Advantech — Interim / Quarterly Report 2020

Nov 6, 2020

Advantech Year to 3Q20 Earnings Call

November 2020

Safe Harbor Notice

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 This presentation contains forward-looking statements and is subject to risks and uncertainties. Actual results may differ materially from those contained in the forward-looking statements.

 The projections should not be interpreted as legally binding commitments, but rather as flexible information subject to change occasionally.

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Year to 3Q20 Financial Result

NT$ mn	1Q18	2Q18	3Q18	4Q18	1Q19	2Q19	3Q19	4Q19	1Q20	2Q20	3Q20	YT3Q20 YoY
Net Sales	11,355 12,645 12,360 12,366				12,301 13,976 14,382 13,486				11,272 14,018		13,050	38,340 -6%
QoQ%	-3% 11% -2% 0%				-1% 14% 3% -6%				-16% 24%		-7%
YoY%	13% 11% 10% 5%				8% 11% 16% 9%				-8% 0%		-9%
Gross Profit	4,338 4,792 4,760 4,772				4,724 5,410 5,697 5,268				4,395 5,766		5,192	15,354 -3%
Gross Margins%	38.2% 37.9% 38.5% 38.6%				38.4% 38.7% 39.6% 39.1%				39.0% 41.1%		39.8%	40.0%
Operating Expense	2,696 2,851 2,858 2,799				2,872 3,079 3,064 2,858				2,742 2,925		2,928	8,594 -5%
Operating Profit	1,643 1,941 1,902 1,974				1,852 2,331 2,633 2,410				1,654 2,841		2,264	6,759 -1%
Operating Margin%	14.5% 15.4% 15.4% 16.0%				15.1% 16.7% 18.3% 17.9%				14.7% 20.3%		17.3%	17.6%
No-operating Income	99 87 265 76				196 89 86 -297				-33 118		202	287 -22%
Pretax Profit	1,741 2,029 2,167 2,050				2,048 2,420 2,718 2,113				1,621 2,959		2,466	7,046 -2%
Tax Expenses	374 434 458 412				432 513 561 409				340 621		511	1,472 -2%
Effective Tax Rate	21.5% 21.4% 21.1% 20.1%				21.1% 21.2% 20.6% 19.4%				21.0% 21.0%		20.7%	20.9%
Net Income	1,363 1,584 1,710 1,633				1,613 1,892 2,140 1,700				1,295 2,308		1,941	5,544 -2%
QoQ%	-17% 16% 8% -5%				-1% 17% 13% -21%				-24% 78%		-16%
YoY%	10% 10% 9% 32%				18% 19% 25% 4%				-20% 22%		-9%
EPS (NT$)	1.78 2.07 2.23 2.13				2.10 2.46 2.78 2.21				1.68 2.99		2.52	7.19 -2%

• In non-operating side, Advantech booked NT$98mn dividend income in 3Q20.

• Advantech went ex-dividend on July 31[st] and paid stock dividend on September 8[th] . The EPS is reflected to the stock dividend dilution.

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Year to 3Q20 Sales By Region

		USD$M			YT3Q20			YT3Q19	YT3Q19		YoY %	YoY %		Rev %
		North America			374				381		-2%			29%
		Europe			211				230		-8%			17%
		China			304				301		+1%			24%
		North Asia			131				140		-6%			10%
		Taiwan			79				76		+3%			6%
		Asia & Intercon			107				106		+1%			8%
		Others			74				75		-1%			6%
		Total			1,280			1,309			-2.2%			100%
		North America				China						Asia &	InterCon
	•	US reported QoQ growth in 3Q20 due to strong		•	EIOT maintained a moderate growth in						AAU/NZ:	$12.8M		GR%:	+30%
		demand in medical sector.		•	China in 3Q20. IIOT segment experienced weakening sentiment from channel customers in 3Q20.						ASEAN: India	$28.3M $8.3M		GR%: GR%:	+6% -28%
											Russia	$11.7M		GR%:	+1%
		Europe				North	Asia				LATAM	$13.4M		GR%:	+19%
	• •	The overall sentiment remained weak but stabilized. Positive sides came from CIOT and EIOT		AJP: ATJ*:		$24.4M $54.5M		GR%: GR%:	-24% -23%		ME&A	$31.5M		GR%:	-7%
		Online business.		AKR :		$52.5M		GR%:	+14%

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Year to 3Q20 Performance B SBG y

	US$ mn	US$ mn	Revenues YoY Rev. %	Gross Margin Range	Operating Profit OP Margin
	Industrial IOT		416 1% 33%	48~53%	85 20.3%
	Embedded IOT		317 -5% 25%	34~39%	48 15.3%
	Allied DMS	Applied Computing	172 0% 13%	26~36%	23 13.3%
		*Cloud IOT	123 -12% 10%	33~39%	20 15.9%
	Service	IOT	107 -3% 8%	38~43%	10 9.3%
	AGS & APS		145 -2% 11%	23~28%	19 12.9%
	Other unallocated profit (expenses)				22
	Total		1,280 -2.2% 100%		227 17.7%

• *Networks & Communications Group was renamed as Cloud IoT Group effectively in October 2019.

• Applied Computing (ACG) and Service IOT (SIOT) reported improving operating margin YoY. In addition to utilize customer segmentation and product portfolios, ACG’s business is benefited from strong demand on medical sectors, while SIOT has significantly operating efficiency since the production moving back to Taiwan and China.

• The overall material price was at flattish sentiment in 3Q20.

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Working Capital and Balance Sheet

NT$ mn	NT$ mn	1Q18	2Q18	3Q18	4Q18	1Q19	2Q19	3Q19	4Q19	1Q20	2Q20	3Q20
Cash Cycle
Inventory		6,818 7,174 7,600 7,558 8,179 8,446						8,089	7,783 9,093		9,695	8,523
Account receivable		7,797 8,358 8,346 8,351 8,683 9,209						9,526	8,832 8,012		9,617	8,734
Accountpayable		5,376 6,251 6,248 5,811 5,756 6,519						4,981	4,799 5,291		5,455	3,737
	IN turnover	84 80 87 90 93 87						86	87 110		102	104
	AR turnover	62 57 61 61 62 58						59	61 67		57	63
	AP turnover	68 67 74 71 69 64						60	54 66		59	53
	CCC	77 71 74 79 87 80						85	95 112		100	115
BS
Cash & Cash Equivalents		8,829 10,456 7,178 8,884 9,304 11,446						7,103	10,061 11,013		12,161	9,797
Total asset		42,324 45,345 42,286 43,940 46,864 49,654						45,391	47,216 49,007		52,444	47,775
ST debt		36 25 18 97 633 524						502	458 493		484	514
LT debt		81 81 81 46 439 387						334	278 290		198	143
Total equity		29,411 26,475 28,108 29,543 31,642 28,994						30,971	32,731 28,640		30,904	33,036
Capex		(158) (130) (246) (157) (189) (214)						(229)	(329) (213)		(346)	(231)
D&A		187 177 203 148 275 255						287	167 265		219	254
Total Investment CF		(609) (476) (31) (666) (814) (176)						(342)	(475) (730)		250	(885)

• Advantech generated NT$6.5bn operating cash flow and paid NT$5.5bn cash dividend in 3Q20.

• The inventory turnover remained over 100 days as end of 3Q20 due to weakening business sentiment but the inventory dollar declined NT$1.2bn QoQ in 3Q20.

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4Q20 Guidance

Based on the exchange rate assumption of US$1 to NT$29 , managements expect the 4Q20 guidance as below

Items 4Q20 Estimation Consolidated Revenue US$ 420M ~ 440M Gross Margin 38.0% ~ 40.0% 16.0% ~ 18.0%

Gross Margin Operating Margin

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