TRIS Rating has upgraded the company rating of Oishi Group PLC (OISHI) to “A+” from “A-” with “stable” outlook. The upgrade reflects the result of TRIS Rating’s reassessment of the degree of support OISHI could potentially receive as a strategically important subsidiary within the Thai Beverage PLC (ThaiBev) Group, according to our group rating methodology. OISHI's stand-alone rating is based on its position as the leading producer of ready-to-drink (RTD) tea in Thailand, its well-recognized brand, growing cash flow, and sound liquidity. These strengths are partially constrained by the intense competition OISHI faces in the beverage and food service industries, and the current economic slowdown, which has crimped consumer spending.
The “stable” outlook is based on the expectation that OISHI will remain a strategically important subsidiary of ThaiBev. OISHI is expected to maintain its competitive position in the RTD tea market and deliver sound operating performances.
The credit rating of OISHI could be revised upward if its operating performance and cash flow improve significantly. The rating downside case would be triggered by weaker-than-expected profitability for a prolonged period of time or an aggressive shift in financial policy. Any change, in our view, on the degree of strategic importance and linkage to the ThaiBev Group could affect OISHI's credit rating accordingly.
OISHI operates in two main segments, non-alcoholic beverages and food services. The company's key brand is "Oishi" which evokes the Japanese lifestyle. As of June 2016, OISHI’s three beverage plants had a combined annual production capacity of about 524 million liters. Most of the capacity is given over to produce its core product, Oishi RTD green tea. OISHI also manufactures some beverage products for ThaiBev, its parent company, under contact manufacturing agreements. In the food service segment, OISHI's operation covers six owned-brand restaurant chains, frozen and chilled foods, and food delivery. As of June 2016, OISHI operates 242 restaurant outlets, half of which are the Shabushi brand, plus other brands like Oishi buffet, Oishi Grand, Oishi Ramen, Nikuya, and Kakashi. OISHI has one central kitchen, located in Chonburi province.
OISHI’s strong business profile is attributed to its leading position in the Thai RTD tea segment. The company’s track record in the RTD tea market, together with the support provided by ThaiBev, help OISHI maintain its competitive edge. OISHI had a market share of about 44% of the Thai RTD tea market for the first six months of 2016. During the last two years, the company has placed a greater emphasis on strengthening the brand while continuing to launch new beverage products. In addition, OISHI's capability to act as a contract manufacturer can boost efficiency. The restaurant business has good growth prospects, supported by the Oishi brand equity and the opportunity to expand market coverage. OISHI plans to add at least 15 branches annually, spreading across big cities in Thailand. The company also plans to launch new chilled-food-to-go products, to capture rising demand.
OISHI’s business strength is supported by its position as a strategically important subsidiary of ThaiBev. OISHI is responsible for the production of RTD tea and other non-alcoholic beverages, plus the central kitchen and chain restaurants. As of March 2016, ThaiBev, a leading beverage company in Thailand, controlled a 79.7% stake in OISHI. OISHI’s operations are closely controlled by its parent. The company receives support and benefits from synergies with ThaiBev, including designated managerial talent, distribution services, and shared production facilities. ThaiBev’s extensive distribution network provides OISHI with nationwide market coverage and growth opportunities in overseas markets. OISHI could serve as a beverage production unit for ThaiBev, which would boost the plant utilization rates. In addition, OISHI can pool its purchases with ThaiBev, giving OISHI greater bargaining power with its counterparties. ThaiBev is rated by TRIS Rating at “AA+” with a “stable” outlook.
OISHI reported revenue of Bt12,879 million in 2015 and Bt7,127 million for the first six months of 2016. The beverage segment contributed about 54% of total revenue for the first six months of 2016, while the food service segment contributed 46%. Revenue from the beverages segment grew sharply in 2015, rising by 8.7% and 19.2% year-on-year (y-o-y) in the first six months of 2016. The rise was driven by launches of new products and stronger revenues from contract manufacturing products. Sales from the food service segment declined by about 1%-2% during the same period as the economic slowdown reduced the domestic consumer expenditures.
OISHI’s financial profile is underpinned by rising cash flow, improving profitability, and sufficient liquidity. OISHI's operating margin increased, climbing from 10.6% in 2014, to 13.3% in 2015, and 18.2% for the first six months of 2016, thanks to the company's cost control efforts, efficient marketing and promotional campaigns, and new product launches. The cold aseptic filling (CAF) beverage production lines have run at a high utilization rate which brings benefits from cost savings. Funds from operations (FFO) improved from Bt1,380 million in 2014 to Bt1,752 million in 2015 and stood at Bt1,320 million for the first six months of 2016. The liquidity profile remains strong. The ratio of FFO to total debt was 56.5% in 2015 and the earnings before interest, tax, depreciation, and amortization (EBITDA) interest coverage was 17 times. Total debt was Bt3,100 million in 2015, then declined to Bt2,541 million at the end of June 2016. The debt to capitalization ratio was 43.2% in 2015 and 35.7% as of June 2016.
During the next three years, TRIS Rating expects OISHI’s revenues will grow at a mid-single digit rate per annum. The growth drivers are new beverage product launches, an expansion in production capacity, plus increases in the number of food outlets. OISHI is looking for growth opportunities in neighboring countries. The expansion abroad will boost revenues in the medium to long term. The operating margin is projected to stay over 15%, backed by an advantageous cost position in the beverages segment. FFO is expected to range from Bt2,000-Bt2,400 million per annum. TRIS Rating expects OISHI will spend about Bt3,500 million in capital expenditures to add new food outlets and new beverage production lines. The total debt to capitalization ratio is expected to stay below 40% during the next three years.
Oishi Group PLC (OISHI)
Company Rating: A+
Rating Outlook: Stable