TRIS Rating Co., Ltd. has affirmed the company and current issue ratings of Minor International PLC (MINT) at “A” with “stable” outlook. At the same time, TRIS Rating has also affirmed the “A” rating of MINT’s proposed issue in senior debentures, following an increase in the debenture size to be up to Bt2,500 million from the original Bt2,000 million announced on 29 April 2010. The Bt500 million increase in proposed senior debentures would have no impact on the previously-assigned ratings of MINT. The ratings reflect MINT’s diverse portfolio of well-accepted brands that strengthens its market positions in hotel; quick service restaurant (QSR); and retail trading businesses, a capable management team, a growing overseas presence in hotel operation and management, and the potential to franchise its QSR brands in local and international markets. However, these factors are partially offset by the various unfavourable factors adversely impacting the tourism industry during the last two years, the sensitive and seasonal nature of the hotel industry, and the severe competition and low margins faced by the QSR and retail trading businesses. The chronic and intensified political unrest could worsen the tourism industry and dampen consumer confidence. MINT will be facing a challenging year in which the operating performance is pressured while leverage is increasing to finance the new hotel construction. Additional investment over and above the existing projects could negatively impact the ratings if substantial debt funding is required.
The “stable” outlook is based on the expectation that MINT’s cash flow generating ability will remain strong. Through the uncertain business environment, MINT is expected to maintain ample liquidity to ensure smooth operations and partly finance its committed capital expenditure by internal cash flow. A rise in financial leverage coupled with weaker operating performance could jeopardize MINT’s credit quality.
TRIS Rating reported that MINT was founded in 1978 by Mr. William Ellwood Heinecke to operate a hotel in Thailand. The Heinecke family is the major shareholder, with a 28% stake. MINT’s hotel portfolio has grown impressively during the last seven years, making it one of the most diversified hotel companies in Thailand. MINT’s hotel portfolio includes 30 properties (over 3,500 keys) located in Bangkok and other top-ranked tourist destinations including Thailand, Indonesia, the Maldives, Sri Lanka, Tanzania, United Arab Emirates (UAE) and Vietnam. The hotels are managed and operated under well-recognized international brands (Marriott and Four Seasons) and its own brands (Anantara, Elewana and Naladhu). The group’s food business is operated under The MINOR Food Group PLC (MFG). MFG, which was established in 1980, is the largest QSR operator in Thailand, operating four international QSR franchise brands (Swensen’s, Sizzler, Dairy Queen, and Burger King) and its own brands (The Pizza Company, The Coffee Club and Thai Express). At the end of March 2010, MFG had 689 outlets and 428 franchises and sub-franchises located in Thailand and overseas. In mid-2009, the company reorganized to consolidate the operations of Minor Corporations PLC (MINOR), which include fashion, cosmetics and manufacturing, under the MINT umbrella. Key brands are such as Gap, Esprit, Bossini, Red Earth, and Bloom.
TRIS Rating said that in 2009, MINT’s total revenue grew 4% year-on-year (y-o-y) to Bt16,460 million, mainly contributed from hotel and related businesses (31%), QSR business (58%) and retail trading business (8%). The growth derived from the 13% growth of QSR business and from adding the retail trading business into the company’s portfolio. The revenue contribution from retail trading is expected to increase in 2010 following the consolidation of the full-year operations. In 2009, the impact of the political unrest cut hotel revenue by 19% from the previous year. The overall occupancy of hotels owned by MINT decreased from 65% in 2008 to 56% in 2009 while the average room rate and the revenue per available room (RevPAR) declined by 10% and 23%, respectively. The drop in RevPAR reflected less demand in Thai hospitality due to the global economic slowdown and Thai political uncertainty, which together lowered tourist confidence. QSR operations grew not only from organic revenue growth through both equity and franchise outlet expansions, but also by the acquisition of new QSR brands, i.e., Coffee Club in 2007 and Thai Express in 2008. The total number of QSR outlets increased from 676 outlets in 2007 to 1,043 outlets in 2007 following the investment in Coffee Club, and further rose to 1,112 outlets in 2009. In terms of profitability, despite the 27% drop in the hotel’s earnings before interest, tax, depreciation and amortization (EBITDA), the hotel business remains the largest contributor at 44% of MINT’s total EBITDA in 2009, followed by the QSR business at 39%.
Overall operating income before depreciation and amortization as a percentage of sales declined from 23% in 2008 to 18.3% in 2009. The drop reflects the lower margins in the hotel business and the consolidation of retail trading which carries thin margins. As a result, funds from operations (FFO) declined 12% from Bt3,315 million in 2008 to Bt2,904 million in 2009. The company’s cash flow generating ability has benefited from diversification in terms of business segments and geography. MINT’s cash flow protection deteriorated, but remained satisfactory as the EBITDA interest coverage ratio dropped from 11 times in 2008 to 8.2 times and FFO to total debt weakened to 22.1% in 2009 from 31.9% in 2008. MINT’s financial leverage, as measured by the debt to capitalization ratio, significantly increased to 52.2% in 2009 after staying below 50% during the past three years, due to the continual expansion plan.
For the first quarter of 2010, MINT’s total revenue increased 24% y-o-y, contributed by the 17% growth of revenue in hotel and related businesses, 2% increase in QSR income and contribution from retail business. The operating margin improved to 21%, deriving from the better margin of both hotel and QSR businesses. FFOs significantly improved to Bt1,004 million, which provides a satisfactory liquidity. The overall financial profile strengthened slightly along with the economy recovery. Although tourism industry may be negatively impacted further from the political conflict, TRIS Rating expects MINT to deliver the sound operation in 2010.
MINT is constructing two new hotels and has expansion plan for QSR and retail outlets. The capital expenditure during 2010-2011 will be Bt7,000 million. Although TRIS Rating expects MINT to partly finance the capital expenditure by internal cash flow, leverage is likely to increase further. Any new investment which requires a significant amount of debt financing could weaken the company’s financial profile and may negatively impact the company’s ratings.
After a 3% decline in foreign tourist arrivals in 2009, the Thai tourism industry slightly recovered in the first quarter of 2010. However, the prolonged and violent protest by the anti-government group has chased away the foreign tourists since late March 2010. Worsened by the emergency decree announcement, the governments of over 40 countries issued travel warnings for their citizens. These actions could hurt the tourism industry for an extended period. Moreover, the protests of the anti-government group in the business districts of Bangkok also affect many businesses including QSR and shopping mall in the surrounding area. MINT was impacted in some locations of its three key businesses which are hotel, QSR, and retail trading. TRIS Rating expects that this event loss will not significantly hurt MINT’s financial profile given its sizable and diversified operations. -- End
Company Rating: Affirmed at A Issue Ratings: MINT10DA: Bt1,000 million senior debentures due 2010 Affirmed at A MINT11OA: Bt1,000 million senior debentures due 2011 Affirmed at A MINT129A: Bt1,840 million senior debentures due 2012 Affirmed at A MINT137A: Bt2,000 million senior debentures due 2013 Affirmed at A MINT149A: Bt2,060 million senior debentures due 2014 Affirmed at A Up to Bt2,500 million senior debentures due within 2015 A Rating Outlook: Stable
Copyright 2010 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. 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.