Bangkok--19 Jul--Fitch Ratings (Thailand)
Fitch Ratings (Thailand) Limited has affirmed SVI Public Company Limited’s (SVI) National Long-term rating at ‘BBB+(tha)’ and its National Short-term rating at ‘F2(tha)’. The Outlook is Stable.
The ratings reflect SVI’s niche position in the electronic manufacturing service (EMS) industry. The company focuses on the growing non-traditional end-product segment which is less volatile and offers higher margins than the traditional EMS segment. This has over the past three years helped SVI boost its operations and its business profile, notwithstanding the challenging global operating environment.
SVI also benefits from long-term growth prospects in the non-traditional EMS market. This is supported by end-market demand growth and a rising trend for original equipment manufacturers to outsource orders to EMS companies.
The Stable Outlook reflects Fitch’s expectations that, in spite of high capex and high working-capital requirements, SVI should continue to generate strong earnings and maintain low financial leverage in the medium term. While SVI is likely to generate negative free cash flow in 2011, Fitch believes that the company’s current low level of financial leverage (net cash position as of end-2010) will provide sufficient flexibility.
Key risks for SVI remain its narrow geographical coverage, concentrated customer mix, likely intense competition in the non-traditional EMS market, and technology risks associated with the electronic segment. SVI is also exposed to foreign exchange risk. The appreciation of the Thai baht against the US dollar could result in lower baht revenue. However, this is partly mitigated by the company’s hedging policy of purchasing forward contracts.
The ratings may benefit from a substantial increase in the company’s scale and greater diversification in terms of customer mix and geographical market coverage, provided that no significant deterioration in EBITDAR margin and financial leverage occurs. Conversely, downward rating pressure may arise if the company’s funds from operations-adjusted net leverage were to increase above 1.0x on a sustained basis. Other negative rating triggers include a decline in margins, deterioration in its market position or loss of some key customers.
Note to Editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated ‘AAA’ and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as ‘AAA(tha)’ for National ratings in Thailand. Specific letter grades are not therefore internationally comparable.
Contacts:
Primary Analyst
Obboon Thirachit
Associate Director
+662 655 4757
Fitch Ratings (Thailand) Limited
Wave Place 13th Floor
Wireless Road, Lumpini, Patumwan
Bangkok 10330
Secondary Analyst
Pimrumpai Panyarachun
Associate Director
+662 655 4752
Committee Chairperson
Matt Jamieson
Senior Director
+822 3278 8355