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Tencent
- Sector: Technology Media and Telecommunications
- Sub Sector: Technology
- Country: China
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Fundamental View
AS OF 10 Jun 2025We maintain our Outperform recommendation on Tencent post its decent 1Q25 results; topline accelerated, EBITDA margin expanded, free operating cash flow remained robust, and debt metrics remained modest. We expect Tencent’s topline growth to marginally accelerate in FY25, supported by its advertising, domestic/international gaming, fintech and cloud segments; we expect EBITDA margin to marginally improve as its better revenue mix offset the increased R&D spending for AI development; we expect FOCF to expand, and debt metrics to improve from 1Q25. We continue viewing Tencent as a core holding in China and Asia IG credits. We prefer its 2029/2041 notes for spread pick up against Chinese SOEs. We think Tencent is more attractive compared to BIDU/JD and more defensive that BBB China tech.
Business Description
AS OF 10 Jun 2025- Founded in November 1998, Tencent is a leading provider of Internet value added services in China. Since its establishment, Tencent has ventured into instant messaging, social networking, online payments, digital entertainment, and PC and smartphone gaming. Most recently, it has also forayed into high-tech areas such as artificial intelligence, and cloud computing.
- Tencent's leading Internet platforms in China include Weixin/WeChat (online messaging), QQ Instant Messenger (online messaging), Tencent Games (gaming), Tencent Video/Weixin Video Accounts (video platforms), WeChat Pay (payments), and Tencent Cloud. The combined monthly average users (MAU) of Weixin and Wechat reached 1.40 bn as of 31 March 2025.
- In 4Q24, 46% of revenues came from Value Added Services (which consist of Domestic Games, International Games, and Social Networks), 33% came from FinTech and Business Services (e.g. commercial payments and cloud), 19% from Online Advertising and 2% from Others.
- Tencent is currently primarily listed on the Hong Kong Stock Exchange, with a market capitalization of HKD 4.7 tn as of 10 June 2025.
Risk & Catalysts
AS OF 10 Jun 2025While Chinese regulators have adopted a more friendly stance towards tech companies, any regulatory clampdowns abroad and domestically (e.g. antitrust rules, data security, personal information protection laws) may affect Tencent’s business. Tencent’s gaming, music streaming, and online payment units are among those that have come under regulatory scrutiny in the past.
Tencent uses variable interest entities (VIEs) to circumvent China’s restrictions on foreign ownership of Internet Content Providers, which poses regulatory risks. Specifically, VIE transactions involving “change in control” will be subject to antitrust regulatory processes.
US-China tension may escalate under the new Trump Administration, including additional chip sanctions, which may result in higher volatility. Failing to secure a stable supply of advanced AI chips and/(or) find domestic alternatives could weigh on the long-term AI development of Tencent against international peers.
Key Metric
AS OF 10 Jun 2025| RMB bn | FY21 | FY22 | FY23 | FY24 | LTM 1Q25 |
|---|---|---|---|---|---|
| Debt to Book Cap | 27.0% | 31.4% | 29.8% | 25.4% | 26.5% |
| Net Debt to Book Cap | 6.0% | 8.5% | 1.0% | 2.3% | 4.4% |
| Debt/Total Equity | 36.9% | 45.9% | 42.5% | 34.0% | 36.0% |
| Debt/Total Assets | 20.1% | 22.8% | 23.5% | 20.1% | 21.1% |
| Gross Leverage | 1.7x | 1.9x | 1.6x | 1.3x | 1.4x |
| Net Leverage | 0.4x | 0.5x | 0.1x | 0.1x | 0.2x |
| Interest Coverage | 24.7x | 19.0x | 19.9x | 22.5x | 23.0x |
| EBITDA Margin | 34.9% | 34.3% | 38.9% | 42.4% | 43.2% |
CreditSight View Comment
AS OF 15 May 2025We maintain our Outperform recommendation on Tencent post its decent 1Q25 results; topline accelerated, EBITDA margin expanded, free operating cash flow remained robust, and debt metrics remained modest. We expect Tencent’s topline growth to marginally accelerate in FY25, supported by its advertising, domestic/international gaming, fintech and cloud segments; we expect EBITDA margin to marginally improve as its better revenue mix offset the increased R&D spending for AI development; we expect FOCF to expand, and debt metrics to improve from 1Q25. We continue viewing Tencent as a core holding in China and Asia IG credits. We prefer its 2030/2031/2041 notes for spread pick up against Chinese SOEs. We think Tencent is more attractive compared to BIDU/JD and more defensive that BBB China tech.
Recommendation Reviewed: May 15, 2025
Recommendation Changed: August 18, 2022
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Search topics about wealth insights and investments.Baidu
- Sector: Media and TelecommunicationsTechnology
- Sub Sector: Technology
- Country: China
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Fundamental View
AS OF 10 Jun 2025We maintain our M/P on Baidu post its uninspiring 1Q25 results; topline growth was ahead of expectation on strong AI cloud demand, but EBITDA margin fell on a weaker revenue mix, FOCF turned negative on higher AI investments, debt metrics weakened, and net cash contracted. We expect a modest deterioration in Baidu’s debt metrics compared to YE24. We continue preferring Alibaba and Tencent over Baidu among A-rated China tech credits. We like the stronger balance sheet, larger scale, stronger business positions, and better credit outlook of Alibaba and Tencent. Baidu trades only 3-8 bp wider than Alibaba and Tencent which we view as rich given the limited improvement in its debt metrics over the next 12 months. For investors looking for exposure in Baidu, we prefer its Apr-2030.
Business Description
AS OF 10 Jun 2025- Founded in 2000, Baidu started out as a search engine business and began its development into artificial intelligent (AI) since 2010.
- Baidu Core is the main revenue driver of the company (78% of 1q25 revenues) which provides search-based, feed-based and other online marketing services (total: 53% of 3Q24 revenues), as well as products and services from new AI initiatives (29% of revenues); Baidu's AI initiatives include AI cloud (enterprise & public sector cloud, and personal cloud), Intelligent Group Driving (Apollo Go, Apollo auto solutions, and intelligent EVs under Jidu Auto), Mobile Ecosystem (Baidu App, ERNIE Bot, Haokan and Baidu Post), and other growth initiatives (ie. Xiaodu smart devices powered by DuerOS smart assistant and AI chips).
- iQiyi accounts for the remaining revenues of Baidu; iQIYI is an online video platform with a content library that includes licensed movies, television series, cartoons, and other programs.
- Baidu launched ERNIE bot in Mar-23, a generative AI chatbot powered by ERNIE, Baidu's in-house foundation model.
- Baidu has a market capitalization of RMB 223.4 bn as of 10 June 2025.
Risk & Catalysts
AS OF 10 Jun 2025Any regulatory clampdowns abroad and domestically (e.g. potential US investment ban, antitrust rules, data security and personal information protection laws) may adversely affect the business of Baidu. The interpretation of Chinese laws and regulations involves some degree of uncertainty.
There are regulatory risks given the corporate structure which uses variable interest entities (VIEs) to circumvent China’s restrictions on foreign ownership of Internet Content Providers (ICPs).
Baidu has made significant investments into long-term AI-related projects, which may take time to turn profitable. A potential escalation of the US chip restriction could have a material negative impact its AI related business (ie. cloud, ernie bot, autonomous driving).
Key Metric
AS OF 10 Jun 2025| RMB bn | FY21 | FY22 | FY23 | FY24 | LTM 1Q25 |
|---|---|---|---|---|---|
| Debt to Book Cap | 29.7% | 28.5% | 25.0% | 22.5% | 26.7% |
| Debt/Total Equity | 42.2% | 39.8% | 33.4% | 29.0% | 36.4% |
| Debt/Total Assets | 24.1% | 23.4% | 20.8% | 18.5% | 22.5% |
| Gross Leverage | 3.3x | 2.8x | 2.2x | 2.0x | 2.6x |
| Interest Coverage | 8.2x | 11.4x | 12.1x | 13.8x | 13.5x |
| EBITDA Margin | 22.6% | 26.8% | 29.2% | 29.3% | 28.9% |
CreditSight View Comment
AS OF 22 May 2025We maintain our M/P on Baidu post its uninspiring 1Q25 results; topline growth was ahead of expectation on strong AI cloud demand, but EBITDA margin fell on a weaker revenue mix, FOCF turned negative on higher AI investments, debt metrics weakened, and net cash contracted. We expect a modest deterioration in Baidu’s debt metrics compared to YE24. We continue preferring Alibaba and Tencent over Baidu among A-rated China tech credits. We like the stronger balance sheet, larger scale, stronger business positions, and better credit outlook of Alibaba and Tencent. Baidu trades only 3-8 bp wider than Alibaba and Tencent which we view as rich given the limited improvement in its debt metrics over the next 12 months. For investors looking for exposure in Baidu, we prefer its Apr-2030.
Recommendation Reviewed: May 22, 2025
Recommendation Changed: August 31, 2022
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Search topics about wealth insights and investments.Alibaba
- Sector: Technology Media and Telecommunications
- Sub Sector: Technology
- Country: China
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Fundamental View
AS OF 10 Jun 2025We maintain our Outperform recommendation on Alibaba post its decent 1Q25 results; topline growth marginally slowed, EBITDA margin improved,FOCF fell on higher capex, net cash remained robust and debt metrics were stable. We expect Alibaba’s topline growth to accelerate over FY26, driven by better domestic eCommerce monetization, resilient international eCommerce, and robust cloud demand; we expect EBITDA margin to remain flat at 20%, but FOCF to trend lower on a material increase in capex for cloud; that said, we expect Alibaba’s Total debt/EBITDA to improve over the next 12 months, and maintain its healthy net cash position. We continue to view Alibaba as a core holding in Asia IG credits. We prefer its 30/35/41 bonds for spread pick up against Chinese SOEs.
Business Description
AS OF 10 Jun 2025- Founded in 1999, Alibaba is the largest retail commerce company in the world based on gross merchandise volume (GMV) as of 31 March 2023.
- The company's business segments comprise Taobao & Tmall Group (39% of F4Q25 revenue; China e-commerce incl. Taobao, Tmall, Taobao Deals, Taocaicai, 1688.com), International Digital Commerce (13%; incl. Lazada, AliExpress, Trendyol and Daraz), Cloud Intelligence Group (11%; incl. AliCloud, AI), logistic provider Cainiao (8%), Local Consumer Services (6%; incl. Ele.me, Amap), and Digital Media and Entertainment (2%, incl. Youku & Alibaba Pictures) and Others (21%; incl. Freshippo, Fliggy, Alibaba Health, Intelligent Information Platform, SunArt, DingTalk).
- Taobao/Tmall is Alibaba's core business and the main EBITA & cash generation unit of the group. Alibaba's annual active consumer exceeded 1 bn in June-2022.
- Alibaba had a market capitalization of RMB 2.3 tn as of 10 June 2025.
Risk & Catalysts
AS OF 10 Jun 2025While Chinese policymakers have adopted an increasingly friendly stance towards tech platforms, regulatory clampdown (e.g. anti-monopoly guidelines, data security laws, personal information protection laws) may still affect Alibaba as it increases compliance cost. There are regulatory risks given the corporate structure which uses variable interest entities (VIEs) to circumvent China’s restrictions on foreign ownership of Internet Content Providers (ICPs).
Intensifying competition amongst eCommerce platforms may result in slower topline growth and weaker EBITDA margins.
Alibaba does not control Alipay but relies on Alipay to conduct substantially all the payment processing and escrow services on its marketplaces.
US-China tension may escalate under the new Trump Administration, including additional chip sanctions, which may result in higher volatility. Failing to secure a stable supply of advanced AI chips and/(or) find domestic alternatives could weigh on the long-term AI development of Tencent against international peers.
Key Metric
AS OF 10 Jun 2025| CNY BN | FY21 | FY22 | FY23 | FY24 | FY25 |
|---|---|---|---|---|---|
| Debt to Book Cap | 12.1% | 11.6% | 12.6% | 13.3% | 17.5% |
| Debt/Total Equity | 13.8% | 13.1% | 14.4% | 15.3% | 21.2% |
| Debt/Total Assets | 8.8% | 8.3% | 9.2% | 9.7% | 12.8% |
| Gross Leverage | 0.8x | 0.9x | 0.9x | 0.9x | 1.2x |
| Interest Coverage | 39.9x | 32.2x | 29.6x | 24.0x | 20.7x |
| EBITDA Margin | 24.9% | 18.5% | 20.2% | 20.3% | 19.9% |
CreditSight View Comment
AS OF 16 May 2025We maintain our Outperform recommendation on Alibaba post its decent 1Q25 results; topline growth marginally slowed, EBITDA margin improved,FOCF fell on higher capex, net cash remained robust and debt metrics were stable. We expect Alibaba’s topline growth to accelerate over FY26, driven by better domestic eCommerce monetization, resilient international eCommerce, and robust cloud demand; we expect EBITDA margin to remain flat at 20%, but FOCF to trend lower on a material increase in capex for cloud; that said, we expect Alibaba’s Total debt/EBITDA to improve over the next 12 months, and maintain its healthy net cash position. We continue to view Alibaba as a core holding in Asia IG credits. We prefer its 30/31/35/41 bonds for spread pick up against Chinese SOEs.
Recommendation Reviewed: May 16, 2025
Recommendation Changed: August 05, 2022
Who We Recommend
Delta Air Lines
Sultanate of Oman
Korea Electric Power Corp.
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Fundamental View
AS OF 05 Jun 2025Stryker benefits from a leading position in orthopedics as well as strong franchises in medical surgery and neurotechnology. The company’s sales and EBITDA growth trajectory bests most of its medical device peers.
Stryker has exhibited discipline with capital allocation. Following larger bolt-on deals in 2022 (Vocera, $3.1 bn) and 2020 (Wright Medical, $5.4 bn) management prioritized debt reduction.
We expect SYK to manage leverage in the low- to mid-2x range as it addresses its M&A needs/wants in the aftermath of the Inari purchase.
Business Description
AS OF 05 Jun 2025- Stryker (SYK) is a global manufacturer of implants used in joint replacement & trauma surgeries; surgical equipment & surgical navigation systems; endoscopic & communications systems; patient handling & emergency medical equipment; neurosurgical, neurovascular & spinal devices among other products. Stryker generated $22.6 bn of revenues in 2024 (versus $20.5 bn in 2023).
- SYK maintains two operating segments: MedSurg & Neurotechnology (60% of 2024 consolidated revenues) and Orthopaedics & Spine (40%).
- SYK's recent sizable acquisitions include: Inari Medical ($4.9 bn) in 2025, which increased its exposure to peripheral vascular diseases; Vocera ($3.1 bn enterprise value) in 2022, which increased its digital care coordination and communication categories; Wright Medical ($5.6 bn including debt) in 2020, which increased its exposure to the trauma & extremities end market; and K2M Group ($1.4 bn) in 2018, which boosted the spine portfolio.
Risk & Catalysts
AS OF 05 Jun 2025Stryker is exposed to medical procedure volumes. While volumes have been positive, owing in part to the resumption of procedures deferred during COVID, volatility could result from economic uncertainty in the year ahead.
Stryker’s M&A interest has leaned bolt-on in nature over the past several years, including the acquisitions of Inari in 2025 ($4.9 bn), Vocera in 2022 ($3.1 bn) and Wright Medical in late 2020 ($5.4 bn).
Stryker has moderate overall exposure to hospital capital budgets versus medical device peers as it has recurring sales of consumables and parts.
Last quarter SYK announced a definitive agreement to sell its US Spinal Implants business to Viscogliosi Brothers to create a newly formed company (to be named VB Spine, LLC).
Key Metric
AS OF 05 Jun 2025| $ mn | Y21 | Y22 | Y23 | Y24 | LTM 1Q25 |
|---|---|---|---|---|---|
| Revenue | 17,108 | 18,449 | 20,498 | 22,595 | 23,218 |
| Gross Profit | 10,968 | 11,578 | 13,058 | 14,440 | 14,851 |
| R&D | (1,235) | (1,454) | (1,388) | (1,466) | (1,503) |
| SG&A | (6,427) | (6,455) | (7,121) | (7,703) | (8,166) |
| Adj. EBITDA | 4,753 | 4,755 | 5,356 | 6,179 | 6,384 |
| Total Debt | 12,479 | 13,048 | 12,995 | 13,597 | 16,781 |
| Gross Leverage | 2.6x | 2.7x | 2.4x | 2.2x | 2.6x |
| Interest Coverage | 14.1x | 14.1x | 15.0x | 15.6x | 16.1x |
CreditSight View Comment
AS OF 16 Jul 2025We maintain our Outperform recommendation on Stryker. SYK exhibits solid organic growth prospects on the strength of its orthopedics business and its capital equipment backlog. While M&A activity is likely to increase through the remainder of the year, we expect management’s focus to lean bolt-on. We prefer SYK to similarly-rated peer, BSX, a name with similar leverage and (perhaps) a richer M&A appetite.
Recommendation Reviewed: July 16, 2025
Recommendation Changed: May 03, 2022
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Delta Air Lines
Sultanate of Oman
Korea Electric Power Corp.
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Fundamental View
AS OF 05 Jun 2025We expect the credit profile of Sinopec, which is one of the three Chinese national oil companies (NOCs) to continue to be underpinned by its strategic role in China’s energy security and the resulting strong government support.
We expect Sinopec’s standalone credit profile to remain supported in FY24 by resilient refined oil demand and improving demand for chemical products as industrial activities pick up and the destocking trend ends.
To note, we use the financials of HKEx listed Sinopec Corp (386.HK) as a proxy for the credit profile of its parent, the obligor of the outstanding $ bonds (BBG: SINOPE).
Business Description
AS OF 05 Jun 2025- Sinopec Group is a Chinese integrated oil and gas (O&G) company and is one of the largest globally & domestically. In 3Q24, 56.4% of Sinopec Corp' external revenues came from marketing and distribution (i.e. retail and direct sales of refined oil), 13.9% from chemicals, 5.1% from refining, and 5.0% from E&P. Corporate and others segment accounted for the remaining 19.6% of sales revenue, consisting of import and export business, R&D and managerial activities.
- The refining segment purchases crude oil from third parties as well as the E&P segment of the company, and processes crude oil into refined petroleum product. Most of the gasoline, diesel and kerosene are sold internally to the marketing and distribution segment of the company; part of the chemical feedstock is sold internally to the chemical segment, and the other refined petroleum products are sold externally to both domestic and overseas customers. The marketing and distribution segment purchases refined oil products from the refining segment and third parties, and mainly distributes to domestic customers via its wholesale and retail networks.
- In 9M24, Sinopec's total oil and gas output was 386.06 mn barrels of oil equivalent, up 2.6% YoY; this included 190.42/20.87 mmbbls (+1.2%/-6.6%) of domestically produced/overseas crude oil, as well as 1,084 bcf of natural gas (+5.6% YoY). The average realized price of its crude oil and natural gas was $76.6/bbl (+1.1% YoY)and $7.48/thousand cubit feet (+5.4% YoY)respectively.
Risk & Catalysts
AS OF 05 Jun 2025Risks: Lower-than-expected domestic sales of refined oil and chemical products due to a severe economic downturn, higher-than-expected crude oil and gas feedstock costs resulted from geopolitical tensions, elevated inventory losses due to tumbling oil & gas prices, and large capex overrun result in a weaker standalone credit profile. However, we expect the strong government support to offset these downside risks. US sanction related headline risks due to US-China tension and other geopolitical risks.
Catalysts: inflow into China $ bonds as a result of improving China macro outlook and US-China relationship; stronger-than-expected recovery in chemical product demand.
Key Metric
AS OF 05 Jun 2025| RMB bn | FY20 | FY21 | FY22 | FY23 | 3Q24 |
|---|---|---|---|---|---|
| Total Debt/Capitalization | 25.3% | 25.6% | 27.5% | 31.5% | 33.1% |
| Net Debt/Capitalization | 9.4% | 7.6% | 16.3% | 19.8% | 21.4% |
| Total Debt/Total Equity | 33.8% | 34.5% | 38.0% | 46.1% | 49.4% |
| Total Debt/Total Assets | 17.2% | 16.7% | 18.3% | 21.7% | 22.9% |
| Total Debt/EBITDA | 1.5x | 1.2x | 1.5x | 2.0x | 2.3x |
| Net Debt/EBITDA | 0.6x | 0.4x | 0.9x | 1.3x | 1.5x |
| EBITDA/Gross Interest | 16.8x | 20.1x | 16.1x | 14.5x | 14.2x |
| EBITDA Margin | 9.5% | 9.4% | 7.0% | 6.8% | 5.9% |
CreditSight View Comment
AS OF 05 Jun 2025We affirm our Market perform recommendation on Sinopec. A-rated Chinese state-owned enterprises (SOEs), including Sinopec are trading tight due to a lack of new supply and as investors fly to quality amid macro uncertainties in China. We continue to prefer AA-rated Korean quasi-sovereign names for safe carry (like KOROIL, KORGAS, KEPCO) and higher-beta Chinese SOEs for spread pickup.
Recommendation Reviewed: June 05, 2025
Recommendation Changed: May 03, 2021
Who We Recommend
Delta Air Lines
Sultanate of Oman
Korea Electric Power Corp.
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Fundamental View
AS OF 03 Jun 2025AstraZeneca enjoys one of the strongest growth profiles in our coverage universe, reflecting an impressive portfolio of innovative medicines, particularly in Oncology. The addition of Alexion supports AZN’s growth prospects, bringing strong assets in immune-mediated rare diseases.
AZN also enjoys relatively strong diversification, with core sales coming from multiple therapeutic areas and with depth across its Oncology and Biopharma platforms.
AZN’s capital allocation priorities include investment in the business, the pursuit of value-enhancing M&A, and support for the dividend.
Business Description
AS OF 04 Jun 2025- AstraZeneca is a UK-based pharmaceutical company that researches, develops, and manufactures drugs with a focus in (i) Oncology, (ii) Cardiovascular, Renal and Metabolism (CVRM), (iii) Respiratory and Immunology, (iv) Rare Disease, and (v) Vaccines and Immune.
- AstraZeneca operates in five primary segments: Oncology, CVRM (cardiovascular, renal, and metabolism), Respiratory and Immunology, Rare Diseases, and V&I (Vaccines and Immune). AstraZeneca reported FY24 revenues of $54.1 bn, with ~41% from Oncology, ~23% from CVRM, ~15% from Respiratory and Immunology, ~16% from Rare Diseases, and ~3% from Vaccines and Immune.
- In recent years, AstraZeneca has acquired Alexion for ~$39 bn, CinCor for ~$1.8 bn, Fusion for ~$2 bn, Neogene for $320 mn, TeneoTwo for ~$100 mn with future contingent milestone payments of up to $1.1 bn, Gracell for ~$1 bn, Icosavax for ~$800 mn and Amolyt for $800 mn.
Risk & Catalysts
AS OF 03 Jun 2025Given that AZN’s leverage has been largely restored to pre-Alexion levels, we expect limited deliberate improvement from here. However, we expect future shareholder rewards and business development to be managed somewhat conservatively.
AstraZeneca has shown discipline with respect to leverage and capital allocation in recent years. While AstraZeneca pays a relatively aggressive dividend (~32% of LTM FCF), the company has historically been very conservative with share repurchases and has even used share issuance to fund certain acquisitions.
AZN recently lost a patent-infringement lawsuit against Samsung Biologics regarding a biosimilar version of Soliris.
Key Metric
AS OF 03 Jun 2025| $ mn | Y20 | Y21 | Y22 | Y23 | Y24 | LTM 1Q25 |
|---|---|---|---|---|---|---|
| Revenue | 26,617 | 37,417 | 44,351 | 45,811 | 54,073 | 54,982 |
| Gross Profit | 21,318 | 24,980 | 31,960 | 37,543 | 43,866 | 44,752 |
| R&D | (5,991) | (9,736) | (9,762) | (10,935) | (13,583) | (13,959) |
| SG&A | (11,294) | (15,234) | (18,419) | (19,216) | (19,977) | (19,974) |
| Adj. EBITDA | 8,680 | 11,506 | 14,507 | 15,641 | 18,208 | 18,700 |
| Total Debt | 19,699 | 29,794 | 28,279 | 27,494 | 28,843 | 30,095 |
| Gross Leverage | 2.3x | 2.6x | 1.9x | 1.8x | 1.6x | 1.6x |
| Interest Coverage | 11.8x | 16.0x | 17.1x | 14.5x | 13.9x | 13.4x |
CreditSight View Comment
AS OF 27 May 2025We reiterate our Outperform recommendation on AstraZeneca. We would take the spread pickup (~15 bp) offered versus MRK at the belly of the curve. While we acknowledge MRK carries lower net leverage (~0.8x as of 1Q25), the company also has a weaker operating story and faces significantly higher product concentration risks.
Recommendation Reviewed: May 27, 2025
Recommendation Changed: April 01, 2021
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Delta Air Lines
Sultanate of Oman
Korea Electric Power Corp.
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Search topics about wealth insights and investments.SK Hynix Inc.
- Bond: HYUELE 5.5 29
- Indicative Yield-to-Maturity (YTM): 4.59%
- Credit Rating : Baa2/BBB/BBB
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Fundamental View
AS OF 04 Jun 2025Business Description
AS OF 04 Jun 2025- SK Hynix is one of the world’s largest memory semiconductor companies. As an Integrated Device Manufacturer (IDM), it engages in the design, manufacturing and sale of advanced memory semiconductors. It derives 80% of 1Q25 revenues from the sale of DRAM (dynamic random-access memory), 18% from NAND Flash, and the remaining 2% from CMOS Image Sensors and foundry services. The company's products are essential to a wide range of electronic devices, including PCs, servers, graphic cards, and mobile devices.
- SK Hynix holds the largest global market share (1Q25: 36%) in DRAM and second largest in NAND Flash (4Q24: 20.5%).
- SK Hynix is a member of SK Group, South Korea's second largest conglomerate by asset, and is 20.1%-owned by SK Square.
- The company has manufacturing facilities located in (1) South Korea — Icheon (DRAM, NAND), and Cheongju (NAND); and (2) China — Wuxi (DRAM), Dalian (NAND); and packaging & testing facilities in Chongqing, China.
- SK Hynix had a market capitalization of KRW 158.3 tn as of 4 June 2025.
Risk & Catalysts
AS OF 04 Jun 2025- The memory sector is subjected to significant boom/bust cycles, leading to volatility in its revenue and EBITDA margin. During an upcycle, memory vendors typically expand capacity to meet strong end-demand from PC, smartphones, and servers; however, the long-lead time for new plants could result in an oversupply when end-demand is tapering off.
- Capex intensity (as % of revenues) and R&D costs are elevated even in downcycles for SK Hynix, as it needs to maintain technological leadership and fast evolving product requirements from customers.
- SK Hynix has large production and revenue exposure to China; rising US-China tension and restrictive US chip exports to China could destabilize the long-term prospect of its China production and weigh on its $ bonds. Though, in Oct-23 SK Hynix was designated as a “Validated End User” by the US government, which gave it an indefinite waiver for importing US chip gears to their Chinese plants.
- SK Hynix may be vulnerable to US tariff risk; the company derived 73% of 1Q25 revenues from the US.
Key Metric
AS OF 04 Jun 2025| KRW bn | FY21 | FY22 | FY23 | FY24 | LTM 1Q25 |
|---|---|---|---|---|---|
| Debt to Book Cap | 23.5% | 28.1% | 37.8% | 25.6% | 24.2% |
| Net Debt to Book Cap | 13.3% | 21.2% | 27.7% | 11.6% | 11.1% |
| Debt/Total Equity | 30.8% | 39.2% | 60.7% | 34.4% | 31.9% |
| Debt/Total Assets | 19.9% | 23.9% | 32.4% | 21.2% | 21.0% |
| Gross Leverage | 0.8x | 1.2x | 5.8x | 0.7x | 0.6x |
| Net Leverage | 0.5x | 0.9x | 4.3x | 0.3x | 0.3x |
| Interest Coverage | 87.3x | 38.7x | 3.8x | 26.5x | 33.7x |
| EBITDA Margin | 52.8% | 46.2% | 17.1% | 53.8% | 56.6% |
CreditSight View Comment
AS OF 24 Apr 2025Considering SK Hynix’s strong position in the growing semiconductor industry and the HYUELE 5.5 29 bond’s potentially attractive yield-to-maturity for its January 2029 maturity, coupled with investment-grade ratings, it could be a worthwhile purchase now for investors seeking stable income from a major technology player, assuming SK Hynix maintains its financial health.
Recommendation Reviewed: April 24, 2025
Recommendation Changed: February 20, 2025
Who We Recommend
Delta Air Lines
Sultanate of Oman
Korea Electric Power Corp.
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Fundamental View
AS OF 04 Jun 2025IBK benefits from a legally binding solvency guarantee from the Korean government and is viewed as a Korean quasi-sovereign issuer. The bank is listed, but remains majority state-owned. Previous governments had proposed privatizing it, but subsequent governments scrapped these plans. The government intends to keep its stake above 50%, and wants IBK to focus on lending to SMEs and provide earlier stage investment capital.
IBK manages the difficult feat of combining its policy role to support Korean SMEs with performance that compares creditably with Korean commercial banks.
Business Description
AS OF 04 Jun 2025- IBK was established under its own Act in 1961 to assist the development of Korea's small business sector. It claims a 24% market share in SME lending.
- It was listed in the early 1990s, but was re-nationalised following heavy losses in the Asian economic crisis of the late 1990s. It was re-listed in 2003, and is majority owned by the government which holds 59.5%; the National Pension Scheme holds 5.6%, and other policy banks have small stakes (7.2% by Korea Development Bank and 1.8% by the Export-Import Bank of Korea).
- Under Article 43 of the IBK Act, if the bank incurs losses they should be set against its reserves and "if the reserves are not sufficient the Government shall assume the remaining loss". Although this is a solvency guarantee and not an explicit guarantee for the timely payment of debts, we believe the Korean government will ensure IBK is in a position to make such timely payments.
Risk & Catalysts
AS OF 04 Jun 2025The bank’s ratings are closely tied to the Korean sovereign’s ratings due to its quasi-sovereign status.
Its ratings and its default risk should therefore not be impacted by any deterioration in its financials, provided the government continues to inject new capital when needed, which it is expected to.
Its policy mandate requires it to use at least 70% of its funding for SMEs. Risks are mitigated by its granular SME exposures which are more than 80% secured, including guarantee from state-owned credit guarantee agencies. Korean governments have also always been quick to provide support including capital injections to IBK when needed, with the most recent injection of KRW 1.3 tn during the COVID.
Key Metric
AS OF 04 Jun 2025| KRW bn | FY21 | FY22 | FY23 | FY24 | 1Q25 |
|---|---|---|---|---|---|
| Pre-Provision Operating Profit / Average Assets | 1.30% | 1.49% | 1.59% | 1.39% | 1.33% |
| ROAA | 0.6% | 0.6% | 0.6% | 0.6% | 0.7% |
| ROAE | 9.2% | 9.5% | 8.8% | 8.1% | 9.6% |
| Provisions/Average Loans | 0.34% | 0.50% | 0.67% | 0.52% | 0.37% |
| Nonperforming Loans/Total Loans | 0.85% | 0.85% | 1.05% | 1.34% | 1.34% |
| CET1 Ratio | 11.3% | 11.1% | 11.3% | 11.3% | 11.4% |
| Total Equity/Total Assets | 6.92% | 6.79% | 7.10% | 7.25% | 7.10% |
| NIM | 1.51% | 1.78% | 1.79% | 1.70% | 1.63% |
CreditSight View Comment
AS OF 16 Jun 2025IBK is not wholly government owned – 59.5% direct government ownership, 7.2% KDB and 1.8% KEXIM – but is a policy bank benefiting from a Korean government solvency guarantee. For a policy bank it also has a fairly good track record and manages the difficult feat of combining its policy role to support Korean SMEs with performance that compares creditably with Korean commercial banks. As the leading lender to Korea’s medium and small businesses, IBK plays a key role in the country’s economy, enhanced by the longstanding objective of numerous administrations to achieve a more diversified economy less reliant on the “chaebol”. Successive Korean governments have always been quick to provide support including capital injections to the policy banks when needed.
Recommendation Reviewed: June 16, 2025
Recommendation Changed: March 17, 2017
Who We Recommend
Delta Air Lines
Sultanate of Oman
Korea Electric Power Corp.
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Fundamental View
AS OF 29 May 2025PLN enjoys extremely strong ties with the Government of Indonesia (GoI) given its critical policy role of electrifying the nation. Post the launch of Indonesia’s sovereign wealth fund Danantara, PLN is now indirectly owned by the GoI through Danantara.
PLN delivered a robust set of FY24 results, with total revenue and EBITDA up 7% and 18% YoY respectively driven by resilient power demand across Indonesia
Looking ahead, we expect PLN’s credit metrics to improve in FY25 supported by higher YoY EBITDA, though partially weighed upon by higher capex; we anticipate FY25 EBITDA growth to be in the mid to high single-digit % YoY, mainly attributable to Indonesia’s healthy economic growth, supporting power demand; we also expect power tariffs to remain flat.
Business Description
AS OF 29 May 2025- PLN is involved in the entire electricity value-chain, from power generation, to transmission, distribution and retail.
- It alone accounts for 76% (~47 GW) of Indonesia's generation capacity (of which 8 GW is renewable capacity), while IPPs provide the remainder.
- The company controls and operates the entire transmission and distribution network in the country. It is the sole buyer of electricity produced by IPPs, through power purchase agreements (PPAs).
- It sells electricity to well-diversified off-takers – 41% to households, 25% to industrial customers, 21% to businesses and 12% to others.
- Since 2015, the GoI has gradually implemented monthly tariff adjustments for 13 customer groups, so that rates charged to customers are better matched with production costs.
- However, under the Public Service Obligation (PSO), the company will continue to sell electricity at subsidized rates of 50% to 450-volt amperes (VA) power households and 25% to 900 VA power households. The GoI subsequently reimburses the company for the difference between the subsidized tariff rate and production cost, typically within 2-3 months.
Risk & Catalysts
AS OF 29 May 2025The company provides subsidized electricity to certain households for which it subsequently receives reimbursements from the GoI; though these payments tend to get delayed during major events such as COVID-19 pandemic.
In order to increase the country’s electrification ratio to 97%, the company had been mandated by the GoI to develop large electricity capacities through the Fast Track II and 35,000 MW Programs. Implementation of such complex programs has required significant capital expenditure, which has led PLN’s FCF to fall deep into the red in recent years and created a funding gap.
The success of the above programs is also contingent on the company’s ability to source coal cheaply, select quality contractors, acquire land rights and receive adequate subsidy reimbursements from the GoI.
Being primarily a thermal power producer, PLN may be viewed unfavourably from an ESG perspective.
Key Metric
AS OF 29 May 2025| IDR bn | FY20 | FY21 | FY22 | FY23 | FY24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 32.2% | 29.7% | 28.9% | 27.8% | 27.3% |
| Net Debt to Book Cap | 28.2% | 26.9% | 25.2% | 23.7% | 23.0% |
| Debt/Total Equity | 47.4% | 42.2% | 40.7% | 38.5% | 37.5% |
| Debt/Total Assets | 28.1% | 25.7% | 24.6% | 23.4% | 22.5% |
| Gross Leverage | 5.5x | 5.0x | 4.2x | 4.3x | 3.7x |
| Net Leverage | 4.8x | 4.6x | 3.7x | 3.7x | 3.1x |
| Interest Coverage | 2.5x | 3.2x | 4.3x | 3.6x | 3.7x |
| EBITDA Margin | 29.0% | 28.0% | 30.1% | 26.4% | 29.1% |
CreditSight View Comment
AS OF 28 May 2025We have a M/P on PLN and prefer its 2042-2050s. While we think PLN’s shorter-dated is trading slightly tighter than our FV, we do not think the widening potential of its shorter dated is sufficient to warrant an Underperform. Overall, we remain comfortable with PLN’s resilient credit profile supported by healthy domestic power demand, good insulation from input cost volatility and strong state-ownership. While there were concerns of the GoI demonopolizing the power sector, we think PLN’s monopoly is likely to stay after President Prabowo reportedly abandoned plans to allow customers to purchase clean electricity directly from renewable energy developers. That said, we think PLN continue to face higher coal-related ESG risk and elevated capex plans that could weigh on its credit metrics.
Recommendation Reviewed: May 28, 2025
Recommendation Changed: December 06, 2024
Who We Recommend
Delta Air Lines
Sultanate of Oman
Korea Electric Power Corp.
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Fundamental View
AS OF 28 May 2025As one of the world’s largest beverage companies KO operates across a diverse geographic footprint and generates stable and robust free cash flow. Management has expressed support for the high-A ratings profile and targets net leverage of 2-2.5x.
MRQ leverage was below targeted levels to maintain flexibility around a pending tax liability case and earn out payments for Fairlife. The court recently levied a judgment of $6.0 bn against KO, although the case has moved on to the appeals process.
We see a path for KO to maintain stable ratings through the litigation, and note that proceeds from a planned IPO of the company’s African bottling group could help address the liability.
Business Description
AS OF 28 May 2025- KO is the world's largest beverage company, owning, licensing, and marketing numerous brands in over 200 countries worldwide. It has 4 of the world's top 5 nonalcoholic sparkling beverage brands: Coca-Cola, Diet Coke, Fanta and Sprite.
- KO distributes its product through independent and company-controlled bottling distribution operations. KO largely refranchised its wholly-owned bottlers, selling the operations to independent bottlers. This strategy reduced capital intensity and expanded margins.
- KO has two primary businesses: Beverage Concentrates (59% of revenue) and Finished Sparkling & Still Beverages (41% of revenue). KO uses unit case volume growth and concentrate sales volume to evaluate performance.
- In 2024, the Coca-Cola system sold 33.7 bn unit cases of products worldwide, comprised of 69% from sparkling beverages and 47% from trademark Coca-Cola. The system has broad international exposure, with 84% of unit case volume generated outside the U.S.
Risk & Catalysts
AS OF 28 May 2025The unfavorable U.S. tax ruling could still result in some leverage creep depending on the ultimate outcome. KO is appealing the ruling, and we expect recent sales growth and proceeds from the planned IPO of the African bottling operations will mitigate the impact of any eventual penalty on the credit profile.
KO has a $6+ bn earn-out payment in 2025 related to the Fairlife acquisition, which will likely bring KO to the new issue market.
Management has expressed interest in expanding its presence over time in the alcoholic beverage category, although to this point the company has limited its involvement to licensing arrangements for its soft drink brands with large-scale brewers and distillers.
Key Metric
AS OF 28 May 2025| $ mn | Y21 | Y22 | Y23 | Y24 | LTM 1Q25 |
|---|---|---|---|---|---|
| Revenue | 38,658 | 43,046 | 45,784 | 46,897 | 46,708 |
| EBITDA | 12,898 | 13,961 | 14,719 | 15,446 | 15,480 |
| EBITDA Margin | 33.4% | 32.4% | 32.1% | 32.9% | 33.1% |
| EBITDA-CAPEX-INT % of Revenues | 27.9% | 26.9% | 24.8% | 25.0% | 25.3% |
| Total Debt | 42,761 | 39,149 | 42,064 | 44,522 | 48,948 |
| Net Debt | 31,835 | 28,587 | 29,701 | 31,674 | 36,952 |
| Net Leverage | 2.5x | 2.0x | 2.0x | 2.1x | 2.4x |
| EV / EBITDA | 22.4x | 21.8x | 19.4x | 19.5x | 22.3x |
CreditSight View Comment
AS OF 19 Mar 2025We recently upgraded our view on KO from Market perform to Outperform to confer a slight preference for the credit over its high-A beverage peer, PepsiCo, at similar levels. We view both credits as core holds, but our updated view reflects increased comfort with KO’s ability to navigate an expected tax liabilities related to U.S. Tax Court litigation, as well as earnout payments related to the Fairlife acquisition. KO has reported steady organic growth led by continued pricing benefits and stable consumption trends across its portfolio of soft drinks. Management guides to a net leverage target of 2-2.5x and we expect the company to maintain metrics in that range over the medium term.
Recommendation Reviewed: March 19, 2025
Recommendation Changed: January 16, 2025
Who We Recommend
Delta Air Lines
Sultanate of Oman
Korea Electric Power Corp.