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Fitch Ratings-Taipei/Seoul/Hong Kong-11 December 2009: Fitch Ratings has today upgraded AU Optronics Corporation's (AUO) Long-term foreign and local currency Issuer Default Ratings (IDR) to 'BB-' from 'B+', and its National Long-term rating to 'BBB(twn)' from 'BBB-(twn)'. The Outlook is revised to Stable from Negative.
"Fitch has changed its forecast of AUO's operating results and credit measurements over the medium-term, because AUO has shown significant improvement in profitability since the second quarter of 2009 (Q209)," noted Kevin Chang, Director of Fitch's Asia Pacific Telecommunications, Media and Technology team.
In Q309, AUO's quarterly revenue increased by 6.9% yoy to TWD111.2bn, while its EBITDA margin improved to 27.9% from single-digit percentage points in Q109. "This effectively turned its earnings before interest and tax positive for the first time since Q408, enhancing the company's debt service capability," added Mr. Chang.
The agency still estimates that AUO will lose its free cash flow positive position in 2009 due to a significant reduction in cash flow from operations. Revenue will likely decline 15%-20% yoy in 2009 owing to the reduction in the selling price of TFT-LCDs, despite shipment growth for both large and small/medium sized display panels. Nevertheless this level of yearly top line contraction is much lower than the agency's former projection of 30%-40% six months ago.
Under an improving global economic outlook, Fitch expects AUO's revenue to grow in 2010, albeit at a much slower pace than pre-crisis years, as a result of a more amiable pricing environment for TFT-LCDs and greater demand for televisions and portable computers in both emerging markets and advanced economies. Fitch does not foresee a material glut on the supply side in 2010 given the sector's massive capex reduction in 2009 as well as the positive momentum of global GDP partially underpinned by the fiscal stimulus of various governments.
Fitch notes that further rating upgrades could occur if AUO's net adjusted debt/EBITDAR leverage ratio falls below 1.0x on a sustained annual basis, or if a sustainable pick-up in flat panel pricing or demand is likely to improve profitability and credit profile. Conversely, negative rating actions may be triggered if AUO's operating and financial results lead Fitch to expect that net adjusted leverage could exceed 2.0x on a sustained annual basis, or if the company registers negative quarterly EBITDA margins. Moreover, a downgrade could occur if loan covenants are breached without satisfactory remedy, leading to narrower funding options for the company. The agency will closely monitor the company's quarterly operating performance and credit metrics in light of these rating action guidelines.
AUO's shipment of large sized (10-inch and larger) TFT-LCD ranked the third largest on a global basis in 2008, and it provides customers with a wide range of panels from 1.2 inches to more than 65 inches in size. AUO's major operations are located in Taiwan, China and Europe.
Contacts: Kevin Chang, Taipei, +886 2 8175 7609/
kevin.chang@fitchratings.com; Matthew Jamieson, Seoul, + 82 2 3278 8355/
matt.jamieson@fitchratings.com.
Media Relations: Karen Cho, Hong Kong, Tel: +852 2263 9935,
Email:
karen.cho@fitchratings.com.
Additional information is available at www.fitchratings.com.
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