Companies that operate foodservice and restaurant chains have been warned of dwindling profit margins as food costs continue to rise.
Thailand’s consumer price index (CPI) increased 2.17% year on year in December, owing to the growing fuel and food prices, the Ministry of Commerce reported in early January. This marks the fourth consecutive month of rise in headline inflation since September 2021. Meanwhile, the CPI for full-2021 climbed by 1.23% over the year.
The report highlights an upsurge in retail fuel and fresh food prices, particularly meat, that contributed to kept the CPI rising in December.
Maybank Securities (Thailand) (MST) on Thursday expressed concern about rising food raw material costs, especially higher pork (+31% YoY) and palm oil prices (+43%YoY), which contribute 27.1% of normalized costs for Central Plaza Hotel (SET: CENTEL) and 13.9% for Minor International (SET: MINT). CENTEL is most exposed as about 60% of its normalized income comes from the restaurant business compared to MINT’s 20%. According to MST, each 1ppt increase in raw material costs reduces CENTEL’s profit by 2.4% and MINT’s profit by 1.8%.
However, MST still forecast MINT and CENTEL to perform well in 4Q21, with MINT expecting the strongest 4Q21 occupancy of 50%, followed by The Erawan Group (SET: ERW) at 46% and CENTEL at 33%. Both MINT’s and CENTEL’s occupancies were driven by overseas hotels (Europe and Maldives), while ERW’s by the domestic-led Hop Inn segment. Despite this, MST expects 1Q22 earnings to be softer, due to the spread of Omicron and Thailand’s border closures from late December 2021 to the end of January 2022.
MST has set a target price of THB33.00 for MINT and THB30.50 for CENTEL.
