Thai companies going down the expansion route

Chris Bassett on September 22nd, 2015 with

Thai business expansion

Over recent weeks there has have been a number of business-related announcements from some major players in Thailand that seem to indicate there are managements who believe the time is perfect to look at expansion, both within the local marketplace and into the broader region, and, in one case at least, venturing as far as Europe.

In most cases, the reasons for expansion are based around the belief that the prices being paid for acquisitions represent good value within the current general economic conditions. In all cases, it looks as though management has its eyes well and truly focused on a long-term strategy rather than a quick turnaround.

The well-known property and leisure company MBK Group recently announced plans to strengthen its restaurant business, and is looking to acquire three restaurant chains before the end of this year. Each of the deals will be valued at between 100 million and one billion baht. [1]

This so-called ‘inorganic growth’ is aimed at boosting MBK Group’s overall revenue from 500 million baht to three billion baht by 2020. The restaurant side of the business is being tasked with boosting revenue at a rate of 10 percent per year, at a minimum. This is actually down from its previously announced revenue growth targets of 20 to 30 percent per year. Management at MBK Group have recognized the economic downturn has meant consumers are spending less and the target they had set for 2015 will not be met.

Presently, almost 80 percent of their revenue comes from their food court business, with restaurants making up the other 20 percent.

While spending on restaurants has dropped, the food court in the MBK department store has been doing very well so the company has announced plans to spend around 15-16 million baht on creating an 800-square-metre first-floor food court to cater for the increased demand. This will be launched in 2016 and is aimed at offering a cheaper menu to attract local office workers and the like. The company also has plans to open one new food court a year in other department stores over the next two years.

Although MBK Group will miss its 2015 growth target, it has announced that it will  still earn nearly 500 million baht from the restaurant business. Management has an ambitious long-run target of raising 10 billion baht, but accepts this will only occur once the marketplace has recovered.

Apart from the planned trio of acquisitions, the company is also looking to boost cooperation with foreign firms to bring new international food and restaurant chains into the country. At the same time it would look at closing those restaurants which are not successful.

Plan B has a Plan A

The out-of-home media company Plan B Media PLC recently announced that it was negotiating with partners to expand into the region. The first target is Malaysia, with Indonesia, Philippines and Vietnam next on the agenda. The company hopes to sign a deal in Malaysia this year, with the other three Asean countries to be established by the end of 2016. [2]

Plan B Media believes the expansion could account for up to 10 percent of its revenue by the end of next year. Senior management believes the outdoor media market will become more challenging and competitive over the next five years or so and they need to explore opportunities outside Thailand. The company wants to grow its annual revenue to five billion baht by 2020.

Revenue has risen substantially this year, and is expected to reach 3.02 billion baht, up from 1.46 billion baht in 2014. Two-thirds of the revenue comes from Plan B, the rest from its subsidiary, Hello Bangkok LED Co Ltd.

The link-up with Hello Bangkok added 80 screens and 120 billboards in prime locations around the country and generated 500 million baht in revenue.

Another of Plan B’s subsidiaries, Master Standard Display acquired Triple Play Co Ltd for 12 million baht as a part of its expansion into the airport digital and display market. One of its current projects is the installation of Wi-Fi in buses.

At present, Plan B’s main source of revenue comes from digital advertising on LED screens (44 percent), advertising on public transport (28.5 percent), static billboards (25 percent) and advertising in department stores (2.5 percent).

Minor looks to spend more now, before prices rise

The prominent hotel group Minor International Pcl (MINT) is considering increasing its planned five-year forward investment budget in order to acquire potential assets which may be offered to the market at cheaper valuations because of the global economic slowdown.

The company has certainly announced plans to acquire the remaining eight hotels of Tivoli Hotels and Resorts in Portugal as part of its expansion overseas. At the beginning of this year the company bought four hotels in Portugal and two in Brazil from Tivoli for the equivalent of around 6.8 billion baht.[3]

The company has said its new investment plan will be laid at a board meeting in October with the suggestion that the current 52 billion baht allocated for expansion and acquisitions over the next five years be increased to take advantage of world economic sluggishness.

MINT says it targets an annual net profit growth of between 15 and 20 percent. By the end of 2020 it aims to have at least 190 hotels, a rise from its current level of 133. It also aims to raise its property projects from 71 to 400 and would like to be operating 3,300 restaurants, which is almost double the 1,747 restaurants it currently operates.

As if to emphasise that while global economic conditions are sluggish and Thailand is feeling the same ‘pain’, there are still quite tremendous profits available for well-run operations.

MINT says it expects net profit this year will be its highest ever, surpassing 2014’s 4.4 billion baht level. At the half-way point of this year the company was 32 percent ahead of its 2014 level, primarily due to the profit from Sun International Ltd, which was acquired last year.

[1] http://www.dealstreetasia.com/stories/thailands-mbk-group-to-boost-restaurant-business-to-buy-three-chains accessed 15/9/15

[2] http://www.dealstreetasia.com/stories/thailands-out-of-home-media-player-planb-to-expand-to-asean accessed 15/9/15

[3] http://www.dealstreetasia.com/stories/thailands-mint-to-raise-budget-for-buying-assets-in-five-years accessed 15/9/15

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