Heading: Moody’s says 1H13 results have no ratings impact
Event
Moody’s Investor Service Monday said there was no immediate negative impact on Hengdeli’s BA1 corporate rating and senior unsecured bond rating despite a 17.6% yoy drop in its 1H13 EBITDA.
Moody’s said Hengdeli’s weaker 1H13 earnings reflect an overall slowdown in China’s premium watch market and a rent increase post-lease renewal for key flagship stores in Hong Kong. The ratings agency further said the company’s liquidity continues to be sound, adding that it deleveraged through redemption of convertible bonds and a reduction in bank loans. Following the redemption, the company is still expected to maintain a cash balance of c.RMB1.4bn, which could cover the total amount of short-term debt of RMB1.1bn.
Additionally, Hengdeli is shifting its focus to the mid-end watches business, which has brighter prospects than high-end watches in the current environment, and the geographic diversification of the company’s store portfolio will be helpful in stabilizing its earnings level in the second half of the year. Moody’s expects Hengdeli’s EBITDA margin to remain stable in 2H13 despite a decrease of 10% yoy in EBITDA to RMB1.2bn.
Deutsche Bank view
The comment from the credit agency is positive for Hengdeli.
The author of this report wishes to acknowledge the contribution made by Rena Ma, an employee of Amba, a third-party provider to Deutsche Bank of offshore research support services.