[For Immediate Release]
Xinhua Far East Downgrades Dongfeng Automobile Co., Ltd. from A to A-
Issuer Rating; Rating Outlook Remains Stable
HONG KONG, July 11, 2006 – Xinhua Far East China Ratings today downgraded the
domestic currency issuer credit rating of Dongfeng Automobile Co., Ltd. (“Dongfeng Auto” or
“the Company”, SH A 600006) from A to A-. The rating outlook remains stable.
The downgrade mainly resulted from Xinhua Far East’s concerns over the slow recovery in
Dongfeng Auto’s engine business, intensifying competition in the local light truck sector over
the short- to medium-term and the expectation of rising capital expenses in the near future.
Although the Company’s acquisition of Zhengzhou Nissan Automobile Co., Ltd. (“ZZNissan”)
provides a higher degree of product diversification, the growth potential and profitability
within this segment are clouded by unfavorable sales taxes.
However, the assignment of the highest rating in China’s auto sector indicates Xinhua Far
East’s view that the Company maintains a leading position in its key business segments. Its
financials are relatively strong, and it is both maintaining closer cooperation with global
partners and enjoying solid support from Dongfeng Motor Corporation (“DMC”).
Xinhua Far East does not foresee, however, any significant recovery in the company’s major
engine segment in the near future. Turnover in Dongfeng Auto’s engine segment totalled
RMB3.79 billion and RMB2.64 billion in 2004 and 2005, down a respective 14.3% and 40.3%
from 2002. This significant downturn is measured against the impressive sales growth of years
past and comes as the result of weaker sales of downstream medium and heavy trucks for
DMC, the combined effects of macro controls and loose enforcement against truck overload.
Although Xinhua Far East believes these factors may improve gradually, triggering greater
demand, a recovery is unlikely in the near term.
In the light truck segment, Xinhua Far East expects Dongfeng Auto’s growth to slow in light of
the introduction of more competitive models by major competitors and new entrants to this
niche. Growth in the whole segment will nevertheless continue to outpace the growth in GDP.
SUVs and pickups have become the third pillar of the company’s business following Dongfeng
Auto’s acquisition of a 51% stake of ZZNissan in the third quarter of 2004. Turnover from
ZZNissan contributed RMB2,641 million and RMB771 million to the company in 2005 and the
first quarter of 2006 respectively, accounting for approximately 30% of total revenue.
Although the acquisition heightened the Company’s product diversification and provided a
cushion for total revenues, it has driven the total debt to total capital ratio of the company
from 0% in 2004 to 20.7% in 2005. Moreover, Xinhua Far East is concerned about the growth
potential and profitability of ZZNissan under a more unfavorable sales tax regime.
In consideration of China’s expanding auto engine production capacity and given the
ambitious investment plans announced by leading global engine manufacturer Cummins, the
Company’s cooperator, Xinhua Far East believes that Dongfeng Auto’s capital expenditure will
rise in the short- to medium-term. Xinhua Far East also anticipates cash outflows under the
coming full-listing plan of the Company.
However, Xinhua Far East scores Dongfeng Auto’s huge cash reserves, its sufficient financial
flexibility, controlled capex spending record and support from DMC as consistent with an A-
ratings grade. In view of its long-term growth potential and the high market concentration in
China’s commercial vehicle sector, as well as the company’s enhanced product mix, Xinhua Far
East forecasts a stable rating outlook for Dongfeng Auto.
The third largest light truck maker in China in 2005, Dongfeng Auto sold 107,413 vehicles in
2005, recording turnover of RMB8.8 billion. It is a main domestic cooperator of Cummins Inc.,
currently producing Cummins B, C, and L series engines.
Zhengzhou Nissan Automobile Co., Ltd. is a major SUV and pickup maker in China and a JV
between Dongfeng Auto, Nissan Automobile Business Co. and Zhengzhou Lightweight Car.
ZZNissan sold 13.4 thousand pickups in 2005, making it the fourth largest pickup
manufacturer in China. Dongfeng Auto held a 51% stake in ZZNissan at the end of the first
quarter of 2006.
Dongfeng Motor Corporation is China’s third largest auto group, which ultimately holds a
24.5% stake in the Company.
Dongfeng Auto is also a constituent of the Xinhua FTSE China 200 Index and, as of market
close on July 10, 2006, its total market capitalization and investable capitalization were
RMB8, 020 million and RMB2, 406 million respectively.
For the rating report summary, please visit www.xinhuafinance.com/creditrating.
Joy Tsang, Corporate & Investor Communications Director, Xinhua Finance
+852-3196-3983, +8621-6113-5999, +852-9486-4364, email@example.com
Taylor Rafferty (IR/PR Contact in US)
Ms. Ishviene Arora
+1 212 889 4350, firstname.lastname@example.org
Note to Editors:
About Xinhua FTSE China 200 Index
Xinhua FTSE China 200 Index is the large cap index in the Xinhua FTSE China A Share Index
Series and includes the top 200 companies in China by market cap. It is designed as a tradable
index and is calculated in real-time every 15 seconds. For daily data and further information,
About Xinhua Far East China Ratings
Xinhua Far East China Ratings (Xinhua Far East) is a pioneering venture in China that aims to
rank credit risks among corporations in China. It is a strategic alliance between Xinhua Finance
(TSE Mothers: 9399), and Shanghai Far East Credit Rating Co., Ltd. Shanghai Far East became
a Xinhua Finance partner company in 2003 and the first China member of The Association of
Credit Rating Agencies in Asia in December 2003.
Capitalizing on the synergy between Xinhua Finance and Shanghai Far East, Xinhua Far East’s
rating methodology and process blend unique local market knowledge with international
rating standards. Xinhua Far East is committed to provide investors with independent,
objective, timely and forward-looking credit opinions on Chinese companies. It aims to help
investors differentiate the credit risks among the corporations in China, thereby, cultivating
their awareness and promoting information disclosures and transparency in China market.
For more information, see www.xfn.com/creditrating.
About Xinhua Finance Limited
Xinhua Finance Limited is China’s unchallenged leader in financial information and media,
and is listed on the Mothers board of the Tokyo Stock Exchange (symbol: 9399) (OTC ADRs:
XHFNY). Bridging China’s financial markets and the world, Xinhua Finance serves financial
institutions, corporations and re-distributors through four focused and complementary service
lines: Indices, Ratings, Financial News and Investor Relations. Founded in November 1999,
the Company is headquartered in Shanghai with 20 news bureaus and offices in 19 locations
across Asia, Australia, North America and Europe.
For more information, please visit www.xinhuafinance.com.
About Shanghai Far East Credit Rating Co., Ltd
Shanghai Far East Credit Rating Co., Ltd. is the first and leading professional credit rating
company with comprehensive business coverage in China. It is an independent agency
established by the Shanghai Academy of Social Sciences with the mission to develop
internationally accepted standards for capital market in China. The company is a pioneer in
conducting bond-rating business in China. For years, it has been authorized by the Shanghai
branch of the PBOC to undertake loan certificate credit rating.
Since establishment, it has rated over 1,000 corporate long-term bonds and commercial
papers, based on the principles of objectivity, fairness and independence. The company has
also maintained over 50% market share in the loan certificate-rating sector in Shanghai for
three consecutive years. With its strong local presence and knowledge, it provides investors
with unique and the most insightful credit opinion.
For more information, see www.fareast-cr.com.