Bangkok--18 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)’.
Key Rating Drivers
Business Recovery: SVI’s operations have recovered strongly following the disruption from severe flooding in Thailand in late 2011, with output returning to pre-flood levels in Q213. Revenue rose 16.5% in Q213 qoq. We believe the company is likely to maintain its business and financial profile commensurate with the current rating over the medium term.
Healthy Financial Profile: Fitch expects SVI to maintain its funds flow from operations (FFO)-adjusted net leverage at below 1.0x over the next two years. SVI had a net cash of THB761m at end-Q213. Cash flow from operation of around THB500m-550m (USD16.1m-17.7m) will be sufficient to fund planned capex of around THB350m in 2013.
Focus on Non-Traditional EMS: SVI enjoys a niche position in the electronics 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. Over the past few years, except in 2012 when the company was recovering from the flood disruption, this has helped SVI improve its revenue and profit margin, notwithstanding the challenging operating environment.
EMS Growth Opportunity: SVI continues to benefit from long-term growth prospects in the EMS market, driven by industrial demand and a growing trend of original equipment manufacturers (OEMs) outsourcing orders to EMS companies.
Small Size, Concentration Risk: SVI’s ratings are constrained by its narrow geographic coverage, its concentrated customer base, the likelihood of greater competition in the non-traditional EMS market, and technology risks associated with the electronics segment. Other constraints include its volatile working-capital requirements and exposure to foreign-exchange risk. The last, however, is partly offset by the purchase of forward contracts.
Rating Sensitivities
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 a large debt-funded acquisition leading to FFO-adjusted net leverage rising above 1.0x on a sustained basis.
- a decline in the operating EBITDAR margin to below 6% (2012: 7.45%) on a sustained basis,
- a weakening in the company’s market position, or loss of key customers.
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
- a substantial increase in scale, with revenue exceeding USD500m (2012: USD248m), and a broader diversification in the customer mix and geographical market coverage,
- an improvement in operating EBITDAR margin to over 10%, while maintaining FFO-adjusted net leverage below 1.0x on a sustained basis.