| Moody's Investors Service says that the profit
warning for the year ended 31 December 2017 (2017) issued by BAIC Motor Corporation
Limited (BAIC Motor)(01958), a subsidiary of Beijing Automotive Group Co., Ltd. (BAIC
Group), is credit negative for BAIC Group.
However, the announcement will not immediately affect BAIC Group's Baa2 issuer rating or
the Baa2 senior unsecured rating on the bonds issued by its subsidiary, BAIC Inalfa HK
Investment Co., Limited, and guaranteed by BAIC Group.
The ratings outlook remains stable.
BAIC Motor, in which BAIC Group owned a 44.98% stake at the end of June 2017 and which
represents the key profit contributor for BAIC Group, issued the profit warning on 13
February 2018.
BAIC Motor expects its net profit to have fallen by about 65% year-on-year during 2017,
mainly due to the decline in the sales and results of its Beijing Hyundai Motor Co., Ltd.
(Beijing Hyundai) business and its Beijing Brand own brand passenger vehicles business.
"While BAIC Motor's anticipated decrease in net profit will negatively affect BAIC
Group, we believe the negative impact will be short term, given that the year-over-year
decline in sales by Beijing Hyundai moderated during 2H 2017 versus 1H 2017," said Gerwin
Ho, a Moody's Vice President and Senior Analyst.
Hyundai Motor Company's (Baa1 stable) weak auto sales in China (A1 stable) were driven
by the political tensions that emerged between Korea (Aa2 stable) and China in March 2017.
Beijing Hyundai had posted a fall in unit sales of 31% year on year in 2017, according
to Hyundai Motor, but the magnitude of the decline was narrower than the 42% year on year
in 1H 2017. This was because sales had begun to recover during 2H 2017.
Moody's expects Hyundai Motor and Beijing Hyundai's sales performance in China to
continue to recover over the next 12-18 months.
Moody's noted that it took 12-18 months for Japanese auto companies to recover their
market shares in China after political tensions escalated between Japan (A1 stable) and
China in 2012.
While Moody's expects BAIC Group's debt leverage -- as measured by adjusted debt/EBITDA
-- to have risen in 2017, as a result of the lower EBITDA contribution from Beijing
Hyundai, the company's leverage is expected to trend down towards 5.0x in 2018, as Beijing
Hyundai's sales and EBITDA contribution recover and normalize. |
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