Fitch Affirms Samsung Electronics at 'A+'; Outlook Stable

Published on: 18th Jun 2012

Fitch Ratings has affirmed Samsung Electronic's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) at 'A+' with Stable Outlook. The agency has also affirmed Samsung's senior unsecured rating at 'A+'.

­The affirmation reflects Samsung's strong operating results and financial profile in Q112 and 2011 as well as Fitch's expectation that the company's credit profile will remain intact over the next 12-18 months, backed by its market-leading positions and robust cash generation.

In 2011 the company's revenue grew 7% yoy to KRW165trn with a solid EBIT margin of 9.8% (2010: 11.2%) as strong growth in the mobile handset business helped mitigate the negative impact of cheap memory prices and the prolonged downturn of the display panel industry. In addition, the company was able to further improve its net cash position to KRW11.6trn at end-2011 from KRW10.5trn at end-2010 despite high capex of KRW22.6trn in 2011. Samsung also generated record EBIT of KRW5.9trn in Q112.

Fitch forecasts that Samsung will maintain its momentum and again generate record revenue and EBIT in 2012, driven by a stronger market position in the smartphone business. In addition, recovery of the display panel business, already witnessed in Q112, should help improve operating margins. Weak memory chip prices are likely to lead to lower margins in the semiconductor business; however, this could be offset to a certain extent by the strong growth of the non-memory business, mainly application processors.

Fitch also forecasts that Samsung will generate positive free cash flow (FCF) as its cash flow from operations should comfortably cover its significant capex of KRW25trn in 2012.

A negative rating action may occur if the economy deteriorates sharply or if the company's competitiveness declines, leading to a significant loss of market share in major business segments or sharply lower profitability. Continued negative FCF resulting in funds flow from operations (FFO)-adjusted leverage above 1.0x on a sustained basis may also lead to negative rating action. However, Fitch does not foresee such a development over the next two years.

 

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