Dusit Thani gets a BBB+ ahead of debt issue

Tris Rating gives Dusit Thani Plc a BBB+ for both the company rating and the proposed issuance of 1 billion baht in unsecured debentures under a 5-billion-baht medium-term debenture programme.

Proceeds from the new debentures will be used to fund Dusit Thani’s planned investments and refinance its existing debts.

The ratings reflect Dusit Thani’s brand equity and conservative financial policies. These strengths are offset by Dusit Thani’s concentrated portfolio, intense competition in the hotel industry and weak profitability.

The ratings also take into consideration Dusit Thani’s efforts in developing a mixed-use project. While the project will enhance Dusit Thani’s long-term growth prospects, the company’s financial profile will weaken during the construction period.

Dusit Thani’s performance in the first three months of 2018 was in line with Tris Rating’s expectations. Dusit Thani reported 1.44 billion baht in revenue, relatively flat compared with the same period last year.

Profitability weakened slightly yearon-year, mainly due to higher employee benefit provisions related to the closure of Dusit Thani Bangkok and pre-operating expenses in the education business.

Operating margin, measured by operating income before depreciation and amortisation as a percentage of sales, was 19.2% in the first three months of 2018, compared with 21.6% in the same period a year earlier.

The liquidity position and capital structure of the company remained sound. For the first quarter of 2018, funds from operations totalled 293 million baht. The ratio of funds from operations to total debt was 26.1% (annualised, from the trailing 12 months). The debt-to-capitalisation ratio stood at 32.9% at the end of March 2018.

Tris Rating expects Dusit Thani’s financial risk profile to weaken as it takes on more debt to fund the mixeduse project, but Dusit Thani’s management team is committed to maintaining a conservative and prudent financial policy.

The stable outlook reflects Dusit Thani’s conservative financial policy, as well as growth prospects in the hotel management service and education segments. Dusit Thani is expected to strengthen its competitive edge in order to withstand the volatile nature of the hospitality industry.

Dusit Thani’s credit upside is limited in the near term, as the mixed-use project will require a sizeable investment.

A rating downside case could emerge if the operating margin falls below 10% for a sustained period or if huge debt-funded investments significantly weaken the balance sheet.