Lida — Annual Report 2017

Mar 28, 2017

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Leading player in the general-purpose air compressor segment in China

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2016 Review and 2017 Preview

Corporate Overview and Products Business Model and Industry Operating Results Outlook

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 The Company was Listed on the TWSE on July 20,2016, and margin trading from Feb 2 ,2017。

2016 Financial Data Review

 Pre-tax income was NT1,518 million，YoY+8.24%(RMB+12.34%) Net income was NT1,022 million，YoY+9.34%(RMB+13.49%) Earnings Per Share was NT10.8 dollars.

 Gross profit margin 23.96%，YoY-3.78%，Operating profit margin 17.46%，Operating expense ratio 6.50%，Pre-tax income ratio 18.37%， Net income ratio 12.36%。

 F-Variable Screw Compressors ：Sales YoY+18%(RMB+22%)

Scroll Compressors ：Sales YoY+26%(RMB+31%)

 Shareholders Equity：NT4,864 million，ROE25%

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• Continued to be the leading player in the general-purpose air compressor segment in China.

• Improve the sales percentage of high gross profit product.

• Strengthen the mainstream products development and focus on energy saving and intelligent products development.

2017

Company

• Raise the production capacity and output to lower the production and transportation cost.

• With automation equipment driving the industry, Continuingly

• Preview contribute to raise the product efficiency and upgrade production line.

• Strength R&D and develop new high-efficient products.

• Enhance sales effort at regions/provinces where we traditionally have lesser presence and assist our tier-1 distributors to expand their tier-2 distribution network and enduser space.

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2016 Review and 2017 Preview Corporate Overview and Products Business Model and Industry Operating Results Outlook

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Date of

Establishment

May 11, 2012

Chairman

Wu Chien-Neng (Representative of Yi Yuan Enterprises Ltd)

General Manager Chen Yi-Ping

Paid-in Capital NT$1 billion

Engage in the research, development, manufacturing Business Scope and marketing of self-branded air compressors through trade names including "Luowei", "Lida" and "Chao Bao". Consolidated NT$7.6 billion (FY2015) Revenue NT$8.3 billion (FY2016)

Production Sites

1. Quanzhou City, Fujian Province - Lida (China) Machine Equipment Co., Ltd.

2. 九江, Jiangxi Province - Lida (Jiangxi) Machine Equipment Co., Ltd.

No. of Employees 1,496 (as of March 27, 2017)

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Lida (China)

Lida (China) Location Area Position R&D, production and sales for Quanzhou City, 37,101m² overseas Fujian Province markets and coastal provinces Lida (Jiangxi) 九江[, Jiangxi ] Production and sales 58,529m² Province (inland provinces)

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	Products	Products	Products	Products	Products
	Category		Revenue % (2015)	Revenue % (2016)	Attributes & Application
	Piston- type		51%	46%	Ease of use, high mobility, affordability. Wide range of users, from individuals to small- and medium- enterprises.
	Screw- type		37%	41%	Medium- to large-sized manufacturers, including but not limited to: industrial production, automobile, textile, packaging and petrochemicals. Higher operating efficiency, especially under continuous operation. Energy efficiency and ease of operation.
	Scroll- type		10%	12%	High quality compressed air. Particularly suitable in safety-conscious applications, such as medical, pharmaceutical, food and beverage, as well as precision industries Growing industry attention on scroll- type designs. Offers high operating efficiency and dependability, low noise levels, with reduced size and weight. 8

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Pressurized air, clean air
Petrochemical industry
Sandblasting
Air Tank
Pneumatic tools
Paint spray, electroplating,
injection molding
Power
Food & beverage
Air Compressor
processing
Application
Dehumidifier and
filter
9
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upstream midstream downstream material industry R&D and manufacturing Terminal application Industrial Manufacturing Case Food Cylinder Pharmaceutical Compressors Head Textile Crankcase Transport 原材料產業 Motor Chemical Iron Plate Petrochemical Iron Core Refrigeration Rotor Gas Separation Mining & Metallurgy

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2015 2016 2016 年首三季
2015年度
Others, 11.5%
Others, 9.60%
Industrial
Food
Manufacturing, Industrial
Processing,
Food 30.6% Manufacturing,
9.90%
Processing, 33.60%
12.5%
CAGR
Pharmaceutic
Pharmaceutica al, 9.60%
Package
l, 8.8%
Package Auto printing, Auto
printing, 4.8% Mining & Manufacturing, Electronics, 4.80% Manufacturing,
Electronics, 6.5% 7.20%
Metallurgy, 5.70%
8.6%
7.0%
Chemical &
Chemical & [類別名稱],
Textile&Appare Textile&Appar Petrochemical,
Petrochemical,
l, 6.7% el, 7.60% [值] 4.10%
3.0%
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Source: Lida

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Industrial Manufacturing

Pneumatic Power

Laser Cutting

CNC Machine Center

• Numerous air-driven tools, such as: pneumatic pick, riveter, tamping machine, lift, and pneumatic drill

• Automated equipment, such as dynamic movie theater seat, robot arm, laser, printing press, CNC machine center, machine tool and air valve

Robot Arms

Measuring Equipment Accessories

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Dynamic Movie Theater

Printing Equipment

PET Blowing

Pneumatic Tools

Paint Spraying

Equipment Application

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Food & Pharmaceutical & Textile

• Spraying, e.g. painting and rust removal

• PET bottle blowing

• Soda carbonation, automated packaging lines

Pneumatic Power

• Air-powered sewing machines

• Sandblasting of denims

Textile Equipment

Production line

Medical equipment

Food & Beverage processing

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Transport

Pneumatic Power

Chemical & Petrochemical

Pneumatic Power

Refrigeration & Gas Separation

Refrigeration & Gas 、 Separation Transmission

• Automotive brakes, opening/close of bus doors, railway engineering equipment

 Synthesis and polymerization of chemical raw materials, such as synthetic nitrogen, methanol and urea  Long distance transmission of natural gas

 Refrigerated air, Freon compressor  Transmission of refrigerated air and/or separated air

 Drilling equipment, such as Mining & rock drill, pneumatic drill & Metallurgy hammer  Transmission of combustion Pneumatic Power 、 gases, cement, and provision Transmission of air in mines

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New Product – Screw Compressor

 Ability to set air pressure at any desired level and output at constant pressure, providing greater energy savings

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Competitive Advantage

• 23%-40% more energy efficient compared to traditional air compressors.

 13%-20% more energy efficient compared to F-Variable Frequency compressors offered by competitors.

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Typical Cost Structure of Air Compressor
Maint
Purch Over Lifetime of Use
enan
ase Eener
ce Energ
Cost,
14% Cos… y y Eenery
Cost,
Cost, Sav… Purcha
42%
77% Mainte se
nance Cost,
Cost,
14%
4%
Growth Rates
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 For the year ended 31 December 2016, the revenue of F-Variable frequency screw compressors was NT$477.06 million, representing 136.30% of the Group's 17 full year target of NT$350 million.

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Scroll Compressor

Reduced size, longer operating life and higher dependability

• High volumetric efficiency.

• Low torque variation and less vibration.

• Ease and lower cost of maintenance.

Radial flexible compensating mechanism offers 10% efficienc ain y g

Dual cooling systems

• Automated system adjustment according to operating conditions.

• Intelligent suite of protection system, including temperature, phase, over-voltage etc.

• Lower and more stable operating temperature improves compression efficienc b 1~5% y y

Improved electrical system performance by 2~5% when operating at 80-90% loading

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2016 Review and 2017 Preview Corporate Overview and Products Business Model and Industry Operating Results Outlook

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Operating Model

• Through professional competency in R&D, production and marketing, our selfbranded general-purpose air compressors are sold through acomprehensive network

• of distributors.

Sales Channels

• China: a network of 70 key distributors

• Overseas: importers & trading houses

Major markets

• China: 25 provinces and centrally-governed cities, including Beijing, Sichuan, Hubei and Jiangsu

• Overseas: Southeast Asia, Turkey, South Africa

• Percentage of domestic sales and foreign sales in 2016 are 91% and9%

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	Brand			R&D		Channels		Focus
	China Famous			Independently		Mature and		Focus on
	Trademark			developed scroll		stable		general-
	Over 20 years of			air compressor		distribution		purpose air
	continuous			F Variable		network		compressors.
	production			Frequency		Network of 70		Not easily
	High C/P Value。			compressor has		distributors in 25		affected by
				industry leading		provinces		single industrial
				efficiency				trend.
				F+Variable					21
				Frequency

compressor

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 Major local players

Name	Introduction	Major Products	2
Atlas Copco (Wuxi) Compressor	Found in 1873, headquarter located in Sweden. Atlas Copco (Wuxi) was set up in 1994.	Piston, oil-free, screw compressors, oil-lubricated air compressors, oil- free centrifugal compressors, control and monitoring systems andportable screw compressors
Shanghai Ingersoll Rand Compressor	Joint venture between Ingersoll Rand Compressor (USA) and Shanghai Compressors. Ingersoll Rand is one of the top 500 enterprises globally.	Screw compressors, portable compressors, centrifugal compressors
Zhejiang Kaishan Compressor	Found in 2012. Kaishan is the largest screw compressor manufacturer in China. It is a publicly traded company in China.	Screw air compressor, refrigeration compressor, screw expander generator, and process gas compressor.
Shanghai Hanbell Precise Machinery	Taiwanese-invested enterprises set up in 1996. It is a publicly traded company in China.	Refrigerating compressor, screw refrigerant compressor, vacuum pump
ZheJiang Hongwuhuan Machinery	Founded in 1997. Products mainly used in construction, tunneling, power and mining machinery.	Piston compressor, screw air compressor, pneumatic rock drill, pneumatic and hydraulic down hole drill, breakers, drillingwagon. 2

Items	Lida (4552 TW)	Kaishan (300257 CH)	Hanbell (002158 CH)
Revenue, by region	China 91% Overseas 9%	China 95% Overseas 5%	China 93% Overseas 7%
Sales model	Distributors 100%	Mainly distributors with some direct sales	Mainly direct sales with some sales through distributors
Target customers	Machine manufacturing, food processing pharmaceutical, auto industry, textile and garment, automation industry	Metallurgical industry, chemical industry, large scale construction industry	Refrigerant compressors, primarily supplied to air- conditioner manufacturers
Revenue, by product (2016H1)	Piston 46% Screw 40% Scroll 12% Others 2%	Piston 4% Screw 80% Others 16%	Screw refrigerant 60% Air compressors 24% Others 16% 2

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Estimate of Cnina market Scale Major Players market Share
Unit: RMB 100 million
600 Cagr of 5years +7%
Foreign
500
50.0%
400
Lida
300 Others
240 [262 ] [288 ] [325 360 386 416 ] [447 ] [477 507 ] Shenyan
4.6%
Kaishan
28.9%
200 CAGR g
HongWu 2.2% 5.0%
100
Huan Hanbell WuXi
0
2.7% 2.7% 3.9%
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• In tandem with China's economic growth and increased adoption of industrial automation, the market size of the Chinese air compressor industry is expected to reach RMB 50.7 billion by 2021.

Source: China General Machinery Industry Association, Compressor Sub-association; Qianinfo Consulting 2016

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2016 Review and 2017 Preview Corporate Overview and Products Business Model and Industry Operating Results Outlook

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Unit: NTD’000
9,000,000 30.0%
8,266,171
7,615,649
8,000,000
5,607,788 6,748,419
7,000,000
24.9% 25.0%
23.7% 23.8% 24.0%
6,000,000
5,000,000
20.0%
4,000,000
18.3%
17.4% 17.5%
17.1%
3,000,000
15.0%
2,000,000
1,000,000 12.3% 12.4%
11.2%
10.5%
0 10.0%
2013 2014 2015 2016
Revenue 5,607,788 6,748,419 7,615,649 8,266,171
Net profits 587,118 758,945 934,530 1,021,831
Gross profit margin 23.7% 23.8% 24.9% 24.0%
Operating margin 17.4% 17.1% 18.3% 17.5%
Net profits margin 10.5% 11.2% 12.3% 12.4%
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Revenue Net profits Gross profit margin
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Unit: NTD’000
2,500,000 30.0%
2,160,995 2,131,003
2,090,300
2,000,000 1,883,873
25.2% 25.0%
23.8% 24.0%
23.1%
1,500,000
20.0%
18.5%
1,000,000
17.6%
17.1%
16.8%
15.0%
500,000 13.7%
13.2%
11.2% 11.5%
0 10.0%
2016Q1 2016Q2 2016Q3 2016Q4
Revenue 1,883,873 2,090,300 2,160,995 2,131,003
Net profits 258,198 234,153 248,025 281,455
Gross profit margin 25.2% 23.8% 24.0% 23.1%
Operating margin 18.5% 17.1% 17.6% 16.8%
Net profits margin 13.7% 11.2% 11.5% 13.2%
Revenue Net profits Gross profit margin Operating margin Net profits margin
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		Unit: NTD
3.8%		980,746
	8.0% 10.2% 11.9%
359%
.	35.9% 37.5%
	40.7%	3,362,649
582%
.	54.2% 50.5% 45.6%	3,772,261
2012		2016

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 Due to the continuous rise in steel price in the second half of 2016, the Group has increased the selling prices of all products in January 2017, ranging from 2% to 8%, to 。 offset the effect of increase in rise of steel price.

Product/Year	2014	2015	2016
Piston	23.0%	23.6%	21.3%
Screw	24.5%	25.8%	25.8%
Scroll	22.6%	25.6%	26.1%
Others	36.9%	39.1%	34.7%
Total	23.8%	24.9%	24.0%

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Steel Prices in China

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Steel price continues to rise in 2016Q4. 2016H2
+50%
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Unit: NTD’000

		Unit: NTD’000
Items	2013 2014 2015	2016
	Amount ％ Amount ％ Amount ％	Amount ％
Revenue	5,607,788 100% 6,748,419 100% 7,615,649 100%	8,266,171 100%
Gross profits	1,329,677 24% 1,604,375 24% 1,896,336 25%	1,980,860 24%
Operating profits	974,685 17% 1,154,017 17% 1,392,685 18%	1,443,630 17%
Income before tax	898,959 16% 1,144,557 17% 1,403,075 18%	1,518,620 18%
Income tax	311,841 6% 385,612 6% 468,545 6%	496,789 6%
Net profits 587,118 10% 758,945 11% 934,530 12%		1,021,831 12%
EPS 7.67 9.15 10.38		10.80

Note: EPS was calculated based on the retrospective weighed average no. of shares.

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Unit: NTD’000

Items	2016Q3 2016Q4	QoQ(%)	2015年 2016年	YoY(%)
	Amount Amount	TWD RMB	Amount Amount	TWD RMB
Revenue	2,160,995 2,131,003	-1.4% 0.9%	7,615,649 8,266,171	8.5% 12.7%
Gross profits	517,820 491,591	-5.1% -2.7%	1,896,336 1,980,860	4.5% 8.4%
Operating profits	379,822 357,352	-5.9% -3.5%	1,392,685 1,443,630	3.7% 7.6%
Income before tax	387,654 405,062	4.5% 5.9%	1,403,075 1,518,620	8.2% 12.3%
Net profits	248,025 281,455	13.5% 15.5%	934,530 1,021,831	9.3% 13.5%
EPS	2.52 2.82	11.9%	10.38 10.80	4.0%

 The revenue and net profits growth in NT$ was relatively lower than that in RMB since Taiwanese dollars have sharply appreciated against Renmibi since July 2016. Nevertheless, the effect of such appreciation has no impact on the operation of the Group.

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Unit: NTD’000

Items 2013 2014 2015	2016
Cash 945,189 1,474,402 1,179,482	2,853,285
Trade receivables 629,374 720,605 799,463	925,129
Inventories 275,063 258,653 231,324	253,759
Other current assets 8,846 421,943 1,609,153	1,627,634
Fixed assets 487,541 510,467 483,323	445,417
Other assets 62,871 44,590 42,461	47,154
Total assets 2,408,884 3,430,660 4,345,206	6,152,378
Short-term borrowings 98,459 106,932 104,895	96,957
Tradepayables 388,735 438,950 459,892	569,760
Other current liabilities 931,412 419,947 550,965	621,669
Total liabilities 1,418,606 965,829 1,115,752	1,288,385
Share capital 465,541 900,000 900,000	1,000,000
Capital reserves 352,753 536,966 536,966	1,548,200
Retained earnings 164,335 923,280 1,740,810	2,582,641
Other reserves 7,649 104,585 51,678	-266,848
Total equity 990,278 2,464,831 3,229,454	4,863,993 ~~33~~

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2016 Review and 2017 Preview Corporate Overview and Products Business Model and Industry Operating Results Outlook

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Strengthen the product and revenue structure

 The Company began to launch two new scroll-type air compressors in July 2016 ,and showing a good response from customers. We expected F-variable frequency screw compressors and scroll-type air compressors will be the main engines for the growth of the Group in future.

• The Company has increased the selling prices of all products in January 2017, ranging from 2% to 8%, to offset the effect of increase in rise of steel price.

• Strength R&D and develop new high-efficient products.

Positively expands sales market

• Enhance sales effort at regions/provinces where we traditionally have lesser

presence.

• Assist our tier-1 distributors to expand their tier-2 distribution network and

enduser space.

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Development policies in China

 Initiation of several high-profile national level development policies by the Chinese government, including 13th Five-Year Plan, China Manufacturing 2025, One Belt One Road, Supply Side Reform, and New-type Urbanization, all serve to promote industrial automation, reduce emission, and enhance energy efficiency.

	13th Five-Year Plan	China Manufacturing 2025	China Manufacturing 2025		One Belt One Road
	Industrial Robot Applications		Upgrade China from a
	Expands Railway		manufacturer of quantity to		Enhance infrastructure and
	construction		one of quality		facilities connectivity
	Strengthen energy		Apply smart technologies		Five connections: policy
	conservation and		Green manufacturing		coordination, facilities
	environmental consciousness		implementation		connectivity, unimpeded
	Improve medicine and		Strengthen brand quality		trade,financial integration
	medical quality		construction		and people-to-people bonds.
	New energy vehicles		Pursue green development			36

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Thank You.

Q&A

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