Taiwan’s top 50 corporations should improve their profitability in the next 12 to 18 months on the back of a strengthening global economy and lower commodity prices, Taiwan Ratings Corp (中華信評) said in a report yesterday.
“We expect the nation’s top 50 corporations to increase their profitability during the next 12 to 18 months, as the global economy recovers gradually and lower commodity prices help bolster business for export-dependent corporations,” the local branch of Standard & Poor’s Ratings Service said.
The trend is evidenced by the expansion of economic activity in Taiwan in recent quarters, the company said.
The nation’s GDP grew 3.14 percent in the first quarter and 3.74 percent in the second quarter with the full-year reading forecast to reach 3.41 percent, according to Standard & Poor’s.
The retail, semiconductor, and telecom sectors have the strongest credit profiles among the top 50 corporations, while transportation and metal companies have the weakest standing, ratings analyst Daniel Hsiao (蕭黎明) said.
In addition, high-tech firms maintain stronger financial risk profiles than their non-tech counterparts, Hsiao said.
“High-tech firms are more conservative in terms of debt-usage policies, allowing them to better respond to operating environment changes and protect their creditworthiness,” Hsiao said.
However, headwinds remain and not all corporate players are out of the woods, the analyst said.
China’s slowing economic growth and excess capacity in some sectors remain the key credit risks, Hsiao said.
“A greater slowdown in Chinese growth could weaken the credit ratios and profitability in sectors with a higher revenue concentration in China,” Hsiao said. adding that Taiwan’s steel and chemical companies are especially vulnerable to China’s economic showings due to the buildup of excess capacity over the past few years.
Taiwanese companies’ credit profiles might also weaken if South Korea signs a free-trade agreement with China, he said.