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
