– NICE Investors Service Raised HC’s Rating from A-(Positive) to A (Stable) after Six Months.
– Distinguished Results in Auto Parts and a Turnaround (into the Black) in Commercial Energy Have Led to Growth.
– “Considering its Business Competitiveness, the Outlook for Next Year will also be Stable.
Korean credit rating agencies have improved their ratings for Hyundai Corporation. Given its stable business profitability and favorable financial stability, the outlook for next year is also assessed as stable.
According to credit rating industry sources, on December 13, NICE Investors Service upgraded its rating for HC’s senior unsecured bonds by one notch from A- (positive) to A (stable).
About six months after it adjusted HC’s rating from A- (stable) to A- (positive) last June, NICE Investors Service raised HC’s credit rating again.
This is mainly attributed to HC’s improving financial stability resulting from better-than-expected business results posted over the past two years.
Last year, HC’s revenue climbed by 60% YoY due mainly to higher oil prices and a sharp improvement in business performances in auto parts stemming from the news that the global chip shortage was finally resolved. For the third quarter of this year, its cumulative consolidated sales and operating profit reached KRW 5.0056 trillion and KRW 79.5 billion, respectively. Compared with the same period last year, its sales and operating income jumped by 9.3% and 36.4%, respectively.
Despite the Russia-Ukraine war, automobile manufacturers including Hyundai Motor Company and Kia Corporation have continued to cultivate the CIS market, increasing HC’s revenue from the auto parts sector. Also, business performances from commercial energy based on transformer sales have improved significantly. The satisfactory business results from non-trading sectors are the main reason for the higher-than-projected revenue and operating profit.
Accumulated sales for the third quarter of this year in auto parts and commercial energy rose by 96.4% and 51% YoY, respectively, to KRW 1.5193 trillion and KRW 187.1 billion, respectively, bigger than in any other business sectors. In particular, EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) accumulated by the third quarter of last year in commercial energy was estimated at minus KRW 1 billion but this year, it jumped to KRW 6.1 billion.
The falling debts resulting from higher-than-projected revenues are considered to be the main reason for higher credit ratings. HC’s debt-to-equity ratio swelled to 370.6% at the end of 2021 but dropped to 297.3% as of the end of September of this year. During the same period, its net debt plunged by 37.3% in 2 years from KRW 731.8 billion to KRW 458.8 billion, causing its net debt ratio to drop by 109%p from 201% to 91.3%.
However, it cannot be said that HC is not burdened by any debts. Despite that, most short-term debts are deemed to belong to the category of trade finance, accounts payable that are repaid by collecting export-related accounts receivable. Moreover, real estate mortgage loans and non-controlling interest equity liabilities maturing in June of next year don’t have to be repaid if the right to demand the purchase of real estate funds is not exercised. Therefore, credit rating agencies agree that HC’s real financial burden is below the indicator.
Market analysts forecast that HC’s cash flow from operations will increase to gradually improve its financial indicators.
HC’s accumulated EBITDA as of the third quarter of this year amounts to KRW 84.8 billion, exceeding the yearly level posted last year. If its financial results for the fourth quarter of this year are echoed, HC is projected to hit record highs for two consecutive years.
According to FnGuide, a financial data provider, HC’s consolidated revenue and operating income for this year are expected to reach KRW 6.5439 trillion and KRW 98.2 billion, respectively. If this forecast becomes a reality, its sales and operating profit will grow by 6.8% and 46.9% YoY, respectively.
NICE Investors Service researcher Lee Gang-seo said, “Considering global economic uncertainties, geopolitical risks in major regions and other negative elements, HC may have difficulties in continuously posting its high growth rates for the period from 2022 to 2023 but is forecast to maintain relatively stable performances based on its high business competitiveness, ceaselessly expanding its partnerships.
December 13, 2023
New Daily