TRIS Rating Co., Ltd. has affirmed the company rating of King Power Duty Free Co., Ltd. (KPD) at "BBB+" with "stable" rating outlook. The rating reflects the company's dominant position in the duty free business in Thailand, a low degree of competition, its moderate 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 slowdown following the tsunami disaster in December 2004. These strengths are partially offset by KPD's relatively high leverage, which takes into account the amount of guarantees KPD provides to related companies. The rating is also based on the expectation that KPD will not incur additional debt for expansion, nor provide financial support to related companies that have weaker financial positions than KPD.
The "stable" rating outlook of KPD reflects the expectation that the company will maintain its dominant market position in the duty free business. TRIS Rating expects that KPD will maintain its strong performance due to the good prospects of the Thai tourism industry. In addition, the outlook reflects the intention of the company to steadily reduce its debt level over the course of the next 2-3 years.
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 with shops in downtown Bangkok and four international airports. KPD has been granted concessions from Airport of Thailand PLC (AOT) for ten years (1997-2006) to operate duty free shops at four international airports. The products in KPD's shops mainly consist of liquor and tobacco products, perfume, watches, cosmetics, fashion accessories, gourmet foods, chocolates, etc.
KPD's financial profile is considered moderate as its total debt to capitalization ratio increased to 69% at the end of 2004 from 55% in 2003. The increase in debt is to primarily finance the advance payment of the concession fee paid to AOT and the cost of constructing facilities at Suvarnabhumi International Airport. The earnings before interest, tax, depreciation and amortization (EBITDA) to interest ratio was around six times and funds from operations (FFO) to total debt was higher than 15% in 2004. Although KPD's sales and FFO increased substantially in 2004, its cash flow protection deteriorated because of high interest expense and debt burden stemming from investments to enhance KPD's business in the future. KPD's credit rating includes consideration of the current level of related transactions within the group, including inter-company lending. As of December 2004, KPD provided Bt1,132 million loans to related companies. Moreover, KPD and its major shareholder, Mr. Vichai Raksriaksorn, guarantee the loans of an associated company that manages retail space in Suvarnabhumi Airport, as well as loans for a related company that is investing in a down town Duty Free Complex. Although KPD has stated it will not provide any additional support to related parties, TRIS Rating is concerned that any additional support given to related companies may affect KPD's rating.
The duty free business is closely linked to the tourism industry. The industry's long-term prospects are favorable because of the variety of attractive destinations and strong support from the government. However, unforeseeable negative events, such as the Severe Acute Respiratory Syndrome (SARS) outbreak and the tsunami, could cause temporary downturns. Competition in the duty free business in Thailand is considered low because KPD currently is the sole operator of duty free shops at airports in Thailand. However, the competition for the right to operate duty free shop at Thailand's international airports is intense, TRIS Rating said. -- End
King Power Duty Free Co., Ltd. (KPD) Company Rating: Affirmed at BBB+ Rating Outlook: Stable
The "stable" rating outlook of KPD reflects the expectation that the company will maintain its dominant market position in the duty free business. TRIS Rating expects that KPD will maintain its strong performance due to the good prospects of the Thai tourism industry. In addition, the outlook reflects the intention of the company to steadily reduce its debt level over the course of the next 2-3 years.
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 with shops in downtown Bangkok and four international airports. KPD has been granted concessions from Airport of Thailand PLC (AOT) for ten years (1997-2006) to operate duty free shops at four international airports. The products in KPD's shops mainly consist of liquor and tobacco products, perfume, watches, cosmetics, fashion accessories, gourmet foods, chocolates, etc.
KPD's financial profile is considered moderate as its total debt to capitalization ratio increased to 69% at the end of 2004 from 55% in 2003. The increase in debt is to primarily finance the advance payment of the concession fee paid to AOT and the cost of constructing facilities at Suvarnabhumi International Airport. The earnings before interest, tax, depreciation and amortization (EBITDA) to interest ratio was around six times and funds from operations (FFO) to total debt was higher than 15% in 2004. Although KPD's sales and FFO increased substantially in 2004, its cash flow protection deteriorated because of high interest expense and debt burden stemming from investments to enhance KPD's business in the future. KPD's credit rating includes consideration of the current level of related transactions within the group, including inter-company lending. As of December 2004, KPD provided Bt1,132 million loans to related companies. Moreover, KPD and its major shareholder, Mr. Vichai Raksriaksorn, guarantee the loans of an associated company that manages retail space in Suvarnabhumi Airport, as well as loans for a related company that is investing in a down town Duty Free Complex. Although KPD has stated it will not provide any additional support to related parties, TRIS Rating is concerned that any additional support given to related companies may affect KPD's rating.
The duty free business is closely linked to the tourism industry. The industry's long-term prospects are favorable because of the variety of attractive destinations and strong support from the government. However, unforeseeable negative events, such as the Severe Acute Respiratory Syndrome (SARS) outbreak and the tsunami, could cause temporary downturns. Competition in the duty free business in Thailand is considered low because KPD currently is the sole operator of duty free shops at airports in Thailand. However, the competition for the right to operate duty free shop at Thailand's international airports is intense, TRIS Rating said. -- End
King Power Duty Free Co., Ltd. (KPD) Company Rating: Affirmed at BBB+ Rating Outlook: Stable