Fitch issues tough view for corporates

Bangkok Post

02-07-2025

Thai corporates are bracing for a tough earnings outlook this year, particularly in the petrochemical and energy sectors, as weakening global demand and rising capacity weigh on profitability, according to Fitch Ratings.
Obboon Thirachit, senior director for corporate ratings at Fitch Ratings (Thailand), said local companies, particularly in the petrochemical and energy sectors, are likely to encounter heightened pressure to achieve an earnings recovery this year because of weaker demand amid new supply.
"Private firms are at a crossroads this year," he said. "They face mounting challenges on both domestic and international fronts, including softening household demand due to high debt, fiscal constraints and ongoing global economic volatility."
External risks such as geopolitical tensions, supply chain disruptions, trade conflicts and the influx of cheap Chinese goods are compounding pressure on export-reliant sectors, said Mr Obboon.
"The tourism rebound has been slower than expected, and Chinese demand continues to lag due to China promoting domestic travel," he said.
Meanwhile, climate-driven transitions are intensifying.
"Companies are under pressure to pivot towards low-carbon models, which demand large-scale investment to meet carbon neutrality targets," said Mr Obboon.
The petrochemical sector has been the most affected since 2022, due to a surge in new supply from China and unfavourable economic conditions, noted Fitch Ratings.
The sector is expected to remain weak through 2027, with a recovery anticipated in 2028 as the pace of new supply expansion slows, he said.
Profitability in the oil and gas sector remains strong, supported by relatively low debt levels and ongoing public investments.
These investments are driven by policies that promote renewable energy development as part of the national push towards carbon neutrality.
Public infrastructure spending also continues to bolster the growth of the cement and building materials industries, both of which have reported increased revenue this year, according to Fitch Ratings.
Over the past 12 months, Fitch added negative ratings actions for several companies due to sluggish earnings recovery, driven by slow profit growth, weak demand, oversupply and rising costs.
The petrochemical sector was the most severely impacted, owing to high debt levels, overinvestment and a downturn in its business cycle.
Mr Obboon said over the past five years, Thai companies rated by Fitch have expanded investments and pursued acquisitions to lift production capacity, extending beyond domestic markets where growth was limited.
These firms are increasingly channelling capital into renewable and downstream products, he said.
Governments globally have set targets for carbon neutrality, which is transforming the behaviour of both consumers and businesses.
As a consequence, demand for fossil fuels and natural gas is likely to decline, with more consumers shifting to electric vehicles.
"The global push towards carbon neutrality is reshaping demand. Thai energy firms are adapting with a focus on stable-demand businesses, while exploring growth and cautiously investing in emerging sectors such as technology and data centres. These investments are intended to address long-term changes resulting from climate change, as well as business and technological transformation," said Mr Obboon.
"We will see the benefits for companies that operate across both upstream and downstream segments, as integrated operations help create better balance and resilience in their overall business. For the eye-catching industries, power generation is a standout sector as operators realign their portfolios towards lower carbon emissions."
While leverage remains high due to heavy investment, the long-term transition is underway. In building materials, infrastructure stimulus and a move towards low-carbon cement are driving revenue, he said. Meanwhile, the telecoms sector benefits from a duopoly structure, consistent free cash flow and improving leverage prospects.