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Rating Action:

Moody's affirms BNBM's A3 rating; outlook stable

 The document has been translated in other languages

17 Sep 2021

Hong Kong, September 17, 2021 -- Moody's Investors Service has affirmed Beijing New Building Materials Public Limited Company's (BNBM) A3 issuer rating.

The outlook on the rating is stable.

"The affirmation reflects BNBM's strong market position, steady business expansion and robust financial metrics, including a stable operating margin and consistently low leverage of below 1.0x," says Ying Wang, a Moody's Vice President and Senior Analyst.

RATINGS RATIONALE

BNBM's A3 issuer rating reflects its long operating track record of 40 years and dominant position as an early entrant in the China gypsum board market with favorable demand dynamics. The rating also takes into consideration the company's strong profitability, low leverage and prudent financial policy, as reported throughout cycles.

On the other hand, the rating is constrained by BNBM's relatively limited scale, less diversified product portfolio and the execution risks arising from its business expansion. These constraints are partially tempered by healthy industry prospects in China and the company's strong financial buffer.

The rating also takes into account the operational support that BNBM receives from China National Building Material Group Co., Ltd (CNBM Group), its key indirect shareholder, which is wholly owned by the Government of China (A1 stable).

Moody's forecasts BNBM's total revenue will increase by more than 40% in 2021, similar to the growth rate reported for the first half (1H) of 2021. The robust revenue growth in 2021 is supported by a low revenue base in 2020, subsequent demand recovery and the contribution of the newly-acquired water-proofing business. Moody's projects BNBM's revenue will increase by about 15% in 2022, driven by healthy demand prospects and BNBM's ongoing capacity additions.

Moody's expects BNBM's adjusted EBITDA margin to remain stable, at about 24%, in the coming 2-3 years. Margins will be supported by the company's leading market position and strong bargaining power with suppliers, especially for its core gypsum board products.

BNBM's leverage, as measured by the adjusted debt/EBITDA ratio, will remain at about 0.5x, underpinned by the company's strong cash flow generation and prudent financial policy. This leverage level supports the company's A3 issuer rating.

Moody's expects BNBM to remain prudent as the company expands through increased capacity or industry acquisitions over the next 2-3 years.

CNBM Group, the key indirect shareholder and controlling entity of BNBM, has a higher debt leverage level than BNBM. CNBM Group is 100% owned by the Chinese State-owned Assets Supervision and Administration Commission of the State Council and is a leading cement producer by capacity.

Nevertheless, BNBM's rating takes into consideration CNBM Group's meaningful alternative funding sources and its track record of not imposing on BNBM excessive shareholder distributions or conducting corporate activities that would significantly affect BNBM's credit profile.

Moreover, the rating considers the operational support that BNBM receives from CNBM Group, which includes the facilitation of raw material supplies, overseas market penetration and access to low-cost funding.

Moody's expects CNBM Group to remain BNBM's controlling entity and to continue supporting BNBM's business operations.

The company's liquidity is excellent. As of 30 June 2021, its cash and cash equivalents totaled RMB1.8 billion. This, together with BNBM's likely cash flow from operations over the next 12 months, means the company's cash resources can more than cover its short-term debt, capital spending and dividend payments for the period.

BNBM's issuer rating is unaffected by structural subordination, as the holding company directly owns operating assets. In addition, its diversified operating subsidiaries across China mitigate structural subordination risks.

BNBM's rating also considers the following environmental, social and governance (ESG) factors.

BNBM faces environmental risks as it uses coal as a carbon-intensive fuel source in its production process. The company's exposure to the fossil fuel is mitigated by its increased use of natural gas and consumption of a recycled product from thermal power stations as a raw material input.

BNBM's ownership concentration is a governance risk. The company is 37.83% owned by Hong Kong-listed China National Building Material Company Limited (CNBM), which was effectively 43.02% owned by CNBM Group. The ownership concentration is partially tempered by BNBM's status as a publicly listed company and a subsidiary of a state-owned enterprise owned by the Chinese government, with transparent information disclosures, and effective regulatory and independent supervision.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

The stable outlook reflects Moody's expectation that BNBM will maintain its strong market position as it expands, and its strong profitability and financial flexibility over the next two years.

Moody's could upgrade BNBM's rating if the company expands and improves product diversification while maintaining its strong profitability and dominant market position, and adhering to a prudent financial policy, low leverage and a solid liquidity profile.

Moody's could downgrade BNBM's rating if the company's sales or market position weakens, or both; profitability reduces, with an operating margin below 18% on a sustained basis; or credit profile worsens, such that adjusted debt/EBITDA exceeds 1.5x-2.0x or liquidity deteriorates.

Credit metrics indicative of a downgrade include adjusted debt/EBITDA above 1.5x or the company fails to maintain a good liquidity profile.

The principal methodology used in this rating was Building Materials published in September 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287900. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Beijing New Building Materials Public Limited Company (BNBM) listed on the Shenzhen Stock Exchange in 1997.

As of 30 June 2021, BNBM was 37.83% owned by the Hong Kong-listed China National Building Material Company Limited (CNBM), which was effectively 43.02% owned by China National Building Material Group Co., Ltd. (CNBM Group) as of the same date.

CNBM Group is 100% owned by the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council, which is owned by the Chinese government.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entity is participating and the rated entity or its agent(s) generally provides Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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 the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com 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.

Ying Wang
Vice President - Senior Analyst
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

No Related Data.
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