Wed, May 25, 2011 - Page 11 News List

Goldman upgrades FPCC to neutral

By Kevin Chen  /  Staff Reporter

Formosa Petrochemical Corp (FPCC, 台塑石化), the nation’s -second-biggest oil refiner, will not return to full capacity until the first quarter of next year following recent fires at a petrochemical complex in Mailiao (麥寮), Yunlin County, Goldman Sachs said yesterday.

Output is expected to slide this month from last month after two fires broke out in liquefied petroleum gas pipelines at Formosa Plastics Group’s (台塑集團) Mailiao complex on May 12 and on Wednesday last week.

The two incidents led Formosa Petrochemical to shut down its No. 1 naphtha cracker over safety concerns. The cracker has an annual capacity of 700,000 tonnes of ethylene — about 24 percent of the refiner’s total output — which is a major raw material used in the making of plastics and fabrics, according to the company’s Web site.

Apart from the gradual recovery in capacity, the refiner is likely to see continued improvement in earnings from a trough during the second quarter, Goldman Sachs said yesterday while upgrading its rating on Formosa Petrochemical to “neutral” from “sell.”

“We see third-quarter earnings increase from cash dividend income, fourth-quarter [earnings] on a stronger refining season, and the first-quarter [earnings] of next year from full capacity recovery from the fire back in the third quarter of 2010,” Goldman Sachs said in a report.

Goldman Sachs also raised its target price for Formosa Petrochemical from NT$86 to NT$111, after raising its earnings per share estimates for this year, next year and 2013 by 29 percent, 14 percent and 3 percent respectively, on higher cash dividend income and refining margins.

“Due to the strong upswing in refining margins driven by the Japan earthquake, we now anticipate an earlier peak of the current -refinery margin cycle from 2013 to 2012,” it said.

Formosa Petrochemical is the nation’s fourth-largest listed company with a market value of NT$952.6 billion (US$33 billion) as of yesterday, following Taiwan Semiconductor Manufacturing Co’s (台積電) NT$1.94 trillion, Hon Hai Precision Industry Co’s (鴻海) NT$995.11 billion and HTC Corp’s (宏達電) NT$956.65 billion.

The company’s share price, which rose 0.1 percent to NT$100 yesterday, has increased 1.11 percent so far this year versus a 2.41 percent decline for the benchmark TAIEX, Taiwan Stock Exchange data showed.

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