[ET Net News Agency, 29 July 2016] Moody's Investors Service said Hengdeli Holdings
Limited's (03389) announced profit warning for the first half of 2016 is credit negative,
and reflects the company's challenging operating environment.
However, the profit warning does not immediately affect Hengdeli's Ba3 corporate family
and senior unsecured debt ratings, because the adverse impact of the difficult environment
and the resultant weak profitability have already been captured by the negative outlook on
Moody's pointed out that Hengdeli's first half net profit is not substantially below
Moody's expectation. The company reported RMB255 million in net profit for 1H 2015. Thus a
decline of 65% suggests a net profit of RMB89 million in 1H 2016, which is better than the
net profit of RMB17 million (excluding unusual and non-recurring items) in 2H 2015.
Weakness in revenues and profitability will likely continue over the next 12-18 months.
Against such challenges Hengdeli will likely maintain its low dividends payouts, as well
as continue downsizing stores, limiting capital expenditures, and lowering inventory
Furthermore, Hengdeli is expected to maintain its financial prudence, such that its debt
leverage, as measured by adjusted debt/EBITDA, will be maintained below 5.0x-5.5x, and
adjusted retained cash flow (RCF)/net debt above 12%-15%. (KL)
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