Ranking Motion: Moody’s upgrades MagnaChip to B1; outlook secure
World Credit score Analysis – 26 Nov 2020
Hong Kong, November 26, 2020 — Moody’s Traders Service has upgraded MagnaChip Semiconductor Company’s company household ranking to B1 from B2.
The ranking outlook is secure.
“The improve displays our expectation that MagnaChip’s show and energy companies will proceed to drive the corporate’s sturdy income progress and better profitability within the subsequent 2-3 years, and that the corporate will, after its current sale of the Foundry Providers Group enterprise and Fab 4, keep a strong monetary profile with continued optimistic free money stream technology,” says Gloria Tsuen, a Moody’s Vice President and Senior Credit score Officer.
The B1 ranking is supported by the great progress prospects for MagnaChip’s core show and energy companies, bettering profitability and wholesome steadiness sheet with giant liquidity buffer. The corporate additionally has a enterprise mannequin that doesn’t require substantial capital spending, which is able to permit it to generate optimistic free money stream (FCF).
On the similar time, the ranking is constrained by the corporate’s small scale, excessive buyer and enterprise focus, publicity to the risky and aggressive shopper electronics trade, and modifications in end-customer demand.
MagnaChip is nicely positioned within the rising natural light-emitting diode (OLED) show driver market the place it has a robust product lineup, whereas demand is growing pushed by 5G smartphones, OLED televisions and new purposes equivalent to automotives. The corporate has additionally upgraded its energy product portfolio, specializing in higher-efficiency and higher-margin merchandise.
Moody’s expects MagnaChip’s show and energy income to develop 8%-10% yearly in 2021-2022, after a mid-single digit decline in 2020. Moody’s additionally expects the corporate’s adjusted EBITDA margin to enhance to 11%-12% over the following 1-2 years from round 9% in 2019 and 2020, primarily due to higher product combine.
Regardless of a short lived improve in capital spending in 2020 and 2021 for one-time investments equivalent to capability growth in Fab 3 and investments in IT methods, MagnaChip’s sturdy working money stream will allow the corporate to proceed to generate optimistic FCF.
The corporate accomplished the sale of its Foundry Providers Group enterprise and Fab 4 in September 2020 and acquired roughly $351 million in money proceeds. It subsequently redeemed all of its $224 million senior unsecured notes due in July 2021. Given its presently giant internet money place and talent to generate FCF, Moody’s expects the corporate will keep no less than $100 million of internet money over the following 1-2 years, which is able to present an satisfactory buffer towards exterior shocks.
The ranking additionally bear in mind MagnaChip’s governance threat. Whereas the corporate has restricted disclosures of its monetary coverage and forward-looking steerage, this issue is mitigated by its strengthened steadiness sheet.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
An improve within the ranking is unlikely over the following 2-3 years given MagnaChip’s small scale and excessive enterprise and buyer focus.
Moody’s may downgrade the ranking if the corporate’s (1) adjusted working margin stays beneath 3%-5%; (2) adjusted debt/EBITDA stays above 3.0x; (3) money available falls beneath $100 million; or (4) liquidity weakens.
The principal methodology used on this ranking was Semiconductor Trade printed in July 2018 and accessible at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1130733. Alternatively, please see the Ranking Methodologies web page on www.moodys.com for a duplicate of this technique.
MagnaChip Semiconductor Company is a designer and producer of analog and mixed-signal semiconductor platform options for communications, Web of Issues, shopper, industrial and automotive purposes.
For additional specification of Moody’s key ranking assumptions and sensitivity evaluation, see the sections Methodology Assumptions and Sensitivity to Assumptions within the disclosure kind. Moody’s Ranking Symbols and Definitions could be discovered at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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The World Scale Credit score Ranking on this Credit score Ranking Announcement was issued by considered one of Moody’s associates outdoors the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Fundamental 60322, Germany, in accordance with Artwork.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit score Ranking Companies. Additional data on the EU endorsement standing and on the Moody’s workplace that issued the credit standing is offered on www.moodys.com.
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The primary title beneath is the lead ranking analyst for this Credit score Ranking and the final title beneath is the particular person primarily liable for approving this Credit score Ranking.
Gloria Tsuen, CFA VP - Senior Credit score Officer Company Finance Group Moody's Traders Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: 852 3758 1350 Consumer Service: 852 3551 3077 Chris Park Affiliate Managing Director Company Finance Group JOURNALISTS: 852 3758 1350 Consumer Service: 852 3551 3077 Releasing Workplace: Moody's Traders Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: 852 3758 1350 Consumer Service: 852 3551 3077
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