Bangkok--18 May--TRIS Rating
TRIS Rating Co., Ltd. has affirmed the company rating and current issue ratings of Central Plaza Hotel PLC (CENTEL) at “A-”. At the same time, TRIS Rating has assigned a “A-” rating to CENTEL’s proposed up to Bt2,200 million senior debentures. The outlook remains “stable”. The ratings reflect CENTEL’s diversified cash flow from the hotel and quick service restaurant (QSR) businesses, its strong position in the QSR business, and the good quality of certain hotel properties in its portfolio. The ratings also take into account support from the Central Group. However, these strengths are partially offset by the seasonal nature of the hotel industry, which is sensitive to external factors and the highly-competitive and low-margin nature of the QSR industry. Additional concerns are CENTEL’s continuing expansion in the hotel business, which requires substantial investment that will drive higher leverage during the next three years, and the risk that the leasehold contract for Sofitel Central Plaza will not be renewed by the State Railway of Thailand (SRT) upon expiration in 2008.
The “stable” outlook is based on the expectation that CENTEL will be able to generate a substantial amount of cash from operations and use a substantial portion to fund the expansion plan. The company’s rating or outlook will be negatively impacted if the financial performance falls below TRIS Rating’s expectations, as financial leverage would weaken due to increased borrowing to finance the expansion.
TRIS Rating reported that CENTEL was founded in 1980 by the Chirathivat family to own and operate a hotel in Thailand. The company currently owns and operates ten 4- and 5-star hotels (1,910 rooms) in seven provinces in Thailand. Hotel revenue is mostly derived from three major hotels: Sofitel Central Plaza, Sofitel Central Hua Hin and Central Samui Beach. Except for Sofitel Central Hua Hin, which is managed by Accor International, CENTEL manages the hotel properties under its own brand, ‘Central’. Sofitel Central Plaza and Novotel Central Sukhuntha are managed by CENTEL under an Accor franchise. CENTEL also operates the QSR business under its subsidiary, Central Retail Group (CRG). CRG’s food portfolio consists of five international franchised QSR brands, KFC, Mister Donut, Pizza Hut, Baskin Robbins, and Auntie Anne’s. CENTEL operates a combined total of more than 450 outlets countrywide.
TRIS Rating said that CENTEL’s revenue from the QSR business remains the largest contributor, accounting for 57%-62% of total revenue during the last five years; the rest was generated by the hotel business. In 2006, driven by more QSR outlets and more hotel rooms, CENTEL’s revenue grew by 9%, from Bt6,239 million in 2005 to Bt6,775 million in 2006. CENTEL’s average revenue per available room (RevPAR) increased from Bt1,932 per room in 2005 to Bt2,018 per room in 2006. RevPAR rose in part because CENTEL continued to upgrade some of its hotel rooms to compete with new hotels. Although QSR revenue rose from Bt3,864 million in 2005 to Bt4,150 million in 2006, same store sales dropped by 1.9% in 2006 after growing impressively by 10.6% in 2005. The negative growth rate reflects higher competition.
CENTEL continues to expand aggressively in the hotel business. In addition to 192 rooms at Central Krabi Beach Resort that opened in 2006, CENTEL plans to add 1,323 rooms, opening three more hotels by 2010. As the company financed a substantial amount of the expansion with debt, the ratio of debt to capitalization deteriorated from 39% in 2004 to 53% at the end of 2006 and total debt rose from Bt3,000 million in 2004-2005 to Bt4,101 million in 2006. The funds from operations to total debt ratio weakened from 44% in 2004 to 36% in 2005 and 21% in 2006. It is expected that leverage and cash flow protection will continue to weaken during the next three years as CENTEL makes Bt6,000-Bt7,000 million in capital expenditures to fund the new projects, said TRIS Rating.