The rating on Texhong Textile Group Ltd. reflects the China-based textile company's debt-funded expansion, narrow product range, and lower profitability than that of peers in the 'BB' rating category. Texhong's good niche market position in core-spun yarns, stable cash flows, and record of prudent financial management temper these weaknesses. The company's steady growth profile, driven by its expansion in Vietnam and above-average operating efficiency, is another supporting factor. In our view, Texhong's debt-funded expansion plan in Vietnam is fairly aggressive and the company will incur substantial capital expenditure over the next three to five years. We believe Texhong's record of expansion in Vietnam and its team of experienced personnel there partly offset this risk. Texhong's low profitability is due to
