RAM Ratings reaffirms AAA(fg)/Stable rating of Hanwha Q CELLS’ MTN

Published on 10 Aug 2022.

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RAM Ratings has reaffirmed the AAA(fg)/Stable rating of Hanwha Q CELLS Malaysia Sdn Bhd’s (HQC or the Company) RM150 mil Guaranteed Medium-Term Notes (2021/2024) (MTN). 

The rating reflects an irrevocable and unconditional guarantee on the MTN from Credit Guarantee Investment Facility (rated AAA/P1 by RAM). HQC is a manufacturer of solar photovoltaic (PV) cells and modules in Malaysia. It is indirectly wholly owned by Hanwha Q CELLS Co. Ltd (Hanwha Q CELLS), the solar arm of Hanwha Solutions Corporation (the Group) – a leading petrochemical player in South Korea, with operations globally.

Excluding the guarantee, HQC’s credit profile is strong, considering its very close relationship with Hanwha Solutions. HQC is a key manufacturing and research and development (R&D) arm of Hanwha Q CELLS, with Malaysia being one of the Group’s four manufacturing and R&D sites globally. It rides on its parent’s renowned product technology and respectable position. Hanwha Q CELLS is consistently ranked among the 10 largest PV module manufacturers globally and is the top player in advanced countries like the US, Germany, the UK and Japan. As a contract manufacturer of Hanwha Q CELLS, HQC’s products are sold mostly internally, with quantities typically fixed and the selling price marked up at a given rate to production cost.

HQC’s revenue improved by 20% y-o-y to RM2.18 bil in FY Dec 2021 on the back of better solar module prices. Its operating profit before interest, tax and depreciation (OPBDIT) margin however shrank to a lower than expected 2% (FY Dec 2020: 11%) due to a spike in logistics cost and raw material prices as well as a lag in revising product prices. HQC’s pre-tax loss widened in FY Dec 2021, weighed down by continued write-offs on property, plant and equipment following plant upgrades. Nevertheless, product prices have been revised upwards this year, lifting revenue to RM1.71 bil in 1H fiscal 2022 (+57% y-o-y) and returning the Company’s bottom line to the black. HQC’s OPBDIT margin, having recovered to 8%, is expected to normalise to historical levels of about 10% on account of the existing cost-plus mark-up arrangement with its parent company.

Weak liquidity and a highly leveraged balance sheet, given the capital-intensive nature and high R&D costs of solar PV operations, moderate HQC’s credit profile. Debts climbed to RM2.21 bil as at end-June 2022 (end-December 2020: RM1.44 bil), partly to fund the retrofitting of its plant. Gearing although still high, improved to 2.43 times as at end-June 2022 (end-December 2020: 2.84 times), offset by RM582 mil of share issuances. Funds from operations debt coverage (FFODC) was weaker than expected at 0.04 times last year, but OPBDIT debt coverage rebounded to an annualised 0.12 times in 1H FY Dec 2022. We expect FFODC to gradually recover to historical levels as stronger sales volumes and revised product prices moderate the increase in HQC’s debt level. 

The Company’s business viability depends on Hanwha Solutions’ ability to maintain its market position in the global solar PV sector. The market is competitive, with periods of oversupply putting pressure on selling prices. Players must continuously invest in R&D efforts to keep up with technological innovations, while government renewable energy targets and policy support affect the sector’s prospects to a great extent. The Group is also vulnerable to the prices of raw materials, particularly polysilicon. 

Meanwhile, Hanwha Solutions’ credit profile is sound in view of its strong position within the global solar sector and South Korean petrochemical sector, as well as its diversified presence globally. The Group’s revenue and OPBDIT was up 17% in FY Dec 2021 as robust earnings from the chemicals business (its main earnings driver) owing to strong petrochemical prices outweighed losses at its renewable energy segment. Operating profit before interest and tax, however, fell 38% y-o-y in 1Q fiscal 2022, coming under pressure from losses of the renewable energy business as raw material and logistics costs stayed high. We expect Hanwha Solutions’ profit showing to moderate in FY Dec 2022 as petrochemical prices ease amid a weaker demand outlook due to slower global growth, renewed supply chain bottlenecks and rising COVID-19 infections in China. Expensive raw materials and logistics costs will remain a drag on its renewable energy business.

Hanwha Solutions’ debt load increased to KRW6.39 tril as at end-December 2021, largely to fund acquisition activity (end-December 2020: KRW6.04 tril). Balanced by share issuances, its gearing ratio improved from 1.01 times to 0.78 times as at the same date. The corresponding debt coverage ratio last year was adequate at 0.18 times (FY Dec 2020: 0.20 times). FFODC should stay at around 0.20 times as the Group balances funding requirements for expansion with equity funding or the withholding of dividends, as shown in the past.


Analytical contacts
Karin Koh, CFA
(603) 3385 2508

Chong Van Nee, CFA
(603) 3385 2482


The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

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