The continued growth of the Asean region amid the boom in both consumption and tourism is likely to help shape the future of Central Group, one of Thailand’s leading consumer and tourism-related businesses.
Chen Sea Resort & Spa Phu Quoc in Vietnam (pictures 1-3) and Centara Grand Island Resort & Spa Maldives (pictures 4-6) are among the Centara properties tapping tourism growth in Asean.
The group is well positioned to serve both broad sectors through its various business arms: Central Retail Corp, Central Pattana Plc, Central Marketing Group, Centara Hotels & Resorts and Central Restaurant Group.
“The economy of this region will soon benefit greatly from the integration of the Asean Economic Community (AEC) and all business under the Central Group, including retail, hotels and restaurants will benefit from this. Asean now is our most important market, while Asia is the big target,” executive chairman Sudhitham Chirathivat said during a briefing last week on the group’s strategy.
Mr Sudhitham said he expected the overall gross domestic product (GDP) of Asean to be around US$2.2 trillion by 2016, and the region would attract a growing number of tourists and businesspeople from around the world.
Thus, Central Group, which is one of Thailand’s largest family businesses, will focus more on Asean countries this year, via its own investments and by forming alliances with new partners.
“It’s time for Asean now, not the United States or Europe,” he said. While he sees the US economy improving it will not take the shine away from Asia, while the European Union will continue to struggle.
“But, in comparison, growth rates in Asean countries will not be less than 5% with countries such as Indonesia recoding growth of no less than 6%. Singapore would likely remain strong, and Cambodia is expected to grow at 6.9% on average over the next three years,” said Mr Sudhitham.
Sudhitham Chirathivat, executive chairman of Central Group speaks about the group's future vision
Integration in Asean is the most positive development, in his view. Member countries are increasing trading volume among each other and reducing dependence on exports to volatile global markets. This will spur domestic demand in the region immediately.
Economic growth is being spurred by both the influx of investments into the region and also the efforts by various governments to spur consumer spending to offset the decline in exports.
Mr Sudhitham said that business expansion abroad for Central Group would focus on mergers and acquisitions (M&A), while its retail businesses would likely partner with foreign investors via joint ventures.
He further noted that the hotel business, which has been gradually expanding its regional reach, would also sign many management contracts abroad.
Among the five business units, retail will be the main spearhead to penetrate other Asean countries. The highlighted markets are Indonesia and Vietnam.
Tos Chirathivat, executive director of Central Group and CEO of Central Retail Corporation (CRC), said the Indonesian economy would be equal to that of Germany within 15 years.
The rapid growth of the middle class in Indonesia and other Asean countries is highly significant. Mr Tos pointed to Samsung of South Korea as a good example, saying its sales of telecom products and other goods in Asean would double very soon.
Improved transport connectivity among Asean countries, particularly land routes, will be another important factor to drive Asean people to travel and consume more across the region, he believes.
“People from Vietnam, Myanmar, Cambodia and Thailand, for example, will travel across borders more easily than in the past. Among these countries in the mainland, Thailand is obviously the centre. Our businesses will benefit directly, especially hotels and retail. If we handle this well, Thailand will benefit the most,” he said.
To grab this opportunity, CRC has started negotiating with a number of local partners in Asean countries. Indonesia is among its targets. CRC has four or five deals under consideration, he noted.
There had been reports that Central Group was interested in bidding for PT Matahari Department Store in Indonesia, a deal that could be worth up to $3.5 billion.
Mr Tos did not confirm or deny the reports, but said that an Indonesian retail business was among four or five deals the group was negotiating.
Central last year signed a lease agreement with PT Grand Indonesia Group to open up the first Central Department Store at Grand Indonesia Shopping Town in Jakarta. The shopping mall is scheduled to open in 2014.
Mr Tos said CRC aimed to increase the revenue contribution from Asean countries to 30% of Central’s total within the next few years from 15% last year, after it aggressively expands the retail business.
CRC last year generated revenues of 150 billion baht, an increase of 32% from 2011. It projects sales of 190 billion this year, rising by 25-26% from 2012.
As for the real estate business, Kobchai Chirathivat, CEO of Central Pattana (CPN), said the accelerating factors were urbanisation and the transport connectivity. More people are moving to live in cities, and as they adapt to urban lifestyles, they start to go to shopping malls.
“Shopping malls are no longer places for just shopping. People go there for leisure, too. The concept has changed. CPN sees this opportunity and will grab it,” he said.
CPN has directly experienced the benefit of connectivity as Laotian people, especially from Vientiane, now travel to Thailand on weekends. The company is hopeful that the transport that connects the southern part of China, Laos and Thailand will smooth the flow of Chinese tourists to Thailand as well.
The strategy of CPN, he said, was to build shopping malls in border locations as it foresees that consumers from neighbouring countries will cross the border to visit Thailand more frequently and easily in the near future.
“For the real estate business, location is very important. Thailand is a gateway to connect the West to the East. So, we will focus on the provinces located near the border both in Thailand and neighbouring countries,” added Mr Kobchai.
To win the Asean game, Central Group has to prepare money for its investments.
Chief financial officer Prin Chirathivat said 2013 would be the third consecutive year in which the group’s investment budget exceeded 30 billion baht — 38 billion baht to be precise — and the figure was unlikely to fall below 30 billion for the next few years.
“For 2013, we have 30 billion baht as cash on hand. So, we can mobilise funds by adding our assets into the property fund and borrowing from banks as alternative sources of funding,” said Mr Prin. “The group’s net debt-to-equity ratio currently is just one time. We still have room for borrowing.”
The strategies and strengths that Central Group will use are brands, human resources and partners. The strengths of each business unit will create strong synergy, added Mr Sudhitham.
“Each of our businesses can complement the other.”
He said that the Central brand was very strong among foreign investors and its partners and that is why when Central announced that it would penetrate further into Asean countries, its brand partners started to approach, asking for cooperation to sell their brands in other Asean countries.
“Central is now is very attractive. We’re strong in every business in which we’re operating. Many investors would like to partner with us, so we believe that we can choose. Finding new partners will not be our problem,” he said.
Ultimately, whether or not Central Group will benefit from Asean integration will depend on the preparation and opportunity.
“It’s like playing cards. We can either win or lose. But we’re confident in our strengths, especially in the retail business. We have a strong foundation. So, we should expect good yields,” said Mr Sudhitham.
About the author
Writer: Nalin Viboonchart