The “negative” outlook reflects the weakening performance of CENTEL while leverage continues to increase. TRIS Rating expects the company to achieve its target performance and gradually reduce its leverage. The interest-bearing debt to EBITDA ratio is expected to be in the range of not more than 3.5 times. If the company could manage the leverage in the target, the outlook could be revised to “stable”.
TRIS Rating reported that CENTEL was founded in 1980 by the Chirathivat family to own and operate a hotel in Thailand. CENTEL currently operates more than 5,300 rooms at 29 hotel properties in key tourist destinations in Thailand and three hotel properties in oversea. CENTEL’s own properties account for 69% of total rooms across 14 hotels, four of which are joint venture properties. Except for the “Sofitel Centara Grand Hua Hin”, which is managed by Accor International, CENTEL manages hotel properties under its “Centara” brand. “Sofitel Centara Grand Bangkok” and “Novotel Centara Hat Yai” are managed by CENTEL under the Accor franchises. CENTEL operates QSR businesses under its subsidiary, Central Restaurants Group (CRG). CRG’s food portfolio consists of several international franchised QSR chains: “KFC”, “Mister Donut”, “Auntie Anne’s”, “Pepper Lunch”, “Beard Papa’s”, “Shabuton”, and “Cold Stone Creamery”, and its own brand “RYU Shabu Shabu”. The QSR business covered a combined total of more than 480 outlets countrywide during the end of June 2010. The hotel and QSR businesses each contributed around half of the total revenue in recent years.
In 2009, the Thai tourism industry was affected by many unfavourable factors such as the global economic downturn, intensified political unrest and the A/H1N1 flu epidemic. However, thanks to the first full year performance of “Centara Grand @ Central World” hotel”, the company’s total revenue grew by 3% to Bt8,277 million in 2009. The growth was derived from an 11% increase in revenue from the hotel business, while QSR sales dropped by 3% due to the discontinuation of 25 “Pizza Hut” outlets in May 2009 and 37 “Baskin Robbins” outlets in December 2009. Hotel demand was softer in 2009, and the overall occupancy rate (OR) of CENTEL’s own properties fell to 60.7% from 64.2% in 2008. The average revenue per available room (RevPAR) also dropped, falling by 5% compared with the previous year. With the economic recovery, the tourism industry strongly rebounded in the most recent high seasons during the fourth quarter of 2009 to the first quarter of 2010. Foreign tourist arrival grew by 26.5% y-o-y in the fourth quarter of 2009 and 27.7% y-o-y in the first quarter of 2010. The OR improved to 71% in the first quarter of 2010 compared with 65% in the same period of the previous year. Total revenue increased by 9% y-o-y to 4,445 million for the first half of 2010, deriving from a 10% y-o-y increase in hotel revenue and 8% y-o-y growth in QSR sales. The company posted 26% y-o-y revenue growth in the first quarter of 2010 due to the industry recovery and the opening of “Centara Grand Mirage Beach Resort Pattaya”. Unfortunately, the hotel revenue declined by 11% in the second quarter of 2010 owing to the political violence in Bangkok which hurt the performance of the hotel business, particularly “Centara Grand @ Central World”. CENTEL’s OR was slashed to 48% in the second quarter of 2010.
TRIS Rating said, the operating profit margin of CENTEL dropped to 15.0% in 2009 from 18.3% in 2008, but rebounded to 17.6% in the first half of 2010. The improved margin was due to the strong rebound of hotel business in the first quarter of 2010 and the increased profitability of the QSR business after discontinuing two low margin brands: “Pizza Hut” and “Baskin Robbins”. CENTEL remains sound with respect to liquidity though cash flow protection slightly weakened. The funds from operations (FFO) to total debt ratio decreased from 17.6% in 2008 to 10.0% in 2009 and stood at 6.2% (non-annualized) at the end of June 2010. The earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio dropped to 4.9 times in 2009 but slightly improved to 5.1 times for the first six months of 2010. The political violence in the second quarter of 2010 hurt tourism prospects, but the aftermath is expected to be short-lived. CENTEL anticipates an improved performance in 2010.
CENTEL’s debt to capitalization ratio gradually increased from 52.3% at the end of 2006 to 60.3% and 61.3% at the end of 2009 and June 2010, respectively. The increase was to finance the company’s expansion plan during the last four years. CENTEL spent over Bt6,000 million mainly to develop and invest in hotel properties in key tourist destinations, i.e., Bangkok, Krabi, Pattaya and the Maldives. The total debt to capitalization ratio is expected to remain high through the end of 2010 due to the investment in “Centara Grand Phuket”, which is expected to open in October 2010. With strong relations with commercial banks, CENTEL normally has project financing facilities in place to support construction. As of March 2010, the company had available credit lines with commercial banks of approximately Bt3,300 million, said TRIS Rating.
Central Plaza Hotel PLC (CENTEL)
Company Rating: Affirmed at A-
Issue Ratings:
CENTEL117A: Bt1,000 million senior debentures due 2011 Affirmed at A- CENTEL127A: Bt600 million senior debentures due 2012 Affirmed at A- Rating Outlook: Negative