The earnings ability of Taiwan’s top 50 corporations could continue to decline this year as the global economy is at risk of a hard landing, which has dampened their business, T Corp (中華信評) said yesterday.
The firms’ earnings before interest, taxes, depreciation and amortization (EBITDA), as well as profit margins, are continuing a downward trend due to the global economic slowdown and inventory adjustments, the local subsidiary of S&P Global Ratings said.
The situation might improve in the second half of this year due to a likely rebound in demand and inventory restocking, which should support earnings generation next year, Taiwan Ratings corporate credit analyst Raymond Hsu (許智清) said.
Photo: Clare Cheng, Taipei Times
In the tech sector, demand for smartphones, PCs and consumer electronics would remain weak, despite robust demand for artificial intelligence (AI) servers, Hsu said.
Inventory adjustments at semiconductor firms would continue longer than expected, with oversupply likely in the next three years after record investments in capacity, he said.
Next year, the top 50 companies’ EBITDA should recover to the level recorded last year, supported by the development of new technologies used in cloud services, electric vehicles and AI applications, Taiwan Ratings said.
As for the non-tech sector, chemical companies could see a limited recovery in product spreads and profitability due to soft demand, while the profit margins of cement makers would not recover by the end of this year, because of a slowdown in China’s property market, the agency said.
However, declining material costs would grow steelmaker’s buffer against tepid steel prices, and an increase in passenger demand and low oil prices could mitigate the erosion of airlines’ margins, Taiwan Ratings said.
In contrast, container shipping companies’ profits would contract severely after seaborne freight rates plunged to pre-COVID-19 levels, while automakers with less exposure to electric vehicles would underperform, it said.
Hopefully, telecoms would see improvements in revenue and earnings amid market consolidation, rising 5G adoption and reduced price competition, Taiwan Ratings said, adding that retailers might see moderate profit growth as the economy improves gradually.
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