TRC forecasts 3% growth

LOOKING AHEAD::The firm expects the petrochemical industry to benefit from the global economic recovery, but extended a negative outlook for life insurance companies

By Crystal Hsu  /  Staff reporter

Fri, Jan 11, 2013 - Page 14

The nation’s economy is likely to grow 3 percent this year as the Chinese economy regains momentum, but the high-tech sector is unlikely to recover fully, and excessive production may continue to pressure earnings for steel makers and petrochemical firms, Taiwan Ratings Corp (中華信評, TRC) said yesterday.

“Taiwan’s GDP growth is likely to rise to 3 percent this year, compared with an estimate of 1.9 percent made last year,” mostly to reflect the economic improvement in China as it accounts for 40 percent of Taiwanese exports, the local arm of Standard & Poor’s told a media briefing.

Local information technology companies are unlikely to recover fully in the first half due to the still sluggish global economy, even though thriving demand for handheld devices is expected to significantly ease the negative impact, credit analyst Raymond Hsu (許智清) said.

Hsu assigned a stable credit outlook to the sector this year due to its low leverage and he expects its operating proficiency to improve mildly or remain unchanged from last year.

CHIPMAKERS

Chipmakers and electronics manufacturing services providers should benefit the most from recovering demand, Hsu said, adding that electronic component makers would see slower growth due to relatively weak television and PC sales.

Credit analyst Daniel Hsiao (蕭黎明), responsible for rating traditional sectors, maintained a negative credit outlook on steelmakers because of their close links to their Chinese peers, which are prone to excess production in the event of price hikes.

“A lack of discipline could lead to overproduction and drive down steel prices again, despite recent signs of a recovery in demand,” Hsiao said.

Hsiao said he expected the local petrochemical industry to benefit from the economic recovery in the Greater China region this year as customers start to build up inventory, easing profitability pressures on the sector.

However, imbalanced product lines, such as ABS products, may create stress on earnings abilities, Hsiao said.

He added that firms with higher capital spending would be exposed to greater risks of weakened capitalization.

BANKING

Meanwhile, TRC gave a stable credit outlook for domestic banking institutions, but extended its negative outlook for life insurance companies though both sectors displayed a satisfactory performance despite the difficult operating environment.

Financial credit analyst Eunice Fan (范維華) expects bad loan recoveries to slow this year, after lending comfortable support to lenders’ bottom lines in recent years.

“Credit costs are likely to gain 10 to 15 basis points this year,” compared with nearly 30 basis points for the first nine months of last year, and historical averages of 40 to 60 basis points, Fan said.

Government policy helps keep credit costs low, but banking institutions will have to set aside more provisions to meet tighter requirements this year, Fan said.

LIFE INSURANCE

Life insurance firms, which sold a record number of new policies last year, may have difficulty beating last year’s performance due to higher policy costs to reflect the low interest rates, the analyst said.

Their relatively high exposures to equities investments at home and abroad render their capitalization susceptible to market volatility, Fan said.