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In an analytical report released on Tuesday, Fitch Ratings shed light on the expected recovery of Asia-Pacific (APAC) hardware brand companies in 2024, following a challenging period in 2023.
The report provides insights into the factors influencing this recovery, the varying impacts on different companies, and the overall outlook for the consumer electronics industry. Fitch Ratings has predicted that APAC hardware brand companies with a global footprint will experience a resurgence in revenue in 2024, building upon a low base in the preceding year. This optimistic projection is attributed to the gradual improvement in consumer sentiment observed since the second half of 2023, driven by a generally better-than-expected global economy outside China. However, the report cautions that the recovery of the overall consumer electronics industry may be sluggish, given the prevailing challenges of weak global economic growth and consumer sentiment. The impact of weakened demand is expected to vary among companies, influenced by factors such as product mix, market position, and profit structure. Fitch Ratings highlighted the contrasting strategies and vulnerabilities of key players in the APAC hardware industry: Sony Group Corporation (A-/Stable)- The subscription-based model for certain services adopted by Sony secures recurring revenue, providing resilience against economic fluctuations. This positions Sony as relatively insulated from the challenges faced by other companies. LG Electronics Inc. (LGE, BBB/Stable)- With higher exposure to home appliances, LG Electronics is deemed more vulnerable to weak consumer sentiment. However, the report notes that LGE's exit from the unprofitable liquid crystal display business is expected to reduce earnings volatility. Lenovo Group Limited- While Lenovo anticipates a decline in PC shipments by the high teens in 2023, signs of stabilization have emerged with rising shipments and improved EBITDA in the past two quarters. This suggests a potential recovery for Lenovo, albeit cautiously. Xiaomi Corporation (BBB/Stable)- Xiaomi is expected to face more significant challenges due to its reliance on smartphone and Internet of Things-related businesses. Additionally, higher exposure to the slower economic recovery in China and entry into the riskier electric-vehicle business contribute to Xiaomi's potential hurdles. A gradual recovery in operating cash flows is anticipated in 2024, propelled by revenue growth. Fitch Ratings expects a slight improvement in Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margin, driven by the sales of more high-margin premium products. The companies' leverage is projected to improve in 2024, supported by better EBITDA generation. While FCF generation is expected to be slightly positive in 2024 (compared to a negative FCF forecast for 2023), it remains limited due to persistent high capital expenditure (capex). In conclusion, the Fitch Ratings report paints a cautiously optimistic picture for APAC hardware brand companies in 2024, emphasizing resilience and adaptability as key factors in navigating the industry's challenges. (ANI)
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