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Moderate Recovery, Challenges Remain for APAC Tech in 2022

Moderate Recovery, Challenges Remain for APAC Tech in 2022
Fitch Ratings-Sydney/Hong Kong/Singapore-29 November 2021: Fitch Ratings expects a modest improvement in average cash flow from operations for the Asia-Pacific Technology sector in 2022, as economic uncertainties and continuing Covid-19 influences temper cash-flow growth.

“We believe recovery from the challenges of 2020 and 2021 will be slow. However, in general, our rated APAC technology companies are well-positioned in their markets,” said Steve Durose, head of Fitch’s APAC Telecoms, Media & Technology team.

Fitch’s sector outlook is neutral. Of our four sub-sectors, we have a neutral outlook on Chinese internet majors, hardware technology and semiconductor back-end services (OSAT), and an improving outlook on Indian IT services.

We expect higher operating and free cash flow growth for the Chinese majors – albeit lower than previous expectations – but uncertainties over China’s economic growth and potential for greater regulatory intervention to prevent an ‘improving’ outlook.

Cash-flow growth for our rated OSAT business will be healthy, given the companies’ position in the tight semiconductor market. However, higher capex and dividends will stymie FCF growth. In addition, we expect margins to narrow when the semiconductor supply/demand imbalance recedes.