TRIS Rating Co., Ltd. has assigned a company rating of "BBB+" to King Power Duty Free Co., Ltd. (KPD). The rating reflects its dominant position in the duty free business in Thailand, a very low degree of competition, its favorable cash flow protection, and the capability and experience of its management team. The rating also reflects the favorable long-term prospects for the Thai tourism industry despite the short-term slow down due to the tsunami disaster along the Andaman coast. These strengths are partially offset by KPD's relatively high financial leverage. The rating is also based on the assumption that KPD will incur no significant amounts of additional debt for expansion nor provide material financial support to related companies which have weaker financial positions than KPD. While The "stable" outlook of KPD reflects its dominant market position in the duty free business. TRIS Rating expects that KPD will maintain its strong performance in the medium term as it is the largest duty free operator at the international airport and will be a duty free operator at the new international airport as well as the bright prospects of the Thai tourism industry. However, KPD's additional significant financial support to related companies may affect its credit status.
TRIS Rating reported that KPD is a member of King Power Group, which is the dominant operator of duty-free and tax-free shops in Thailand. King Power Group's shops are located in downtown and four international airports. KPD has been granted concessions from Airport of Thailand PLC (AOT) for ten years (1997-2006) to operate duty free business at four international airports. The products in KPD's shops mainly consist of liquor and tobacco products, perfumes, watches, cosmetics, fashion accessories, gourmet foods, chocolates and etc. Competition in the duty free business in Thailand is considered low because currently KPD is the sole operator of duty free shops at airports in Thailand. The competition in the duty free operations in airports is intense when negotiating or bidding for a new concession or renewal of an existing concession.
TRIS Rating said that with its competent and experienced management team, KPD has maintained its privileged position in the duty free business. Across eight years of experience, KPD established inventory and logistics systems that are synchronized with the regulators' requirement and built up experience in sourcing a variety of merchandise. The company also has good relationships and close cooperation with suppliers. KPD's financial profile is considered moderate as its total debt to capitalization ratio stood at 55% at the end of 2003. However, its leverage is projected to increase significantly to more than 63% in 2004 to fund its investment at the new international airport, Suvarnabhumi Airport. Most of the increased debt is due to financing the concession advance payment to AOT and new facilities at Suvarnabhumi Airport. The earnings before interest, tax, depreciation and amortization (EBITDA) to interest ratio was around 14 times and funds from operations (FFO) to total debt was over 43% in 2002. However, its cash flow protection deteriorated in 2003 because of declining margins in a year when sales were affected by the Severe Acute Respiratory Syndrome (SARS) outbreak. Although it may be negatively affected by short-term events, the tourism industry in Thailand in a long term, which is closely linked with the performance of the duty free business, has favorable prospects because of various attractive destinations and strong support from the government.
TRIS Rating also said that KPD's credit rating includes consideration of the current level of interconnected transactions within the group, including inter-company lending. As of December 2003, KPD provided Bt429 million loans to related companies. Total loans to related companies increased to Bt1,448 million as of July 2004. KPD's additional substantial support to related companies may affect the rating. - End
King Power Duty Free Co., Ltd. (KPD) Company Rating: BBB+ Rating Outlook: Stable