Date: 19 May 2007
The rating action was prompted by expectations that Fuyao's capital expenditure will slow and its operating cash flow will improve as a result of its strengthening position in the domestic and global auto glass markets. A proposed private placement to Goldman Sachs would improve its debt repayment capacity, providing further support to its rating profile. The company has now completed major production bases for the auto producer market, with its investments in auto glass capacity likely to slow after its Beijing and Guangzhou production bases are put into operation in 2007. Still, there are some concerns over ongoing capital expenditure in its float glass lines in Hainan Province, especially considering the company's historically aggressive investment record.
Its cash flow status has improved, with the gap between CFO and CFI (outflow) narrowing over the past nine quarters. This trend is expected to continue as a result of the company's strengthening market position. Revenues from its auto glass segment, which accounted for 74.3% of total revenues in 2006, rose from RMB1, 064.2 million in 2002 to RMB2, 888.9 million in 2006. The growth of this segment resulted not only from domestic
sales but also from its global OEM business. Domestic sales have grown as a result of growing auto sales and its leading market share. In the global OEM field, Fuyao has passed the verification process of major world-class auto manufacturers, including Ford and GM. Despite tough downstream competition, wavering domestic demand for sedans and RMB appreciation, its profit margins have remained comparatively stable, with its operating efficiency improving slightly.
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