Rising demand for goods and services in China, driven by GDP growth, will boost the earnings of most rated companies this year and next, said Moody’s recently.
Leverage trends, however, will vary by sector, the credit rating agency pointed out.
Strong demand growth in certain sectors has increased investment requirements, which could slow some companies' deleveraging efforts, Moody’s noted.
For sectors such as auto and auto services, food and beverages, and technology hardware, EBITDA growth will outpace debt expansion, improving Chinese companies' leverage, said Lina Choi, a Moody's Senior Vice President.
A resumption of travel, outdoor activities and business operations with work-from-home options will bolster demand as the pandemic remains under control, she added.
Likewise, robust demand and higher pricing will support earnings growth and improve leverage for commodity-related sectors such as chemicals, metals and mining, oil and gas, oilfield services, steel, aluminum and cement, according to Choi.
In addition, high spending needs will stall deleveraging for construction and engineering companies despite buoyant revenue and EBITDA due to a solid order backlog, Moody’s said.
Leverage will remain flat because of additional debt for projects, the firm added.
Similarly, capital spending needs will remain elevated for transportation and utilities companies to support urbanization and renewable energy, Moody’s observed.
However, leverage for these sectors will improve as traffic volumes resume, the toll-free policy ends, and energy demand recovers, the firm said.
Greater competition as a result of antitrust regulations will reduce the EBITDA margin of internet and technology companies, Moody’s noted.
Revenue growth will remain solid at 15%-20%, supported by more online consumption, but EBITDA growth will lag revenue rises for most rated companies as selling, marketing and R&D costs increase, the firm predicted.
Most rated companies have low leverage, strong cash positions and diversified funding access to help them weather the impact of tightened regulations, the firm added.