The rating on Texhong Textile Group Ltd. reflects the company's debt-funded expansion, its narrow product range, and relatively low profitability. These weaknesses are tempered by the company's good niche market position in core-spun yarns, its stable cash flow generation, and a track record of prudent financial management. Another supporting factor is the company's steady growth profile, driven by its expansion in Vietnam and above-average operating efficiency. We expect Texhong's debt-funded expansion to significantly increase its total borrowings over the next three years. The company aims to increase its production capacity through expansion of its Vietnam operations. The company will incur material capital expenditure over the next three years as a result. We believe this risk is partly mitigated by its
