TRIS Rating Co., Ltd. has affirmed the company and issue ratings of Minor International PLC (MINT) at “A” with “stable” outlook. The ratings reflect MINT’s diverse portfolio of well-accepted brands that strengthens its market positions in its three main lines of business: hotels; quick service restaurant (QSR); and retail trading and contract manufacturing. The ratings also reflect 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 strengths are partially offset by the various unfavourable factors adversely affecting the tourism industry during the past few years, the economically sensitive and seasonal nature of the hotel industry, and the severe competition and low margins faced by the QSR and retail trading businesses. Despite the recent chronic and intensified political unrest which negatively impacted the tourism industry and dampen consumer confidence, MINT is expected to deliver a sound operating performance in this challenging year. Meanwhile, the company’s leverage is expected to increase to finance new hotels construction. Additional investments over and above the existing projects could negatively impact the ratings if a substantial amount of debt funding is required.
The “stable” outlook is based on the expectation that MINT’s operating cash flow will remain strong. Through the uncertain business environment, MINT is expected to maintain ample liquidity to ensure smooth operations and finance part of the committed capital expenditures with operating 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 by 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 included fashion, cosmetics and manufacturing, under the MINT umbrella. Within MINOR, the key brands are Gap, Esprit, Bossini, Red Earth, and Bloom.
In 2009, MINT’s total revenue grew 4% year-on-year (y-o-y) to Bt16,460 million. The growth derived from the 13% growth of QSR business and from adding the retail trading business into the company’s portfolio. In 2009, the impact of the political unrest cut hotel and spa revenue by 19% from the previous year. The overall occupancy (OR) of hotels owned by MINT decreased from 65% in 2008 to 56% in 2009 while the average room rate (ARR) 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 2008 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%.
For the first three months of 2010, MINT’s revenue increased by 24% y-o-y to Bt5,114 million, driven by the consolidation of the retail trading and contract manufacturing business and the recovery of the hotel and spa business. Revenue from the retail trading and contract manufacturing business for this period was Bt695 million, accounting for 14% of total revenue. The leading revenue contributors in this business line were contract manufacturing and fashion apparel, each contributing 43%. Hotel and spa revenue increased by 17% y-o-y to Bt1,678 million of which Bt77 million or 4.5% was recurring income from managed hotels. The growth was supported by a higher OR while the ARR dropped slightly. The overall occupancy of hotels owned by MINT increased to 71% in the first quarter of 2010, compared with 61% in the same period of the prior year. This rise was mainly due to a significant improvement at JW Marriott Phuket, Anatara Phuket, and Four Seasons Bangkok hotels which suffered a great deal from the airport closure in late 2008. However, the political protest turned violent in Bangkok during April and May 2010, which severely damaged the domestic hospitality industry. MINT’s hotels located in Bangkok and Chiang Mai suffered the most. For MINT, the average OR of its own hotels for the first five months of 2010 dropped to 62%. Nonetheless, the rate was still higher than the 52% OR in the same period of the prior year. For the QSR business, revenue grew 2% y-o-y to Bt2,599 million mainly based on regular marketing promotions resulting in higher traffic volume. Unlike the hotel and spa business, the QSR business was not significantly affected by the political turmoil because MINT has outlets all over the country.
TRIS Rating said that in terms of profitability, MINT’s operating margin before depreciation and amortization expenses was 20.73% in the first quarter of 2010, relatively unchanged from the same period of the prior year, despite higher margins in the hotel and QSR businesses. This was because of the consolidation effect of low-margin retail trading and contract manufacturing business. Fund from operations (FFO) significantly improved to Bt1,004 million, which provides satisfactory liquidity. Although the tourism industry may continue to be negatively impacted by the recent political violence, TRIS Rating expects MINT to deliver sound operating performance in 2010.
As of March 2010, MINT’s adjusted debt (including annual lease capitalization and contingent liabilities to related companies) stood at Bt13,098 million. The adjusted debt to capitalization ratio was 50.68%, slightly down from 52.16% as of December 2009. TRIS Rating expects that MINT’s leverage ratio will remain high for the next few years based on its investment plan. MINT is constructing two new hotels and has expansion plans for its QSR and retail outlets. The capital expenditure (without any acquisitions) during 2010-2011 is expected to be Bt7,000 million, said TRIS Rating. -- 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 MINT155A: Bt2,500 million senior debentures due 2015 Affirmed at A Rating Outlook: Stable
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