Hiroca — Interim / Quarterly Report 2014

Nov 24, 2014

Hiroca Holdings Ltd. (1338) 廣華控股有限公司

Presented by Huang, Sheng Chang

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Executive Summary I

• Hiroca Holdings Ltd. is a tier 2 supplier owning the most diverse automobile plastic interior decoration technologies (including surface painting, cubic printing, IMD, real wood, real aluminum, laser engraving, and plating ) and processing crafts (including spare-part modules, leather/velvet coating, and infrared/vibration/ultrasound welding)

• Engaged in automotive industry with high barriers to entry, Hiroca provides one-stop vertical and horizontal manufacturing services to its clients through a strategy emphasizing stable quality, competitive cost and prompt delivery (QCD).

• To provide production and delivery near our clients, Hiroca has already set up subsidiaries in several regions in China and has been planning to set up a factory in Mexico to serve the emerging American markets , to form a strategic partnership with the big three Japanese and the big three U.S. automakers , and to develop a platform for local production and global

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Executive Summary II

 New cars sales of the big three Japanese automakers in China has been slightly lower than expected since Aug, 2014. However, based on clients’ production plans and the launch of new global shipping car model, we still anticipate to have stable sales and profitability in Q4.

• Our management team always strives to provide customers with complete product lines and good services and is confident in continued stable growth in sales revenues and profitability in the future.

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I. General Introduction

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Introduction

• Established date: Dec. 8, 2009

(Dongguan Hirosawa Automotive Trim Co., Ltd. Established on Dec. 20, 2002)

• Chairman of the Board : Mr. Yu, Che-Ming

• ：

• Paid-in Capital NTD850,000,000

• ：

• Headquarter Dongguan City, Guangdong Province, China

• ：

• Main Operation Sites

 Dongguan-Hirosawa Automotive Trim Co., Ltd. (2002)  Wuhan-Wuhan Hiroyoshi Automotive Trim Co., Ltd. (2010)  ： Business Scope OEM manufacturer of automotive plastic trim parts, mold design and manufacturing, trading, etc.

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Milestones

Dongguan Hirosawa established 2002 Cubic Printin Technolo licensed b Taica Cor oration g gy y p 2004 Awarded ISO/TS16949 2009 Hiroca Holdings Ltd. established 2010 Wuhan Hiroyoshi established A joint venture with Tsukada Riken ( plastic plating parts) 2011 A join venture with Mono Group (real wood parts) 2012 IPO on the TWSE on Dec. 19, 2012 2013 Chongqing Zhengze established

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Holdings chart

					Hiroca Holdings (Cayman) 100% Lft S	Hiroca Holdings (Cayman) 100% Lft S	Hiroca Holdings (Cayman) 100% Lft S
					Hiroca Holdings (Cayman)
						100%
					Lft S
					oy uccess (Samoa)					100%
						100%
Hirosawa (Dongguan)			Hiroyoshi Investment (Samoa)		Hiroca Investment (Samoa)			Hirogen Int'l (Samoa)	Yoshisawa Investment (Samoa)	Hiroyuki Investment (Samoa)
						35%					45%
			Hiroyoshi (Wuhan)		Taica Hirosawa (Dongguan e-Cubic)			Cubic Printing (Tenjing Cubic)	Tzukada Riken (Jiangmen)	WIN INC. (Cayman)
											100%

	Main Plant Sites(I)	Main Plant Sites(I)	Main Plant Sites(I)	Main Plant Sites(I)	Main Plant Sites(I)
	Plant site	Product	Share holding ratio	End Customer	Remark
	DG Hirosawa	Plastic auto trim parts	100%	DF-Nissan、GZ-Toyota GZ-Honda、CA-Ford Chrysler(NA)、GM(NA) GZ Auto	The company is our main source of sales revenue and profitability.
	WH Hiroyoshi			DF-Nissan、DPCA DF-Honda、CA-Ford SH-GM、DF-Renault (FAW-VW)	Started operations from Sept. 2012
	DG Guangnegn			CAPSA
	HN Hiroyoshi			GZ-Fiat、GZ-Chrysler GZ-Mitsubishi

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Main Plant Sites (II)

Plant site	Product	Share holding ratio	End Customer	Remark
DG L-H	Mold marking	30%		Mold making operation is branched out to form this joint venture with a professional maker. We still hold the capability to design, develop, and repair the molds.
CQ Zengze	Plastic auto trim and seat parts	40%	CA-Ford、CA-Susuki CAA	This joint venture is set up for the penetration into the car market in Southwestern China.

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II. Our Products and Production Processes

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Our Products I

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Door Panel Pillars Cover Steering
Column
IP Décor
Strip
Seat
Components
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Our Products II

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Lid Cluster
Instrumental
PAB Cover
Panel
Steering Wheel
Cover
Venting Assy.
DAB Cover
Center Console
SAB Cover Glove Box
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Our Products III

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Nissan Teana
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Our Products IV

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Our Products V

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Honda Accord

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Horizontal and Vertical Integration

Integrated Production Provides Best Services Design/Engineering (設計/工程) Tooling & Gauge (模具開發) Injection (注塑) Decoration (裝飾) Painting Cubic/e-Cubic IMD/IMS Real Wood Plating Laser Etching Tri-D3eco (塗裝) (水轉印) (模內轉印) (真木) (電鍍) (雷射雕刻)

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III. Operation Results

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Consolidated Financial Statements

Item	2011		2012		2013		2014 Q1~Q3
	Amount	%	Amount	%	Amount	%	Amount	%
Sales	4,666,981	100%	5,153,960	100%	7,313,090	100%	6,094,019	100%
Cost of Goods Sold	3,382,003	73%	3,971,018	77%	5,702,739	78%	4,718,689	77%
Gross Profit	1,284,978	27%	1,182,942	23%	1,610,351	22%	1,375,330	23%
Operating Expenses	555,487	12%	838,676	16%	1,097,627	15%	748,526	12%
Operating Income	729,491	15%	344,266	7%	512,724	7%	626,804	10%
Non-Operating Income	71,421	1%	86,559	1%	131,009	2%	16,952	0%
Non-Operating Expenses	30,397	0%	22,526	0%	30,814	0%	37,830	1%
Pre-Tax Income	770,515	16%	408,299	8%	612,919	8%	605,926	10%
Income Tax Expenses	189,218	4%	91,538	2%	152,777	2%	163,502	3%

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2013 ~2014 Sales by Quarter (I)

Unit：NTD’000，EPS:NTD1

Item	2013 Q1	2013 Q1	Q2	Q2	Q3	Q3	Q4	Q4	2014 Q1	2014 Q1	Q2	Q2	Q3	Q3
	Amount	%	Amount	%	Amount	%	Amount	%	Amount	%	Amount	%	Amount	%
Sales	1,430,571	100%	1,656,499	100%	1,946,565	100%	2,279,455	100%	1,924,954	100%	2,177,667	100.00%	1,991,398	100.00%
Cost of Goods Sold	1,127,837	78.84%	1,322,542	79.84%	1,486,783	76.38%	1,765,577	77.46%	1,495,845	77.71%	1,699,465	78.04%	1,523,379	76.50%
Gross Profit	302,734	21.16%	333,957	20.16%	459,782	23.62%	513,878	22.54%	429,109	22.29%	478,202	21.96%	468,019	23.50%
Operating Expenses	255,181	17.84%	261,993	15.82%	298,576	15.34%	281,877	12.37%	252,971	13.14%	243,319	11.17%	252,236	12.67%
Operating Income	47,553	3.32%	71,964	4.34%	161,206	8.28%	232,001	10.18%	176,138	9.15%	234,883	10.79%	215,783	10.84%
Non-Operating Income	24,774	1.73%	45,441	2.74%	7,237	0.37%	53,557	2.35%	15,810	0.82%	18,990	0.87%	7,025	0.35%
Non-Operating Expenses	5,174	0.36%	9,319	0.56%	7,158	0.37%	9,163	0.40%	22,411	1.16%	21,494	0.99%	18,798	0.94%
Pre-Tax Income	67,153	4.69%	108,086	6.52%	161,285	8.29%	276,395	12.13%	169,537	8.81%	232,379	10.67%	204,010	10.24%
Income Tax Expenses	16,145	1.13%	17,170	1.04%	36,605	1.88%	82,857	3.63%	42,954	2.23%	64,543	2.96%	56,005	2.81%

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2012 & 2014 Sales by Quarter (II)

Unit:NTD100m

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Sales Gross Margin Net Margin
25 30.00%
22.79
21.78
26.50%
19.91 25.00%
19.25
20 23.75% 23.36% 23.62% 23.50%
21.16%
22.54% 22.29%
21.96%
20.16% 20.00%
16.69%
15
16.56 19.46
15.00%
14.11 13.78 14.31
13.07
10
10.00%
10.58
8.81%
8.49%
7.68% 7.43%
6.99% 6.68% 6.41% 6.57%
5
5.49%
5.00%
3.59%
0.91%
0 0 00%
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Key Financial Ratios

		2011	2012	2012	2012
Return on invenstment analysis	Gross margin ratio	27%	23%	22%	23%
	Operating income ratio	15.0%	7%	7%	11%
	Pre-tax income ratio	16.0%	8%	8%	10%
	Net income ratio	12.0%	6%	6%	7%
Liquisity analysis	Current ratio	194%	181%	158%	233%
	Quick ratio	167%	148%	132%	196%
	Debt ratio	34%	34%	42%	27%
	Interest coverage ratio	144.73	32.24	28.41	26.44
	Average collection turnover (times)	3.79	3.65	3.58	3.21
	Average inventory turnover (times)	8.19	7.50	7.61	7.91

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Highlights for Q3 in 2014

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Top 10 Customers (by sales) Sales Proportion (by product)
TSK (GZ), 2.99% Moriroku（GZ）,
100%
2.47% 4.10% 6.70% 6.88%
5.99% 12.33% 11.66%
7.33% 5.35%
3.42% 3.75%
CK（ZZ）, 3.02%
80%
25.88%
23.06% 25.06%
CK（SH）, 14.45% 22.72% 23.36%
Nissan Trading, 60%
3.89%
29.13% 29.72%
35.22%
34.76%
36.48%
40%
Sanko Gosei(GZ), IAC（CQ）, 6.15%
4.13%
20%
33.78% 32.99%
Trinity（SH）, 6.05% 28.81% 26.76% 24.76%
Kasai (GZ), 5.42% Hirosawa USA, 6.02%
0%
2010 2011 2012 2013 2014(1-9)
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IV. China Automobile Market Introduction

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China Automobile Market Introduction(I)

China automobile sales from 2006 to 2014

Unit:10,000units

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2500
50%
2300
2100 40%
1900
30%
1700
1500 20%
1300 10%
1100
0%
900
700 -10%
500
-20%
300
-30%
100
-100 -40%
2006 2007 2008 2009 2010 2011 2012 2013 2014(1-9)
Car Sales 721.6 879.2 938.1 1364.5 1806.0 1851.0 1931.0 2198.0 1700.0
Commercial vehicle 204.0 249.4 262.5 331.3 430.0 403.0 381.0 406.0 285.0
Passenger car 517.6 629.8 675.6 1033.1 1376.0 1447.0 1550.0 1793.0 1416.0
Growth rate for car sales 25.3% 21.8% 6.7% 46.2% 32.4% 2.5% 4.3% 14.0% 7.0%
Growth rate for Commercial 14.0% 22.3% 5.3% 28.4% 33.2% -6.3% -5.5% 6.0% -6.0%
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China Automobile Market Introduction

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Market share for Foreign-origin brands in China (Sedan+MPV+SUV)
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
VW GM Hyundai Toyota Nissan Honda Ford PSA
2007 17.3% 10.0% 6.2% 8.5% 5.3% 8.7% 4.1% 3.9%
2008 17.5% 8.8% 7.5% 9.5% 6.4% 9.1% 3.6% 3.2%
2009 16.6% 9.3% 10.2% 7.4% 6.2% 7.2% 3.7% 3.2%
2010 16.5% 9.9% 9.6% 6.8% 6.0% 5.9% 3.6% 3.3%
2011 17.6% 12.2% 9.1% 6.4% 6.6% 5.1% 3.3% 3.2%
2012 19.1% 13.3% 9.4% 5.5% 5.8% 4.6% 3.6% 3.2%
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China Automobile Market Introduction

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Japanese brands Car Sales in China (Sedan+MPV+SUV) Unit:10,000units
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
2010 24.9 18.5 25.5 21.9 18.7 20.4 21.3 20.3 24.1 21.6 24.9 25.8
2011 27.2 17.3 26.9 18.9 15.4 20.9 23.4 23.0 27.0 24.3 26.5 29.2
2012 19.9 22.9 27.7 24.2 23.7 25.9 22.2 22.4 15.9 10.2 16.7 21.5
22 4 13 3 23 8 23 2 22 4 23 1 21 7 20 4 27 9 27 3 32 5 34 9
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China Automobile Market Introduction

Market share of Sedan +MPV+SUV in China by engine size

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40.0%
30.0%
20.0%
10.0%
0.0%
2.5L
0.8- 1.0- 1.3- 1.4L- 1.8L- 2.3-
1.5L 1.6L 1.8L 2.0L and EV
0.9L 1.1L 1.4L 1.6T 2T 2.5L
above
2009 1.4% 5.3% 11.8% 0.2% 12.7% 31.1% 3.2% 9.4% 12.8% 10.1% 1.9% 0.00%
2010 1.4% 4.5% 11.8% 1.8% 15.3% 28.1% 4.0% 8.5% 14.0% 8.4% 2.2% 0.00%
2011 1.0% 4.2% 12.7% 2.1% 16.0% 27.1% 5.2% 7.2% 14.8% 7.4% 2.2% 0.02%
2012 0.6% 3.2% 11.7% 2.8% 15.5% 28.9% 6.6% 6.7% 15.1% 6.8% 2.0% 0.05%
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V. Development Niches

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Set Foothold on Chinese Market

• China has been the world's largest auto market for five years in a row. There were 21.98 million vehicles sold in 2013. Good growth is expected for the future, especially in higher-grade passenger cars, which is the main market of Hiroca.

• Hiroca has been actively expanding its production capacity and exploring new customers. It is thus expected that Hiroca’s growth rate will be much higher than that of the overall market in China.

• As the Chinese enjoys higher and higher income, their need for high-class automotive interior decoration also increases substantially. It is a consumer trend that Hiroca’s interior products match exactly with. Thus, we anticipate not only a

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Set Eyes on Export to North American Market

• Hiroca has been exporting its high value-added interior decoration parts to GM and Chrysler in North America since 2008. Export to North America accounted for about 10% of our total sales revenue in 2003 and is expected to grow at a certain rate every year.

• Invited by our long-time partners and customers who appreciate our good product technology, stable quality, and on-time delivery, Hiroca has been actively assessing the feasibility to set up a factory in Mexico to supply parts to the North American market.

• The United States is the world's second largest auto market. In 2013, 15.6 million vehicles were sold in the USA, 1.74 million vehicles in Canada, and 1.06 million in Mexico. The NAFTA market in North America saw a total of 18.4 million vehicles sold last year. If Hiroca can successfully enter this market, its growth will accelerate sharply, a plan full of strategic significance.

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We Provide One-stop Full Scope Services

• Hiroca provides one-stop and full-scope services, including product design, mold development, product molding, surface decoration (cubic printing, in-mold transfer, painting, real wood, real aluminum, plating, laser engraving, etc.) as well as assembly, leather/velvet coating, and infrared/vibration/ultrasound welding.

• Hiroca is able to provide the most complete vertical and horizontal manufacturing services in automobile interior surface decoration. We are considered as the number 1 supplier in Greater China.

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We Own Solid Technology and Partnership

• Hiroca uses patented surface treatment technologies (such as cubic printing, IMD, precision electroplating, special glueprocessing for real wood/composite materials, etc.) to produce interior decoration products. The processes are very complex. Product quality is very demanding. It takes very long time to develop partnership with automakers and for them to accept and certify the products. Moreover, a certain degree of economies of scale must be reached to remain cost competitive. It is a trade with high barriers to entry.

• Hiroca has been cooperating with tier-1 customers for more than ten years. Our relationship is very close and solid.

• In mainland China, Hiroca is well reputed for its good products and services. When developing new types of vehicles, automakers always take the initiative to discuss their plans with

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VI. Objectives and Business Strategy

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Objectives and Business Strategy

 Solidify customer relationships with existing Japanese automakers

 Form strategic partnerships with them

 Match their plant expansion plans

 Join hands with them to develop a global platform

 Explore global automakers

 Provide one-stop manufacturing services to them

 Join hands with them to develop a global platform

 Diversify product mix and pricing portfolio to enhance competitiveness

 Get access to technology and cut into new markets through joint ventures

 Dongguan Jia Li - Laser engraving and surface decoration technology

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Future Strategies

Keep strengthening relationship with three top Japanese car makers in China

DF-Nissan (Wuhan and Guangzhou) Current Cap. ： 1million units Planned Cap. ： 1.5million units

 DF-Honda (Wuhan)  GZ-Honda (Guangzhou) Current Cap. ： 0.7million units Planned Cap. ： 1.2million units

GZ-Toyota (Guangzhou) Current Cap. ： 0.3million units Planned Cap.: 0.6-0.8milion units

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Explore New Customers

Chongqing  CA-Ford Current Cap. ： 0.5 million units Planned Cap.: 1.2 million Units  CA-Domestic Cap. ： 2 million units  CA-Suzuki Cap. ： 0.7million units Chengdu  FAW-VW  FAW-Toyota

Future Strategies

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Changsha
 GZ-Mitsubishi
Cap. ： 0.25million units
 GZ-Fiat

Chrysler
Cap. ： 0.3million units
 SH-VW
Wuhan
 SKODA
Cap. ： 0.2million units  SH-GM
Cap. ：
0.6million units
Shenzhen
 CAPSA
Cap. ： 0.3 million
units
Foshan
 FAW-VW
Cap. ： 0.3 million
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Set Eyes to North American Market

 Evaluating the possibility of establishing a new plant in Mexico

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N.A.
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Thank you!