Bangkok--11 Mar--Fitch Ratings
Further to the release issued earlier this week on the back of an Asia-Pacific Technology sector-wide review, Fitch Ratings has downgraded AU Optronics Corporation's (AUO) Long-term foreign and local currency Issuer Default Ratings (IDR) to 'BB-' (BB minus) from 'BB+' and National Long-term Rating to 'BBB(twn)' from 'A-(twn)' (A minus (twn)). The Outlook has been revised to Negative from Positive. Details of the revised ratings and the rationale for the same are given below, together with a complete list of rating actions Fitch has simultaneously taken on 17 rated technology names across Asia-Pacific.
The rating actions on AUO reflect its significantly weakened operational performance in H208 and Fitch's view that the economic turmoil will be protracted until at least midway through 2010.
Fitch expects AUO to face continuous challenges in the next several quarters, as a result of pricing pressures from downstream product vendors and weakened demand in light of the global economic recession which is likely to lead to depressed sales of electronic products, such as TVs, PCs and handsets. Besides, the deeply depreciated Korean Won is placing AUO in an unfavourable competitive situation against its major Korean rivals.
AUO's major credit measurements, such as profitability and financial leverage, are likely to weaken in 2009. Although there was a small recovery in shipment and pricing levels in February, with a sudden resurgence in demand for LCD panels helping to bring the industry's inventory back to normal levels, Fitch believes this temporary recovery is unlikely to reverse the fundamental changes to the display industry brought on by the global economic downturn.
Fitch notes that AUO's revenue declined by 62% yoy in Q408, reflecting a lower loading rate and decreased selling prices. Fitch believes key reasons for the same were sluggish demand conditions, correction in buyers' inventory, and weakened price competitiveness as Korean products became relatively cheaper following the depreciation of the Korean Won.
Owing to its average selling prices declining faster than its ability to reduce costs, AUO recorded a negative gross margin in Q408, while its EBITDA margin fell to negative 8.4%. The company forecasts a gradual pick up of demand on a quarterly basis in 2009, but nevertheless in light of Q4's 62% yoy decline in sales, Fitch expects full year 2009 sales to decline significantly more than 2008's 11.7% full year decline.
AUO nonetheless currently holds adequate liquidity, as its cash balance at end-2008 covered 173% of its debt due within a year.
The list below summarises the rating actions taken on Fitch's 17 rated technology names across Asia-Pacific, with specific reference to the Long-term foreign currency Issuer Default Ratings.:
China:
ZTE Corporation: Affirmed at 'BB+' with Stable Outlook.
Japan:
- Panasonic Corporation: Downgraded to 'A+' from 'AA-' (AA minus); Rating Watch Negative (RWN) maintained;
- Sharp Corporation: Downgraded to 'A' from 'A+'; Placed on RWN;
- Hitachi, Ltd: Downgraded to 'BBB+' from 'A-' (A minus); Placed on RWN;
- Sony Corporation: Downgraded to 'BBB+' from 'A-' (A minus); RWN maintained;
- NEC Corporation: Downgraded to 'BBB-' (BBB minus) from 'BBB'; Outlook revised to Negative from Stable;
- Toshiba Corporation: Downgraded to 'BB' from 'BBB'; Placed on RWN.
Korea:
- Samsung Electronics Co., Ltd.: Affirmed at 'A+'; Outlook revised to Negative from Stable;
- LG Electronics Co., Ltd.: Affirmed at 'BBB'; Outlook revised to Negative from Stable;
- Hynix Semiconductor Inc.: 'B+'; RWN maintained.
Singapore:
Chartered Semiconductor Manufacturing Ltd: Downgraded to 'BB-' (BB minus) from 'BB+'; Outlook revised to Negative from Stable.
Taiwan:
- Taiwan Semiconductor Manufacturing Company Limited: Affirmed at 'A'; Stable Outlook;
- United Microelectronics Corporation: Affirmed at 'BBB'; Stable Outlook;
- Acer Inc.: Affirmed at 'BBB-' (BBB minus); Outlook revised to Negative from Stable;
- ASUSTeK Computer Inc.: Downgraded to 'BB+' from 'BBB-' (BBB minus); Placed on RWN;
- Quanta Computer Inc.: Affirmed at 'BB'; Outlook revised to Negative from Positive;
- AU Optronics Corporation: Downgraded to 'BB-' (BB minus) from 'BB+'; Outlook revised to Negative from Positive.
Contacts: Kevin Chang, Taipei, +886 2 8175 7609/ [email protected]; Jongwan Kim, Seoul, + 82 2 3278 8371/ [email protected].
Media Relations: Nicole Batchelor, Singapore, Tel: +65 6796 7214, Email: [email protected].