Samsung's Credit Profile Sustained Under Leadership Vacuum


Friday /25th August 2017/ 12:18PM/ Fitch Ratings

Fitch Ratings does not expect the conviction of heir apparent to the Samsung conglomerate - Jae-Young Lee - to significantly disrupt the day-to-day operations of Samsung Electronics Co., Ltd. (A+/Stable) or negatively affect the company's credit profile. However, it could increase longer-term business risks by delaying necessary strategic decisions and major investment plans for the company to retain its top global position in an industry with rapidly changing technology.

The leadership uncertainty may slow Samsung's ability to make bold and large-scale investments that have supported its success. In addition, the absence of the figurehead might impair Samsung's ability to form strategic alliances with other corporates, which may lessen its competitiveness over the long term. However, we believe the company's short-term operating performance will not be affected by Mr. Lee's absence, as each Samsung business segment is run by its own professional management team.

The company's credit profile continues to be supported by its technological leadership, dominant market position in core products and strong financial metrics. Samsung is in a strong financial position, with low leverage and abundant net cash, supporting its ability to fund the substantial capital expenditure that keeps it among the world's leading technology companies for the time being.

Samsung delivered robust operating result in 2Q17 due to soaring memory chip demand from the rapid pace of digitalisation and automation amid tight supply, with operating profit surging by 73% yoy and the operating margin improving to 23%, from 16%. This was despite Mr. Lee's absence since early this year.

Mr. Lee - whose official position is vice-chairman - was found guilty of embezzlement and bribery over claims that Samsung gave funds to South Korea's President Park Geun-hye's unofficial adviser in exchange for political favour. Mr. Lee was sentenced to five years' imprisonment.

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