ACE — Interim / Quarterly Report 2021

May 27, 2021

Jinan Acetate Chemical

4763 TT 1Q21 Results Presentation 27 May 2021

The Little Giant in a Global Oligopoly Industry

• ü Jinan Acetate is a fully-integrated, independent manufacturer of superior quality acetate tows and flakes , participating in a highly profitable oligopoly market with high entry barriers . Acetate tows are the key raw material used in making cigarette filters. Acetate flakes are primarily used in the production of acetate tows and optical frames.

• ü We continue to invest while producing robust cash flows . Advanced R&D and production expertise keep our costs significantly lower than our global peers , who are reducing and repurposing their capacity while we target double digit annual capacity growth over the next 5 years. In order to stay ahead of industry trends, we are developing new biodegradable products and new applications for existing products. We have also been investing in cost-saving equipment to maintain our cost advantage.

• ü We are optimistic on the prospects for demand growth in our core markets over the next five years. Southeast Asia and Africa & the Middle East are characterized by younger, growing populations with rising incomes. Cigarette consumption is projected to grow in these markets, while consumption in the developed world remains flat to slightly down.

• ü We aim to grow our capacity of acetate tows and flakes by at least 10% annually over the next five years to drive top line growth and to expand our market share. Our focus clients are mid-to-small sized brands located in emerging market countries , which have greater growth potential than the established global brands. We also hope to gain business from one or more Tier-1 Tobacco players within the next 12-24 months.

• ü We aim to maintain a cash dividend payout ratio between 60-80% and ROE in excess of 20%.

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Jinan Acetate Chemical @ a Glance

• Ticker: 4763 TT

• Market Cap – 29 Apr 2021 : US$240 mn

• 2020 Revenue : US$80 mn

• ROE : Averaged 23% in 2016 through 2020

• 2020 Cash Dividend : NT$5.50 per share

• Business Scope : Exports to more than 50 countries

• Client Diversification : Top 5 are less than 40% of sales

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Acetek Material
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Jinan Acetate
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• Jinan, Shandong

• Zaozhung, Shandong

• Acetate Tow Production

• Acetate Flake Production

• Employees: 183

• Employees: 134

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NT$m Sales Breakdown by Products
2,500
28%
2,000
29%
17%
1,500 25%
72%
71%
1,000
83% 75%
500
2017 2018 2019 2020
Acetate Tow Acetate Flake
Products - Applications
Fiber Grade
Acetate
Diacetate Cigarette Filter
Tow
Flake
Plastic Grade
Optical Frames
Diacetate Flake
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1Q21 Performance

Key 1Q21 Performance Metrics

• ü Sales grew 20% YoY to NT$631mn in 1Q21, a record high for the fiscal first quarter.

• ü 1Q21 Tow sales grew 1% YoY and acetate flake sales grew 88% YoY.

• ü Key Performance Highlights were:

• 1Q21 gross profit grew 15% YoY to NT$200m.

• 1Q21 gross margin was 31.7%, the 8[th] consecutive quarter above 30%.

• Net profit was NT$101m[1] , and net profit margin was 16.0%[1] .

Key Observations

• ü Top line growth was driven by sales of acetate flakes. Orders for both optical frame-use and fiber grade flakes were strong.

• ü Net profit margin exceeded 15% for the 6th consecutive quarter, demonstrating that we can maintain a high level of profitability despite substantial increases in RM costs and shipping expenses. Increasing top line economies of scale and improved cost efficiency enhanced profitability. Other factors affecting 1Q21 gross margin were an increase in flake revenues as a percent of total sales and rising raw material costs.

• ü 1Q21 SG&A expense rose to 17.1% of sales, much higher than the typical range of 12-13%, mainly due to increased investment in R&D (6.2% of sales vs 3.4% in 1Q20) and shipping rates increasing by more than 100% versus 1Q20.

Note 1: Mark-to-market paper gain/loss from the 2Q17 and 3Q20 CB issue are not included in these calculations, to better reflect core earning capability.

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Outlook for 2021 - Our ability to maintain healthy profit margins is strong

Despite the extreme 2H20 to 1Q21 increase in RM prices and shipping costs, 1Q21 net profit margin still reached 16.0%. We are well-positioned to show double-digit top line growth this year, further expanding scale economies.

Tows

Tow sales grew 1% YoY in 1Q21. Demand for tows remains strong and order visibility is good. We expect QoQ growth in tow shipments and revenue in 2Q21. We raised tow prices by 1% in 4Q20 and by 1% again in 1Q21. Our tows are are all exported, so the large and rapid increase in shipping costs has had a significant impact on expenses. Should inflationary pressures persist for RM inputs and/or shipping expenses, we will communicate with customers and seek to further share these increased costs with our clients.

Flake revenues increased by 88% YoY in 1Q21. We saw healthy demand for both plastic and fiber grade flakes, and shipments of fiber grade flakes to China Tobacco were especially strong. In 2Q21, we expect a seasonal Flakes uptick in shipments of optical-use flakes. Given a successful 2-3% price increase for flakes in 1Q21 and a continuing ramp up of the 5k tons of flake capacity added in 2H20, the strong growth in flake revenues should persist.

Given that YTD sales through April grew 26% YoY to NT$855mn, we believe that we are well-positioned to deliver double-digit revenue growth for full year 2021. In 2Q21 and 3Q21, we expect acetate tow and plastic Sales Growth grade acetate flakes will increase as a percentage of total sales, while fiber grade flakes share of revenues will & decline, which is positive for margins. Should there be any further RM cost or shipping cost increases, we will Profitability seek to communicate with clients and further share the increased costs. If the inflation in RM and shipping costs moderates, it will be positive for margins. Test runs will begin at our Acetic Anhydride plant in June, with mass production to follow in early 3Q21; and this will positively impact profitability in 2H21.

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Sales Breakdown

January through March 2021

January through March 2020

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Acetate Flake
34%
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Acetate Flake
22%
Acetate Tow
Acetate Tow
78%
66%
Acetate Tow Acetate Flake
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Acetate Tow Acetate Flake

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Market Share Increased Further in 1Q21

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ü 1Q21 Market Share Reached 1.9%
Jinan Acetate's tow shipments (tonnes) (LHS) Jinan Acetate's market share (RHS)
20,000 2.0%
15,000 1.5%
10,000 1.0%
5,000 0.5%
0 0.0%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 1Q21
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Source: Company Estimates, Tobacco Merchants Association, Bloomberg

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Investing in our Future Through R&D

The Current Focus of our R&D spending is biodegradable products

• ü R&D spending was roughly 6.2% of sales in 1Q21. We have been developing several types of biodegradable products, including tows, non-woven material and straws.

• ü We plan to increase in R&D spending by 10% YoY in 2021, as we gear up for initial mass production of our green products, in particular disposable straws for sale in the China domestic market.

It takes 12 to 24 months for R&D spending to create earnings growth

• ü R&D as a percent of sales was 5-6% of sales in 2017 and 2018 as we built, tested, debugged and began production of acetate flakes.

• ü In 2019 and 2020, R&D spending has remained close to peak levels in absolute terms, while falling as a percent of sales.

R&D Expense as % of Revenue (%)

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6.4%
6.2%
5.6%
4.4%
4.1%
2.9%
1.3%
2015 2016 2017 2018 2019 2020 1Q21
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Investing in Sustainable Materials for Long-term Growth

ü Materials based on Acetate flakes are compostable and biodegradable. Under the right conditions, they will break down into glucose and vinegar, eventually becoming carbon dioxide and water as they enter back into the earth’s ‘bio cycle.’ Such acetate-based materials are an excellent production input for making sustainable materials, and we have been developing them for years.

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Forest
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Breaking down into glucose and vinegar

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Cotton linter or wood pulp + Acetic acid

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Acetate tows
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Acetate flakes
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Acetek has Received EU Certification for Biodegradable Acetate-Based Materials

ü EU certification was Received in Early April : It will will help Acetek better promote and develop these new materials in various applications in Europe

• ü The global drive for improved sustainability is driving stricter regulations for the use of plastics and other materials:

• By 2025 all cigarettes sold in the EU will be required to have filters that will biodegrade within 45 days after use.

• In China, more than 30 states and cities started to ban singleuse plastic bags, tableware, straws, etc. this year.

• ü Wide range of applications: Our products can replace nonbiodegradable, environmentally harmful microplastics in such as cosmetics and care

• applications personal products. They can also be used as biodegradable film in agriculture or in food packaging.

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We are on schedule to test runs in begin early June and we aim to begin commercial production in July. Vertical We expect to spend roughly NT$213m to build 60,000 tonnes of design Integration capacity. into the Production of We expect this vertical integration into the production of acetic anhydride to Acetic greatly reduce the impact of acetic Anhydride anhydride spot price movements, resulting in a more stable bottom line.

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The factory site is big enough to provide for future expansion.

Item	Details
Land Area	100 Chinese Mu
Leasing Cost, Land	NT$38m
Plant and Equipment	NT$175m
Est. Annual Depreciation	About NT$14m
Construction Begins	2020 Q4
Completion Date	2021 Q2
Design Capacity	60,000 tonnes
Current Internal Use	35,000 tonnes

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Revenue and Margin Trend

• 1Q21 sales grew 20% YoY to NT$631m, a record high for the fiscal first quarter. 1Q21 sales were only 5% below 4Q21’s historical high.

• ， ，

• 1Q21 gross margin was 31.7% the 8th straight quarter that gross margin exceeded 30% but lower than the 33.1% level of 1Q20. The main factors behind the decline were differences in product mix and the rapid increase in raw material prices since 2H20.

• Mark-to-market loss on Acetek’s two CBs was NT$20m in 1Q21, after adjusting out the effect of this paper loss, net margin was 16.0%.

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NT$m Quarterly Revenue Trend Quarterly Margin Trend
750 50% 40.0% 40.0%
500 30% 30.0% 30.0%
250 10% 20.0% 20.0%
0 -10% 10.0% 10.0%
2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21
Revenue (NT$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 and 3Q20 CB issue.

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Earnings and Growth Trend

• 1Q21 operating profit was NT$92m, down 12% YoY.

• 1Q21 net income adjusting out the MTM effect from Acetek’s CBs was NT$101m, flat YoY.

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•
1Q21 EPS adjusting out the MTM effect from Acetek’s CBs was NT$2.02, up 1% YoY.
NT$m NT$
Earnings & Growth Trend EPS
160 200% 3.00
120
125% 2.00
80
50% 1.00
40
0 -25% 0.00
2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21
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 and 3Q20 CB issue. 20

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Staying Ahead of Industry Trends and Developing New Revenue Sources

Biodegradable cigarette filters

By 2025 all cigarettes sold in the EU will be required to have filters that will biodegrade within 45 days after use.

Biodegradable cigarette filters Acetate film for agriculture

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Biodegradable cellulose acetate film

• Sun houses for agriculture

Heated tobacco products

Acetate tow for heated tobacco such as products, IQOS, GLO, and Ploom Tech.

Other plastic products

Heated tobacco products

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• Agricultural and consumer packaging to meet EU requirements

• Diaphragm membranes for lithium batteries.

Biodegradable flakes for other products

• Recyclable straws

• Recyclable Facial Masks

• Other Non-Woven Products

• Hair Dye and Hair Color Products

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Our 5-Year Targets

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Expand capacity of acetate tows and flakes by at least 10% 01 annually over the next five years

Be an industry leader in the development of biodegradable 02 acetate flakes

We aim to maintain a cash dividend payout ratio between 03 60-80%*

Sustain ROE in excess of 20% 04

*Based on net income before mark-to-market paper gain/loss from the 2Q17 and 3Q20 CBs.

Consolidated Statements of Income - Quarterly

Unit: NTD million	1Q21	4Q20	1Q20	QoQ (%)	YoY (%)
Net Revenue	631	665	524	-5	20
Gross Profit	200	225	173.297	-11	15
Gross Margin	31.7%	33.8%	33.1%
Operating Expenses	108	82	68	31	59
OPEX/Sales	17.1%	12.4%	13.0%
Operating Income	92	142	105	-35	-12
Operating Margin	14.6%	21.4%	20.1%
MTM Gain (Loss) on CB (non-cash)	(20)	87	25
Other Non-Operating Income (Loss), Net	12	(18)	9
Pre-Tax Income	85	211	139	-60	-39
Income Tax Expense	3	11	11
Minority Interest	0	0	2
Net Income to Parent	81	199	126	-59	-36
Net Margin	12.8%	30.0%	24.1%
EPS (NT$)	1.62	3.97	2.50	-59	-35
ROE – not annualized	5.3%	14.5%	9.8%
Depreciation	29	28	26
CAPEX	159	132	17

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Consolidated Balance Sheet – 1Q21

Unit: NT$ million		2021/3/31	2020/12/31	2020/12/31		2020/3/31
	$	%	$	%	$	%
Cash and Cash Equivalents	643	20	831	27	661	25
Notes and Accounts Receivable, Net	630	20	661	21	541	20
Inventories	274	9	220	7	287	11
Other Current Assets	266	8	200	6	156	6
Fixed Assets	1,004	31	898	29	800	30
Other Long-term Assets	378	12	298	10	229	9
Total Assets	3,196	100	3,109	100	2,673	100
Current CB Payable	478	15.0	474	15	461	17
Other Current Liabilities	437	13.67	442	14	764	29
Non-Current CB Payable	518	16.20	514	17	0	0
Other Non-Current Liabilities	87	2.72	71	2	9	0
Total Liabilities	1,520	48	1,501	48	1,234	46
Common Stock	511		511		511
Total Equity	1,676	52	1,608	52	1,439	54
Book Valueper Share(NT$)	31.1		29.8		26.5
Key Indices
Current Ratio ( Current Assets / Current Liabilities)	198%		209%		134%
Net Cash(Debt)to Equity	-25%		-13%		-7%

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Appendix

CB-1 Terms and Trading Information

Issue Date 2017/06/09 Maturity Date 2022/06/09 Maturity Term 5 years Coupon Rate 0.00% Issue Amount NT$ 500,000,000 Issue Price NT$ 101.0 Latest Conversion Price NT$ 119.1 Conversion Premium 103.59% Trading Price (2021/05/21) NT$ 102.00 CB Holder Redemption Option Date Put Price (NT$) Yield to Put 2020/06/09 101.5075 0.5% 2021/06/09 102.0151 1.0%

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CB-2 Terms and Trading Information

Issue Date 2020/09/25 Maturity Date 2025/09/25 Maturity Term 5 years Coupon Rate 0.00% Issue Amount NT$ 600,000,000 Issue Price NT$ 101.0 Latest Conversion Price NT$ 113.7 Conversion Premium 102% Trading Price (2021/05/21) NT$ 103.50 CB Holder Redemption Option Date Put Price (NT$) Yield to Put 2023/09/25 100.75 0.25% 2024/09/25 101.00 0.50%

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Disclaimer

• •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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