MEG oversupply to hurt Nan Ya margins - Citi

28 March 2008 20:42  [Source: ICIS news]

TORONTO (ICIS news)--Citigroup has downgraded the shares of Taiwan’s Nan Ya Plastics due to expected Middle East oversupply in the company’s core monoethylene glycol (MEG) business and dimmer prospects in specialty and electronics chemicals, it said on Friday.

 

The analysts cut the stock to “sell,” from “buy,” and reduced their price target to New Taiwan dollars (NT$) 67.00, from NT$102.00.

 

Nan Ya’s MEG business - a key profit driver in fiscal 2007-2008 - could see significant margin declines due to oversupply from Middle East producers, Citigroup said.

 

Also, current market supply may not be as tight as expected, as evidenced in the high China import level in January - 435,000 tonnes, up 23% versus the 2007 fourth-quarter average, it added.

 

MEG’s contribution to Nan Ya’s total earnings before interest and tax (EBIT) could decline from 41% in 2008 to 29% and 20% in 2009 and 2010, respectively, the analysts said.

 

Nan Ya’s specialty chemicals division had a strong 2007 but should see some pullback into 2009-2010 as margins in oxo-alcohols and bisphenol-A (BPA) would ease with the start-up of new capacities in the region, they said.

 

Meanwhile, demand in Nan Ya’s electronics chemical business was set to soften, Citigroup said.

 

($1 = NT$30)

 

For more on MEG visit ICIS chemical intelligence

By: Stefan Baumgarten
+1 713 525 2653

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