Reuters logo
Fitch Affirms Yestar's 'BB-' Ratings; Outlook Stable
August 24, 2017 / 8:11 AM / 3 months ago

Fitch Affirms Yestar's 'BB-' Ratings; Outlook Stable

(The following statement was released by the rating agency) HONG KONG/SHANGHAI, August 24 (Fitch) Fitch Ratings has affirmed Yestar International Holdings Company Limited's (Yestar) Long-Term Foreign-Currency Issuer Default Rating (IDR) and senior unsecured rating at 'BB-'. The Outlook on the IDR is Stable. Fitch has also affirmed Yestar's USD200 million 6.9% senior unsecured notes due 2021 at 'BB-'. Yestar's ratings reflects the company's high exposure to China's rapidly growing in-vitro diagnostics (IVD) market, an established partnership with IVD industry leader Roche Diagnostics, a strong foothold in IVD distribution across important markets in eastern and southern China, and strong free cash flow (FCF) generation. The rating headroom has shrunk after a few acquisitions that resulted in higher leverage, but Fitch expects Yestar to be able to maintain FFO adjusted leverage below 2.5x, the level at which Fitch would consider negative rating action. KEY RATING DRIVERS IVD Business Drives Growth: Yestar entered the IVD market in 2014 after acquiring two IVD distributors in eastern China that had established partnerships with Roche Diagnostics. Since then, Yestar has acquired three more distributors in southern China. China's IVD market is expanding rapidly due to strong demand, and faces low cyclicality. Fitch estimates that the IVD business will contribute around 75% of Yestar's EBITDA in 2017 and that this proportion will continue to rise. Further Acquisitions Possible: Yestar recently announced that it was looking into potential new targets. The management has said the company is interested in expanding into new regions, such as northern China. We have not yet factored these acquisitions into our forecasts as the size and timing are uncertain. Yestar's ratings may be negatively affected if the company makes a large acquisition and funds it with cash/debt. Leverage Rising: Yestar's leverage has risen after the acquisitions in the past few years. Yestar acquired three more distributors at the beginning of 2017 and is due to pay for the remaining 30% stake in IVD distributor Anbaida in 2018. Fitch expects FFO adjusted leverage to range between 2.0x and 2.5x, which Fitch views as acceptable, although the rating headroom at the current level is very limited. Fitch's leverage expectation assumes no further acquisitions. Traditional Imaging Business Weak: Yestar's traditional business of distributing imaging equipment is mature and has limited growth prospects. Fitch previously expected this segment to be relatively stable, but its recent performance has been disappointing, with revenues declining by 11% in 2016 and a further 20% in 1H17. DERIVATION SUMMARY Yestar's ratings are supported by its exposure to China's rapidly growing IVD market, an established partnership with Roche Diagnostics, and strong FCF generation. These strengths are offset by the company's small operating scale, limited track record in the IVD business, and M&A risk. Its credit profile is comparable to peers of similar scale in the diversified services and diversified manufacturing sectors, such as eHi Car Services Limited (BB-/Negative) and Hilong Holding Limited (BB-/Negative). Yestar has a slightly smaller operating scale and a weaker financial profile than 361 Degrees International Limited (BB/Stable). KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - Mid-teen revenue growth for IVD business and 20% EBITDA margin in 2018-2019 - Revenue for the traditional imaging business to decline 0%-5% in 2018-2019 - Company to acquire remaining 30% interest in IVD distributor Anbaida in 2018 - No further M&A assumed RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action - Significant increase in operating scale, brand partners and geographic diversification while keeping FFO adjusted net leverage below 2.5x on a sustained basis Developments That May, Individually or Collectively, Lead to Negative Rating Action - FFO adjusted net leverage above 2.5x on a sustained basis - EBITDA margin below 15% on a sustained basis (2016: 17.6%) - Sustained weakness in existing businesses LIQUIDITY Sufficient Liquidity: As of end-June 2017, Yestar had CNY679 million of cash and cash equivalents and more than CNY100 million in undrawn banking facilities, which was more than enough to cover its short-term debt of CNY244 million. Contact: Primary Analyst Yee Man Chin Director +852 2263 9696 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Li Chen Analyst +86 21 5097 3009 Committee Chairperson Kalai Pillay Senior Director +65 6796 7221 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Corporate Rating Criteria (pub. 07 Aug 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy 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 WEB SITE AT 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below