TRIS Rating Co., Ltd. has affirmed "A-" ratings to Royal Garden Resort PLC (RGR) and its senior debentures (RGR078A and RGR10DA). The ratings continue to reflect the extensive experience and proven management record of both RGR and The Minor Food Group PLC (MFG). The ratings also reflect RGR's geographically-diversified hotel portfolio and MFG's leading position in the growing fast food industry. However, these factors are partially offset by the seasonal and cyclical nature of the hotel industry, which is highly sensitive to external factors. The ratings also take into consideration the highly-competitive fast food industry and the low-margin nature of the quick service restaurant (QSR) business. While the "stable" outlook is also based on the expectation that RGR's cash flow generation will remain strong; though, debt leverage of RGR is likely to remain high in the intermediate term. TRIS Rating also expects that RGR will fund its large acquisitions by the combination of debt and equity. Assuming that internal cash flow generation continues to improve, RGR has to show material improvement in its debt leverage before a change to its outlook or rating would be considered.
TRIS Rating reported that RGR's portfolio has grown impressively during the last six years, making it one of the most diversified hotel companies in Thailand with all existing properties in good locations, fully equipped, meeting international standards and well maintained. After the acquisition of MFG in July 2003, RGR group's revenue structure has changed. In 2003, 47% of RGR's revenue came from the hotel business and 41% from the food business; in the first quarter of 2004, the hotel business accounted for only 35% of revenue, with the food business contributing 56%. The business risk has improved after expanding into the food business instead of focusing mainly on foreign tourism. Nearly all of its target customers for its QSR business is local, both in Bangkok and the provinces. RGR will continue its growth strategy by planning to increase ownership in existing investments where it does not own 100%, developping new hotels in resort destinations, acquiring luxury hotels in Thailand and will probably invest in high potential businesses in other countries. The management team of RGR group, which includes several new top managers who joined the RGR and MFG teams late last year and early this year, has extensive experience in operating hotels and QSRs in Thailand, as well as in international markets with international chains. Its hotel segment uses marketing and sales support from the "Marriott" and "Four Seasons" chains that are widely-recognized brand names to enhance its competitive edge in international markets.
Despite the Severe Acute Respiratory Syndrome (SARS) outbreak in the first half of 2003, RGR's hotel segment and related businesses reported Bt2,846 million of revenue. However, after consolidating MFG into the group, the consolidated operating margin fell, while sales improved significantly. Although RGR's consolidated cash flow has continuously improved materially, its cash flow protection is only slightly improved because RGR financed its major expansion by using a combination of equity and debt. The company's ratio of funds from operations to total debt was 19% in 2002 and 2003, and 7.04% for the first quarter of 2004 (non-annualized).
For the hotel business, TRIS Rating expects the number of tourist arrivals will continue to grow in the medium and long term, as Thailand remains an attractive tourist destination that has fascinating natural settings to attract travelers. However, with an oversupply of rooms and low occupancy rates, competition remains intense. For the fast food business, MFG owns and operates food service outlets under various brands, such as "The Pizza Company", "Swensen's", "Sizzler", "Dairy Queen", and "Burger King". Since opening in 1980, MFG has continued to add new fast food brands to its portfolio. Most of its brands have strong market position. Its products cover several food sectors and price levels to tap a diverse group of target customers. Although the QSR market in Thailand still has a bright future in terms of customer demand, the competitive threat is considered intense because of low barriers to entry, TRIS Rating said.--End
Royal Garden Resort PLC (RGR) Company Rating: Affirmed at A- Issue Ratings: RGR078A: Bt1,700 million senior debentures due 2007 Affirmed at A- RGR10DA: Bt1,000 million senior debentures due 2011 Affirmed at A- Rating Outlook: Stable
TRIS Rating reported that RGR's portfolio has grown impressively during the last six years, making it one of the most diversified hotel companies in Thailand with all existing properties in good locations, fully equipped, meeting international standards and well maintained. After the acquisition of MFG in July 2003, RGR group's revenue structure has changed. In 2003, 47% of RGR's revenue came from the hotel business and 41% from the food business; in the first quarter of 2004, the hotel business accounted for only 35% of revenue, with the food business contributing 56%. The business risk has improved after expanding into the food business instead of focusing mainly on foreign tourism. Nearly all of its target customers for its QSR business is local, both in Bangkok and the provinces. RGR will continue its growth strategy by planning to increase ownership in existing investments where it does not own 100%, developping new hotels in resort destinations, acquiring luxury hotels in Thailand and will probably invest in high potential businesses in other countries. The management team of RGR group, which includes several new top managers who joined the RGR and MFG teams late last year and early this year, has extensive experience in operating hotels and QSRs in Thailand, as well as in international markets with international chains. Its hotel segment uses marketing and sales support from the "Marriott" and "Four Seasons" chains that are widely-recognized brand names to enhance its competitive edge in international markets.
Despite the Severe Acute Respiratory Syndrome (SARS) outbreak in the first half of 2003, RGR's hotel segment and related businesses reported Bt2,846 million of revenue. However, after consolidating MFG into the group, the consolidated operating margin fell, while sales improved significantly. Although RGR's consolidated cash flow has continuously improved materially, its cash flow protection is only slightly improved because RGR financed its major expansion by using a combination of equity and debt. The company's ratio of funds from operations to total debt was 19% in 2002 and 2003, and 7.04% for the first quarter of 2004 (non-annualized).
For the hotel business, TRIS Rating expects the number of tourist arrivals will continue to grow in the medium and long term, as Thailand remains an attractive tourist destination that has fascinating natural settings to attract travelers. However, with an oversupply of rooms and low occupancy rates, competition remains intense. For the fast food business, MFG owns and operates food service outlets under various brands, such as "The Pizza Company", "Swensen's", "Sizzler", "Dairy Queen", and "Burger King". Since opening in 1980, MFG has continued to add new fast food brands to its portfolio. Most of its brands have strong market position. Its products cover several food sectors and price levels to tap a diverse group of target customers. Although the QSR market in Thailand still has a bright future in terms of customer demand, the competitive threat is considered intense because of low barriers to entry, TRIS Rating said.--End
Royal Garden Resort PLC (RGR) Company Rating: Affirmed at A- Issue Ratings: RGR078A: Bt1,700 million senior debentures due 2007 Affirmed at A- RGR10DA: Bt1,000 million senior debentures due 2011 Affirmed at A- Rating Outlook: Stable