ACE — Investor Presentation 2020

May 12, 2020

Jinan Acetate Chemical
4763 TT
1Q20 Results Presentation
May 2020

Notes:

1Q20 Performance

What Factors Affected Profitability?
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 4th 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

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.

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.
2

Notes:

2020 May Be Even Better than 2019

Business Fundamentals are Strong
01
We have order visibility through September. In the past two months, we achieved order wins with the tobacco monopolies in China, Taiwan and Syria.
We added 1k tonnes of acetate tow capacity in April & will add 5k tonnes of acetate flake capacity in June/July. This amounts to an 8% increase in tow capacity and a 25% increase in flake capacity.
02
03
Acetate tow selling prices are expected to rise by 2-3% this 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.
3

Notes:

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:
BED840BED840

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

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.
Flakes
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Notes:

Item	Details
Land Area	100 Chinese Mu
Leasing Cost, 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	50,000 tonnes
Current Internal Use	35,000 tonnes
We have decided to integrate upstream into the production of ascetic anhydride.
We expect to spend roughly NT$170m to build 50,000 tonnes of capacity.
Vertical Integration into the Production of Ascetic Anhydride

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.
*Based on current acetic anhydride spot price
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Sales Breakdown

Chart: January through March 2020

Category	Jan through Mar 2020
Acetate Tow	0.7818939199417321
Acetate Flake	0.218106080058268

Chart: January through March 2019

Category	Jan through Mar 2019
Acetate Tow	0.726983781468878
Acetate Flake	0.2730162185311221
20

Notes:

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.

Chart: Quarterly Revenue Trend

Category	Revenue (NT$m)	Growth(YoY)
2Q18	414.866	0.20495148140725705
3Q18	423.277	-0.012212083732001555
4Q18	465.716	-0.20023767082590604
1Q19	457.74	0.05146611230431741
2Q19	549.33	0.324114292325715
3Q19	561.26	0.3259874739236954
4Q19	606.66	0.3026393767875699
1Q20	524.292	0.1453925809411456

Chart: Quarterly Margin Trend

Category	Gross Margin	Operating Margin	Net Margin*
2Q18	0.19478819667073227	0.03578745908317384	0.08074896472595972
3Q18	0.2678978541238952	0.12352194898376241	0.12087592758406435
4Q18	0.2855302373120099	0.12456518564962338	0.13630839395683206
1Q19	0.26143443876436406	0.11508498274129418	0.12933761524009263
2Q19	0.30838293921686416	0.19587679536890393	0.16815575337228986
3Q19	0.30402843601895735	0.1749973274418273	0.14349499340768987
4Q19	0.3519549665380938	0.2186480071209574	0.16065506214354003
1Q20	0.33053527423649415	0.2009681627795198	0.1923851594149825
7
* Note: On this page, Net Margin numbers exclude the mark-to-market paper gain/loss from the 2Q17 CB issue.
20

Notes:

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.

Chart: Earnings & Growth Trend

Category	Operating Profit	Net Income to Parent*	Net Income Growth(YoY)*
2Q18	14.847	33.5	-0.3534565947427336
3Q18	52.284	51.164	0.7910803052579991
4Q18	58.012	63.481	0.3602682780491986
1Q19	52.679	59.203	1.6968068145583755
2Q19	107.601	92.37299999999999	1.7574029850746267
3Q19	98.219	80.53800000000001	0.5741146118364477
4Q19	132.645	97.463	0.5353097777287692
1Q20	105.366	100.866	0.7037312298363259

Chart:

Category	EPS*
2Q18	0.7207401032702238
3Q18	1.1007745266781412
4Q18	1.3670643466276164
1Q19	1.2877215878194672
2Q19	2.009550329584267
3Q19	1.592793291669963
4Q19	1.9274413637622116
1Q20	1.995094645647487
* 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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20

Notes:

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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Notes:

Consolidated Balance Sheet – 1Q2020
| Unit: NT$ million | 2020/03/30 | | 2019/12/21 | | 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 Value per 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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Notes:

Thank You

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Notes: