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

Published on 25 Oct 2023.

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RAM Ratings has affirmed 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 reflects its very close relationship with Hanwha Solutions which supports our view that financial assistance will be extended if needed, in times of distress. The Company is one of Hanwha Solutions’ four manufacturing and research and development (R&D) arms globally, accounting for 23% of the Group’s total solar PV cell production capacity. The bulk of HQC’s products are sold internally at predetermined quantities and prices that are marked up at a given rate to production cost. The Company benefits from the Group’s solid market position and the financial back-up through corporate guarantees and advances. 

Hanwha Q CELLS remains a leading player in selected advanced countries like the US despite its position among global PV module manufacturers slipping in recent years. The Group must continuously invest in R&D efforts to keep up with technological innovations in a competitive and oversupplied market. The sector’s prospects are to a great extent also affected by government renewable energy targets and policy support.

HQC’s top line was boosted by 49% to RM3.2 bil in FY Dec 2022 (FY Dec 2021: RM2.2 bil) following an upward revision of product prices. The Company turned around to a pre-tax profit of RM186.2 mil (FY Dec 2021: pre-tax loss of RM219.0 mil) on account of wider operating margins, the absence of impairments and realised foreign currency gains. However, with RM39.1 mil of cash against RM172.3 mil of short-term debts as at end-December 2022, HQC’s liquidity profile is weak, emphasised by rated MTN due to mature on 30 August 2024. We expect the Group to continue to extend financial support in ensuring the Company meets its debt obligations.

HQC’s gearing was a better 1.68 times as at end-December 2022 as debts reduced to RM1.68 bil (end-December 2021: 3.02 times and RM1.92 bil, respectively) alongside an uptick in share capital. Of its total debts, RM264.26 mil was made up of intercompany loans while RM1.23 bil of debts carried corporate guarantees from the Group. Given its key role in fulfilling demand from the Group’s US operations, HQC’s financial performance is likely to stay resilient in the next year. 

Hanwha Solution’s credit profile remains sound, supported by its strong position in the global PV panel sector and South Korean petrochemical sector, its diversified global presence and healthy balance sheet and debt coverages. Earnings of the Group’s key chemical and solar segments are volatile but the segments’ differing cycles have facilitated overall operating profit growth in recent years. Operating profit was up 31% at KRW966 bil last year, rising 11% in 1H FY Dec 2023 to KRW465 bil. This performance was helped by the turnaround of the solar division on improved module prices and increased polysilicon supply, partially offset by lower demand in the chemicals segment. In the near term, Hanwha Solution’s profit performance is likely to moderate amid the decline in global PV prices since Q2 2023 and the continued weak outlook for global economic growth.

The Group’s debt load continued to increase to KRW7.7 tril as at end-December 2022 (end-December 2021: KRW6.4 tril), mainly to fund expansions in the US and South Korea. Its balance sheet nonetheless stayed healthy with unchanged gearing of 0.78 times. On the back of stronger operational cash flow last year, funds from operations debt coverage (FFODC) grew to 0.22 times (fiscal 2021: 0.18 times). As debts will rise to fund the Group’s US expansion, gearing may climb to around 1 time while FFODC is likely to dip below 0.2 times in the immediate term.

Analytical contacts
Ben Inn
(603) 3385 2510

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.

Published by RAM Rating Services Berhad
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