FocalTech — Investor Presentation 2018

Mar 9, 2018

Company Profile

March, 2018

DISCLAIMER
This presentation may contain “forward-looking statements” which may include projections on future results of operations, financial condition, and business prospects based on our own information and other sources.
The actual results of operations, financial condition, and business prospects may differ from those explicitly or implicitly indicated in those forward-looking statements for a variety of reasons, including but not limited to market demand, price fluctuations, competition, supply chain issues, global economic conditions, exchange rate fluctuation and other risks and factors beyond FocalTech’s controls.
The forward-looking statements in this presentation, if any, only reflect the current view of FocalTech as of the date of its release. FocalTech undertakes no obligation to update those forward-looking statements for events or circumstances that occur subsequently.

About FocalTech
| Listed on TWSE | Ticker # 3545 |
| --- | --- |
| 2017 Revenue | NT$ 11 Billion |
| Market Cap. (March, 2018) | ~NT$ 8.5 Billion |
| Group Employee # (March, 2018) | ~900 |
| Cash dividend for 2016 Cash dividend for 2017 | NT$ 0.659/share (payout 100% after deducting the legal reserve) Under discussion |

Global Presence
San Jose
(USA)
South?Korea

Beijing
Japan

Hefei
Xi’an

Shanghai

Wuhan

Nanchang

Taiwan
Xiamen
Shenzhen
R&D / Operation

Sales/Technical Support Location

Core Competence

Product Lines

LCD Driver IC
Fingerprint Solution

Includes SOC, Source driver (SD)
Gate driver (GD), Feature driver (SD+TCON), Timing controller (TCON)
Optical and Capacitive area type. Fast, reliable and secure.

Automotive /
Commercial Solution

Touch Controller IC
FocalTech

Touch and DDI solution for Automotive/Commercial App.
Both self and mutual capacitive controllers support 1.5”~15” panels

Integrated Driver &
Controller (IDC)

AMOLED DDI/ Touch
DDI and Touch solution for rigid and flexible AMOLED
Supports both α-Si and LTPS TFT LCD panels

Complete Solution for Mobile/ IT Human IF

LCD Driver IC

Active Pen Rx
Integrated Driver
Controller (IDC)

Touch Controller
Fingerprint Sensor

Applications and Customers
Selected Customers
Selected Applications

Tablet
Smartphones

E- Readers

Wearable Device

Automotive

Passive Stylus

Laptop

Phones with Full Screen Display

Xiaomi mix
FT8716U
FHD+ 17:9
Xiaomi mix2
FT8716U
FHD+ 18:9
COF
SHARP S2
FT8716U
FHD+ 17:9
vivo V7+
FT8006M
HD+ 18:9
Gionee 大金剛2
FT8006M
HD+ 18:9

TP on AMOLED MP Records : Luxurious Watches
Louis Vuitton
Hugo Boss
Armani
Montblanc

Guess
Movado
Michael Kors
Fossil

Company Revenue

[unsupported chart]

Financial Results

Chart

Category	Gross Profit	Net Profit
16'Q1	431889.0	-96545.0
16'Q2	580086.0	65993.0
16'Q3	627544.0	92950.0
16'Q4	626918.0	145036.0
17'Q1	497962.0	-8199.0
17'Q2	532386.0	31192.0
17'Q3	673569.0	133993.0
17'Q4	567267.0	-260196.0

Gross Margin

Chart

Category
15' 1Q	15.480385073760521
15' 2Q	17.22562217973446
15' 3Q	17.365187477907007
15' 4Q	18.174769741706427
16' 1Q	18.708099006873095
16' 2Q	19.597566207993946
16' 3Q	20.53351997076101
16' 4Q	23.274930398002024
17'Q1	23.042264496333082
17'Q2	20.496715780768692
17'Q3	20.599811083123427
17'Q4	20.442761263092347

Quarterly Income Statement
| Amt: in NT$ M | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 3 months ended on | 2017/12/31 | | 2017/9/30 | | 2016/12/31 | | QoQ | YoY |
| Net Revenue | 2,775 | 100.0 | 3,265 | 100.0 | 2,694 | 100.0 | -15% | 3% |
| Cost of Rev. | 2,208 | 79.6 | 2,592 | 79.4 | 2,067 | 76.7 | | |
| Gross Profit | 567 | 20.4 | 673 | 20.6 | 627 | 23.3 | -16% | -10% |
| Op. Exp. | 557 | 20.1 | 543 | 16.6 | 515 | 19.1 | 3% | 8% |
| Income from Op. | 10 | 0.4 | 129 | 4.0 | 112 | 4.2 | -92% | -91% |
| Non-Op. Income & Exp. | 18 | 0.6 | 22 | 0.7 | 47 | 1.7 | | |
| IBIT | 28 | 1.0 | 151 | 4.7 | 158 | 5.9 | -80% | -81% |
| Income Tax Exp. | (288) | -10.4 | (17) | -0.6 | (13) | - 0.5 | | |
| Net Income | (260) | -9.4 | 134 | 4.1 | 145 | 5.4 | -294% | -279% |
| EPS | (0.87) | | 0.49 | | 0.50 | | | |
| Note: EPS- -based on weighted average outstanding common shares. | | | | | | | | |

YTD Income Statement
| Amt: in NT$ M | | | | | |
| --- | --- | --- | --- | --- | --- |
| 6 months ended on | 2017/12/31 | | 2016/12/31 | | YoY |
| Net Revenue | 10,798 | 100 | 11,018 | 100.0 | -2% |
| Cost of Rev. | 3,728.2 | 79 | 8,752 | 79 | |
| Gross Profit | 2,270 | 21 | 2,266 | 21 | 0% |
| Op. Exp. | 2,108 | 19 | 2,059 | 19 | 2% |
| Income from Op. | 162 | 2 | 207 | 2 | -22% |
| Non-Op. Income & Exp. | 42 | - | 34 | - | |
| IBIT | 204 | 2 | 241 | 2 | |
| Income Tax Exp. | (307) | -3 | (31) | - | -16% |
| Net Income | (103) | -1 | 210 | 2 | -149% |
| EPS | (0.28) | | 0.73 | | |
| Note: EPS- -based on weighted average outstanding common shares. | | | | | |

Balance Sheets & Key Indices
| Amt: in NT$ M | | | | | |
| --- | --- | --- | --- | --- | --- |
| As of | 2017/12/31 | 2017/9/30 | 2016/12/31 | QoQ | YoY |
| Total Assets | 13,544 | 15,307 | 14,957 | -12% | -9% |
| Cash Equivalent | 4,108 | 4,806 | 5,571 | -16% | -28% |
| AR | 1,258 | 1,496 | 1,334 | -16% | -6% |
| Inv. | 2,686 | 3,345 | 2,538 | -20% | 6% |
| Total Lia. | 2,801 | 4,264 | 3,519 | -34% | -20% |
| Short-term Loans | - | 908 | 645 | | |
| AP | 1,310 | 2,086 | 1,541 | | |
| | | | | | |
| Shareholder Eqt. | 10,743 | 11,042 | 11,438 | -3% | -6% |
| Net CF In (Out) | (670) | (1,128) | 1,575 | | |
| CF fm Operation | (328) | (457) | 1,147 | | |
| | | | | | |
| Net worth per share (NT$) | 35.98 | 36.98 | 38.53 | | |
| AR Days | 44 | 47 | 48 | | |
| Inv. Days | 112 | 127 | 106 | | |

2017 Q4 Summary
Revenue of Q4 is NT$2.77B, which represents a 15% QoQ decline and 3% YoY increase. This seasonal decline is consistent with the 14% decrease in smart phone shipment by mainland phone manufacturers in Q4.
Market survey also reported a 4% reduction of yearly smartphone shipment by mainland phone manufacturers in 2017. Our yearly revenue demonstrated a 4% increase in revenue on US dollar basis. However, due to the appreciation of NTD, the revenue is recorded at NT$10.8 billion, which represents a 2% decrease comparing to last year. The operating profit is NT$205 million, close to 2016, due to similar margin and operating expenses.
Affected by Trump tax reform at the end of 2017, the U.S. subsidiary recognized income tax expense of NTD 246 million, which resulted in a yearly loss of NTD 103 million. The unexpected income tax recognized in 2017 is a one-time effect. In subsequent years, income tax expense will follow the new law and it is expected to be at rather insignificant level.

Future Outlook
Due to the reduction in working days during Chinese New Year, the component demand is typically low in the first quarter. Therefore, the revenue in Q1 of 2018 is expected to have limited decrease from the fourth quarter of 2017 due to the IDC shipment.
Looking forward to 2018, with the trend of larger aspect ratio in display panel, continuous promotion by the panel supply chain and by the handset brands, the penetration of full in-cell panels will continue to accelerate. IDC products will become one of the Company's major operating momentum in 2018.
In order to expand the business, FocalTech continues to widen the applications with traditional out-cell products. This includes home appliances, industrial control, automotive and other applications using medium to large display panels.
AMOLED display technology is the focus of future investments by major panel makers. FocalTech has already started the development of touch controllers and display drivers in this field. Presently, products of touch controller have reached the level of mass production for smart phones and wearable devices.

Future Outlook (2)
The arrival of high display-to-panel ratio requirement for the smartphone is leaving little or no room for the fingerprint sensor on the front panel. An industry-wide R&D effort has been underway in order to find a solution to this problem.
In January, FocalTech reported a breakthrough to sense the fingerprint on the display panel by optical approach. In particular, our method can facilitate fingerprint sensing either with AMOLED panel or LCD panel, which supports multiple area sensing.
In addition to fingerprint sensing, our optical technology also provides biometric measuring capacity such as pulse rate and blood pressure. We also demonstrated a non-invasive way of measuring blood sugar level with a smartphone.

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