TRIS Rating affirms the company rating on Central Plaza Hotel PLC (CENTEL) and the ratings on CENTEL’s existing senior unsecured debentures at “A”. At the same time, we also assign the rating on CENTEL’s proposed issue of up to Bt600 million in senior unsecured debentures at “A”. The proceeds from the new debentures will be used to refinance its existing debts.
The ratings reflect CENTEL’s strong market position in its hotel and quick service restaurant (QSR) businesses, low but rising level of financial leverage, and support from the Central Group. These factors are partially offset by the cyclical nature and susceptibility to global and local events of the hotel industry and the intense competition in the QSR industry.
CENTEL’s operating performance in the first half of 2019 was in line with our expectation. Total operating revenue came in at Bt10.97 billion, relatively flat compared with the same period last year. Revenue from the hotel segment dropped 6.5% year-on-year (y-o-y) due to softer demand in the meeting, incentive travel, convention, and exhibition (MICE) business, a decrease in the numbers of Chinese and European tourists, and the closure for renovation of the “Centara Grand Beach Resort Samui” hotel. Revenue from the food segment grew 4.6% y-o-y thanks to the expansion of new restaurant outlets. Operating income before depreciation and amortization as a percentage of sales remained acceptable at 28.5% in the first six months of 2019. Going forward, TRIS rating expects CENTEL’s revenue to grow around 3%-7% per annum during the next three years. Operating income before depreciation and amortization as a percentage of sales is forecast to stay around 27% during the same period.
CENTEL’s financial leverage remained modest, but we expect the leverage to rise in the next three years. As of June 2019, the debt to earnings before interest, tax, depreciation, and amortization (EBITDA) ratio was 2.1 times and the ratio of funds from operations (FFO) to total debt was 39%. Going forward, TRIS Rating forecasts the company’s leverage to increase, due to sizable investments of around Bt23 billion in total during 2019-2021, mainly in its hotel business. We project the debt to EBITDA ratio to rise to 3.6 times and the FFO to debt ratio to decline to around 22% in 2021. We view that these ratios will improve later as the company starts to realize returns from newly opened hotels in 2022-2023.
RATING OUTLOOK
The “stable” outlook reflects our view that the company will maintain its market positions in the hotel and QSR businesses and maintain favorable profit margins over the next several years. The company should maintain the debt to EBITDA ratio well below 4 times and the FFO to debt over 20%.
RATING SENSITIVITIES
CENTEL’s ratings could be revised upward if the company meaningfully enlarges and diversifies each of its business portfolios while maintaining a satisfactory financial leverage. On the other hand, a rating downside could occur if we see a material weakening in its operating performance or overly aggressive debt funded investments, which result in the debt to EBITDA ratio increasing beyond 4 times or the FFO to debt ratio falling below 20% for a prolonged period of time.
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 2019, 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.