(The following was released by the rating agency)
HONG KONG/SINGAPORE, January 11 (Fitch) Fitch Ratings has published DBA Telecommunication (Asia) Holdings Limited's (DBA) Long-Term Issuer Default Rating of 'B+' with Stable Outlook and its senior unsecured rating of 'B+'. The company is an operator of intelligent self-service (ISS) terminals in China and a manufacturer of telecommunication machines and equipment.
Fitch has also assigned DBA's proposed USD senior unsecured bonds an expected rating of 'B+(EXP)'. The bonds' rating is in line with DBA's senior unsecured rating. Proceeds from the proposed issue will be used to finance business expansion and for general corporate purposes. The final rating of the proposed notes is contingent upon the receipt of documents conforming to information already received.
DBA's ratings are constrained by its vulnerability to potential competition from new entrants and increasingly popular online services. The company's competitive advantages - low manufacturing cost and flexible location - are limited, particularly when compared with those of online channels. In addition, Fitch does not exclude the possibility of new competitors with a similar business model eroding DBA's market share and profitability. The ratings are also held back by limited offshore funding sources.
DBA's credit strengths are its short payback period, business scalability and manageable capex. Fitch estimates it would take only two years to pay back the initial costs of each terminal, based on current brisk sales and insignificant manufacturing cost. Annual EBITDA per terminal is strong, currently estimated at over CNY30,000, and the company had a total of 9,900 terminals at end-H112. Furthermore, DBA owns enough plant buildings and land to only require limited incremental capex to raise production capacity. The Stable Outlook reflects Fitch's expectation that demand for pre-paid cards should remain firm over the next two years.
What could trigger a rating action?
Future developments that may, individually or collectively, lead to negative rating action include:
-payback period for each ISS terminal increasing to three years or annual EBITDA per ISS terminal falling below CNY23,000
-EBITDA/gross interest falling below 3.5x on a sustained basis
-total debt/operating EBITDA rising above 3x on a sustained basis (end-2011: 1.1x)
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
-establishing a strong national brand name or other significant competitive advantages on a sustained basis