TRIS Rating affirms the company rating of I.C.C. International PLC (ICC) at “AA” with a “stable” outlook. The rating reflects the company’s strong position as a leading distributor for fashion and consumer products in Thailand, its diverse portfolio of products and brands, as well as nationwide distribution network. The rating also takes into consideration ICC's conservative financial policies and ample liquidity. However, the intense competition in the fashion and consumer products industries partially constrains these strengths.
KEY RATING CONSIDERATIONS
Leading distributor for fashion products within Saha Group
ICC is a leading distributor of lingerie, men’s apparel, and cosmetics products in Thailand. The company has diverse portfolio of products and brands. ICC offers more than 80 brands, covering international licensed brands and its own brands. The international licensed brands, such as Wacoal, Lacoste, and Arrow, have strong brand equities which drive customer loyalty.
ICC’s strong competitive advantage stems from the lengthy track record in the industry as well as its good relationships with suppliers and key licensors of the international brands. Healthy relationships and strong bargaining power with major distribution channels help ICC offer the products with a wide market coverage. ICC’s products are available in department stores, discount stores, traditional shops, and ICC’s own shops, covering 3,344 points of sale nationwide.
ICC is seeking growth opportunities outside the conventional store channel. Sales from online websites and through television shopping in 2017 amounted to nearly Bt450 million, or around 4% of ICC’s total revenue. The company targets sales from these new channels to rise to about 10% of total revenue within the next two years. ICC expects the collaboration with Lazada website would meet growing demand for online shopping and help boost the online sales.
Rising market share in the lingerie segment
Sales of lingerie products in 2017 was Bt3,969 million, or 32% of ICC’s total revenue. Products in the lingerie segment include well-known brands such as Wacoal, BSC, ELLE, and Kullasatri. ICC's sales from lingerie segment grew at an average rate of 2.6% per annum during 2016-2017, moving along with peers. The total market value of lingerie in department stores was about Bt5,500 million in 2017, rising by 1.0% from 2016.
ICC has dominated the lingerie market, especially in the middle- to high-end segments. Measured by sales through department stores, ICC’s lingerie products had a combined market share of 62.3% in 2017, up from 61.6% in 2016, and 60.3% in 2015.
Wacoal is the market leader for lingerie products in Thailand, with a strong market position in the working-age segment. The Wacoal brand alone held a 56.0% market share in 2017. Its share continued rising during the last four years because ICC has put a lot of effort into revamping product sourcing process, expanding distribution network, as well as introducing new products.
Intense competition hurt sales in the cosmetic segment
The beauty and personal care industry in Thailand is fragmented, comprising a lot of producers and brands because the market has low barriers to entry. Market value of domestic cosmetic products in 2017 was Bt57,750 million, rising by 8.0% from 2016.
ICC’s cosmetics products face intense competition from both powerful global brand products and small local manufacturers. During the last two years, ICC’s cosmetic products faced an onslaught from fast-growing local brands across on online and new channel platforms. Sales in the cosmetic segment dropped by 2.0% in 2017, and plunged by 12.5% year-on-year (y-o-y) for the first quarter of 2018. ICC plans to counter the competition through introduction of more attractive marketing activities and sales promotions, as well as boosting sales from the online channels.
Relatively flat revenue with lower profit margin
In 2017, ICC’s revenue was Bt12,447 million, down by 1.3% compared with 2016. The drop was due to the sluggish economy and intense competition. The operating profit margin declined to 1.0% in 2017 from 3.0% in 2016, because of lower revenue and high selling general and administrative (SG&A) expenses. SG&A climbed to 37.7% of total sales in 2017, from 36.3% in 2016.
For the first three months of 2018, revenue was Bt3,056 million, up by 1.8% y-o-y. The revenue was mainly driven by lingerie, men’s wear, and fabric softeners segments. The operating profit margin rebounded to 2.0%.
During 2018-2020, TRIS Rating expects ICC’s revenue to grow at a low single-digit rate per annum, driven by a gradual revival in the Thai economy and ICC’s efforts to boost sales. Despite carrying high selling expenses for promotional and marketing activities, we expect ICC to continue the on-going cost saving efforts, control stock of inventory, and create more efficient supply chain, in order to improve the profit margin. We forecast ICC’s operating profit margin to stay at 2.0%-3.0% during the next three years.
Strong liquidity profile with conservative financial policies
ICC’s liquidity is strong. ICC has very conservative financial policies, having been a debt-free company for an extended period. As of March 2018, the company had Bt30 million in outstanding debt, solely for the working capital needs of a subsidiary.
ICC’s sources of funds comprised cash on hand of Bt1,471 million plus cash deposit of Bt12 million at the end of March 2018. We forecast ICC’s funds from operations (FFO) at Bt900-Bt1,000 million per annum during the next three years. Uses of funds are planned capital expenditures of Bt200-Bt400 million per annum. Based on the conservative financial policies, TRIS Rating expects ICC to maintain strong liquidity with no significant change in its capital structure during the next three years.
ICC's financial flexibility is enhanced by its liquid investment portfolio. The market value of ICC’s holdings in 20 listed firms was Bt8,986 million at the end of March 2018. Its investment portfolio value was 20 times over the amount of total debt outstanding, including guarantees to related companies, at the end of March 2018.
RATING OUTLOOK
The “stable” outlook reflects the expectation that ICC will maintain its strong market positions in its major product lines. TRIS Rating expects ICC to continue its conservative financial policies and maintain its strong liquidity profile.
RATING SENSITIVITIES
ICC’s credit upside case would materialize if its ability to generate cash flow improves substantially. In contrast,
TRIS Rating would revise the rating and/or outlook downward if ICC’s operating results deteriorate for a lengthy period, or if it makes an aggressive shift in the leverage policies.
COMPANY OVERVIEW
ICC was established in 1964 and was listed on the Stock Exchange of Thailand (SET) in 1978. ICC is one of the major distributors within the Saha Group, distributing fashion products such as lingerie, men’s apparel, and cosmetics. As of May 2018, approximately 61.7% of ICC's shares were held by the Chokwatana family and companies in the Saha Group.
ICC has the rights to distribute a large number of international licensed fashion products. ICC also distributes its own brands. The key international licensed brands are Wacoal, Lacoste, Arrow, Guy Laroche, and ELLE. ICC's own brands include BSC, Enfant, St. Andrews, and Essence. Revenue from the international licensed brands products comprised approximately 70% of ICC's total revenue.
TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: 0-2098-3000/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand ? Copyright 2018, 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, without the prior written permission of TRIS Rating Co., Ltd. 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.