Tris Rating affirms the company rating on Berli Jucker PLC (BJC) and the ratings on its outstanding senior unsecured debentures at A+ with a stable outlook.
The ratings reflect BJC's strong competitive positions and proven record in its core business lines, sound and resilient operational results, and Tris's expectation that BJC is likely to have an improvement in its operating results and capital structure positions over the next three years.
The ratings are, however, constrained by BJC's high financial leverage resulting from the debt financing for the Big C Supercenter Plc acquisition in 2016.
BJC has four major lines of business: retailing, packaging products (glass bottles and aluminium cans), food and non-food consumer products, and healthcare and technical products.
Apart from the home market in Thailand, BJC has a significant presence in other countries in Southeast Asia.
Sales grew by 4.5% year-on-year in the first six months of 2018 to 76 billion baht. Excluding the retail segment, sales grew by 2-3% a year during the last three years.
First-half earnings before interest, tax, depreciation and amortisation (ebitda) rose by 11.4% year-on-year to 10.3 billion baht.
Tris said BJC should be able to maintain its competitive strengths, driven by its lengthy track record, economies of scale and well-established logistics network.
Big C is the second-largest modern trade retailer in the hypermarket segment in Thailand. It owned 143 hypermarkets, or about 40% of all hypermarket outlets in Thailand, as of June 2018. It also operates 60 supermarkets and 691 Mini Big C stores.
Tris expects the company to maintain its strong position in the modern retail trade segment in Thailand and continue expanding its footprint nationwide.
In 2018, Big C plans to add eight new hypermarkets and 150 convenience stores.
Tris's base-case forecast assumes revenue growth at a single-digit rate annually over the next three years. The growth drivers are the addition of modern trade retailing outlets, growth in the packaging and consumer products segments, and a gradual rebound in the Thai economy.
Tris expects Big C's same store sales to grow at a low single-digit rate over the next three years. Same-store sales growth turned positive in the third quarter of 2017 and had a flat rate for the first six months of 2018.
Tris expects BJC to realise more cost efficiency in production because of economies of scale, high utilisation rates and cost-saving initiatives. On the other hand, Tris forecasts selling, general and administrative expenses to remain high in an effort to counter competition and expand new retail outlets nationwide.
BJC's total debt was 157.45 billion baht as of June 2018. The debt-to-capitalisation ratio was 59.7%.
Tris projects the company's outstanding debt to decline over the next three years, with the debt-to-capitalisation ratio falling to around 50% by 2020, assuming BJC does not make any other large debt-funded acquisitions or investments. Tris expects BJC to reduce the ratio of net debt to ebitda to about 4 by 2020.
BJC will need to refinance a significant portion of its existing debt over the next 24 months. Sources of funds comprised cash and cash equivalents of 3.4 billion baht at the end of June 2018, plus funds from operations of 15 billion to 18 billion baht a year.
Planned capital expenditure is estimated at roughly 24 billion in aggregate during 2018-20. Some 2.1 billion in long-term debt is due in 2018, while 46 billion baht in long-term loans and debentures will come due in 2019. Tris sees operating cash flow as sufficient to fund planned capital expenditure.