Bangkok--6 Oct--Fitch Ratings
In a report published today, Fitch Ratings says that ongoing structural changes to industry dynamics and competitive landscapes will likely alter the profiles of key industry sectors to the benefit of some Asia-Pacific corporates by 2012.
"Following the fall-out from the global recession, certain industry sectors - notably automotive and technology - are already experiencing significant structural changes, and the agency anticipates that this trend will become more pronounced by 2012," said Tony Stringer, Managing Director and Head of Fitch's Asia-Pacific Corporates team. Both the automotive and technology sectors have suffered from seismic negative developments as a consequence of dramatic demand-side weakness and will need to adapt to a new dynamic over the medium-term. "Asian companies can be the net beneficiaries of these changes, reflecting the ability of both established players and emerging champions to compete aggressively across global markets," added Mr. Stringer.
In the automotive sector, for example, despite the numerous negative rating actions that Fitch has taken across the portfolio, the agency anticipates that Asian manufacturers - including the Japanese Big 3, Toyota ('A+'/Negative), Honda ('A'/Negative) and Nissan ('BBB-'/Negative) and Korean manufacturers Hyundai Motor Corp ('BB+'/Negative) and KIA Motors ('BB+'/Negative) - will have reinforced their positions in the US market by 2012. With the Detroit 3 facing huge financial challenges - exemplified by the Chapter 11 bankruptcy filings of Chrysler and General Motors - the higher ratings assigned to the Japanese manufacturers, in particular, underscore their superior market positions and credit quality relative to western peers. Additionally, in this context, Fitch notes the ongoing strong growth of the Chinese auto sector, which is in the process of overtaking the US market to become the world's largest by both sales and production in 2009. Negative rating Outlooks currently assigned to the Asian automakers predominantly reflect the ongoing uncertainty over the pace and timing of a recovery in volumes and margins in the global auto sector, particularly with so-called "cash-for-clunkers" schemes bringing forward demand at the expense of future sales.
In the technology sector, meanwhile, the report asserts Fitch's expectation that established global players - in Asia and beyond - will be challenged increasingly by emerging manufacturers, from China in particular. This will extrapolate a trend that has seen the large Japanese consumer electronics and technology groups cede power to Korean manufacturers, such as Samsung Electronics ('A+'/Negative) and LG Electronics ('BBB'/Negative), which now exhibit higher margins and stronger credit metrics than their Japanese peers. Fitch believes that the Japanese manufacturers will struggle to regain their past dominance of the sector given the difficulty of competing on cost as competitors improve their ability to compete on quality. This has already been reflected with the move of the majority of Japanese electronics groups' ratings into the 'BBB' category from the 'A' category. The current Negative rating Outlooks on the manufacturers reflect the potential for further negative rating action in the event that ongoing efforts to reduce costs and refocus their product offerings do not produce a sustainable improvement in operating and financial performance.
The special report "Asia-Pacific Corporates in 2012" is available on the agency's website, www.fitchratings.com.
Contacts: Tony Stringer, Hong Kong, Tel: +852 2263 9559.
Media Relations: Karen Cho, Hong Kong, Tel: +852 2263 9935, Email: [email protected]; Shivani Sundralingam, Singapore, Tel: + 65 6796 7215, Email: [email protected].