Cen­tel keeps high marks as tourism shines

Bangkok Post - - BUSINESS / NATIONAL -

Tris Rat­ing has af­firmed the com­pany rat­ing on Cen­tral Plaza Ho­tel Plc (Cen­tel) and its out­stand­ing se­nior unse­cured deben­tures at A.

The rat­ings re­flect Cen­tel’s strength in ho­tels and quick ser­vice restau­rants (QSR), its low but ris­ing level of fi­nan­cial lever­age, and its sup­port from Cen­tral Group.

But these strengths are par­tially off­set by the cycli­cal na­ture and sus­cep­ti­bil­ity to risk of the ho­tel in­dus­try, as well as the in­tense com­pe­ti­tion in the QSR seg­ment.

Tris ex­pects the tourism in­dus­try in Thai­land to re­main strong. Tourist ar­rivals to Thai­land grew sharply dur­ing the past three years at an av­er­age rate of 13% a year, to 35.4 mil­lion in­bound tourists in 2017. The num­ber of ar­rivals grew by 12.7% year-on-year to 19.5 mil­lion in the first half of 2018.

Chi­nese tourists have played a large part in the flour­ish­ing of tourism in Thai­land, grow­ing at an av­er­age of 28% a year dur­ing 2014-17. The Chi­nese con­trib­uted 28% of to­tal ar­rivals in 2017.

Tris ex­pects Cen­tel to ben­e­fit from strong growth in Thai tourism, as most of Cen­tel’s prop­er­ties are sit­u­ated in key tourist des­ti­na­tions in Thai­land. At the end of the first quar­ter of 2018, Cen­tel owned and op­er­ated 15 ho­tels in Thai­land and two ho­tels over­seas, while man­ag­ing 18 ho­tels in Thai­land and three ho­tels abroad.

The com­pany de­rived 80% of to­tal ho­tel rev­enue from ho­tels in Thai­land.

De­spite the good prospects for the Thai tourism in­dus­try, Tris sees Cen­tel as sus­cep­ti­ble to event risk, given that its ho­tel seg­ment mainly re­lies on the Thai tourism in­dus­try.

Tris also views the in­creas­ing re­liance on Asian tourists (mainly Chi­nese) as po­ten­tially af­fect­ing fu­ture per­for­mance if such tourists shift to other coun­tries as their pre­ferred des­ti­na­tion or if there is eco­nomic stag­na­tion in their own coun­tries.

Tris fore­casts the over­seas ho­tel in­come con­tri­bu­tion to rise to one-third of Cen­tel’s to­tal ho­tel rev­enue by 2022, against the cur­rent con­tri­bu­tion of one-fifth of to­tal ho­tel rev­enue.

Over­seas ho­tels in the pipe­line in­clude two owned ho­tels in the Mal­dives and a ho­tel un­der a joint ven­ture in Dubai.

Tris ex­pects strong com­pe­ti­tion in the restau­rant in­dus­try in Thai­land to con­tinue to put pres­sure on Cen­tel’s growth, as there are a grow­ing num­ber of choices avail­able to con­sumers and low bar­ri­ers to en­try in the restau­rant sec­tor.

Cen­tel’s same-store sales growth in the food seg­ment was slightly neg­a­tive over the past sev­eral years. Over­all food rev­enue, how­ever, grew by 4% to 10.89 bil­lion baht in 2017, driven mainly by new store ex­pan­sion.

Tris ex­pects KFC to con­tinue to dom­i­nate Cen­tel’s food port­fo­lio. KFC op­er­a­tions as a fran­chise con­trib­uted more than half of Cen­tel’s food seg­ment rev­enue and earn­ings be­fore in­ter­est, tax, de­pre­ci­a­tion and amor­ti­sa­tion (ebitda) dur­ing 2014-17.

Tris fore­casts Cen­tel’s lever­age in­di­cated by ad­justed to­tal debt to cap­i­tal­i­sa­tion ra­tio to rise to 58% in 2020 from 49% in 2017. This is due to size­able in­vest­ments of around 18 bil­lion baht over 2018-20, of which around 80% will be in­vest­ment in new ho­tels and ren­o­va­tion of ex­ist­ing ho­tels.

The rest will be used to add new food out­lets and main­tain ex­ist­ing food out­lets.

Tris ex­pects Cen­tel’s av­er­age rev­enue growth of 5% a year and ebitda to range be­tween 4.8 bil­lion and 5.4 bil­lion baht dur­ing 2018-20, mainly driven by new food out­let ex­pan­sion as some ho­tel prop­er­ties will still be un­der ma­jor ren­o­va­tion and some ho­tels in the pipe­line will have not yet started op­er­a­tions.

Ad­justed debt to ebitda ra­tio will rise and hold be­low 3.2 dur­ing those years, com­pared with 2 in 2017.

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