Reuters logo
Fitch Affirms Dongfeng Motor Group at 'A'; Outlook Stable
September 30, 2016 / 9:06 AM / a year ago

Fitch Affirms Dongfeng Motor Group at 'A'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG, September 30 (Fitch) Fitch Ratings has affirmed Chinese auto manufacturer Dongfeng Motor Group Company Limited's (DFG) Long-Term Issuer Default Rating (IDR) and senior unsecured rating at 'A'. The Outlook is Stable. The rating on the senior unsecured notes issued by Dongfeng Motor (Hong Kong) International Co., Ltd and guaranteed by DFG has also been affirmed at 'A'. The affirmation follows Dongfeng's ability to maintain its market leadership and strong financial profile despite market weakness in 2015. We expect Dongfeng to sustain its stable performance through its diversified brand and product portfolio. DFG's rating incorporates a three-notch uplift from its standalone credit profile of 'BBB', to reflect DFG's strong operational and strategic ties with the central government through its 66.86% parent Dongfeng Motor Corporation (DFM), which is a wholly owned subsidiary of the State-owned Assets Supervision and Administration Commission (SASAC). In rating Dongfeng, we proportionately consolidate its joint ventures to better reflect its business profile. KEY RATING DRIVERS Stable Business Performance: DFM's revenue increased 15% to CNY249bn in 2015 while EBITDA rose 5.4% to CNY22.3bn, on a proportionately consolidated basis. The improvement was driven by faster growth of Dongfeng Honda, a joint venture with Japan-based Honda Motor Co., Ltd's (A/Stable), and its proprietary brand operation. In contrast, auto sales growth in China slowed to 4.7% in 2015 from 6.9% in 2014. DFM remains the second-largest player in China with 15.7% share of total vehicle sales in 2015 (2014: 16.2%). Diversification Increases Stability: DFM operates through multiple JVs carrying different brands, including Honda, Nissan, Infiniti, Peugeot, Citroen, Renault and Kia. The brand diversification greatly reduces risks associated with customer preference, brand reputation and geo-politics. In terms of product offerings, DFM has a full range across various segments. In 2015 and 1H16, the strong performance of Japanese brands and the SUV segment offset weakness of in sedan segment. Resilient JV Structure: In 2015, DFM received CNY9.7bn of dividends from four major JVs. This was sufficient to fulfil DFM's needs for capex and dividend payout. On a proportionately consolidated basis, DFM's net cash position increased to CNY42.2bn at end-2015, from CNY31.8bn end-2014. We expect all the major JVs to sustain their dividend payments to DFM given their healthy margins and net cash positions. Strong Government Support: SASAC and the central government have demonstrated commitment to support DFM to become the flagship automobile company in China. Recent support includes capital injections and subsidies to help its proprietary brand and new energy vehicle development initiatives. We expect the moderate linkage between DFM and SASAC to continue as DFM is responsible for carrying out strategic missions for the central government in automotive industry development. Rating Constraints: The ratings are constrained by DFM's limited geographical market diversification and weak proprietary brand operation. We expect DFM to rely on cash flow generated by its JVs in the medium term. Its business model limits its ability to grow beyond the domestic market until it can establish a competitive proprietary brand operation with strong brand recognition. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - JV structure remains the major business model for foreign auto players to enter the Chinese market - Top-line growth rate to remain at around mid-single digits - Margin to decline slightly year over year in the next three years - Dividend payout ratio to be around 8%-10% RATING SENSITIVITIES Positive rating action is not expected in the medium term as it would require a major change in DFM's business profile, including global diversification and significant development of its proprietary brand operation. Negative: Future developments that may, individually or collectively, lead to negative rating action include: - Reduced support from the government, including material weaker linkage with the SASAC - Sustained deterioration in the business profile, including material adverse regulatory developments - DFM - excluding JVs - generates negative free cash flow on a sustained basis and/or fails to maintain its net cash position Contact: Primary Analyst Roy Zhang Associate Director +852 2263 9979 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Laura Zhai Director +852 2263 9974 Committee Chairperson Kalai Pillay Senior Director +65 6796 7221 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 27 Sep 2016) here Parent and Subsidiary Rating Linkage (pub. 31 Aug 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1012446 Solicitation Status here Endorsement Policy here ail=31 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below