Weakening demand and an uncertain global economy could continue to cloud the outlook for the nation’s non-tech companies for the remainder of the year, despite recent stabilization in commodity prices, a ratings agency said yesterday.
“We expect revenue and margin risk to dampen the outlook of Taiwan’s non-tech corporations over the next two quarters,” Taiwan Ratings Corp (中華信評) analyst Raymond Hsu (許智清) said in a report.
“The European sovereign debt crisis and slowing global demand, particularly in China, have exacerbated pricing pressure, along with intense competition,” prolonging the negative outlook for the non-tech sector, he said.
The Taiwan Ratings report came a day after three of four major units of Formosa Plastics Group (FPG, 台塑集團) reported losses in the second quarter, after a sharp decline in global crude oil prices dragged down petrochemical prices, which coupled with slowing growth in China’s economy adversely impacted market sentiment.
On Wednesday, plastics manufacturer Nan Ya Plastics Corp (南亞塑膠) reported a pre-tax loss of NT$2.72 billion (US$91 million), or a loss per share of NT$0.35, in the April-to-June quarter; Formosa Chemicals & Fibre Corp (台灣化纖), which produces aromatics and styrenics, posted NT$6.14 billion in losses, or a loss per share of NT$1.09; and oil refiner Formosa Petrochemical Corp (台塑石化) reported NT$15.59 billion in losses, or a loss per share of NT$1.64.
Formosa Plastics Corp (台塑), the group’s flagship company, was the only company among the four to post a pre-tax profit, NT$269 million for the quarter, or earnings per share of NT$0.04, according to companies’ stock exchange filings on Wednesday.
“While global oil prices have rebounded recently, it was because of political factors instead of a recovery in end market demand. Therefore, the outlook for FPG firms is likely to remain bleak in the near term,” Jun Liao (廖景濬), an analyst at Grand Cathay Investment Services Corp (大華投顧), said in a note yesterday.
Taiwan Ratings, a local unit of Standard & Poor’s Ratings Services, said in its report that due to unfavorable global economic conditions, China’s plans to implement further economic stimulus measures in the second half of the year was unlikely to fully support a recovery in demand in the Asia-Pacific region over the next few quarters.
Non-integrated petrochemical and transportation companies’ “profitability is likely to remain depressed over the next two quarters, because lower material or fuel costs may be insufficient to offset the effect of weak demand and product pricing,” the report said.
However, cash flow and profitability are likely to improve moderately in the food and beverage sector, and in the electricity utilities sector this year, should raw material prices remain stable, it said.
For the 29 non-tech firms under Taiwan Ratings’ credit coverage, three companies were downgraded in the first half and the number is expected to increase in the second half, particularly in the chemical and steel sectors, the report said.