OREANDA-NEWS. Fitch Ratings (Thailand) Limited has affirmed SVI Public Company Limited's (SVI) National Long-Term Rating at 'BBB+(tha)' with Stable Outlook and its National Short-Term Rating at 'F2(tha)'.

KEY RATING DRIVERS
Business Recovery: SVI has rebound strongly after a fire at its plant in late 2014. The company is likely to restore production to pre-fire levels by 2Q16. SVI's revenue fell by only 2% in 2015, which was better than expected, even though manufacturing output was still recovering. We believe the company will be able to maintain its business and financial profile commensurate with the current rating over the medium term.

Healthy Financial Profile: Fitch expects SVI to maintain its funds flow from operations (FFO)-adjusted net leverage below 1.0x over the next two years. FFO of THB700m-900m a year should be enough to support planned capex of THB400m-600m and dividend payouts during 2016 and 2017. SVI had net cash of THB3.0bn at the end of 2015.

EMS Growth Opportunity: SVI continues to benefit from stability in the electronic manufacturing service (EMS) market, which is driven by industrial demand. In addition, manufacturers increasingly rely on EMS providers in their overall supply chain, in particular outside the consumer electronics sector. The company's strategy to focus on the growing non-traditional end-market segment, which is less volatile and offers higher margins, has helped sustain SVI's operations and business profile amid a challenging operating environment over the past several years.

Acquisition Growth Strategy: The recent acquisition of Seidel Electronics Group Company (Seidel) should help the company to expand into new high-margin segments, such as automotive, transportation and medical, where Seidel is focused. This acquisition will also reduce the reliance on Scandinavian customers, which accounted for around 70% of revenue in 2015. SVI acquired Seidel, an EMS manufacturer with plants in Austria, Slovakia and Hungary in 1Q16.

Small Size, Concentration Risk: SVI's ratings are constrained by its narrow geographic coverage, its concentrated customer base, the likelihood of greater competition in the non-traditional EMS market, and technology risks associated with the electronics segment. Other constraints include its volatile working-capital requirement and exposure to foreign-exchange risk. However, this is partly offset by the purchase of forward contracts.

KEY ASSUMPTIONS
Fitch's key assumptions within our rating case for the issuer include:
- Revenue growth of 20% in 2016, mainly from the acquisition of Seidel
- EBITDAR margin in 2016 to drop to 8% (2015: 9.5%) due to the consolidation of Seidel, which has lower margin, before increasing to around 8.5%-9.0% in 2017 and 2018
- Capex in 2016 of THB600m and THB400m a year from 2017
- Consolidation of Seidel following completion of acquisition in 1Q16
- 40% dividend payout ratio

RATING SENSITIVITIES
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- Substantial increase in net debt due to high dividend payouts, greater-than-forecast capex, or large debt-funded acquisition leading to FFO-adjusted net leverage rising above 1.0x (end-2015: no debt) on a sustained basis.
- Decline in the operating EBITDAR margin to below 6% (2015: 9.5%) on a sustained basis,
- Weakening in the company's market position, or loss of key customers.

Positive: Future developments that may, individually or collectively, lead to positive rating action include maintaining FFO-adjusted net leverage below 1.0x and FFO-adjusted leverage below 1.5x on a sustained basis (end-2015: 0.1x), while achieving either:
- a substantial increase in scale, with revenue exceeding USD500m (2015: USD250m), and a broader diversification in the customer mix and geographical market coverage; or
- an improvement in operating EBITDAR margin to over 10% on a sustained basis.