臺灣石油化工：已不在堪薩斯

1、TaiwanEquitiesChemicalsWere not in Kansas anymoreTaiwan PetrochemicalsTHIS CONTENT MAY NOT BE DISTRIBUTED TO MAINLAND CHINAPersistent demand weakness dims industry outlook; COVID- 19 impact dents an already gloomy picture furtherLarge inventory loss set to weigh on 1H20 earnings; low visibility of a

2、 cyclical turnaround in 2H20Maintain Buy on FPC; upgrade NYP to Hold; downgrade FCFC to Reduce and FPCC to Hold; adjust TPs on new estimates and CoE assumptionsLower for longer: We cut our 2020-21e earnings 27-44% across four Formosa Plastics Group (FPG) names as we expect the weakness in the petroc

3、hemical market to persist. COVID-19-related disruptions further dampened sentiment in an already bearish downstream demand environment. We believe fluctuation in oil prices will deter any near- term restocking activities. The chemical market is also oversupplied, which could weigh on product spreads

4、 over the medium term. With our new assumptions on global demand, oil price and product spreads, we adjust our new TPs and ratings as follows:Formosa Plastics Buy, TP TWD102 from TWD116: FPC remains the name to own we like the long-term fundamental story for polyvinyl chloride (PVC) and caustic soda

5、. FPC generates the highest FCF yield in the group given it will not participate in the USD9.4bn Louisiana project, slated to kick off in 1H20.Nan Ya Plastics Hold (from Reduce), TP TWD60: The outlook for monoethylene glycol (MEG) is dire as a total of 3.2m tons of confirmed new MEG capacities in As

6、ia starts up in 2020, weighing on a market that is already plagued by poor margins (Global Chemicals: MEG - down and out, 5 July 2019). However, we see relative strength from its DRAM and PCB subsidiaries, thanks to 5G smartphone demand, which could provide some cushion for its ailing petrochemical

7、business.Formosa Chemicals & Fibre Reduce (from Hold), TP TWD66 from TWD94: The aromatics market is under severe pressure with loosening supply/demand balance for PX/PTA, styrene, and phenols. We expect FCFCs profit to see the steepest fall in 2020e, by 21.3% y-o-y, within FPG given the vulnerabilit

8、y of its product portfolio.Formosa Petrochemical Hold (from Buy), TP TWD83 from TWD115: HSBCs oil team has cut the oil price deck to USD49/b, USD55/b and USD60/b for 2020e, 2021e and 2022e from USD60/b, USD65/b and USD66/b, respectively. While we think fundamentals could turn in favour of Asian refi

9、ners on Saudis OSP (official selling price) cut, demand risk could still mute the 2020 profit outlook.13 March 2020Jeremy Chen*Head of Research, TaiwanHSBC Securities (Taiwan) Corporation Limited HYPERLINK mailto:jeremy.cm.chen.tw jeremy.cm.chen.tw+886 2 6631 2866Evelyn Yu* Research AssociateHSBC Se

10、curities (Taiwan) Corporation Limited HYPERLINK mailto:evelyn.cc.yu.tw evelyn.cc.yu.tw+886 2 6631 2867* Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations Asiamoney Global RMB Poll 2020Voting opens 2nd 27th March 2020If you val

11、ue our service and insight, please voteClick here to voteTable 1. Key changes to ratings, target prices and estimatesRatingCMP _TP (TWD)Up/down Mkt cap_P/E (x) _ P/B (x) EPS YoY ROE _ Div. Yield _CompanyNewOld (TWD) NewOldside (USDbn) 2019e 2020e 2019e 2020e 2019e 2020e 2019e 2020e 2019e 2020eFormos

12、a Plastics (FPC)BuyBuy88.9 102.0 116.014.7%18.915.217.01.61.6 -25% -11% 10.5% 9.3%4.9%4.4%Nan Ya Plastics (NYP)HoldReduce66.360.060.0-9.5%17.522.8 -56%-2% 6.1% 6.0%3.2%3.2%Formosa Chemicals & Fibre (FCFC) ReduceHold77.566.094.0-14.8%15.01.1 -39% -21% 7.0% 5.5%5.0%3.9%Formosa Pet

13、rochemical (FPCC)HoldBuy80.783.0 115.02.9%25.620.9 -39% -12% 10.9% 9.7%3.6%3.2%Source: Bloomberg, HSBC. *Prices as of 11 March 2020.Disclosures & DisclaimerThis report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, whic

14、h forms part of it.Issuer of report: HSBC Securities (Taiwan) Corporation LimitedView HSBC Global Research at:https: HYPERLINK / /Lower visibility of a cyclical reboundWe cut our 2020-21e earnings 27-44% across the four Formosa Plastics Group (FPG) names as we expect weakness in the petrochemical ma

15、rket to persist for longer. Disruptions related to COVID-19 further dampened sentiment in an already bearish downstream demand environment. Against a backdrop of concerns over global trade, supply chains, and commodity demand, our economics team cut 2020e global GDP forecast from 2.5% to 2.3%. HSBC

16、greater China economics team has lowered its mainland China 2020e GDP growth to 5.3% from 5.8%, casting a gloom over downstream petrochemical and refined product demand given a slowdown in economic and industrial activities. Please see also The China impact: Lowering our global growth forecasts, 12

17、February 2020.A reversal in OPEC policy has sent global oil price in a freefall mode. HSBC global oil team is now expecting zero demand growth in 2020, with a decline of 1.3% in 1H20. As a result, HSBC global oil team have cut our 2020 Brent price assumption from USD60/b to USD49/b, with 2Q20 at USD

18、42/b and a recovery to USD50/b in the second half. They have also cut our longer-term price assumptions to USD55/b for 2021 and USD60/b real thereafter vs USD65/b previously.Fluctuation in oil price will deter any restocking activities in the near-term adding more woes to the pricing outlook.The che

19、mical market is also oversupplied which should weigh on the product spreads over the medium term. New mainland Chinese refinery capacity that came online in 2019 has set a bearish tone for aromatics outlook. Ethylene, propylene and butadiene supply in US and Asia will also see a boost in 2020. Net-n

20、et, we see substantial downside risks across PE, PP, MEG, and Aromatics.With our new assumptions on global demand, oil price, and chemical spreads, we are resetting our earnings expectations for the four Formosa names.See also: “Oil Markets: All change a sudden reversal of OPEC policy” (09 March 202

21、0) and “Global Chemicals: Things fall apart, pricing cannot hold” (09 March 2020).Table 2. HSBC EPS estimates revisions for Formosa Group New est. Old est. Chg. (%) EPS (TWD)FY19eFY20eFY21eFY19eFY20eFY21eFY19eFY20eFY21eFPC (1301 TT)5.865.235.916.577.227.69(10.8)(27.5)(23.1)NYP (1303 TT)2.912.853.713

22、.514.104.26(17.0)(30.6)(12.9)FCFC (1326 TT)5.144.044.876.547.177.48(21.4)(43.6)(34.9)FPCC (6505 TT)Source: HSBC estimates3.863.394.833.865.115.70(0.0)(33.5)(15.3)Table 3. EPS estimates for Formosa Group HSBCe vs Consensus HSBC est. Cons. est. Diff. (%) EPS (TWD)FY19eFY20eFY21eFY19eFY20eFY21eFY19eFY2

23、0eFY21eFPC (1301 TT)5.865.235.916.706.296.48(12.5)(16.8)(8.8)NYP (1303 TT)2.912.853.713.543.674.17(17.9)(22.4)(10.9)FCFC (1326 TT)5.144.044.875.854.754.38(12.2)(14.8)11.1FPCC (6505 TT)3.863.394.834.364.474.60(11.5)(24.0)Source: Bloomberg, HSBC estimates5.0Table 4. Quarterly EPS estimates summary for

24、 Formosa Group 2019 2020e EPS (TWD)1Q192Q193Q194Q19FY191Q20e2Q20e3Q20e4Q20eFY20FPC (1301 TT)1.281.632.460.495.860.481.171.951.645.23NYP (1303 TT)0.640.741.010.522.910.400.581.020.852.85FCFC (1326 TT)1.460.992.170.515.140.260.861.431.494.04FPCC (6505 TT)0.970.841.310.753.860.170.641.591.003.39QoQFPC

25、(1301 TT)249%27%51%-80%-3%145%67%-15%NYP (1303 TT)17%16%37%-48%-24%46%77%-17%FCFC (1326 TT)383%-32%119%-76%-49%225%66%4%FPCC (6505 TT)-323%-13%55%-43%-77%277%150%-37%YoYFPC (1301 TT)-31%-40%-14%34%-25%-63%-28%-21%235%-11%NYP (1303 TT)-62%-65%-56%-4%-56%-38%-22%1%62%-2%FCFC (1326 TT)-34%-59%-36%70%-3

26、9%-82%-13%-34%190%-21%FPCC (6505 TT)Source: HSBC estimates-50%-68%-40%n.m-39%-83%-24%22%34%-12%Formosa Plastics (FPC): 1301 TT, TWD88.9, Buy, TP TWD102 (from TWD116) our only Buy and preferred name in FPGA relatively more defensive product portfolioFPC remains the name to own in the group as we like

27、 the long-term fundamental story for PVC and caustic soda. For PVC, according to IHS Chemical, PVC demand should grow by 4%, outpacing the 2% capacity growth in 2020e. For caustic soda, according to IHS Chemical, a limited supply CAGR of 0.2% over 2019-23 is below the expected demand growth of 2.2%,

28、 which should help drive a tighter market. FPC also generates the highest FCF (free cash flow) yield in the group given: (1) FPC will not participate in the Groups USD9.4bn Louisiana project which is slated to kick off in 1H20 and (2) delay of its construction of its Ningbo PDH plant, which was slat

29、ed to complete construction by 3Q21, due to logistics disruption from COVID-19. We forecast FPCs FCF to stay at an average of 4.9% over 2020-22e vs. average of 3.6% for the group.Figure 1. Average FCF yield for FPG over 2020-22e4.9%3.6%3.2%2.6%6.0%5.0%4.0%3.0%2.0%1.0%0.0%FPCNYPFCFCFPCCAvg. FCF yield

30、 over 2020-2022eFPG avg.Source: TEJ, HSBC estimates. *Price as of 11 March 2020.Insert chart hereMedium-term pressure from lower equity investmentsDespite a positive long-term stance on the outlook of PVC and caustic soda, we expect a limited contribution from FPCs new US capacities: FPCs two new US

31、 units - HDPE (high-density polyethylene) and ethane cracker (OL-3), which started commercial run at the end of 2019 are now running at full capacity. According to FPC, its HDPE plant could see earnings losses in 2020e on a poor PE margin. Given a tougher macro outlook and the rising oil price volat

32、ility, equity income from Formosa Petrochemical (FPCC, 6505 TT) (FPC owns 29% of its share) and FPC USA (FPC holds 23% of its shares) will also deliver a decline YoY in 2020. We thus expect FPC to only see earnings rebound in 2021e after an 11% EPS decline in 2020e.Estimate revisionsWe lower our EPS

33、 estimates for 2019/2020/2021e by 10.8%/27.5%/23.1% as we factor in: (1) lower-than-expected 4Q19 results net profit came in short of our estimates by 59%, (2) lower product spreads assumptions by 9%/10% for 2020/2021e mainly on a muted outlook for PE, PP, and (3) weaker equity investment incomes fr

34、om FPCC by 48%/31% and FPC USA by 26%/27% for 2020/2021e.Table 5. FPCs earnings estimates summaryFPC earnings breakdown (TWDm)20152016201720182019e2020e2021ePVC1,8773,5325,0804,4295,4455,6086,224PE3,4643,9462,4288909881,0421,198AA & AE(1,153)(711)1,6131,282859622679Caustic soda7901,8204,7335,4793,07

35、03,5213,649Specialty chem2,5432,3806,0779,7906,9386,4676,844PP4,8914,7123,0762,5591,9871,6171,925SAP(103)(968)(727)(290)591047Others(1,808)(1,693)(343)1,2018001,000800Consolidated operating profit10,50113,01721,93825,34120,14619,88721,367Equity investment income from FPC USA6,3526,3396,3165,5984,280

36、4,3234,539Sub-total of core earnings16,85319,35628,25430,94024,42624,21025,906Equity investment income from FPCC13,54721,52222,86717,22810,5109,23813,159Cash dividend income from NYP and FCFC2,0403,2814,6385,2274,6842,4802,417Others2,653(345)(855)3,6973,3592,4671,901Pretax profits35,09443,81454,9045

37、7,09242,97938,39443,382Net profits30,87739,39349,38349,55037,30033,32237,651EPS (TWD)4.856.197.767.785.865.235.91FPC earnings breakdown20152016201720182019e2020e2021ePVC5%8%9%8%13%15%14%PE10%9%4%2%2%3%3%AA & AE-3%-2%3%2%2%2%2%Caustic soda2%4%9%10%7%9%8%Specialty chem7%5%11%17%16%17%16%PP14%11%6%4%5%

38、4%4%SAP0%-2%-1%-1%0%0%0%Others-5%-4%-1%2%2%3%2%Consolidated operating profit30%30%40%44%47%52%49%Equity investment income from FPC USA18%14%12%10%10%11%10%Sub-total of core earnings48%44%51%54%57%63%60%Equity investment income from FPCC39%49%42%30%24%24%30%Cash dividend income from NYP and FCFC6%7%8

39、%9%11%6%6%Others8%-1%-2%6%8%6%4%Pretax profits100%100%100%100%100%100%100%FPC earnings YoY growth20152016201720182019e2020e2021ePVC146%88%44%-13%23%3%11%PE331%14%-38%-63%11%5%15%AA & AE-161%-38%-327%-21%-33%-28%9%Caustic soda7%130%160%16%-44%15%4%Specialty chem79%-6%155%61%-29%-7%6%PP3055%-4%-35%-17

40、%-22%-19%19%SAP-111%n.mn.mn.mn.m-84%396%Others48%-6%-80%-450%-33%25%-20%Consolidated operating profit90%24%69%16%-21%-1%7%Equity investment income from FPC USA16%0%0%-11%-24%1%5%Sub-total of core earnings195%44%30%-5%-28%-5%19%Equity investment income from FPCC412%59%6%-25%-39%-12%42%Cash dividend i

41、ncome from NYP and FCFC3%61%41%13%-10%-47%-3%Others-45%-113%148%-532%-9%-27%-23%Pretax profits72%25%25%4%-25%-11%13%Net profits73%28%25%0%-25%-11%13%EPS (TWD)73%28%25%0%-25%-11%13%Source: TEJ, HSBC estimatesNanYa Plastics (NYP): 1303 TT, TWD66.3, Hold (from Reduce), TP TWD60.0No light at the end of

42、the tunnel for MEGWe expect MEG to face a challenging year in 2020 due to start-ups of several new units in mainland China. This could lead to weaker demand for MEG imports given a rise in domestic supply. Specifically, mainland Chinas Hengli Petrochemicals (600346 CH, RMB14.38, Buy) 900k tpa and Zh

43、ejiang Longshengs (600352 CH, RMB13.83, Buy) 750k tpa plants have begun commercial runs in 2H19. The effect of these new supply will begin to have a wider impact on regional supply/demand balance through 2020. In Southeast Asia, the start-up of 750k tpa JV between Petronas and Saudi Aramco is expect

44、ed to commission in 2H20. In sum, total MEG capacity in northeast Asia could rise by 18% to 19.83mn tons in 2020, according to ICIS. This implies overall utilization rate could fall to 66% in 2020 from 75% in 2019.Tech strength could provide cushionHSBC tech team is bullish on the outlook of DRAM, t

45、hanks to demand boost from 5G smartphones and servers to support increasing data traffic (Skyrocketing server DRAM and NAND price, 28 February 2020). We anticipate stronger profit outlook for NYPs 29%-owned Nanya Tech (NYT, 2408 TT, CMP TWD72.6, Not rated) which, based on consensus estimates, would

46、see 24%/55% net profit growth in 2020/2021e. In addition, NYPs 66.97%-owned Nanya PCB (8046 TT, TWD54.2, Not rated) is also positioned to ride on the growing 5G infrastructure theme. Nanya PCB is a leading vendor of ABF (ajinomoto build-up film) IC substrate which are used in 5G base stations. Accor

47、ding to our PCB analyst, Darryl Cheng, supply of ABF IC substrate is expected to be tight given a limited new capacity expansion over the coming years. We see an improving fundamental picture for Nanya PCB to drive better margin outlook for NYPs electronic material division.Figure 2. NYP vs Nanya PC

48、Bs salesFigure 3. NYP vs Nanya PCBs operatingprofit35,00030,00025,00020,00015,00010,0005,00001Q12 2Q13 3Q14 4Q15 1Q17 2Q18 3Q1912,00010,0008,0006,0004,0002,00006,0004,0002,0000(2,000)(4,000)1Q12 2Q13 3Q14 4Q15 1Q17 2Q18 3Q195000(500)(1,000)(1,500)(2,000)NYPs electronic materials sales (TWDm)Nanya PC

49、Bs sales (TWdm) (RHS)NYPs electronic materials operating profit (TWDm)Nanya PCBs operating profit (TWDm) (RHS)Source: TEJ, HSBCSource: TEJ, HSBCEstimate revisionsWe lower our EPS estimates for 2019/2020/2021e by 17.0%/30.6%/12.9% as we factor in: (1) lower-than-expected 4Q19 results EPS missed our e

50、stimates by 53%, (2) lower OPM assumptions for the chemical segment on a weaker supply/demand outlook that is in line with HSBCs view; and (3) lower equity investment incomes from FPCC by 51%/31% where NYP holds 23% of its shares.Table 6. NYPs earnings estimates summaryNYP earnings breakdown20152016

51、201720182019e2020e2021ePlastics processing4,5504,6653,3232,9772,4641,9772,094Chemicals6,8252,32011,99213,572(700)(1,418)734Electronic materials1,5002,90813,3089,9156,6847,6498,781Polyester2,5721,8061,1703,2941,6229711,042Others3,1491,58356(337)(85)25040Total op. profit Equity investments18,59713,283

52、29,85029,4219,9849,42812,691Nanya Technology Corp. (2408 TT)6,4177,86712,98211,6072,9203,6345,642Formosa Petrochemical Corp (6505 TT)11,03717,50718,52613,8898,5047,47510,648Mai-Liao Power Corp.1,6311,071213133139146154Dividend income from FPC and FCFC6701,5532,1432,6642,5811,8211,684Other equity inv

53、estment income (loss)1,5893,2412,4394,1654,6493,8993,874Total equity investment income20,67429,68634,16029,79416,21315,15420,317Other non-op income (expenses)4,37410,878(1,234)2,3114071,5501,151NYP Pretax Profit43,64553,84762,77661,52526,60326,13334,159EPS (TWD)4.506.166.876.652.912.853.71YoY2015201

54、6201720182019e2020e2021ePlastics processing23%3%-29%-10%-17%-20%6%Chemicals315%-66%417%13%-105%n.mn.mElectronic materials-5%94%358%-25%-33%14%15%Polyester16%-30%-35%181%-51%-40%7%Others68%-50%-96%-704%n.mn.m-84%Total op. profit Equity investments70%-29%125%-1%-66%-6%35%Nanya Technology Corp. (2408 T

55、T)-40%23%65%-11%-75%24%55%Formosa Petrochemical Corp (6505 TT)421%59%6%-25%-39%-12%42%Mai-Liao Power Corp.0%-34%-80%-38%5%5%5%Dividend income from FPC and FCFC-26%132%38%24%-3%-29%-7%Other equity investment income (loss)-35%104%-25%71%12%-16%-1%Total equity investment incomeOther non-op income (expe

56、nses)23%-34%44%149%15%-111%-13%n.m-46%n.m-7%n.m34%n.mNYP Pretax Profit27%23%17%-2%-57%-2%31%EPS (TWD)13%37%12%-3%-56%-2%30%NYP earnings breakdown20152016201720182019e2020e2021ePlastics processing10%9%5%5%9%8%6%Chemicals16%4%19%22%-3%-5%2%Electronic materials3%5%21%16%25%29%26%Polyester6%3%2%5%6%4%3%

57、Others7%3%0%-1%0%1%0%Total op. profitEquity investments43%25%48%48%38%36%37%Nanya Technology Corp. (2408 TT)15%15%21%19%11%14%17%Formosa Petrochemical Corp (6505 TT)25%33%30%23%32%29%31%Mai-Liao Power Corp.4%2%0%0%1%1%0%Dividend income from FPC and FCFC2%3%3%4%10%7%5%Other equity investment income (

58、loss)4%6%4%7%17%15%11%Total equity investment income47%55%54%48%61%58%59%Other non-op income (expenses)10%20%-2%4%2%6%3%NYP Pretax Profit100%100%100%100%100%100%100%Source: TEJ, HSBC estimatesFormosa Chemicals & Fibre (FCFC): 1326 TT, TWD77.5 Reduce (from Hold), TP TWD66.0 (from TWD94)Aromatics and

59、styrene chain products to under pressure amidst supply glutThe aromatics market is under severe pressure with loosening supply/demand balance for PX/PTA, styrene, and phenols. PX pricing and margins have already been on a declining trend since 2Q19 with the start-up of Hengli Petrochemicals 4.5mn tp

60、a unit. This will continue into 1H20 with more capacities expected to come on stream in 2H20. The outlook for PTA is equally bleak. According to IHS Chemical, mainland Chinas PTA capacity has grown by 4.7mn tpa since 2018 to reach 48.9mn tpa by end of 2019. It is expected that two new PTA units, Hen