TRIS Rating has affirmed the company and senior unsecured debenture ratings of Oishi Group PLC (OISHI) at “A-” with “stable” outlook. The ratings reflect the company’s position as the leading producer of green tea in Thailand, its well-recognized brand, and sound liquidity. The ratings also take into consideration the support and synergies from its parent company, Thai Beverage PLC (ThaiBev). These strengths are partially constrained by intense competition, a slowdown in consumption, and a rise in leverage.
The “stable” outlook is based on the expectation that OISHI will maintain its competitive position, deliver sound operating performance, and continue incorporate within the ThaiBev Group.
The positive factor to OISHI's ratings is the greater support from the ThaiBev Group and/or the strong improvement in its operating performance and cash flow. Any downside pressure on OISHI’s ratings would stem from a shift to an aggressive debt policy or if OISHI’s profit margin deteriorates for a prolonged period of time.
OISHI operates in two main segments, non-alcoholic beverages and food services. The company's key brand is "Oishi" which emphasizes the Japanese lifestyle. As of June 2015, OISHI’s three beverage plants had a combined annual production capacity of about 480 million liters. The plants are to produce its core product, Oishi green tea, and to serve the contract manufacturing business for the ThaiBev Group. In the food service segment, OISHI's operation covers six owned restaurant chains, frozen and chilled foods, and food delivery. The company operates 225 restaurant outlets, half of which are Shabushi; other key brands are Oishi Ramen, Oishi buffet, and Kakashi. OISHI has one central kitchen, located in Chonburi province.
As of August 2015, ThaiBev controlled about 79.7% of OISHI’s outstanding shares. As part of the ThaiBev Group, a Thai leading beverage producer and distributor, OISHI receives support and benefits from synergies with its parent company, including designated managerial talent, distribution services, and shared production facilities. The ThaiBev Group’s extensive distribution network provides OISHI with nationwide market coverage and growth opportunities in export markets. OISHI could serve as production unit for the ThaiBev Group, which boosts the plants' utilization rates. In addition, OISHI can pool its purchases with ThaiBev, giving OISHI greater bargaining power with its counterparties.
OISHI’s business profile is supported by its leading position in the Thai ready-to-drink (RTD) green tea segment. OISHI had a market share of about 44% of the Thai RTD green tea market for the first six months of 2015. The restaurant business has a growth prospect, supported by Oishi brand equity and opportunity to expand its market coverage. OISHI plans to add at least 40 branches annually, spreading across big cities in Thailand. The softened economy has negatively affected the domestic consumption during 2014-2015, and resulted in a slight drop in the growth of total green tea market value. OISHI's sales volume of green tea dropped in 2014 while the same store sales of food business have declined for two consecutive years. However, OISHI reported a growth in top line by 1.6% in 2014 and 8.6% year-on-year (y-o-y) for the first half of 2015. The growth was supported by the launch of new beverages, increased original equipment manufacturer (OEM) contracts, and restaurant outlet expansion. In addition, OISHI opened the first Shabushi restaurant in Yangon, Myanmar, in July 2014, and increased to three outlets as of June 2015.
OISHI reported a total revenue of Bt12,405 million in 2014 and Bt6,580 million for the first six months of 2015. The food service segment contributed about 51% of total revenue while the beverages segment contributed 49%. Revenue from food service segment grew by 10.5% in 2014 and 5.5% y-o-y in the first six months of 2015 while sales in beverages segment declined 6.9% and recovered by 12% during the same period.
OISHI’s operating margin (operating income before depreciation and amortization as a percentage of revenue) improved to 12.2% in the first half of 2015, compared with an average of 10.5% in 2013 and 2014. Thanks to OISHI's marketing and promotional campaigns, together with a new product launch in the beverage segment. The improved margin was partly from the cost saving benefit of its efficient cold aseptic filling (CAF) production lines. The operating margin in the beverage segment climbed from 10% in 2013 to 15% in 2014, and to 16.7% for the first six months of 2015. However, the margin in the food service segment was impacted from economic slowdown, dropping from 10% in 2013 to 8% in 2014 and for the first six months of 2015. OISHI’s selling and administrative expenses remained high at 29%-30% of revenue, in order to counter the intensified competition in the RTD tea market. Funds from operations (FFO) improved from Bt1,265 million in 2013 to nearly Bt1,400 million in 2014 and stood at Bt808 million for the first six months of 2015. Liquidity profile remains strong, measured by the ratio of FFO to total debt of 50.4% and the earnings before interest, tax, depreciation, and amortization (EBITDA) interest coverage of 10.8 times for the first six months of 2015.
During the next three years, TRIS Rating expects OISHI’s revenues will grow at 5%-8% per annum, driven by increases in the number of food outlets and rebound of the RTD tea demand. The operating margin is projected to stay above 11.5%, backed by resilient demand in the food service segment and an advantageous cost position in the beverage segment. FFO is expected to range from about Bt1,500-Bt2,000 million per annum.
Total debt rose from Bt2,063 million in 2013 to Bt3,089 million at the end of June 2015 because OISHI expanded its beverage production capacity and constructed a new central kitchen. As a result, the debt to capitalization ratio rose from 37.7% in 2013 to 45.3% as of June 2015. During 2016-2018, TRIS Rating expects OISHI will spend about Bt3,500 million in capital expenditures to expand food outlets and add another CAF production lines. The total debt to capitalization ratio is expected to stay below 50% and will gradually decline during the next three years.
Oishi Group PLC (OISHI)
Company Rating: A-
Issue Rating:
OISHI168A: Bt1,000 million senior unsecured debentures due 2016 A-
Rating Outlook: Stable
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