TRIS Rating affirms the company rating on Carabao Group PLC (CBG) and the rating on CBG?s outstanding senior unsecured debentures at ?A? with a ?stable? rating outlook. At the same time, TRIS Rating assigns the rating of ?A? to CBG?s proposed issue of up to THB1.5 billion senior unsecured debentures. The proceeds from the debenture issuance will be used to repay outstanding debts and fund working capital.
The ratings reflect CBG?s strong market position in the energy drinks market and its growth opportunities abroad. The ratings are also supported by the company?s low debt level and continued improvement in operating performance. However, these strengths are partially offset by CBG?s reliance on a narrow range of products and limited growth prospects in the Thai energy drinks market.
For the first quarter of 2021, CBG?s revenues reached THB4.1 billion, a 0.7% decrease from the corresponding period last year. The slight drop was the result of lower energy drinks exports to the Republic of the Union of Myanmar (Myanmar) and Cambodia, offsetting an improvement in domestic sales. The company?s earnings before interest, taxes, depreciation, and amortization (EBITDA) margin declined to 25.7% in the first quarter of 2021, compared with 29.7% in the same period of the previous year. Profitability softened due to declining overseas sales and an increase in the price of raw materials, such as sugar and aluminum coil. However, CBG?s performance remains on track with our projections.
CBG?s financial leverage remains low. The ratio of debt to EBITDA stood at 0.8 times in 2020 and in the first quarter of 2021. The ratio of funds from operations (FFO) to debt remained solid at 112% in the first quarter of 2021, compared with 90% in 2019 and 108% in 2020.
As of March 31, 2021, CBG had THB3.97 billion in debt, including THB1.29 billion of priority debt. This priority debt was unsecured debt at the subsidiaries? level. This translates to a ratio of priority debt to total debt of 33%. As its priority debt ratio is lower than 50%, the rating of senior unsecured debentures of CBG is equal to the issuer rating of the company.
RATING OUTLOOK
The ?stable? outlook reflects our expectation that CBG will be able to maintain its strong market position in the domestic energy drinks market while maintaining reasonable growth in the export market. We expect CBG to continue delivering strong profitability and solid operating performance while maintaining sound capital structure.
RATING SENSITIVITIES
A rating downgrade could occur if CBG?s operating performance deteriorates substantially for a sustained period or a more aggressive financial policy is adopted. A rating upgrade is unlikely in the near term. However, an upward revision could materialize if CBG is able to enlarge its cash-flow significantly and develop more meaningful and diversified sources of income while maintaining sound capital structure.
RELATED CRITERIA
- Issue Rating Criteria, 15 June 2021
- Rating Methodology ? Corporate, 26 July 2019
- Key Financial Ratios and Adjustments, 5 September 2018
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Carabao Group PLC (CBG)
Company Rating: A
Issue Rating:
Up to THB1,500 million senior unsecured debentures due within 2 years A
Rating Outlook: Stable