2007'02.01.Thu
Xinhua Far East Confirms FAW Car Co., Ltd. BBB+ Issuer Rating, Rating Outlook Changed from Stable to Negative

March 31, 2006

HONG KONG, March 31 /Xinhua-PRNewswire/ -- Xinhua Far East China Ratings today confirmed the BBB+ domestic currency issuer credit rating of FAW Car Co., Ltd. ("FAW Car" or "the Company", SZ A 000800); its rating outlook, however, was changed from stable to negative. The outlook change reflects Xinhua Far East's view about the diminishing attractiveness of China's sedan market, which is currently characterized by overcapacity and lower-than-expected growth in demand. The rating action also incorporates Xinhua Far East's concerns about the Company's heavy reliance on sales of the Mazda 6 series and its business concentration on China's medium- to high-end sedan market. With supply increasingly diverging from demand, China's sedan sector faces long-term downward pricing pressures. Xinhua Far East also expects the Company's target market may face greater price cut pressures, with more and more new models expected to be launched and compete in this niche as a result of its relatively high profit margins. Moreover, the Company's less diversified product lines and its increasing reliance on sales of the Mazda 6 magnify its business risks, even though Mazda 6 sales are picking up. Nearly 85% of the Company's unit sales in 2005 came from Mazda 6 models, which are targeted at the competitive medium- to high- end of the domestic sedan market. By contrast, another of the Company's product lines, the Hongqi series, saw unit sales fall by 44.3% and 40% YoY in 2004 and 2005 respectively. It will take some time for the Company to boost sales of the Hongqi series. Despite these factors, the Company is able to maintain its BBB+ rating as a result of its relatively strong debt repayment ability -- a result of a conservative financial policy. This is evidenced by its very low debt burden, its adequate cash reserves and sufficient financial flexibility. Although FAW Car's profit margin dwindled significantly in 2004 and the first three quarters of 2005, the Company's cash flow was not impaired to the same degree, thanks to Mazda 6 unit sales and the Company's ability to shift working capital pressures upstream. The Company also has the potential to cushion further profit margin drops through its marketable models, the higher localization rate of parts and components and the possibility of RMB appreciation. FAW Car Co., Ltd. is a controlled subsidiary of China FAW Group Corporation ("FAW Group", China's largest auto group). By the end June 2005, FAW Group held a 63.63% stake in the Company. The Company reported turnover of RMB9.64 billion and RMB6.93 billion in 2004 and the first three quarters of 2005 respectively. The Company produces models including Mazda 6, Hongqi Mingshi and Hongqi Shijixing. FAW Car is a large cap company constituting the Xinhua/FTSE China 200. As of March 30, 2006, its total A-share market cap equaled RMB 5.5 billion, with investable market cap of RMB 2.2 billion. For the rating report summary, please visit http://www.xinhuafinance.com/creditrating . Note to Editors: About Xinhua FTSE China 200 Index Xinhua FTSE China 200 Index is the large cap index in the Xinhua FTSE China A Share Index Series and includes the top 200 companies in China by market cap. It is designed as a tradable index and is calculated in real-time every 15 seconds. For daily data and further information, see http://www.xinhuaftse.com . About Xinhua Far East China Ratings Xinhua Far East China Ratings (Xinhua Far East) is a pioneering venture in China that aims to rank credit risks among corporations in China. It is a strategic alliance between Xinhua Finance (TSE Mothers: 9399), and Shanghai Far East Credit Rating Co., Ltd. Shanghai Far East became a Xinhua Finance partner company in 2003 and the first China member of The Association of Credit Rating Agencies in Asia in December 2003. Capitalizing on the synergy between Xinhua Finance and Shanghai Far East, Xinhua Far East's rating methodology and process blend unique local market knowledge with international rating standards. Xinhua Far East is committed to provide investors with independent, objective, timely and forward-looking credit opinions on Chinese companies. It aims to help investors differentiate the credit risks among the corporations in China, thereby, cultivating their awareness and promoting information disclosures and transparency in China market. For more information, see http://www.xfn.com/creditrating . About Xinhua Finance Limited Xinhua Finance Limited is China's unchallenged leader in financial information and media, and is listed on the Mothers board of the Tokyo Stock Exchange (symbol: 9399) (OTC ADRs: XHFNY). Bridging China's financial markets and the world, Xinhua Finance serves financial institutions, corporations and re-distributors through four focused and complementary service lines: Indices, Ratings, Financial News and Investor Relations. Founded in November 1999, the Company is headquartered in Shanghai with 21 news bureaus and offices in 18 locations across Asia, Australia, North America and Europe. For more information, please visit http://www.xinhuafinance.com . About Shanghai Far East Credit Rating Co., Ltd Shanghai Far East Credit Rating Co., Ltd. is the first and leading professional credit rating company with comprehensive business coverage in China. It is an independent agency established by the Shanghai Academy of Social Sciences with the mission to develop internationally accepted standards for capital market in China. The company is a pioneer in conducting bond-rating business in China. For years, it has been authorized by the Shanghai branch of the PBOC to undertake loan certificate credit rating. Since establishment, it has rated over 1,000 corporate long-term bonds and commercial papers, based on the principles of objectivity, fairness and independence. The company has also maintained over 50% market share in the loan certificate-rating sector in Shanghai for three consecutive years. With its strong local presence and knowledge, it provides investors with unique and the most insightful credit opinion. For more information, see http://www.fareast-cr.com . For more information, please contact: Hong Kong Joy Tsang, Corporate & Investor Communications Director, Xinhua Finance Tel: +852-3196-3983, +8621-6113-5999 or +852-9486-4364 Email: joy.tsang@xinhuafinance.com US David Leeney, Taylor Rafferty (IR/PR Contact in US) Tel: +1-212-889-4350 Email: david.Leeney@taylor-rafferty.com SOURCE Xinhua Far East China Ratings
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