June 8, 2009    Taiwan: Chemicals
Goldman Sachs Global Investment Research  1
June 8, 2009
Taiwan: Chemicals
Formosa: Mixed sales performance but still see qoq growth in 2Q
Formosa group reported May sales on June 6, with FPC and NYPC down
7% and 1 4% mom, while FCFC and FPCC up 12% and 15% mom.
Mixed sales performance; likely to see growth momentum in June
FPC: While we see a 5%-1 0% mom price increases across all products, we
believe the 7% mom sales decline in May was mainly due to c.20% sales
volume decline for PE on inventory de-stocking and downstream
customers pushing back orders on expectations of more ME supply
coming in the near term.
NYPC: We attribute the 1 4% mom sales decline to around 10% and 29%
sales declines for the chemical and electronic material divisions,
respectively, on inventory de-stocking.
FCFC: We think the 1 2% mom sales improvement was mainly due to 1 8%
and 5% mom price increases in PTA and PX, respectively, along with sales
volume increases given the traditional polyester peak season.
FPCC: We attribute the 1 5% mom sales improvement to higher sales
volume for oil products (utilization rate increased from c.80%-90% in April
to 100% in May for the refining division) along with price increases across
its product range on recent oil price increase.
We expect to see sales growth momentum in June for the Formosa group
after a period of inventory de-stocking and our expectation of rising oil
prices to lead to price increases for chemical products.
New supply commencement schedule, demand conditions still key
We think the key issues to focus on are the commencement schedule for
new ME supply as well as the health of the global demand recovery. While
we believe the trough has passed for the Formosa group, we maintain our
Neutral rating till we see more positive signs on the demand side and
further push-back in the new ME capacity commencement schedule.
Risks
Upside risk: further delay in the ME capacity commencement schedule and
stronger-than-expected demand recovery. Downside risk: weaker-than-
expected demand pick-up.
RATINGS AND 12-MONTH TARGET PRICES
NT$ Ticker Rating 12-m TP
Formosa Plastics 1301.TW Neutral 72.0
Nan Ya Plastics 1303.TW Neutral 53.0
Formosa Chem & Fibre 1326.TW Neutral 59.0
Formosa Petrochemical 6505.TW Neutral 80.0
Closing prices as at June 5, 2009: Formosa Plastics – NT$60.30;
Nan Ya Plastics – NT$45.95; Formosa Chem & Fibre –
NT$52.20; Formosa Petrochemical – NT$80.30.
For important disclosures, please go to
http://www.gs.com/research/hedge.html. For methodology and
risks associated with our price targets, please see our
previously published research.
Source: Gao Hua Securities Research estimates.
Jim Hung
+86(1 0)6627-31 91 | jim.hung@ghsl.cn Beijing Gao Hua Securities Company Limited
Rowena Chang
+886(2)2730-41 83 | rowena.chang@gs.com Goldman Sachs (Asia) L.L.C., Taipei Branch
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