sentiment on domestic consumption. Although external risk factors could impact MINT’s business, TRIS Rating believes that MINT’s management has risk management process to alleviate and mitigate these risks.
Under TRIS Rating’s base case scenario, MINT’s sales revenue is expected to grow at least 6% per annum during 2014-2016. Profitability is expected to be maintained at the current level, supported by its growing asset-light portfolios. Going forward, MINT will continue its growth strategy. The company plans to invest approximately Bt23,000 million from 2014 through 2016. The company is expected to utilize its operating cash flow to fund, in part, the new investments. However, MINT will still need some debt financing. As a result, the leverage ratio is expected to stay at around 50% during the next three years. TRIS Rating expects that MINT will not experience any problem with liquidity as MINT manages its liquidity needs very carefully.
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