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Fundamental View
AS OF 17 Sep 2024Petronas’ FY23 and 1H24 credit metrics remained resilient even as EBITDA fell as we had expected.
Despite the modestly lower YoY outlook for O&G price realizations in 2H24, we expect Petronas’ credit profile to remain resilient in FY24 and maintain its net cash position, aided by resilient domestic demand and still-positive FCFs.
We take comfort in Petronas’ strong support from the Government of Malaysia, given it is strategically vested with Malaysia’s entire oil & gas resources and provides a substantial source of government income.
Sizable O&G and renewable capex and high dividend payouts could restrain improvements in Petronas’ credit metrics and free cash flows.
Business Description
AS OF 17 Sep 2024- Petronas is an integrated oil and gas company, wholly owned and controlled by the Government of Malaysia.
- Its activities span the entire up/mid/downstream value chain both domestically and internationally. Key products and services provided include the sale and marketing of petroleum products, crude oil and condensates, LNG, natural and processed gas, petrochemicals, shipping services, property development and automotive engineering.
- Petronas carries out its exploration, development and production activities via production sharing contracts (“PSCs”), mostly with international O&G companies and Petronas' wholly-owned subsidiaries.
- Its Downstream segment is aimed at refining, supplying, trading, manufacturing and marketing of crude oil, petroleum products, and petrochemical products. Its key projects and factories include Pengerang Integrated Complex (PIC), Sabah Ammonia Urea in Sabah, and Integrated Aroma Ingredients Complex in Gebeng, Kuantan.
- Its Gas and New Energy division was set up in FY19 and groups all of Petronas' LNG, gas and renewable revenues into a single segment. Activities within this division include production of LNG, processing and transportation of gas and solar power production.
- Its 6 listed subsidiaries include MISC Berhad (57.56%), KLCC Property (75.46%), Petronas Chemicals Group Berhad (64.35%), Petronas Gas Berhad (51%), Petronas Dagangan Berhad (63.94%), and Bintulu Port Holdings Berhad (28.52%).
Risk & Catalysts
AS OF 17 Sep 2024Broad growth slowdown concerns could hamper sales of Petronas’ Downstream (petroleum products) and Gas & New Energy (LNG and natural gas) segments.
Prolonged periods of low crude oil prices could harm upstream O&G EBITDA (which typically contributes 50%-70% of total profit after tax), albeit mitigated partly by stronger downstream O&G EBITDA.
Sizable capex on domestic O&G and renewable energy ventures could restrain improvements in Petronas’ credit metrics and free cash flows.
Petronas is regularly required to pay dividends to the Government of Malaysia, which may weigh on its cash flows.
We remain watchful of how the dispute between Petronas and Sarawak state government unfolds, its impact on Petronas’ financials and its market position in the Malaysian O&G sector.
Key Metric
AS OF 17 Sep 2024| MYR mn | FY21 | FY22 | FY23 | 1H23 | 1H24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 21.1% | 18.4% | 18.2% | 19.1% | 18.6% |
| Net Debt to Book Cap | n/m | n/m | n/m | n/m | n/m |
| Debt/Total Equity | 26.7% | 22.6% | 22.2% | 23.6% | 22.8% |
| Debt/Total Assets | 17.0% | 14.7% | 14.4% | 14.9% | 14.3% |
| Gross Leverage | 1.1x | 0.6x | 0.8x | 0.7x | 0.8x |
| Net Leverage | n/m | n/m | n/m | n/m | n/m |
| Interest Coverage | 20.9x | 33.9x | 24.9x | 31.2x | 25.5x |
| EBITDA Margin | 45.2% | 50.7% | 44.8% | 46.0% | 44.1% |
CreditSight View Comment
AS OF 17 Sep 2024We have a Market perform recommendation on Petronas. We see current spread differential of Petronas’ bonds against Pertamina’s bonds as fair. We think Petronas’ larger EBITDA, net cash position vs. Pertamina’s net leverage position and more regular/transparent financial reporting negates Indonesia’s relatively stronger FY24E GDP growth. The Petronas vs. Sarawak state dispute is an evolving issue, and we remain watchful of any major adverse outcome to revisit our recommendation. Despite the modestly lower YoY outlook for O&G price realizations in 2H24, we expect Petronas’ credit profile to remain resilient in FY24 and maintain its net cash position, aided by resilient domestic demand and still-positive FCFs. We also like its strong state-linkage to the Malaysian government.
Recommendation Reviewed: September 17, 2024
Recommendation Changed: September 07, 2020
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Fundamental View
AS OF 06 Sep 2024IBK 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 Sep 2024- IBK was established under its own Act in 1961 to assist the development of Korea's small business sector. It claims a 23% 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 07 Jan 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 Sep 2024| KRW bn | FY20 | FY21 | FY22 | FY23 | 1H24 |
|---|---|---|---|---|---|
| Pre-Provision Operating Profit / Average Assets | 1.33% | 1.30% | 1.49% | 1.59% | 2.78% |
| ROAA | 0.5% | 0.6% | 0.6% | 0.6% | 0.6% |
| ROAE | 6.4% | 9.2% | 9.5% | 8.8% | 8.7% |
| Provisions/Average Loans | 0.60% | 0.34% | 0.50% | 0.67% | 1.03% |
| Nonperforming Loans/Total Loans | 1.08% | 0.85% | 0.85% | 1.05% | 1.30% |
| CET1 Ratio | 11.1% | 11.3% | 11.1% | 11.3% | 11.6% |
| Total Equity/Total Assets | 6.95% | 6.92% | 6.79% | 7.10% | 7.06% |
| NIM | 1.55% | 1.51% | 1.78% | 1.79% | 1.73% |
CreditSight View Comment
AS OF 23 Sep 2024IBK 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: September 23, 2024
Recommendation Changed: March 17, 2017
Who We Recommend
Mizuho Financial Group
KB Financial Group
Woori Financial Group
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Search topics about wealth insights and investments.San Miguel Corporation
- Sector: Manufacturing
- Sub Sector: Diversified Conglomerates
- Country: Philippines
- Region: Philippines
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Fundamental View
AS OF 20 Aug 2024- SMC’s FY23 and 1H24 credit metrics and EBITDA improved as we had expected from resilient broad demand recovery, lower power and O&G input costs, and good cost control measures.
- We are comfortable with SMC’s large diversified operations and dominant market share in key sectors, which could outweigh its high airport and infrastructure capex.
- We remain concerned about non-call risk for SMC GP’s c.2026 perps amid SMC GP’s firmly negative free cash flows and expectations that parental support could be unsustainable in the medium-to-long term. We see low non-call risk for the SMC c.2025 perp.
Business Description
AS OF 20 Aug 2024- SMC is a massive conglomerate in the Philippines with business interests across six business segments: Food & Beverage (F&B), fuel refining and retailing, power, packaging, infrastructure, and others.
- Its F&B business is operated through San Miguel Food & Beverage, the largest F&B company in the Philippines with three main divisions: Beer and Non-alcoholic Beverage (including beers and juices), Spirits (gin and Chinese wine), and Food (including packaged foods, animal feeds, poultry and fresh meats).
- SMC’s fuel refining and retailing business is operated through Petron Corporation (~68% stake), the largest oil refining and retailing company in the Philippines, and one of the largest in Malaysia. Petron has a total refining capacity of ~268k barrels/day.
- SMC’s power business is operated through SMC Global Power Holdings (SMC GP, 100% stake), one of the largest power generating companies in the Philippines. It maintains a diversified portfolio across coal (62%), natural gas (26%), and renewable energy (12%) sources.
- Through its packaging business, it manufactures glass containers, plastic crates, pellets, bottles and caps, aluminium cans, and other types of packaging products.
- It operates its Infrastructure business through San Miguel Holdings Corp (SMHC), in which it holds a 100% stake. It currently operates ~190 km of toll roads in the country, connecting high-traffic, arterial routes in Luzon.
Risk & Catalysts
AS OF 20 Aug 2024- SMC’s revenues are concentrated in the Philippines (~80%), which poses geographical concentration risk.
- SMC incurs significant capex, particularly in its power/energy and infrastructure businesses. In October 2020, SMC began construction of the mega New Manila International Airport (requires ~PHP 750 bn of capex spread over 5-7 years). This could keep SMC’s credit metrics elevated and free cash flows in negative territory.
- As a holding company, SMC is reliant on dividend upstreaming from its operating subsidiaries to service its debt, which can be difficult should the operating subsidiaries face cash flow difficulties. We are particularly concerned about SMC GP’s weak financial profile and extension/refinancing uncertainties of its $3.3 bn perpetuals that are first callable from 2024-2026.
- SMC operates in the businesses of thermal power generation and fuel refining, which may be looked at unfavourably by some ESG-focused investors.
Key Metric
AS OF 20 Aug 2024| PHP bn | FY21 | FY22 | FY23 | 1H23 | 1H24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 66.4% | 72.3% | 71.6% | 72.1% | 72.7% |
| Net Debt to Book Cap | 51.7% | 58.5% | 60.4% | 60.6% | 62.1% |
| Debt/Total Equity | 197.9% | 261.3% | 251.9% | 258.6% | 266.5% |
| Debt/Total Assets | 65.7% | 69.8% | 68.1% | 69.2% | 68.3% |
| Gross Leverage | 8.1x | 9.1x | 8.4x | 8.7x | 8.0x |
| Net Leverage | 6.3x | 7.4x | 7.1x | 7.3x | 6.9x |
| Interest Coverage | 3.1x | 2.8x | 2.1x | 2.2x | 2.2x |
| EBITDA Margin | 17.6% | 12.2% | 13.8% | 12.4% | 12.9% |
CreditSight View Comment
AS OF 20 Aug 2024We have a Market perform recommendation on SMC and its sole c.Jul-25 $ perp; we see limited extension risk for SMC’s perp, yet we don’t see much price upside from current levels. SMC’s c.Jul-2025 trades 131 bp wider than Ayala Corp’s c.Sep-2026, which we think is fair given SMC’s worse liquidity position and persisting extension/refinancing risk of subsidiary SMC GP’s perps (notably the c.2026s) that negate SMC’s larger scale of EBITDA and stronger net leverage. We like SMC’s dominant market position in multiple sectors, long operating track record and diversified operations. Yet it incurs sizable airport and infrastructure capex that would likely keep its credit metrics elevated and free cash flows negative. Meanwhile, we remain watchful of SMC’s ability to support SMC GP past 2025.
Recommendation Reviewed: August 20, 2024
Recommendation Changed: April 05, 2023
Who We Recommend
Mizuho Financial Group
KB Financial Group
Woori Financial Group
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Search topics about wealth insights and investments.T-Mobile US
- Sector: Technology Media and Telecommunications
- Sub Sector: Telecommunications
- Region: US
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Fundamental View
AS OF 19 Aug 2024We expect T-Mobile will maintain its position as the industry leader in postpaid phone net additions, service revenue, EBITDA and FCF growth in 2024. We think the company has significant subscriber runway remaining in the suburban/rural and enterprise markets.
Adjusted net leverage (2.5x at 2Q24) is nearly half a turn lower than AT&T and Verizon. Relatively strong EBITDA growth and a modest dividend commitment results in greater financial flexibility than peers.
T-Mobile benefits from the strongest spectrum position in the industry, including an average of 181 MHz in the 2.5 GHz band, which results in better 5G network coverage than AT&T and Verizon.
Business Description
AS OF 19 Aug 2024- TMUS is the one of the top 3 U.S. wireless carriers and is owned ~50% by Deutsche Telekom (DT). On April 1, 2020, TMUS and S completed an all-stock merger, valuing S at an EV of approximately $59.7 bn.
- TMUS ended 2Q24 with ~126 mn customers, including 101 mn postpaid and 25 mn prepaid.
- TMUS reaches 330+mn POPs with its Extended Range 5G network (using the 600 MHz spectrum) and reaches 300mn customers with its Ultra Capacity 5G.
Risk & Catalysts
AS OF 19 Aug 2024With T-Mobile’s credit rating now comfortably in the mid-BBB area and leverage in the vicinity of the group’s mid-2x target area, we expect the company’s capital allocation to shift toward share buybacks.
The company has not shied away from acquisitions. T-Mobile recently acquired Mint Mobile and announced deals for US Cellular and two FTTH JVs (Lumos and MetroNet). So far, M&A has not had much impact on T-Mobile’s credit metrics, but further moves into FTTH may be received poorly by investors.
Converged wireless/broadband offers from cable operators raises the risk of pricing pressure in the mature consumer wireless market.
Key Metric
AS OF 19 Aug 2024| FY20 | FY21 | FY22 | FY23 | LTM 2Q24 | |
|---|---|---|---|---|---|
| Revenue | 68,397 | 80,118 | 79,571 | 78,558 | 79,096 |
| Organic Revenue Growth | 5.8% | 7.3% | (0.7%) | (1.3%) | 74.6% |
| EBITDA | 24,557 | 26,924 | 27,821 | 29,428 | 30,529 |
| Adj. EBITDA Growth | 4.3% | (64.0%) | 33.9% | 5.8% | 7.2% |
| Adj. EBITDA Margin | 35.9% | 33.6% | 35.0% | 37.5% | 38.6% |
| CapEx % of Sales | 16.1% | 15.4% | 17.6% | 12.5% | 12.3% |
| Total Debt | 76,660 | 79,574 | 78,425 | 83,586 | 83,676 |
| Net Debt | 66,275 | 72,943 | 73,918 | 78,451 | 77,259 |
| Gross Leverage | 3.5x | 3.4x | 3.0x | 2.9x | 2.8x |
| Net Leverage | 2.7x | 2.7x | 2.7x | 2.7x | 2.5x |
| Interest Coverage | 9.0x | 7.2x | 8.0x | 8.3x | 4.9x |
| FCF as % of Debt | 14.1% | 13.7% | 13.2% | 19.2% | 8.8% |
CreditSight View Comment
AS OF 20 Dec 2024We expect TMUS will once again lead the Big 3 in major KPIs in 2025, including ~5% EBITDA growth. We view earnings/growth visibility as higher than peers, with the outlook supported by its leading 5G mid-band coverage (over 300 million PoPs with ~200 MHz) and historical under-penetration in rural and enterprise markets. T-Mobile also boasts the lowest leverage (~2.3x) and strongest FCF/debt ratio amongst the Wireless Big 3, while its rising FCF generation and comparatively low dividend commitment provide flexibility for selective M&A. Despite the rising focus on convergence, we believe TMUS will stick with its off-balance sheet strategy for FTTH JVs and view the risk of a transformational broadband acquisition (ILEC or cable) as extremely low.
Recommendation Reviewed: December 20, 2024
Recommendation Changed: March 18, 2021
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Mizuho Financial Group
KB Financial Group
Woori Financial Group
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Fundamental View
AS OF 15 Aug 2024- The company experienced model year changeover issues in North America and Japan. These issues were exacerbated in the U.S. by excess inventories of 2023 model year Rogue vehicles and the company has increased sales incentives to reduce inventories by the end of F2Q24 to make way for 2024 model year vehicles at higher prices. Management raised its FY24 revenue guidance on projected incremental currency benefits but lowered its production and sales volume targets along with its profit guidance. It now expects FY24 consolidated operating profit to decline YoY compared to its previous expectation for profit growth. The company’s lowered production volume and sales targets further delay its goal of improving fixed cost absorption, a key component to improving its automotive operating margins.
Business Description
AS OF 15 Aug 2024- Nissan, with headquarters in Yokohama, Japan, is a leading global automotive manufacturer with a market presence in many countries around the globe. The company’s growth investments are focused primarily on Japan, North America, and China, core markets with large profit pools in which Nissan has a meaningful market share. The company’s business in China is conducted through a joint venture with Dongfeng Motor Corporation.
- Nissan’s Sales Financing segment supports the sale of its vehicles by providing financing solutions to its customers and dealers. To enhance their creditworthiness, Nissan maintains keepwell (support) agreements with its wholly owned financial subsidiaries including Nissan Motor Acceptance Corporation (NMAC) in the United States and Nissan Financial Services (NFS) in Japan.
- The Renault-Nissan-Mitsubishi Alliance was established in 1999 to enhance member company scale in product development and raw material purchasing. The alliance includes equity participation, which led to Nissan holding ownership stakes in Renault (15% non-voting) and Mitsubishi (34%) and Renault holding an ownership stake in Nissan (43%). The Alliance’s automobile production volume is the third largest globally behind Toyota and Volkswagen.
Risk & Catalysts
AS OF 15 Aug 2024- Based on the challenges the company experienced in F1Q24, management lowered its targets for FY24 production volume and retail sales. It now expects FY24 production growth of 1%, down from 2% previously, while it lowered its target for FY24 retail sales growth to 6% from 7% previously. Sales excluding China are projected to increase 9% YoY, while sales in China are projected to decline 3%. The company continues to target North America as its highest retail sales growth market in FY24, with projected growth of 12%, down from its previous target of 13%.
- Nissan raised its FY24 guidance for revenue but lowered its outlook for consolidated operating profit and net income. Management now expects FY24 revenue growth of 10%, up from 7% previously, based on incremental currency tailwinds related primarily to a strong dollar. Consolidated operating profit is now forecast to decline 12% YoY, down from its previous expectation for 6% YoY growth, owing primarily to pricing and sales incentive actions taken in the first quarter to clear inventory along with 2024 model year changeover delays.
Key Metric
AS OF 15 Aug 2024| ? bn | FY20 | FY21 | FY22 | FY23 | LTM F1Q24 |
|---|---|---|---|---|---|
| Revenue | 6,843 | 7,393 | 9,573 | 11,524 | 11,570 |
| EBIT | (471) | (42) | 242 | 409 | 331 |
| EBIT Margin | (7%) | (1%) | 3% | 4% | (0%) |
| EBITDA | (201) | 247 | 559 | 760 | 692 |
| EBITDA Margin | (2.9%) | 3.3% | 5.8% | 6.6% | 3.4% |
| Total Liquidity | 4,096 | 3,601 | 3,658 | 4,196 | 3,696 |
| Net Debt | (636) | (728) | (1,213) | (1,546) | (1,404) |
| Total Debt | 1,260 | 973 | 687 | 468 | 191 |
| Gross Leverage | 8.3x | 3.9x | 1.2x | 0.6x | 0.3x |
| Net Leverage | -1.2x | -2.9x | -2.2x | -2.0x | -2.0x |
CreditSight View Comment
AS OF 07 Oct 2024We maintain our Market perform recommendation on notes of Nissan (NSANY: Baa3/BB+/BBB-; S/S/S) and Nissan Motor Acceptance Corp. (NMAC) based on recent weak operating performance, a challenging second quarter outlook, and our view its credit rating will not likely be upgrade by S&P in the near term, partially offset by relative value.
Recommendation Reviewed: October 07, 2024
Recommendation Changed: May 10, 2024
Who We Recommend
Mizuho Financial Group
KB Financial Group
Woori Financial Group
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Search topics about wealth insights and investments.The Export-Import Bank of Korea
- Sector: Financial Services
- Sub Sector: Banks
- Region: Korea
- Bond: EIBKOR 5.125 33
- Indicative Yield-to-Maturity (YTM): 4.55%
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Fundamental View
AS OF 14 Aug 2024- KEXIM is a pure policy bank that is directly and indirectly wholly owned by the government of the Republic of Korea, which is obliged under Article 37 of the Export-Import Bank of Korea Act to fund any losses that cannot be covered by the bank’s reserves.
- While this is a solvency guarantee and does not explicitly guarantee the timely repayment of debt, we view it as inconceivable that the Korean authorities would fail to provide KEXIM with support in a timely manner, should this be needed, given its crucial policy role and close government links.
Business Description
AS OF 14 Aug 2024- KEXIM was set up in 1976 to support Korean companies in their overseas business through export credit guarantee programs, as well as providing finance for imports and for overseas investment. It provides funding for both short term trade and long term investment, and manages two government-entrusted funds: the Economic Development Cooperation Fund (EDCF), a Korean official development assistance program, and the Inter-Korean Cooperation Fund (IKCF), an economic cooperation program to promote exchanges with North Korea. It is also a conduit through which the government doled out COVID-19 assistance to affected companies.
- Till 2030, KEXIM aims to preferentially focus on seven sectors (hydrogen energy, wind and solar power, rechargeable battery and energy storage systems (ESS), future mobility, 5G and next-generation semiconductors, pharmaceutical and healthcare, and digital technology and cultural content) which are considered new growth drivers of the Korean economy. It has historically focused on the shipbuilding and engineering & construction industries.
- KEXIM is 100% owned by the Korean government: 73% directly and the remainder through stakes held by the Bank of Korea (8%) and Korea Development Bank (19%). In contrast to peer policy banks IBK and KDB, KEXIM has remained more consistently a policy bank but its role has been adjusted to ensure it complements rather than competes with the Korean commercial banks.
Risk & Catalysts
AS OF 07 Jan 2025Previous Korean governments have made moves to privatise the other policy banks, but KEXIM has retained its policy bank role and government ownership, which are not likely to change.
Korea’s shipbuilders have long been the largest users of KEXIM’s services. Losses on exposure to the sector, in particular Daewoo Shipbuilding (DSME), pushed KEXIM into the red in 2016 but the government injected capital and its condition has recovered.
Together with KDB, KEXIM has played a key role in helping corporate Korea survive the COVID-19 induced crisis.
Key Metric
AS OF 14 Aug 2024| KRW bn | FY19 | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|---|
| Pre-Impairment Operating Profit / Average Assets | 1.3% | 1.2% | 1.1% | 1.1% | 1.1% |
| ROAA | 0.5% | 0.1% | 0.5% | 0.4% | 0.6% |
| ROAE | 3.2% | 0.7% | 3.2% | 2.7% | 4.7% |
| Provisions/Average Loans | 0.5% | 1.2% | 0.5% | 0.8% | 0.3% |
| Nonperforming Loans/Total Loans | 2.4% | 1.8% | 1.9% | 1.2% | 0.7% |
| CET1 Ratio | 12.9% | 13.4% | 13.3% | 11.8% | 13.0% |
| Total Equity/Total Assets | 14.9% | 14.8% | 15.1% | 12.6% | 14.3% |
| Net Interest Margin (NIR/Ave Assets) | 1.0% | 0.9% | 0.9% | 0.9% | 0.7% |
CreditSight View Comment
AS OF 07 Jan 2025KEXIM is a wholly government owned policy bank benefiting from a Korean government solvency guarantee. It plays a key role in financing large-ticket exports in particular ships and large-scale overseas engineering projects. Its credit exposures include some industry and borrower concentrations especially to Korea’s shipbuilders and its financial performance has at times suffered. But the Korean government has always acted in a timely manner to endure its solvency, and with this strong backing we view it as a sound credit. We view its secondary levels as in line with where we would expect it to trade, and so continue with our Market perform recommendation.
Recommendation Reviewed: January 07, 2025
Recommendation Changed: September 22, 2020
Who We Recommend
Mizuho Financial Group
KB Financial Group
Woori Financial Group
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Search topics about wealth insights and investments.Meta Platforms
- Sector: TechnologyTechnology Media and Telecommunications
- Sub Sector: Technology
- Country: US
- Bond: META 4.95 33
- Indicative Yield-to-Maturity (YTM): 4.95%
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Fundamental View
AS OF 30 Dec 2024Meta has extremely strong credit metrics of 0.3x gross leverage (pro forma for $10.5 bn bond deal) and $40 bn net cash. We are encouraged by Meta’s strong advertising growth relative to peers. However, Meta is going through a heavy investment cycle for both AI and the metaverse.
We continue to expect Meta to be a regular/annual issuer to fund its shareholder returns and massive investments. Longer term, we expect Meta to adhere to its previously communicated financial policy of maintaining a positive or neutral cash balance. Meta has legal and regulatory risks notably an FTC suit that seeks to unwind its prior acquisitions of Instagram and WhatsApp.
Business Description
AS OF 13 Aug 2024- Meta Platforms is the largest social networking company in the world. Meta generates substantially all of its revenue from advertising which includes Facebook, Instagram, Messenger, and third-party affiliated websites or mobile applications.
- In 2Q24, Family of Apps was 99% of revenue (98.1% from advertising and 0.9% from other) and Reality Labs was 1% of revenue. Reality Labs generated $16.7 bn in operating losses during LTM 2Q24 as the company is investing heavily in the metaverse.
- There are 3.27 bn Family Daily Active People (DAP) as of 2Q24, and the Family Average Revenue per Person (ARPP) was $11.89 quarterly in 2Q24. While US & Canada have the lowest number of users, they generate higher revenue than other regions given significantly higher ARPU. Revenue was 43% from US & Canada, 24% from Europe, 20% from Asia Pacific, and 13% from Rest of World in 2Q24.
- Meta is headquartered in Menlo Park, California. Employee headcount was 70.8k at 2Q24.
Risk & Catalysts
AS OF 13 Aug 2024- In December 2020, the FTC filed a lawsuit against Meta targeting its acquisitions of Instagram and Whatsapp. If Meta is forced to unwind prior acquisitions, this would be a credit negative given reduced scale and diversification.
- Meta’s business model relies almost entirely on user-generated content. As such, there are risks related to customer privacy (e.g., Cambridge Analytica data scandal in 2018) and regulatory changes (e.g., Section 230 protections).
- In April 2024, the US signed into law a bill requiring a sale or ban of TikTok, although we expect legal challenges. If a ban is implemented, this would positively impact Meta and others with competing short-form video products.
- In October 2022, activist Altimeter Capital wrote a letter to Zuck and Board although it was on the friendly-side of activism and some suggestions have already been implemented.
Key Metric
AS OF 13 Aug 2024| $ mn | 2020 | 2021 | 2022 | 2023 | LTM 2Q24 |
|---|---|---|---|---|---|
| Revenue YoY % | 21.6% | 37.2% | (1.1%) | 15.7% | 24.3% |
| EBITDA | 46,069 | 63,882 | 49,622 | 71,955 | 86,932 |
| EBITDA Margin | 53.6% | 54.2% | 42.6% | 53.3% | 58.0% |
| CapEx % of Sales | 18.3% | 16.3% | 27.5% | 20.8% | 19.9% |
| Sh. Ret. % of CFO-CapEx | 27% | 116% | 152% | 46% | 69% |
| Net Debt | (61,954) | (47,998) | (30,815) | (47,018) | (39,691) |
| Gross Leverage | 0.0x | 0.0x | 0.2x | 0.3x | 0.2x |
| EV / EBITDA | 15.8x | 14.0x | 5.8x | 12.3x | 14.7x |
CreditSight View Comment
AS OF 30 Dec 2024Meta has extremely strong credit metrics of 0.3x gross leverage and $42 bn net cash. We are encouraged by Meta’s strong advertising growth relative to peers in 2023 and YTD 2024, and its technical innovation across its products and AI initiatives. We continue to expect Meta to be a regular/annual issuer to fund its shareholder returns and massive investments in AI and the metaverse. Longer term, we expect Meta to adhere to its previously communicated financial policy of maintaining a positive or neutral cash balance. Meta does have legal and regulatory risks notably an FTC suit that seeks to unwind its prior acquisitions of Instagram and WhatsApp. However, not all event risk is negative as Meta would be the primary beneficiary from a potential TikTok ban.
Recommendation Reviewed: December 30, 2024
Recommendation Changed: April 18, 2024
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Fundamental View
AS OF 29 Jul 2024Netflix is one of the few clear winners in the industry’s transition to streaming, and we believe the group’s leading position will be bolstered in 2024/25 as legacy media companies rein in spending and international ambitions.
From a financial perspective, we expect Netflix will deliver ~40% EBITDA growth in 2024 driven by a mix of subscriber growth, price hikes and margin expansion.
Netflix’s financial policy is relatively conservative. While the company no longer targets $10-15 billion of gross debt, we view Netflix’s new financial policy as an evolution rather than a revolution and expect credit metrics to remain best in class.
Business Description
AS OF 29 Jul 2024- NFLX is the world's leading subscription streaming entertainment service with ~278 mn paid streaming subs in 190+ countries around the world. NFLX's programming includes original & acquired TV series, documentaries and feature films.
- NFLX began expanding internationally with the launch of services in Canada (Sep 2010), followed by LatAm (Sep 2011), and the UK and Ireland (Jan 2012). NFLX launched services in 17 more markets at a measured pace through the end of 2015 before launching in the rest of the world in Jan 2016 (ex-China, N Korea, Syria, Crimea).
- At the end of 2Q24, Netflix's regional subscriber breakdown was as follows: (1) EMEA - 94.0 mn; (2) UCAN - 84.1 mn; (3) APAC - 50.3 mn and (4) LATAM - 49.3 mn.
- Ted Sarandos and Greg Peters are Co-CEOs, with Mr. Sarandos appointed to the position in July 2020 and Mr. Peters in January 2023. Co-founder Reed Hastings was appointed as executive chairman of the Board in January 2023.
Risk & Catalysts
AS OF 29 Jul 2024Market Saturation: Netflix is highly penetrated in the US market, so future growth will become increasingly dependent on price increases, uptake of the ad tier and success on the password sharing crackdown. The recent WWE and NFL deals also opens the door to higher-priced sports programming.
Increased Competition: Several large competitors including Amazon and Apple are increasingly leaning into DTC video offerings on a global basis. Heightened competition may result in rising churn & declining gross additions for NFLX.
M&A Risk: Netflix is in the early stages of an expansion into video games and has already acquired several studios. Additionally, several legacy media companies are weakly positioned and are actively considering asset sales. We believe Netflix has no interest in linear TV assets, but could be open to a studio purchase under the right circumstances.
Key Metric
AS OF 29 Jul 2024| $ mn | FY20 | FY21 | FY22 | FY23 | LTM 2Q24 |
|---|---|---|---|---|---|
| Revenue | 24,996 | 29,698 | 31,616 | 33,723 | 36,304 |
| Revenue YoY % | 24.0% | 18.8% | 6.5% | 6.7% | 13.0% |
| EBITDA | 5,116 | 6,806 | 6,695 | 7,650 | 9,301 |
| EBITDA Growth | 64% | 33% | (2%) | 14% | 44% |
| Cash Content Expense | 12,537 | 17,469 | 16,660 | 13,140 | 15,024 |
| CFO - CapEx | 1,929 | (132) | 1,619 | 6,926 | 6,819 |
| Dividends/CFO-Capex | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% |
| LTM CFO-CapEx to Debt | 11.8% | (0.9%) | 11.3% | 47.6% | 48.8% |
CreditSight View Comment
AS OF 08 Jan 2025We believe Netflix’s premium valuation is justified given the group’s leading scale, operating momentum (forecast ~30 million net adds and 40+% EBITDA growth in FY24) and credit metrics, which stand in stark contrast to the pressures facing legacy media peers. Netflix is one of the few clear winners in the industry’s transition to streaming, and we believe the group is on track to extend its leading position as legacy media companies rein in spending and international ambitions and revert to licensing library content to competitors. The company’s gross leverage is already best in class at ~1.5x, and we expect Netflix can generate ~$7 billion of FCF in FY24 with a FCF to debt ratio in the ~45% area. Netflix is also positioned to maintain its double-digit top line and profit growth in 2025.
Recommendation Reviewed: January 08, 2025
Recommendation Changed: October 20, 2022
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Fundamental View
AS OF 18 Jun 2024KORGAS is Korea’s sole integrated gas utility company and a quasi-sovereign credit in Korea with an effective monopoly over the exploration & production (E&P), procurement, storage & production, transmission and wholesale distribution of natural gas.
Its credit profile is underpinned by its dominant market position in Korea’s natural gas and hydrogen utility market, and the strong support from the Korean government. This partly mitigates its delayed and incomplete pass-through of gas procurement costs when natural gas price surges, such as in FY22.
We expect its credit profile to improve in FY24 supported by lower natural gas procurement costs and higher gas tariffs, which would partially mitigate concerns over its larger capex planned for FY24 and FY25.
Business Description
AS OF 19 Jun 2024- KORGAS is 54.6% directly/indirectly owned by the Korean Government (Central Government 26.2%, KEPCO 20.5%, Local Government 7.9%). It is Korea's sole integrated gas utility company with an effective monopoly over the exploration & production (E&P), procurement, storage & production, transmission and wholesale distribution of natural gas. It is crucial to Korea's green transition plan to increase LNG generation by 56% by 2036 from 2022. In addition, KORGAS was licensed as Korea's sole hydrogen distribution agency in 2020.
- KORGAS is one of the largest LNG importer in the world and sells imported natural gas to domestic companies in South Korea. As of YE23, KORGAS operates 77 storage tanks at 5 LNG terminals in Incheon, Pyeong Taek, Tong Yeong, Sam Cheok and Jeju. It has 5,178 km of pipeline network nationwide, and is looking to construction additional 440 km by 2026.
- The Korea natural gas industry is divided into wholesale and retail segments. KORGAS is the only wholesaler in Korea, and the regional city gas companies are in charge of supplying natural gas to retail consumers through regional retail pipelines. KORGAS sold 47% of its gas sales to domestic LNG-fired power generation companies (gencos), including the genco subsidiaries of KEPCO and independent power producers (IPPs), and the remaining 53% to city gas companies and heating companies in FY23.
Risk & Catalysts
AS OF 18 Jun 2024Key risks to KORGAS’ standalone credit profile include: (1) Significant depreciation of the KRW against the $ ; (2) Delayed and/or smaller-than-expected retail tariffs hikes; and (3) higher-than-expected capex and investments related to Korea’s green transition.
However, we do not foresee these risks to materially impair KORGAS’ ability to access funding, credit rating and overall credit profile as we expect KORGAS to remain as the sole integrated gas utility company and continue to receive extremely strong financial support from the Korean government.
Key Metric
AS OF 18 Jun 2024| KRW bn | FY19 | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|---|
| Debt to Book Cap | 76.6% | 75.7% | 75.8% | 81.3% | 80.7% |
| Net Debt to Book Cap | 75.6% | 74.6% | 74.2% | 79.8% | 79.1% |
| Debt/Equity | 327.2% | 312.4% | 313.3% | 434.4% | 418.0% |
| Gross Leverage | 8.2x | 9.4x | 9.1x | 9.9x | 11.6x |
| Net Leverage | 8.1x | 9.3x | 8.9x | 9.7x | 11.4x |
| Interest Coverage | 3.9x | 3.4x | 4.8x | 5.1x | 2.2x |
| EBITDA Margin | 13.0% | 12.3% | 11.4% | 8.8% | 8.0% |
CreditSight View Comment
AS OF 04 Jul 2024We maintain our O/P recommendation KORGAS. We expect KORGAS’ credit profile to improve in 2H24 supported by higher tariffs and normalizing natural gas procurement costs. We expect KORGAS, which is the sole integrated natural gas utility company in South Korea to continue enjoying solid government support. We view its $ bonds as attractive compared to lower rated Chinese SOEs, BBB-rated low beta Korean corporates and other Korean quasi-sovereigns. In particular, we like its newly issued Jul-29 for the high on-market coupon; for investors looking for defensive short-dated carry, we also like its 27s.
Recommendation Reviewed: July 04, 2024
Recommendation Changed: June 27, 2023
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Fundamental View
AS OF 07 May 2024PT Mineral Industri Indonesia (MIND ID) is fully owned by the Government of Indonesia (GoI); we believe its state linkages and strategic importance to the GoI will strengthen as the nation continues to pursue the development of its downstream commodities sector and support green transition.
We expect MIND ID’s credit metrics to improve meaningfully over the next 2 years even amid high capex, aided by strong anticipated commodity prices and sales volumes, healthy dividend income from key joint venture PT Freeport Indonesia (PTFI), phased stake acquisitions of PT Vale Indonesia that we see as net credit positive, and a potential IPO of its aluminium business in end-FY24/FY25 that should free up cash.
MIND ID’s large, diversified scale of operations helps limit commodity-specific risks.
Business Description
AS OF 07 May 2024- MIND ID is an unlisted Indonesian state-owned holding company of various Indonesian mining operators.
- Key subsidiaries include: 1) Bukit Asam: Coal mining, processing, and sale of coal; 2) Timah: Tin mining, processing, and sale of downstream products; 3) Aneka Tambang (Antam): Mining, processing, and sale of gold products, nickel, ferronickel, bauxite and chemical grade alumina; 4) Inalum: Production of aluminium.
- Key unconsolidated joint ventures and associates include: 1) PT Freeport Indonesia (PTFI): Mining, processing and sale of copper, gold and silver. MIND ID aims to raise its stake in PTFI to 71% from a current 51% in the medium-to-long term; 2) PT Vale Indonesia (PTVI): Mining and processing of nickel. MIND ID aims to raise its stake in PTVI to >51% from a current 20% by end-2025.
Risk & Catalysts
AS OF 07 May 2024MIND ID is subjected to unanticipated changes in mining policies that raise operational and regulatory uncertainties.
MIND ID is exposed to commodity price fluctuations that could hurt sales price realizations and profitability.
Capex typically remains elevated, pressurizing its free cash flow generation and leverage.
MIND ID faces material asset concentration risk for its coal, gold and tin segments.
Key Metric
AS OF 07 May 2024| IDR bn | FY19 | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|---|
| Debt to Book Cap | 51.6% | 55.9% | 52.0% | 44.6% | 41.6% |
| Net Debt to Book Cap | 37.5% | 39.0% | 29.6% | 27.1% | 24.5% |
| Debt/Total Equity | 1.1x | 1.3x | 1.1x | 0.8x | 0.7x |
| Debt/Total Assets | 46.5% | 51.0% | 46.1% | 38.7% | 35.6% |
| Gross Leverage | 8.6x | 10.8x | 4.7x | 3.5x | 7.0x |
| Net Leverage | 6.3x | 7.5x | 2.7x | 2.1x | 4.1x |
| Interest Coverage | 1.7x | 1.1x | 3.2x | 3.9x | 2.2x |
| EBITDA Margin | 11.0% | 12.9% | 21.5% | 19.9% | 12.3% |
CreditSight View Comment
AS OF 07 May 2024We maintain our Outperform recommendation on MIND ID. MIND ID trades notably wider than Pertamina and PLN, which we view as unjustified considering Indonesia’s EV push (which will strengthen MIND ID’s policy role), stabilized regulatory uncertainties, our expectations of strong commodity prices and downstream demand, and healthy persisting dividend income from PTFI. An IPO of the aluminium business Inalum in end-FY24/FY25 is also credit positive. We anticipate MIND ID’s credit metrics to improve steadily to hit 2.8x-3.0x net leverage by FY25. Thus, we see scope for MIND ID’s bonds to compress further by 15-20 bp.
Recommendation Reviewed: May 07, 2024
Recommendation Changed: February 01, 2024
Who We Recommend
Mizuho Financial Group
KB Financial Group
Woori Financial Group