ACE — Investor Presentation 2020

Nov 19, 2020

Jinan Acetate Chemical

4763 TT 3Q20 Results Presentation November 2020

3Q20 Performance

Key 3Q20 Performance Metrics

• 1-3Q20 sales grew 8% YoY to NT$1,689m.

• Revenue from acetate tows rose 11% YoY, while acetate flake revenue fell by 1% YoY.

• Key Performance Highlights were:

• Gross margin was 33.4% versus 29.3% in 1-3Q19.

• Operating margin was 21.1% vs 16.5% in 1-3Q19.

• Net Income adjusting out the MTM effect of Acetek’s CB was NT$336m, up 45% YoY.[1]

• EPS adjusted for CB MTM effect was NT$6.70.[1]

What Factors Affected Profitability?

• 3Q20 revenue hit a record high as acetate tow and flake revenue grew 9% and 14% YoY respectively.

• Within acetate flakes, plastic grade sales were roughly 60% of 3Q19 levels due to the negative impact of COVID-19 but rose 30% QoQ as peak season for eyewear-use flakes began in September. Fiber grade flake sales grew strongly YoY off a low base last year.

• Overall, the product mix changes benefited profitability, as tows are most profitable, followed by plastic flakes, then fiber flakes.

• RM prices were favorable, with wood pulp down YoY and the acetic anhydride average price below RMB $5,500/tonne.

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 4Q20

3Q20 cumulative sales were NT$621m, up 11% YoY. As the peak season for plastic grade acetate flakes for eyewear use is from September to December and demand for tows is robust, we expect our growth momentum to continue.

Tows

3Q20 tow sales grew 9% YoY. We added 1k tonnes of acetate tow capacity in April, amounting to an 8% increase in capacity. 3Q20 utilization continued to be around 95%. Tow selling prices were flat but are expected to trend gradually upwards in 4Q20. On Oct 6[th] , Celanese announced it will raise the prices of all acetate tow product grades by up to 5%, effective for orders shipped on or after Jan 1, 2021. Demand for acetate tows remains strong, and order visibility is extremely robust.

Flakes

Flake sales grew 14% YoY in 3Q20, as a 2k metric tonne order for fiber grade flakes was shipped between May to August, and shipments of plastic grade flakes for eyewear frames began to recover. We believe that 4Q20 shipments for this product could approach, and potentially even reach, pre-COVID 19 peak season levels. We added 5k tonnes of acetate flake capacity in June/July, amounting to a 25% increase in flake capacity, and mass production began in October, following the receipt of all necessary regulatory approvals.

Sales Growth & RM Pricing

Prospects for continued top line sales growth are good in 4Q20, due to the recovery in plastic grade flake shipments for eyewear and continued robust tow demand. RM pricing should continue to be favorable as wood pulp costs were locked in early in the year and acetic anhydride pricing has softened thus far in 4Q20.

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Vertical Integration into the Production of Acetic Anhydride

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

We expect to spend roughly NT$213m to build 60,000 tonnes of design capacity.

We estimate it will reduce our cost of production by about 4-5%. * More importantly, we expect that it will make our profits more stable, greatly reducing the effect acetic anhydride spot price movements.

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
Est. Cost Savings	4-5% per tonne of flakes*
Construction Begins	2020 Q4
Completion Date	2021 Q2
Design Capacity	60,000 tonnes
Current Internal Use	35,000 tonnes

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*Based on a spot price of $5,250 RMB per tonne of acetic anhydride

Acetek Goes Global

On October 8[th] , Acetek’s BOD approved the signing of an MOU to invest an acetate tow JV plant in Egypt. We expect the formal contract to be signed in 1H21, with plant design and planning to begin in 2H21. The Egypt market has a demand of 8,000 tonnes of acetate tow per year.

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Egypt Acetate Tow JV Plant

The plant will serve as our tow production base for all of Africa, which is one the world’s fastest growing cigarette markets. Our partner in the venture is Al Mansour International Distribution Company (AMIDC), the tobacco marketing and manufacturing arm of the Mansour Group. The Mansour Group is the largest private company in Egypt and has a close relationship with the Eastern Company, Egypt’s tobacco and cigarette Monopoly.

Item	Details
Joint Venture Partners	• Al Mansour International Distribution Company • NOWALI LLC
Total Investment Amount	US$ 25m US$ 15m is Acetek’s upper limit
Commencement Date	The planning and design of the plant will begin in 2H21
Phase 1 Target Completion Date	2023
Phase 1 Design Capacity	4,000 tonnes per year
Total Design Capacity	8,000-10,000 tonnes per year
Acetate Flake	To be supplied by Acetek’s factory in Zaozhung, Shandong, China

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Sales Breakdown

January through September 2020

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Acetate
Flake
26%
Acetate
Tow
74%
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Acetate Tow Acetate Flake

January through September 2019

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Acetate
Flake
28%
Acetate
Tow
72%
Acetate Tow Acetate Flake
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Revenue and Margin Trend

• 3Q20 revenue increased 11% YoY and 14% QoQ to NT$621m.

• Gross margin reached 32.0%, surpassing 30% for the sixth quarter in a row, while operating margin was 20.8%. 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.

• Net margin reached 21.3%, the highest level we’ve achieved since 4Q16.

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NT$m Quarterly Revenue Trend Quarterly Margin Trend
650 40% 40.0% 40.0%
520 25%
30.0% 30.0%
390 10%
20.0% 20.0%
260 -5%
10.0% 10.0%
130 -20%
0 -35% 0.0% 0.0%
4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20
Revenue (NT$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

• 3Q20 Operating Income rose 31% YoY to NT$129m.

• 3Q20 Net Income rose 64% YoY to NT$132m. 3Q20 EPS was NT$2.64. Net Income and EPS both reached a record high and have shown positive YoY growth for 9 consecutive quarters.

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NT$m NT$
Earnings & Growth Trend EPS
160 200% 3.00
120 150%
2.00
80 100%
1.00
40 50%
0 0% 0.00
4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20
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.

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Consolidated Statements of Income - Quarterly

Unit: NTD million	3Q20	2Q20	3Q19	QoQ (%)	YoY (%)
Net Revenue	621	544	561	14	11
Gross Profit	199	192	171	4	17
Gross Margin	32.0%	35.2%	30.4%
Operating Expenses	70	69	72	1	-3
OPEX/Sales	11.3%	12.7%	12.9%
Operating Income	129	123	98	5	31
Operating Margin	20.8%	22.5%	17.5%
MTM Gain (Loss) on CB (non-cash)	(51)	(5)	21
Other Non-Operating Income (Loss), Net	17	(9)	(9)
Pre-Tax Income	95	108	110	-12	-14
Income Tax Expense	10	11	5
Minority Interest	3	(1)	4
Net Income to Parent	81	98	102	-17	-20
Net Margin	13.1%	18.0%	18.1%
EPS (NT$)	1.62	1.96	2.01	-17	-19
ROE – not annualized	6.7%	7.9%	8.9%
Depreciation	27	25	25
CAPEX	36	36	33

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Consolidated Statements of Income – 1-3Q20 vs 1-3Q19

Unit: NTD million	1-3Q20	1-3Q19	YoY(%)
Net Revenue	1,689	1,568	8
Gross Profit	564	460	23
Gross Margin	33.4%	29.3%
Operating Expenses	207	201	3
OPEX/Sales	12.3%	12.8%
Operating Income	357	258	38
Operating Margin	21.1%	16.5%
MTM Gain (Loss) on CB (non-cash)	(31)	(5)
Other Non-Operating Income (Loss), Net	16	(9)
Pre-Tax Income	342	245	39
Income Tax Expense	32	16
Minority Interest	5	2
Net Income to Parent	305	228	34
Net Margin	18.1%	14.5%
EPS (NT$)	6.09	4.50	35
ROE	24.3%	19.3%
Depreciation	78	73
CAPEX	89	67

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Consolidated Balance Sheet – 1-3Q20

Unit: NT$ million	2020/09/30	2020/09/30	2020/06/30	2020/06/30	2019/09/30	2019/09/30
	$	%	$	%	$	%
Cash and Cash Equivalents	1,020	33	655	25	408	17
Notes and Accounts Receivable, Net	571	19	548	21	444	18
Inventories	207	7	263	10	272	11
Other Current Assets	135	4	117	4	241	10
Fixed Assets	851	28	818	31	842	34
Other Long-term Assets	276	9	239	9	238	10
Total Assets	3,061	100	2,640	100	2,445	100
Current CB Payable	469	15	465	18	452	18
Other Current Liabilities	600	20	900	34	698	29
Non-Current CB Payable	509	17	0	0	0	0
Other Non-Current Liabilities	109	3	9	0	10	0
Total Liabilities	1,688	55	1,375	52	1,160	47
Common Stock	511		511		511
Total Equity	1,373	45	1,266	48	1,285	53
Book Valueper Share(NT$)	25.1		23.1		23.1
Key Indices
Current Ratio ( Current Assets / Current Liabilities)	181%		116%		119%
Net Cash(Debt)to Equity	1%		-10%		-6%

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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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