Formosa Plastics Corp.

Expansion of chemical capacity in the U.S. and Asia (mainly China) from 2018-2022 could prevent significant improvement in supply-demand conditions, if current expansion projects are not materially delayed by COVID-19. Average selling prices and spreads for chemicals may be weakened and that is likely to derail the recovery. We believe products such as ethylene, propylene, paraxylene, and their downstream derivatives could be particularly at risk under the weak global demand. The stable outlook reflects our view that the FP group will maintain its ratio of debt to EBITDA at 2x-3x over the next two years with recovering profitability and delayed spending. This is despite a weaker ratio in 2020, due to the pandemic's impact and a sharp decline in oil

... the pace of recovery in the group's performance. We forecast the group's sales to recover by 20%-25% in 2021, supported by an expected rebound in oil price, as well as the group's capacity addition in the U.S. and China. However, we expect still-tepid demand and capacity additions in the region to limit the expansion of product spreads. We therefore project the Formosa Plastics (FP) group's EBITDA margin to only moderately widen to 12%-14% in 2021. This is despite better capacity utilization and efforts to increase sales of value-added products. The four core members of the FP group are Formosa Plastics Corp. (FPC), Nan Ya Plastics Corp. (NYPC), Formosa Chemicals & Fibre Corp. (FCFC), and Formosa Petrochemical Corp. (FPCC). Expansion of chemical capacity in the U.S. and Asia (mainly China) from 2018-2022 could prevent significant improvement in supply-demand conditions, if current expansion projects are not materially delayed by COVID-19....

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