ACE — Interim / Quarterly Report 2020

May 12, 2020

Jinan Acetate Chemical

4763 TT 1Q20 Results Presentation

May 2020

1Q20 Performance

Key 1Q20 Performance Metrics

• ✓ 1Q20 sales grew 14.5% YoY to NT$524m.

• ✓ Revenue from acetate tows rose 23% YoY, while acetate flake revenue fell by 8% YoY.

• ✓ Key Performance Highlights were:

• Gross margin was 33.1%, surpassing 30% for the 4[th] straight quarter.

• Operating margin was 20.1%, exceeding 20% for the second straight quarter.

• Net Income adjusting out the MTM effect of Acetek’s CB was NT$101m, up 70% YoY.[1]

• EPS adjusted for CB MTM effect was NT$2.0.[1]

What Factors Affected Profitability?

• ✓ Our production and shipments were not affected by Covid-19. Utilization was 98%.

• ✓ Selling prices remained stable, raw material input prices were favorable.

• ✓ Market share expansion continued as we sold to more clients in new markets.

✓ Effective tax rate was 9.7% in 1Q20 vs 24.5% in 4Q19.[1] A one-time tax adjustment biased 4Q19 taxes upwards.

• 1Q20 ROE – not annualized was 9.8%.

Note 1: Mark-to-market paper gain/loss from the 2Q17 CB issue are not included in these calculations, to better reflect core earning capability.

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2020 May Be Even Better than 2019

Business Fundamentals are Strong

We have order visibility through September. In the past two months, we 01 achieved order wins with the tobacco monopolies in China, Taiwan, Syria and Thailand.

We added 1k tonnes of acetate tow capacity in April & will add 5k 02 tonnes of acetate flake capacity in June/July. This amounts to an 8% increase in tow capacity and a 25% increase in flake capacity.

Acetate tow selling prices are expected to rise by 2-3% this 03 year, while the price of key raw material wood pulp should be stable and below 2019 levels. We have locked in our 2020 pricing for wood pulp already.

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We Expect Top Line Growth Momentum to Return in May

April sales fell 21% MoM to NT$152m. January to April cumulative sales reached NT$676m, growing 7% YoY. We expect growth momentum to re-accelerate in May for the following reasons:

April sales were biased downwards by a 7-day shutdown of our acetate production line to Tows add 1K metric tons of tow capacity. In May, we will return to full capacity tow production,BED840BED840 plus the additional capacity.

Flakes

The 2,000 metric ton acetate flake order from China Tobacco will be concentrated in the months of May-August. In addition, downstream plastic acetate granule and sheet producers have resumed production. They expect inventory restocking and peak season demand from European glass frame producers to ramp up beginning in June and to remain strong through the end of 2H20 – though demand is likely to be more muted than in typical years.

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Vertical Integration into the Production of Ascetic Anhydride

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We have decided to integrate upstream into the production of ascetic anhydride.

We expect to spend roughly NT$170m to build 60,000 tonnes of capacity. We estimate it will reduce our cost of production by about 6-7%. * More importantly, we expect that it will make our profits more stable, greatly reducing the effect acetic anhydride spot price movements.

The land is big enough to provide for future expansion.

Item	Details
Land Area	100 Chinese Mu
Land	NT$45m
Plant and Equipment	NT$125m
Est. Annual Depreciation	About NT$14m
Est. Cost Savings	6-7% per tonne of flakes*
Completion Date	Late December 2020
Capacity	60,000 tonnes
Current Internal Use	35,000 tonnes

*Based on current acetic anhydride spot price

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Sales Breakdown

January through March 2020

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Acetate
Flake, 22%
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Acetate Tow Acetate Flake

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Acetate
Tow, 78%
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January through March 2019

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Acetate
Flake, 27%
Acetate
Tow, 73%
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Acetate Tow Acetate Flake

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Revenue and Margin Trend

• 1Q20 revenue rose 15% YoY to NT$524m.

• Gross and operating margins have been trending up since 2Q18, on production efficiency improvements, vertical integration into acetate flakes, strong top line growth, and stabilization in raw material prices.

• Gross margin was 33.1%, the fourth quarter in a row above 30%, while operating margin was 20.1%. Net margin reached a record high 19.2%, increasing from 16.1% in 4Q19. Tax expense fell in 1Q20, after a one-time accounting adjustment for taxes in 4Q19.

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NT$m Quarterly Revenue Trend Quarterly Margin Trend
650 40% 40.0% 40.0%
520 25%
30.0% 30.0%
390 10%
20.0% 20.0%
260 -5%
10.0% 10.0%
130 -20%
0 -35% 0.0% 0.0%
2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20
Revenue (NT$m) Growth(YoY) Gross Margin Operating Margin Net Margin
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• Note: On this page, Net Margin numbers exclude the mark-to-market paper gain/loss from the 2Q17 CB issue.

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Earnings and Growth Trend

• 1Q20 Operating Income rose 100% YoY to NT$105m.

• 1Q20 Net Income rose 70% YoY to NT$101m. 1Q20 EPS was NT$2.00, up 55% YoY. Net Income and EPS have shown positive YoY growth for 7 consecutive quarters.

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NT$m NT$
Earnings & Growth Trend EPS
160 200% 2.50
2.00
120 125%
1.50
80 50%
1.00
40 -25%
0.50
0 -100% 0.00
2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20
Operating Profit Net Income to Parent Net Income Growth(YoY) EPS
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• Note: On this page, all Net Income & EPS numbers, as well as related growth calculations, exclude the mark-to-market paper gain/loss from the 2Q17 CB issue.

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Consolidated Statements of Income - Quarterly

Unit: NTD million	1Q20	4Q19	1Q19	QoQ (%)	YoY (%)
Net Revenue	524	607	458	-14	15
Gross Profit	173	214	120	-19	45
Gross Margin	33.1%	35.2%	26.1%
Operating Expenses	68	81	67	-16	1
OPEX/Sales	13.0%	13.3%	14.6%
Operating Income	105	133	53	-21	100
Operating Margin	20.1%	21.9%	11.5%
MTM Gain (Loss) on CB (non-cash)	25	5	10
Other Non-Operating Income (Loss), Net	9	(4)	1
Pre-Tax Income	139	133	64	4	118
Income Tax Expense	11	32	(1)
Minority Interest	2	0	(5)
Net Income to Parent	126	102	70	23	81
Net Margin	24.1%	16.8%	15.2%
EPS (NT$)	2.50	2.02	1.38	24	81
ROE – not annualized	9.8%	8.4%	5.7%
Depreciation	26	25	24
CAPEX	17	52	30

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Consolidated Balance Sheet – 1Q2020

Unit: NT$ million	2020/03/30	2020/03/30	2019/12/21	2019/12/21	2019/03/30	2019/03/30
	$	%	$	%	$	%
Cash and Cash Equivalents	661	25	589	23	204	9
Notes and Accounts Receivable, Net	541	20	438	17	379	16
Inventories	287	11	243	9	307	13
Other Current Assets	156	6	260	10	318	13
Fixed Assets	800	30	827	32	878	37
Other Long-term Assets	229	8	230	9	280	12
Total Assets	2,673	100	2,586	100	2,366	100
Current CB Payable	461	17	457	18	0	0
Other Current Liabilities	764	29	748	29	489	21
Non-Current CB Payable	0	0	0	0	444	19
Other Non-Current Liabilities	9	0	9	0	46	2
Total Liabilities	1,234	46	1,214	47	979	41
Common Stock	511		511		465
Total Equity	1,439	54	1,373	53	1,386	59
Book Valueper Share(NT$)	26.5		24.9		27.6
Key Indices
Current Ratio ( Current Assets / Current Liabilities)	134%		127%		247%
Net Debt to Equity	7%		5%		27%

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免責聲明

•The information contained in this confidential document ("Presentation") has been prepared by Jinan Acetate Chemical Co., Ltd. (Cayman) (the "Company"). It has not been fully verified and is subject to material updating, revision and further amendment. While the information contained herein has been prepared in good faith, neither the Company nor any of its shareholders, directors, officers, agents, employees or advisers gives, has given or has authority to give, any representations or warranties (express or implied) as to, or in relation to, the accuracy, reliability or completeness of the information in this Presentation, or any revision or supplement thereof, or of any other written or oral information made or to be made available to any interested party or its advisers (all such information being referred to as "Information") and liability therefore is expressly disclaimed. Accordingly, neither the Company nor any of its shareholders, directors, officers, agents, employees or advisers takes any responsibility for, or will accept any liability whether direct or indirect, express or implied, contractual, tortious, statutory or otherwise, in respect of, the accuracy or completeness or injury of the Information or for any of the opinions contained herein or for any errors, omissions or misstatements or for any loss, howsoever arising, from the use of this Presentation or the information.

•Neither the issue of this Presentation nor any part of its contents is to be taken as any form of commitment on the part of the Company to proceed with any transaction and the right is reserved by the Company to terminate any discussions or negotiations with any prospective investors. In no circumstances will the Company be responsible for any costs, losses or expenses incurred in connection with any appraisal or investigation of the Company. In furnishing this Presentation, the Company does not undertake or agree to any obligation to provide the recipient with access to any additional information or to update this Presentation or to correct any inaccuracies in, or omissions from, this Presentation which may become apparent.

•This Presentation should not be considered as the giving of investment advice by the Company or any of its shareholders, directors, officers, agents, employees or advisers. Each party to whom this Presentation is made available must make its own independent assessment of the Company after making such investigations and taking such advice as may be deemed necessary. In particular, any estimates or projections or opinions contained herein necessarily involve significant elements of subjective judgment, analysis and assumptions and each recipient should satisfy itself in relation to such matters.

•This Presentation includes certain statements that may be deemed “forward-looking statements”. All statements in this discussion, other than statements of historical facts, that address future activities and events or developments that the Company expects, are forward-looking statements. Although the Company believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially from those in forward-looking statements include market prices, continued availability of capital and financing, general economic, market or business conditions and other unforeseen events. Prospective Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in forward-looking statements.

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Thank You

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