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Fitch: CAR Inc Faces Margin Pressure; UCAR's Losses Narrow in 2016
March 21, 2017 / 7:33 AM / 6 months ago

Fitch: CAR Inc Faces Margin Pressure; UCAR's Losses Narrow in 2016

(The following statement was released by the rating agency) HONG KONG, March 21 (Fitch) The credit implications from the 2016 results of CAR Inc. (BB/Negative) and UCAR were mixed, says Fitch Ratings. On one hand, CAR Inc.'s standalone results were weaker than expected and the company faces margin pressure and higher capex requirements in 2017. On the other hand, UCAR, CAR Inc.'s largest shareholder and largest customer, showed its operations continue to improve, which alleviates some of Fitch's concerns over CAR Inc.'s dependence on UCAR. CAR Inc.'s fleet leased to UCAR dropped from an average of 30,000 vehicles in 9M16 to 28,000 by 4Q16 as UCAR increased efficiency and diversified its supplier source. CAR Inc.'s average daily rental revenue per short-term rental vehicle in the fourth quarter also dropped compared with a quarter ago and year ago. Fitch expects the earnings outlook for 2017 to remain subdued, as management is planning to cut prices to drive volume growth and utilisation rates, which may negatively impact margins. CAR Inc. turned FCF positive in 2016 as capital expenditures were limited, but Fitch expects this to reverse in 2017 given the company's large fleet renewal plans. Nonetheless, Fitch expects CAR Inc.'s net leverage to remain below 3.0x, the level at which Fitch would consider negative rating action. UCAR's losses narrowed in 2H16 on the back of strong revenue growth and economies of scale. Fitch views UCAR's 2016 results as promising, although it remains to be seen whether it can generate operating profits on a sustained basis amid a rapidly changing operating environment. UCAR's financial health is an important driver of CAR Inc.'s credit profile, as UCAR is CAR Inc.'s single-largest customer, accounting for 40% of rental revenue in 2016 and more than half of CAR Inc.'s planned used-car disposals. Fitch downgraded the rating on CAR Inc. to 'BB' with Negative Outlook, from 'BB+' with Stable Outlook, in July 2016 to reflect the substantial and growing related-party transactions with UCAR, which had a weaker credit profile. The Outlook may be revised to Stable if UCAR generates sustained positive EBITDA, revenue contribution from UCAR is sustained below 20%, and there is no further weakening in CAR Inc.'s financial profile. Contact: Yee Man Chin Director +852 2263 9696 Fitch (Hong Kong) Limited 19F Man Yee Building 68 Des Voeux Road Central Hong Kong Cathy Chao Associate Director +852 2263 9967 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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