The COVID-19 pandemic and US-China trade tensions would weaken the corporate cash flow and profitability of Taiwan’s top 50 companies well into next year, but tech firms might recover first, Taiwan Ratings Corp (中華信評) said yesterday.
That suggests Taiwan’s largest firms would face diverging fortunes over the coming few quarters before a widespread recovery takes hold after vaccines for COVID-19 become prevalent, likely in the second half of next year, Taiwan Ratings director of corporate ratings Raymond Hsu (許智清) told a media briefing in Taipei.
The scenario means that debt leverage would rise for some companies given their scheduled increases in capital spending, Hsu said, referring mainly to non-tech companies.
“For the first time in three years, we made no upward adjustments for local companies, while global trade tensions and the virus outbreak resulted in seven downward adjustments,” Hsu said.
Most downward revisions came in line with weakening financial risk profiles, he said, adding that for the aviation industry, the change reflects materially softer profitability.
More than 30 percent of the companies — chiefly in the transportation sector, CSC Group (中鋼集團) and Formosa Plastics Group (台塑集團) — have a negative outlook, the local arm of Standard & Poor’s Global Ratings said.
Robust demand from rising investment in working from home, homeschooling and the evolution of telecommunications technologies could give a lift to the credit profiles of the tech sector, Hsu said.
This has led to a slight divergence in the credit outlook between tech and non-tech sectors for this and next year, he said.
Regardless, Taiwan Ratings sees significant downside risk for all sectors through next year owing to high uncertainty over efforts to contain the virus, Hsu said, adding that trade and technology disputes between the US and China would lend unpredictability to a demand recovery.
Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) alone would account for more than 30 percent of the 50 companies’ earnings before interest, taxes, depreciation and amortization (EBITDA) this and next year, Hsu said.
TSMC, the world’s largest contract chip maker, has stayed above the fray, thanks to its technology leadership and robust demand for the latest-generation chips, he said.
Business for steel, building materials, transportation, oil refining and chemical sectors would not return to pre-pandemic levels until 2022, Taiwan Ratings said.
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