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

Sun Jun 16, 2013 11:48pm EDT

(The following statement was released by the rating agency) SEOUL/HONG KONG, June 16 (Fitch) Fitch Ratings has affirmed South Korea-based Samsung Electronics Co., Ltd.'s (SEC) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'A+' with Stable Outlook. The agency has also affirmed SEC's senior unsecured rating at 'A+'. Key Rating Drivers Solid financial profile: The affirmation reflects Fitch's expectation that SEC will continue to perform strongly in the short to medium term, continuing from its record operating result in 2012, driven by market-leading positions in its major businesses. Fitch believes that despite large capital investment of over KRW20trn the company will generate positive free cash flow (FCF) in 2013 and 2014. Upgrade unlikely: Fitch is not likely to upgrade SEC's ratings in the medium term despite strong performance. Fitch believes that the company's significant exposure to cyclical businesses and reliance on relatively fickle, fast-moving, investment-intensive markets is inconsistent with a 'AA' category rating. In particular, the company's cash flow generation is exposed to the handset market which has proved to be extremely volatile, even for major producers, over the last five years. Handset margins to decline: Fitch forecasts SEC's mobile handset segmental margin to weaken from 2014 as competition intensifies, especially in the mid-to-low-end segment. As the smartphone market matures, the technological gap between SEC and second-tier makers will narrow, leading to more intense price competition. In addition, should Apple Inc. launch more basic iPhones, SEC's market position in emerging markets may erode. Nevertheless, the company should be able to retain its leading market share, over 30%, in the smartphone segment in the next two years. The mobile handset division will remain the largest cash generator, accounting for about 70% of total EBIT, and will continue to support SEC's double-digit revenue growth in 2013. Stable components operations: Fitch believes that the company's semiconductor business will continue to benefit from more stable chip prices in 2013 due to limited supply growth, as well as from its large exposure to mobile/non-memory segments. Fitch also expects strong performance in mobile panels, mainly organic-light-emitting-diodes (OLED), which should mitigate muted growth in large size panels, due to weak demand for TVs. Rating Sensitivities Negative: Future developments that may, individually or collectively, lead to negative rating action include - - Sharp deterioration in the economy or a decline in the company's competitiveness leading to a significant loss in its market share of major business segments, or sharply lower profitability - Negative FCF resulting in funds flow from operation (FFO)-adjusted leverage above 1x (2012: 0.3x) on a sustained basis. However, Fitch does not foresee such a development over the next 12-18 months. Positive: Fitch does not foresee a positive rating action over the medium term, due to its exposure to cyclical businesses and investment-intensive markets. Contact: Primary Analyst Alvin Lim, CFA Director +82 2 3278 8371 Fitch Ratings Limited, Korea Branch 9F Kyobo Securities Building 26-4 Youido-Dong, Youngdeungpo-Gu Seoul Secondary Analyst Kelvin Ho Director +85 2 2263 9940 Committee Chairperson Steve Durose Senior Director +61 2 8256 0307 Media Relations: Wai Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available at www.fitchratings.com. The issuer did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure. Applicable criteria, 'Corporate Rating Methodology', dated 8 August 2012, are available at www.fitchratings.com. Related Research: Fitch Street InterView - Samsung: Agile adaptor; Not true innovator (June 2013) Applicable Criteria and Related Research: Corporate Rating Methodology here Rating Technology Companies here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.