Bangkok--20 Jul--Fitch Ratings
Fitch Ratings (Thailand) Limited has today affirmed SVI Public Company Limited’s (SVI) National Long-term rating at ‘BBB+(tha)’ and National Short-term rating at ‘F2(tha)’. The Outlook on the rating is Stable.
The ratings of SVI reflect the company’s niche position in the electronic manufacturing service (EMS). The company focuses on the growing non-traditional end-product segment which is less volatile, offers higher-margins, and has helped SVI over the past few years to boost its operations and business profile notwithstanding the challenging operating environment. SVI’s ratings also factor in the long-term growth prospects in the non-traditional EMS market, which are driven by ongoing end-market demand and an increasing trend of original equipment manufacturing (OEM) outsourcing orders to EMS manufacturers.
SVI’s ratings are also underpinned by its firm financials, with a net cash position of THB194m at end-Q110. Although SVI’s revenue was affected by the global economic slowdown in 2009, its margin and cash flow generation remained strong with an EBITDAR margin of 10.8% in 2009 (2008: 10.8%), and cash flow from operations of THB1.1bn, up 61% year on year. Despite an expected increase in capex for capacity expansion, higher working capital requirements and dividend payouts following the company’s management buyout, Fitch anticipates that SVI should be able to maintain its strong financial position with an adjusted net debt to EBITDAR leverage ratio below 1.0x over the next two years.
The company’s ratings are constrained by various qualitative factors -- including its narrow geographical coverage, its concentrated customer mix, the likelihood of intense competition in the non-traditional EMS market, and technology risks associated with the electronic segment. Other key concerns include SVI’s volatile working capital requirements and its exposure to foreign exchange risk -- as almost all of its operating cash flow is denominated in US dollars and euros, while around 40% of its debt is in Thai baht. However, this is partly mitigated by the purchase of forward contracts.
The Stable Outlook reflects the expectation that SVI will maintain its EBITDAR margin at the current 10% level, generate strong cash flow to support its capex and dividend payouts, and keep its financial and liquidity consistent with the current credit rating.
SVI’s ratings could be negatively impacted by a substantial increase in net debt due to high dividend payouts and/or greater than forecast capex leading to an adjusted net debt to EBITDAR ratio of more than 1.0x on a sustained basis, continued margin declines, deterioration in market position or the loss of some key customers. Conversely, the ratings could be positively affected by a substantial expansion in the company’s scale and more diversification in terms of customer mix and geographic market coverage, providing no significant deterioration in EBITDAR margin and financial leverage occurs.
Applicable Criteria available on Fitch’s website at www.fitchratings.com: “Corporate Rating Methodology”, dated 24 November 2009.
Fitch has made major improvements to its credit research on EMEA and AsiaPac corporates. To view these improvements, visit our 'Clear Thinking' web page at http://clearthinking.fitchratings.co.uk/Index.html
Contacts: Obboon Thirachit, Pimrumpai Panyarachun, Vincent Milton, Bangkok, +662 655 4755