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Chi Mei Corp. Assigned 'twA' Rating; Outlook Stable
RATIONALE The ratings reflect CMC's solid niche position in the Acrylonitrile-Butadiene-Styrene (ABS) resin market, and its ability to generate relatively stable cash flows throughout industry ups and downs. Counterbalancing factors include the highly cyclical and competitive nature of the global petrochemical industry, and the company's exposure to the high-risk thin film transistor liquid crystal display (TFT-LCD) industry through its investment in Chi Mei Optoelectronics Corp. (CMO). CMC is the world's largest producer of ABS resin, with a global market share of about 17% in terms of production capacity. Although CMC has a relatively narrow product base, benefits from economies of scale have helped reduce the company's raw material costs. The company's research and development efforts have also enabled it to introduce new high-margin products and reduce manufacturing costs. As a result, CMC has been able to generate satisfactory profitability and cash flow throughout industry ups and downs. CMC has a 36% shareholding stake in in CMO, which manufacturers large TFT-LCD panels for use in monitors and notebook computers. CMC has made several equity injections into CMO and also provided guarantees for its subsidiary's bank loans. CMC plans to issue NT$10 billion worth of preferred shares and a NT$5 billion unsecured corporate bond to fund CMO's aggressive capital expenditure plan for 2005 CMC's revenue grew by 33% year-on-year to NT$58.8 billion in 2004, and its net income rose by 25% year-on-year to NT$10.9 billion, boosted by improved conditions in the global petrochemical industry and higher equity income from CMO. The company's EBITDA interest coverage was a strong 28x in 2004. TRC expects CMC's ratio of funds from operations to net debt to range between 20% to 25% over the medium term, factoring into account CMC's new debt and preferred share issues totaling NT$15 billion in 2005. OUTLOOK: STABLE
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