The company’s consolidated operating revenue in 2017 was US$ 10,257 million, which represents an increase of 11.2% from US$ 9,223 million in 2016. The consolidated profit before tax was US$2,103 million, which represents an increase of 16.6% from US$1,804 million in the previous year.
In 2017, the global economic momentum was strengthened. Advanced, emerging and developing countries recovered simultaneously, and global trade activities also increased. The International Monetary Fund (IMF) repeatedly revised estimates for the global economy and global trade volume growth rate. It was the best year for economic growth since the financial crisis of 2009. The United States has driven economic growth due to the growth of non-governmental investment, the expansion of manufacturing PMI, and the promotion of tax reform. Although mainland China was restrained by supply-side reforms and strong reinforcement of environmental protection inspections, its economic growth rate reached 6.9% due to strong personal consumption, strong import and export, and stable expansion of the service industry. In other major countries such as Euro countries and Japan, the effectiveness of the expansionary fiscal policy has averted the impact of deflation, and economic growth is generally better than expected.
Under steady global economy growth, Nan Ya has been striving to expand domestic and international markets with full production and sales, and actively increasing the proportion of differentiated and high-value product sales, with remarkable results, including the rapid expansion of electronics material applications, resulting in production and sale is booming, and price is rising. Adding to petrochemical products rising prices follow crude oil prices, the increasing demand has led to widening interest, and as a result, profits have increased significantly. In addition to the increased return recognized by the investment in Nanya Technology and Formosa Petrochemical, the company’s annual pretax profit rose 16.6% compared to last year.
The four main categories of products of Nan Ya are plastic processing products, petrochemicals, polyesters and electronic materials.
On plastic processing products
Most three-stage plastic processing companies in Taiwan have relocated to mainland China and Southeast Asia where raw materials are locally available at cheaper prices, hence the decreasing demand on domestic two-stage processing products. To adapt to changing markets and external environmental factors, Nan Ya continues to transform and accelerate research and development of new applications, new materials, environmental trends and unique specifications to develop new niche markets, and actively strive to collaborate with international manufacturers in production, marketing and strategic alliances, combined with e-commerce and online marketing to vigorously expand high-end markets such as the U.S. and Japan and potential emerging markets. Through the development of manufacturing services to provide customer satisfaction and other efforts, plastic processing products can still maintain stable profits.
In terms of petrochemicals
In response to the vertical integration of the sixth naphtha cracker plant in Mailiao District, our petrochemical products, including EG, BPA, 1,4BG, DEHP, PA, 2EH, and EPOXY, are all integrated vertically with upstream and downstream industries to form a complete supply chain, respectively, to support the development of downstream industries such as the plastic processing, electronics, and polyester industries. Due to the rapid economic growth in mainland China and ASEAN countries, the petrochemical industry is developing rapidly in Asia. The Mailiao plant maintains its highly competitive advantages in terms of production scale, product range, and shortened delivery times, which has made it the Company’s key profit contributor for numerous years.
In 2017, petrochemical product prices were affected by the rise in international oil prices, and the prices gradually increased. The EG demand was better than expected due to mainland China’s economic growth, and the downstream polyester industry’s operating rate gradually increased. Demand for EG increased, resulting in higher profits. For DEHP, the operating performance has been improved due to process optimization, production capacity improvement and product structure adjustment. BPA is affected by unfavorable factors such as overcapacity, high raw material prices and costs, which creates challenges for the operation. However, after enhanced promotional efforts by the sales department, the situation has improved. Although petrochemical products have been heavily affected by upstream raw material price fluctuations, the company continues to promote optimization of various processes, cost down improvements and monitoring of raw material and product pricing, as well as timely adjustment of production, sales and inventory, and strengthening the sales outside mainland China and actively diversifying market risks, and through the adjustment of production and marketing strategies, increased profitability has been achieved.
As for polyester products
Since major international brands haven’t recovered its sales fully in the first half of 2017, orders to manufacturers remained low but gradually increased by the second half of the year. The startup rate of mainland China manufacturers has increased, accompanied by strong market competition. Polyester fiber and yarn continued to perform with good profits from good differentiation and high-valued products. While the PET chip and industrial film product market faces challenges due to oversupply. In the face of difficult external environmental factors, Nan Ya responded to the international requests for eco-products and focused on recycling and green products, collaborated with world renowned brands for better business opportunities, leading to further increased sales that maintained stable profitability.
With regard to electronic materials
In 2017, China, the U.S. and European countries continued to promote new energy vehicles and electrical vehicles. The demand for Lithium battery, copper foil, and related products in the upstream market has grown rapidly. In addition, the demand for PCBs for automobiles and smart home appliances continue to grow, which drove up the supply of upstream electronic materials and as a result, the sales of various products and revenues have increased. In the future, we will integrate the advantages of upstream and downstream vertical integration, accelerate adjustment of production and marketing strategies, and respond to market development trends. We actively promote main products including differentiated products such as high density Interconnection CCL (HDI), high layer count CCL (HLC), automotive electronics CCL, low Dk epoxy, ultrathin glass fiber cloth, high frequency copper foil, and thick copper foil. Increased proportion of niche product sales with high added value and high functionality drives profits and growth.
Our investment in the Nan Ya Printed Circuit Board Corporation, which has long focused on the development and production of PCBs and IC substrate products was devoted to product transformation in 2017 in order to reduce the proportion of PC related products and increase auto electronics, internet communication, and other niche market products. However the transformation rate was behind expectation and operating performance failed to achieve the goal. To catch up with future trends such as AI and machine learning, Nan Ya PCB has actively strengthened its R&D capabilities and developed new products, and continued to improve the rationalization of process configuration and automation of production equipment. In the future, Nan Ya PCB shall continue to expand new customers, strive for more niche-type product orders, and continue to improve production technology, increase yields, and reduce costs to improve operating performance.
Our investment in Nanya Technology relies on DRAM (Dynamic Random-Access Memory) product development, manufacturing and sales. The company completed the 20nm process technology upgrade plan in 2017, which not only increased productivity but also significantly reduced production costs. In addition, to lower the operation risk as well as respond to market changes, the company has already developed and produced high-density products such as 8Gb DDR4, and will introduce a series of high margin products such as consumer and low-power products in the future, which will further diversify the application of products and enhance competitiveness. As the overall DRAM industry was in short supply in 2017, the operating profit of the company increased significantly, and the recognition of the sale of Micron Technology stock interests brought substantial return on investment to the company this year.
In the future, it is expected that 5G, AI, auto-drive and Big Data will lead the industry, bringing along DRAM products as indispensable key components. Nanya Technology will continue to improve its production technology, product design and customer service capabilities in response to market demand, and provide customers with the best memory solutions.
Looking to 2018, it is expected that the global economy will continue to grow steadily. Advanced, emerging and developing countries are expected to be driven by manufacturing. Meanwhile, the global economic situation has changed rapidly, and it is greatly influenced by international political and economic conditions as well as oil prices in various countries. In particular, the economic and trade conflicts brought about by international trade frictions, tariff barriers formed under regional alliances, and the sudden deterioration of the global financial environment, geopolitical situations and so on may all hinder economic development.
After U.S. President Trump’s tax reformation policy was passed, investment in U.S. domestic and foreign capital companies will bring a positive boost to economic growth, better employment rates, and boost consumption and capital expenditure as the U.S. is the world’s largest consumer market. The reduction in taxes will increase the disposable income of U.S. citizens, thus Effectively increasing U.S. demand. The transnational supply chain that supplies the U.S. will continue to expand and operate, thus stimulating international trade and prosperity. However, President Trump promotes the “America First” policy and adopts protectionist measures one after another, causing international economic and trade conflicts and creating barriers to trade, which may adversely impact economy recovery and global trade.
Mainland China will continue its industrial restructuring in the future. The Central Economic Work Conference has clearly stated that China’s economy should transform from ‘high speed’ to ‘high quality’. With China continuing on restructuring the industry and the ‘Made in China 2025’ strategy, its overall industry chain localization will weigh in and bring high threats to Taiwan outbound performance due to great dependence on Chinese market, plus Taiwan being isolated from regional trade organizations where the most favorable trade terms apply, exportation is becoming increasingly unfavorable. In the long run, we fear that the economic development shall stagnate. It depends on the government and all industries to work together to make breakthroughs, and attach importance to and mobilize cross-strait economic and trade relations.
The complex and ever-changing international environment and uncertainties in the future may interfere with economic development. In short term the global economic recovery momentum should continue. However, in the long term, the global economy will still be unable to shake off the low productivity growth and uneven income distribution. Faced with the multiple uncertainties of the global economy, Nan Ya upholds the philosophy of always exploring the bottom line and finishing with perfection, and continuous improvement and pursuit of rationalization. The production department fully promotes process optimization with production data collection, analysis and trend management to achieve the best production conditions to improve production performance.. Furthermore, promotion of circular economy through reduction, reuse and so on, improves resource recycling efficiency to reduce production costs and create maximum economic benefits.
With the joint efforts of the production, sales, and technical departments, we continue to strengthen R&D and expand potential markets, and increase the proportion of differentiated and high-value product sales. By making Taiwan the center of our business operations, we have applied rich experience in diversification and vertical integration, adjusted resources from domestic and foreign companies in which we have invested in order to arrange the best configuration of production and sales, increase our overall competitiveness, and create maximum benefits for our shareholders.
Nan Ya current investment include the addition of production equipment for high-end PEPA synthetic paper, PET film, release film, and a new copper foil plant in Taiwan. In China, production equipment expansion projects include high value-added plastic leather and aluminum-plastic film in Nantong, CCL, prepreg and glass fiber cloth expansion in Huizhou; and the expansion of a new EG plant in Texas. Among them, the new copper foil plant and aluminum-plastic film equipment are developing power and energy storage applications mainly for diversified applications such as differentiated copper foil and battery housing materials for lithium batteries. In Huizhou, the electronic material expansion focuses on local South China market exploration; the new EG plant in Texas utilizes the benefit of cheap local natural gas and is expected to have an annual capacity of 828 thousand tons, and is scheduled for completion in two years, which will be able to expand the production and marketing scale and increase operating income to ensure that the company’s performance continues to increase.