April 12, 2017 / 3:29 AM / 3 years ago

Fitch Affirms Want Want at 'A-'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG, April 11 (Fitch) Fitch Ratings has affirmed Want Want China Holdings Limited's (Want Want) Long-Term Foreign-Currency Issuer Default Rating (IDR) and senior unsecured rating at 'A-'. The Outlook on the IDR is Stable. Fitch has also affirmed the rating on the USD600 million senior unsecured notes issued by wholly owned subsidiary Want Want China Finance Limited, and guaranteed by Want Want, at 'A-'. The ratings are supported by Want Want's leadership in select food product categories and a solid financial profile. Product concentration could be a weakness over the longer term, as growth in the packaged food market in China slows and competition increases. KEY RATING DRIVERS Solid Financial Profile: Fitch expects Want Want to continue to generate positive FCF in 2017, driven by stable working capital and low capex requirements. We believe the company will maintain a net cash position by paying dividends and buying back shares only from FCF, consistent with its previous action. Want Want has maintained a strong financial profile over the past six years, with high profitability, strong cash flow generation and a consistent net cash position. Dominant Position, Niche Products: Want Want is one of the most recognised packaged food brands in China. Its key products - rice crackers, flavoured milk, soft candies, popsicles and ball cakes - dominate their respective niche markets. The company has demonstrated significant pricing power and an ability to defend its margins through the cycle. The company has kept EBIT margins well above 15% over the past six years. High Product Concentration: Fitch believes that Want Want's heavy reliance on several core products is one of its key business risks. Want Want has a limited product portfolio compared with global peers rated in the 'A' category. Its key product, Hot Kid Milk, accounted for over 40% of total revenue in 2016. Fitch believes revenue growth over the longer term will depend on Want Want's ability to innovate and launch new products. Revenue reported a decline of 8% in 2016, driven by a 13% drop in the dairy segment and representing a consecutive decline since 2014. However, Fitch does not expect the revenue decline to accelerate in 2017 as Want Want is launching new products, widening its brand portfolio, and expanding its distribution network. Necessary Brand Investment: Fitch expects the EBITDA margin to narrow in 2017 but still be maintained at a level in line with the company's historical average, after its EBITDA margin widened by 3.3pp to 28.3% in 2016. The gross margin achieved a 10-year high of 47.8% due to price declines in major raw material inputs, but several inputs have seen rising prices since 2H16. Furthermore, Fitch anticipates operating expenses will increase as sales staff and advertising are necessary to develop its new brand and product initiatives. DERIVATION SUMMARY Want Want's scale is much smaller than its international peers, and has weaker geographical and product diversification. However, the company has a strong financial profile, with higher profitability, strong cash flow generation and a sustained net cash position. Its closest peer in terms of EBITDA size is New Zealand's Fonterra Co-operative Group Limited (A/Stable), which is also one of the key vendors of Want Want. Fonterra has a stronger market leadership position, while Want Want compares favourably in terms of better diversification in product mix, wider margin, stronger cash generation and a sustained net cash position. No Country Ceiling, parent/subsidiary or operating environment aspects have an impact on the rating. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - Flat revenue growth for most divisions in 2016-2019; for dairy products, mid- to high-single-digit revenue decline in 2017-2018 - Gross margin of 45%-46% (2016: 47.8%) in 2017-2019 to take into account higher input costs - EBITDA margin of 25%-26% (2016: 28.3%) in 2017-2019 with higher selling expense as percentage of revenue due to investment in new brands and products - Capex of CNY800 million in 2017-2018 RATING SENSITIVITIES Future Developments That May, Individually or Collectively, Lead to Negative Rating Action - Negative growth of key products for a sustained period - Failure to develop new products with meaningful revenue contribution - EBIT margin sustained below 18% - Failure to maintain a net cash position Future Developments That May, Individually or Collectively, Lead to Positive Rating Action - No positive rating action is envisaged over the next 12 months, given the limited operating scale and lack of portfolio diversification. LIQUIDITY Ample Liquidity: Want Want had CNY12 billion in cash and cash equivalents and sufficient undrawn uncommitted bank facilities totalling CNY8 billion at end- 2016, compared with its debt balance of almost CNY10 billion (of which CNY4 billion is current borrowings). Fitch expects Want Want to maintain a net cash position and continue to generate positive FCF in 2017, supported by a stable working-capital cycle and low capex requirements. Want Want will continue to strike a balance between dividend payment and share buybacks with any excess FCF. Contact: Primary Analyst Cathy Chao Associate Director +852 2263 9967 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Yee Man Chin Director +852 2263 9696 Committee Chairperson Kalai Pillay Senior Director +65 6796 7221 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; 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. 10 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here 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 © 2017 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

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