Hong Kong, November 15, 2019 -- Moody's Investors Service has assigned a Baa1 senior unsecured rating
to the proposed bonds to be issued by AAC Technologies Holdings Inc.
At the same time, Moody's has affirmed the company's
Baa1 issuer rating.
The rating outlook is stable.
The proceeds from the proposed issuance will be used to refinance existing
debt and for business development purposes.
The bond rating reflects Moody's expectation that AAC Technologies will
complete the bond issuance upon satisfactory terms and conditions,
including proper registration with the National Development and Reform
Commission in China (A1 stable).
RATINGS RATIONALE
"The rating affirmation reflects AAC Technologies' strong
market position as a leading miniature components manufacturer,
with a long operating history, and a track record of maintaining
a solid capital structure and strong liquidity," says Gerwin
Ho, a Moody's Vice President and Senior Credit Officer.
"Moody's expects AAC Technologies' prudent financial
management will help it navigate its business diversification and product
upgrade and industry cycles, while maintaining a financial profile
appropriate for its Baa1 ratings, " adds Ho, who is
also Moody's Lead Analyst for AAC Technologies.
Moody's expects that AAC Technologies' operating performance
will improve over the next 12-18 months, supported by growth
in the acoustics and haptics businesses, and the ramping up of the
optics business.
Moody's expects that AAC Technologies' adjusted debt/EBITDA will
rise to about 1.7x over the next 12-18 months from 1.3x
for the 12 months ended June 2019, as growth in debt -- resulting
from the proposed bond issuance -- will outpace growth in EBITDA.
Nonetheless, such a level of leverage remains appropriate for the
company's rating category.
Moody's expects AAC Technologies' revenue will rise by about 4%
over the next 12-18 months compared with the level in 2018,
supported by new product launches among the company's customers,
its growing share of the Android customer market, and the growth
of the its optics business.
At the same time, Moody's expects the company's profitability,
as measured by its EBITA margin, to narrow to about 18% over
the next 12-18 months from 20.9% for the 12 months
ended June 2019, reflecting steady global mobile phone shipments,
the extended cycle of customers' production specification upgrade,
the company's ongoing investments in research and development,
and rising contributions from lower margin businesses.
The proposed bond issuance will not impact AAC Technologies' Baa1
rating or stable outlook, because it will use part of the proceeds
to refinance existing debt.
The issuance will further improve AAC Technologies' debt maturity
profile and enhance its financial flexibility.
AAC Technologies' Baa1 issuer rating reflects the company's (1) position
as a leading miniature components manufacturer, with a long operating
history and a track record of adapting to changing market and product
demands; and (2) solid profitability and strong capital structure,
as reflected by its low debt leverage.
However, the Baa1 issuer rating also takes into account (1) the
low visibility over product demand, driven by end-products
that change with rapidly advancing technologies, product specifications
and customer demand; and (2) end-market and customer concentration
risk.
AAC Technologies' liquidity is excellent. Moody's expects
the company's cash holding of RMB3.2 billion as of 30 June
2019 and projected total operating cash flow over the next 12 months will
be sufficient to cover its short-term debt, including lease
liabilities, of RMB2.4 billion, capital spending and
dividend payments over the same period.
AAC Technologies' Baa1 senior unsecured bond rating is not affected
by subordination to claims at the operating company level. This
is because, despite its status as a holding company with the majority
of claims at the operating subsidiaries, creditors at AAC Technologies
benefit from the group's highly diversified business profile,
including its subsidiaries in Singapore and Vietnam, with cash flow
generation across a large number of operating subsidiaries, thereby
mitigating structural subordination risk.
The rating also takes into account the following environmental,
social and governance (ESG) considerations.
AAC Technologies' ownership is concentrated in its key shareholder,
Mr. Pan Benjamin Zhengmin, the CEO, and Wu Ingrid Chun
Yuan, who held a total 40.98% stake in the company
at the end of 30 June 2019. However, this risk is partially
mitigated by its status as a listed entity with transparent information
disclosure, and by the fact that the majority of its board consists
of independent directors. In addition, the company's
management has also demonstrated a track record of maintaining a prudent
financial policy.
The stable outlook reflects Moody's expectation that AAC Technologies
will (1) grow its revenue and maintain its profitability; (2) retain
its market position in the acoustics and haptics markets; and (3)
continue to demonstrate prudent financial discipline in its capital expenditure,
investments and acquisitions.
A rating upgrade is unlikely in the near term given the company's
investment needs, which in turn will lift its debt leverage.
Upward rating pressure could arise over the medium term if the company
(1) expands its revenue and improves its market position in emerging product
segments; (2) diversifies its product and customer exposure,
thereby increasing the stability of its revenue and profitability and
mitigating the low visibility into product demand; (3) improves its
free cash flow generation on a sustained basis; and (4) continues
its prudent financial management, as seen by continued stable,
low leverage and strong liquidity. Metrics indicative of a potential
upgrade include adjusted debt/EBITDA below 1x on a sustained basis.
On the other hand, Moody's could downgrade the rating if (1)
the company's sales or market position weakens; (2) its profitability
declines, such that its EBITA margin falls below 15%-18%
on a sustained basis; or (3) its credit profile deteriorates,
such that adjusted debt/EBITDA exceeds 1.5x-2.0x
or liquidity deteriorates.
The principal methodology used in these ratings was Global Manufacturing
Companies published in June 2017. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
Listed in Hong Kong in 2005, AAC Technologies Holdings Inc.
is a leading miniature components manufacturer with key products in the
acoustics, electromagnetic drives and precision mechanics,
MEMS (Micro-Electro-Mechanical Systems) microphone,
radio frequency (RF)/mechanical and optical components markets.
The company reported revenue of RMB7.6 billion in 1H 2019.
It was 40.98% owned by Pan Benjamin Zhengmin, the
CEO, and Wu Ingrid Chun Yuan as of 30 June 2019.
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
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Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
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Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
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for additional regulatory disclosures for each credit rating.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Gerwin Ho
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Clement Cheuk Yiu Wong
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
