Japan: outlook for glass majors stable, says rating service

The outlook for Asahi Glass, Nippon Electric Glass and Nippon Sheet Glass is stable according to Moody“s Investors Service, which rates the firms.
The credit profiles of the companies have improved …

The outlook for Asahi Glass, Nippon Electric Glass and Nippon Sheet Glass is stable according to Moody“s Investors Service, which rates the firms. The credit profiles of the companies have improved thanks to their strategic focus on businesses that have stronger growth potential and higher profitability, such as glass products for flat panel displays, says Moody“s. Also helping their credit profiles are their conservative financial policies, which are aimed at stabilizing cash generation and prioritizing debt reduction, Moody“s adds. The conclusions emerged from Moody“s latest report on the Japanese glass sector, which was written by Emiko Otsuki, a Moody“s Vice President – Senior Credit Officer based in the rating agency“s Tokyo office. Moody“s ratings for the three Japanese glassmakers are: Asahi Glass (A1/Prime-1; stable); Nippon Electric Glass (A3; stable) and Nippon Sheet Glass (Baa2; positive). The report considers various issues affecting the glass industry, such as business portfolio management, the current business environment and outlook, the industry“s credit strengths and challenges as well as key rating factors. The report notes that while Japanese glass companies “continue to execute structural reforms to more effectively allocate management resources, the companies“ management focus has shifted to seeking further growth opportunities”. “Stronger-than-expected demand for flat panel display glass remains a strong growth driver for revenue and earnings, although it has been accompanied by shrinking of the CRT glass panel market,” the report says. “This rapidly growing demand has required substantial additional capital expenditure – which is pressuring free cash flows – to increase production capacity,” the report says, adding, “on the other hand, higher-value-added products in flat glass, glass fiber, and chemical businesses will help to support the companies in stabilizing operating performance and free cash flow.” However, major glass companies worldwide face significant technological changes, which may adversely affect their medium- to long-term operations. As a result, they need to maintain the cost competitivity of their products while continuing to launch higher-value-added products to support sustainable growth in sales and earnings. The report notes that recent oil price volatility may hit profitability. In order to improve their credit profiles, the glass makers need to balance their growth strategies and financial policies, Moody“s says, adding that significant mergers and acquisitions could put pressure on ratings. “In Moody“s opinion, keeping a reasonable balance between growth and financial strategies will remain a very important rating factor to keep their rating levels,” the report says. The title of the report is “Japan“s Glass Industry: Stronger-than-expected demand for flat panel display glass drives growth opportunities, but pressures free cash flow”.