Taiwan Ratings revises its outlook on Chimei Innolux

UPGRADE UNLIKELY::Chimei’s debt-to-capital ratio had increased to 55 percent at the end of March from about 51 percent at the end of 2009

By Kevin Chen  /  Staff Reporter

Sat, May 14, 2011 - Page 12

Taiwan Ratings Corp (中華信評) yesterday revised its outlook on Chimei Innolux Corp’s (奇美電子) long-term credit rating to stable from positive, citing concerns over the nation’s top LCD panel maker’s profitability in the near term.

While affirming Chimei Innolux’s “twBBB+” long-term and “twA-2” short-term ratings, Taiwan Ratings said the company’s rising leverage and weak profitability make a rating upgrade unlikely over the next four quarters.

The panel maker last week posted its third consecutive quarterly loss in the first quarter on falling TV panel prices. Losses dropped 42.8 percent to NT$13.8 billion from the previous quarter, while revenue fell 4.6 percent to NT$124.33 billion, the company said in a stock exchange statement on Tuesday last week.

Based on Taiwan Ratings’ data, Chimei Innolux’s debt-to-capital ratio had increased to 55 percent at the end of March from about 51 percent at the end of 2009, thanks to its weak profitability and continued capital expenditure outlay over the past few quarters.

“We do not expect Chimei Innolux’s profitability to improve rapidly over the next two to three quarters due to weaker-than-expected demand and significant new capacity additions that erode product pricing,” the ratings agency said in an e-mailed statement.

Taiwan Ratings’ warning came after both Goldman Sachs and JPMorgan said last week that Chimei Innolux’s high costs and restructuring uncertainties might hurt its near-term outlook. However, their concerns contrasted with an upbeat view by Citigroup, which believes rebounding panel prices and seasonal demand from the second quarter will help boost Chimei Innolux’s profitability.

Chimei Innolux shares were 0.18 percent lower at NT$28.25 yesterday on the Taiwan Stock Exchange ahead of Taiwan Ratings’ rating outlook revision. The stock has fallen 29.9 percent so far this year compared with a 0.38 percent rise on the benchmark TAIEX.

The company is an entity formed by a three-way merger between Chi Mei Optoelectronics Corp (奇美電子), TPO Display Corp (統寶光電) and Innolux Display Corp (群創光電) in March last year. Innolux is a Miaoli-based subsidiary of Hon Hai Precision Industry Co (鴻海精密), the world’s largest contract electronics manufacturer.

The panel maker expected the association with Hon Hai would help strengthen its client base as well as hoping that its enhanced operating scale and increased product diversity could improve its profitability.

“However, an oversupply in the TFT LCD market, the relative appreciation of the [New] Taiwan dollar versus the [South] Korean won and costs associated with its on-going integration are likely to limit the improvement in the company’s operating performance over the next two to three quarters,” Taiwan Ratings said in the statement.