Hong Kong, May 21, 2021 -- Moody's Investors Service has assigned a Baa2 senior unsecured rating
to the proposed bonds to be issued by AAC Technologies Holdings Inc.
(Baa2 stable).
The proceeds from the proposed issuance will be used to refinance existing
debt and for general corporate purposes.
RATINGS RATIONALE
"The proposed bond issuance will not impact AAC Technologies' Baa2
rating or stable outlook, because we expect the company will use
a significant part of the proceeds to refinance existing debt,"
says Gerwin Ho, a Moody's Vice President and Senior Credit Officer.
"The issuance will further improve AAC Technologies' debt maturity
profile and enhance its financial flexibility," adds Ho.
AAC Technologies' Baa2 issuer rating reflects the company's leading positions
in acoustics and haptics components, long operating history and
solid profitability and capital structure.
However, the Baa2 issuer rating is constrained by (1) fluctuations
in demand for its products, driven by end products that change with
rapidly advancing technologies and product specifications; and (2)
end-market and customer concentration risks.
Moody's expects that AAC Technologies' operating performance will stabilize
over the next 12-18 months as compared to 2020 when revenue and
profitability fell, supported by a recovery in its acoustics and
haptics businesses and the ramping up of its optics business.
Moody's forecasts AAC Technologies' revenue will rise by about 15%
over the next 12-18 months compared with 2020, supported
by improving mobile phone demand driven by a recovery in global economic
growth, new product launches by the company's customers, the
company's rising share in the Android customer market and the growth
of its optics business.
At the same time, Moody's projects the company's profitability,
as measured by its EBITA margin, will recover to about 14%
over the next 12-18 months. This expansion reflects cost
and efficiency improvements, as well as rising profitability in
its optics business, as the company benefits from a growing scale.
As a result, its adjusted debt/EBITDA will improve to about 2.3x
over the next 12-18 months, driven by a rise in EBITDA that
outpaces the rise in debt. This leverage level is consistent with
those of Baa2 rated regional and global rated peers.
AAC Technologies' liquidity is excellent. Moody's expects that
the company's cash holding of RMB7.5 billion as of 31 December
2020 and projected operating cash flow over the next 12 months will be
sufficient to cover its short-term debt of RMB3.3 billion,
capital spending and dividend payments over the same period.
AAC Technologies' Baa2 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 and
CEO, Mr. Pan Benjamin Zhengmin, and Wu Ingrid Chun
Yuan, who together held a 40.98% stake in the company
as of 31 December 2020. However, this risk is partially mitigated
by the company's 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.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
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.
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 on product demand; (3) improves its
free cash flow generation on a sustained basis; and (4) continues
its prudent financial management, as indicated by continued stable,
low leverage and strong liquidity. Metrics indicative of a potential
upgrade include adjusted debt/EBITDA below 2x 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 10% on a
sustained basis; or (3) its credit profile deteriorates, such
that adjusted debt/EBITDA exceeds 2.5x-3.0x or liquidity
deteriorates on a sustained basis.
The principal methodology used in this rating was Manufacturing Methodology
published in March 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1206079.
Alternatively, 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,
and optics products markets.
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
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same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
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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
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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_1263068.
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
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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
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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
