Most rated Chinese corporates would see stable outlook in terms of credit quality over the next few months, despite soft macro data that highlights downside risks, Moody’s said recently.
Improving demand from a low base in 2022 and continued debt control will underpin growing profit and steady leverage for most rated Chinese corporates, but some sectors will continue to have muted growth, the credit rating agency noted.
"Weaker-than-expected macro data following a strong Q1 2023 indicates risks to the economic recovery shift toward the downside. This could impact the sustainability of the domestic demand recovery for some sectors," said Ying Wang, a Moody's Vice President and Senior Analyst.
Stronger demand will drive EBITDA expansion for auto and auto services, oilfield services and downstream petrochemical companies, according to Moody’s.
Oil producers will maintain high capital spending, supporting earnings growth for oilfield service providers, the firm said, adding that stronger downstream petrochemical operations will drive steady earnings at integrated Chinese national oil companies.
Food and beverage and internet companies will benefit from debt control, reinforced credit buffers, their leading market positions and strong cash positions, tempering slower revenue growth, Moody’s predicted.
And steady EBITDA will mitigate investment risks for chemical and construction companies, the firm added.
Utilities and toll road operators will benefit from domestic demand recovery, Moody’s pointed out.
Road transportation volume will increase from a low base in 2022, although weak exports could continue weighing on port operators' volume growth, the firm said.
Tech hardware and component demand will remain depressed because of weaker global growth, but demand for some subsectors will stabilise, the firm estimated.
In the property sector, credit differentiation among developers will continue, with state-owned and strong privately-owned developers benefiting more as overall sales stabilise at a low level, the firm said.
Rated issuers' contracted sales will likely be flat in 2023, compared with a 22% drop in 2022, according to Moody’s.
With property construction activities subdued, demand for construction materials like steel, aluminium and cement will remain weak, Moody’s noted.