Investing.com -- Fitch Ratings has revised the outlook of TTM Technologies (NASDAQ: TTMI ), Inc. and its subsidiary TTM Technologies China Limited to Positive from Stable, while affirming their Long-Term Issuer Default Ratings (IDRs) at ’BB’. The revision comes as Fitch expects TTM’s leverage to remain below 3.0x positive rating sensitivity in the coming years, despite potential tariff challenges.

The ratings agency also affirmed TTM Technologies, Inc’s Asset-Based Lending (ABL) facility at ’BBB-’ with a Recovery Rating of ’RR1’, first lien term loan at ’BB+’/’RR2’, and senior unsecured debt at ’BB’/’RR4’. However, the Senior Secured rating for the ABL at TTM Technologies China Limited was downgraded to ’BB’/’RR4’, aligning with Fitch’s Country-Specific Treatment of Recovery Ratings Criteria.

TTM has been successful in boosting sales in markets with growing demand, long product lifecycles, and opportunities for differentiation beyond Printed Circuit Boards (PCBs). The company has shifted towards higher-value activities by supplying more complex components and design capabilities. The Aerospace & Defense (A&D) end-market, which accounted for 47% of fiscal 2024 revenue, has been a particular focus.

The A&D market is expanding due to global conflicts, replenishment of depleted military inventories, and the transition towards more digitized defense systems. Concurrently, data centers are experiencing a surge in demand to facilitate AI growth. Fitch expects these tailwinds to drive revenue growth, even as some markets lag, with the Penang, Malaysia and Rochester, NY plants ramping soon.

TTM management has generally adhered to its long-term net leverage target of 1.5x to 2.0x. Gross EBITDA leverage, as calculated by Fitch, was around 3x from fiscal 2020 to fiscal 2024, settling at 2.8x at fiscal YE 2024. Fitch forecasts leverage in the mid-to-high 2x range over the rating horizon.

However, TTM may be impacted by the evolving tariff environment. While the company faces limited direct tariffs on Chinese-made products, approximately 38% of total revenue comes from sales to manufacturers in China who export their goods and may see lower demand.

TTM’s original equipment manufacturer clients operate in concentrated markets, such as A&D, wireless infrastructure, and autos. TTM’s largest single customer represented 11% of fiscal 2024 sales, and the five largest customers collectively accounted for 42% of sales.

TTM is well-positioned in the PCB industry, ranking among the top 10, with global manufacturing capabilities and diverse end markets. The company focuses on advanced-technology PCBs, higher-value offerings, and strong customer engineering engagement, and benefits from its status as a U.S.-based manufacturer able to serve sensitive sectors in A&D and other tech markets.

Key assumptions for the positive outlook include revenue growth of 4.1% in fiscal 2025, driven primarily by organic growth in A&D, and EBITDA margin improvement from 13.8% in fiscal 2024 to 14.6% in fiscal 2025 and 15.2% in fiscal 2026, driven primarily by productivity improvements as Penang ramps up.

Rating sensitivities include expectation for EBITDA leverage to be sustained below 3.0x and expectation for (CFO-capex)/debt to be sustained above 15% for a possible positive rating action or upgrade. Conversely, EBITDA leverage above 3.0x or (CFO-capex)/debt below 15% could lead to a stabilization of the outlook.

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