Taiwanese Corporates cling to profitability amid weakening demand: S&P

TAIPEI - Taiwan's top 50 corporates face weakening profitability and cash flow protection in 2016. But most have sufficient financial buffers to protect their credit quality, given their generally high cash balances - and ample liquidity in Taiwan's banking sector, according to a series of articles published by Taiwan Ratings Corp., the Taipei-based subsidiary of S&P Global Ratings.

The commentaries take a close look at Taiwan's top 50 corporates by revenue in 2015, their credit strengths and weaknesses, and the difficulties they face amid an enduring economic downturn.

“Profitability recovered slightly in 2015, on the back of falling crude oil and other key raw material costs," said Taiwan Ratings' credit analyst,  Daniel Hsiao.

"This helped strengthen financial risk profiles in the non-tech sector to be comparable to those of local tech peers in 2015. But volatility in commodity prices could pose some headwind for corporates in sustaining their profitability over the coming year."

Taiwan's corporate sector and the country's GDP are highly reliant on exports, particularly electronics and petrochemical products. However, exports also face intensifying competition from nearby economies that may have more favourable tariff rates and trade agreements with Taiwan's key export markets of China and the US.

Rising technology competition from China as well as Taiwan’s weaker GDP growth and continuing overcapacity further exacerbate these risks, S&P says.

The articles also reveal that the weakest stand-alone credit profiles among the top 50 corporates are in the transportation cyclical, regulated utilities,and oil refining and marketing sectors, while retailing, semiconductor, and telecom sectors have the strongest. www.standardandpoors.com (ATI).