U/G Formosa Chemicals & Fibre: Strong GM outlook, less pressure from PTA - 1326 TT; BUY
We turn positive on FCFC’s profitability outlook due to 1) the styrene monomer (SM) upcycle in 2Q16F; 2) a favorable spread in 2016F; 3) a less negative PTA impact; and 4) strong dividend income. FCFC is now trading at a 2016F P/B of 1.6x, equivalent to a mid-cycle (2009-2015) valuation (vs. period avg. ROE of 8%). We expect a re-rating of the company driven by strong earnings growth (outperforming other companies in FPC group) and its attractive valuation.
Formosa Chemicals & Fibre is engaged in the manufacture and sales of petrochemical products including purified terephthalic acid, polystyrene, butadiene, stryene monomer ("SM"), SM polymer, benzene, toulene, p-xylene, o-xylene, nylon fiber and rayon staple fiber. Through its subsidiaries, Co. is also engaged in the manufacture and sales of rayon-grade wood pulp, machinery for chemical fibers, other industrial-grade chemical products and processed goods; spinning, weaving, dyeing and finishing of chemical fibers; water treatment; cable and machine installation; and import and export of aforementioned products and materials.
Yuanta is a Taiwan-headquartered brokerage with a growing presence in Asia, especially across Greater China. Our team of 140+ provides cutting-edge analysis on key sectors, spread across offices in Taiwan, Hong Kong, Shanghai (A-Share), Seoul and Jakarta. With an ever-expanding coverage universe of 400+ companies, we provide in depth analysis with unique local color to investors. Consistently being voted the Best Investment Consulting Firm in Taiwan in the AsiaMoney broker poll is evidence of our strength. We target providing an extensive range of research, from small, to mid-sized, to large cap. We bring you the big, well-covered names, as well as going off the beaten track to research the less-familiar companies.
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