Ratings agencies see gloomy days for top 50 firms

Taiwan's top 50 companies will see their combined earnings decline this year due to slowing economic growth, rising oil prices and difficult operating conditions in several sectors, according to a report issued yesterday.

The report, Taiwan Top 50 Corporates: Slowdown to Follow 2004 Bonanza, was published by credit rating agency Standard & Poor's and its local affiliate, Taiwan Ratings Corp (中華信評).

The report said the combined profits of the 50 corporations are expected to drop by 29 percent year-on-year to NT$527 billion (US$16.5 billion), compared with a robust 59 percent growth last year and 47 percent increase in 2003.

The semiconductor and thin film transistor-liquid crystal display (TFT-LCD) sectors will be the worst hit because of depressed industry conditions, said John Bailey, credit analyst at Standard & Poor's, at a press conference yesterday.

He said overcapacity, dwindling demand and shrinking prices on stiff competition were the main reasons behind these two sector's weakening profitability.

The report observed that big players tend to grow larger at the expense of smaller rivals as first-tier companies are able to capitalize on their resources and their economies of scale to achieve rosy performances.

"Some companies may not survive the race, and that is likely to spur consolidation in the sector," said Tony Tsai (蔡東松), credit analyst at Taiwan Ratings.

Citing the nation's smaller and weaker flat panel makers as examples, Tsai noted that Quanta Display Inc (廣輝電子), Chunghwa Picture Tubes Ltd (中華映管) and HannStar Display Corp (瀚宇彩晶) have combined assets of NT$462 billion and reported NT$83 billion in revenues for the first half of the year.

However, the combined operating achievements of the three firms only reached 60 percent of South Korea's LG Philips LCD Co, which reported NT$140 billion in sales during the first six months of the year, with assets of NT$376 billion.

Raymond Hsu (許智清), an associate with Taiwan Ratings, said the TFT-LCD sector hit rock bottom in the first half of the year, but it is difficult to estimate when the sector will rebound since this market is "volatile and cyclical."

The container-shipping sector, however, is expected to post moderate earnings growth this year due to still favorable demand and supply, but the possibility of imbalance is likely to emerge next year, according to the report.

In general, rising oil prices worldwide could be a challenge, especially for airlines and tire and rubber manufacturers, as these companies may find it difficult to fully pass on their higher raw material costs to customers.

For example, profits of the state-run Chinese Petroleum Corp (中油) are likely to contract in the second half of the year because of the government's decision to hold off on immediate price hikes, the report said.