Bangkok--22 Oct--Fitch Ratings
Fitch Ratings (Thailand) Limited has affirmed SVI Public Company Limited’s (SVI) National Long-Term rating at ‘BBB+(tha)’ with Stable Outlook and its National Short-Term rating at ‘F2(tha)’. SVI is an electronic manufacturing service (EMS) provider.
The rating affirmation reflects SVI’s recovery since the flooding in 2011 and consequently Fitch’s view that the company is likely to maintain its business and financial profile commensurate with the current rating over the medium term. In Q212, SVI’s production capacity was restored to around 80% of its output level prior to the floods, and Fitch expects the company to achieve full production capacity in Q312.
Insurance proceeds expected in H212 and the absence of a dividend payout in 2012 should help partly offset the potential adverse impact on SVI’s cash flow from lower revenue, higher capex and an increase in working capital. Fitch expects SVI to maintain its funds flow from operations (FFO)-adjusted net leverage below 1.0x over the next two years.
SVI continues to benefit from long-term growth prospects in the EMS market, driven by consumer demand and an increasing trend of original equipment manufacturer (OEM) to outsource orders to EMS companies. SVI’s focus on the expanding lower-volatility, higher-margin non-traditional segments, such as industrial control systems, high-end telecommunication devices and professional audio and video equipments, has helped sustain the company’s performance amid a challenging operating environment.
SVI’s ratings are constrained by its narrow geographic coverage, its concentrated customer base, likely intense competition in the non-traditional EMS market, and technology risks associated with the electronics segment. Other constraints include its volatile working capital requirement and its exposure to foreign exchange risk. However, this is partly offset by the company’s purchase of forward contracts.
What Could Trigger A Rating Action?
Positive: Future developments that may, individually or collectively, lead to positive rating action include
-a substantial increase in the company’s scale with revenue exceeding USD500m
-greater diversification in customer mix and geographical market coverage, while maintaining an operating EBITDAR margin of over 10% on a sustained basis
Negative: Future developments that may, individually or collectively, lead to negative rating action include
-a substantial increase in net debt due to high dividend payouts, greater-than-forecast capex or large debt-funded acquisition leading to FFO-adjusted net leverage above 1.0x on a sustained basis
-a decline in its EBITDAR margin below 6% on a sustained basis
-deterioration in its market position or loss of key customers