Fitch revises outlook on CP All to 'negative' from 'stable'

The outlook revision to “negative” reflects weak economic growth in Thailand, which means CP All is taking longer than expected to reduce its leverage to below Fitch’s threshold for negative rating action.

Fitch now expects CP All’s FFO (funds from operations) adjusted net leverage to be around 6.0 times by the end of the year and remain above 3.5 times beyond 2017, which is not compatible with its “A+(tha)” rating. 

The pace of de-leveraging has been hampered by weaker-than-expected profitability and cash generation in a challenging operating environment. However, CP All plans to divest a portion of its interest in cash and carry wholesaler Siam Makro and use the proceeds to reduce debt. This should trim its leverage to below 3.5 times.

Fitch expects CP All’s sales to increase by 10-11 per cent in 2015-16, mainly driven by new store openings, while 7-Eleven’s same-store sales growth is likely to be about 1 per cent this year and 2.5-3 per cent in 2016. 

The company continues to benefit from the “defensive” nature of its business, which sells daily essentials with low revenue and margin volatility amid a weaker-than-expected recovery in the Thai economy. Its medium-term growth potential is still supported by Thailand’s immature market for modern food retail.

CP All is the largest operator in Thailand’s convenience-store business. It is likely to maintain its leading position despite intense competition. 

CP All has more than 8,400 stores nationwide; it has a market share of more than 60 per cent of all convenience stores in the country, far more than the second-largest operator. Its dominance is supported by a large network and coverage area, along with well-established functions such as logistics, supply and maintenance, and staff training and development.

CP All’s acquisition of Makro, the market leader in modern food-wholesaling stores in Thailand, increases and broadens the company’s customer base to create the country’s largest company in the food retail sector. The leadership and synergy have enabled both CP All and Makro to post stronger growth than other large food retailers with no deterioration in margin amid the weak operating environment over the past 12 to 18 months.

Fitch has also affirmed the rating on CP All’s outstanding secured bonds at “A+(tha)” and the rating on its senior unsecured bonds at “A(tha)”. The national short-term rating has also been affirmed at “F1(tha)”.