Lida — Interim / Quarterly Report 2017

Aug 17, 2017

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Ticker
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4552
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• Leading player in the general purpose air compressor segment in China.

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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

Business Scope

Engage in the research, development, manufacturing and marketing of self-branded air compressors through trade names mainly with "Luowei“.

Consolidated Revenue

NT$1.99 billion (Q217)

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

1,531 (as of July 31, 2017)

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	Products	Products	Products	Products	Products
	Category		Revenue % (Q117)	Revenue % (Q217)	Attributes & Application
	Piston- type		43.7%	43.0%	Ease of use, high mobility, affordability. Wide range of users, from individuals to small- and medium- enterprises.
	Screw- type		42.0%	43.2%	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		12.1%	12.0%	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. 3

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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
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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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Unit: RMB’000

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500,000
452,927 457,194 449,663
450,000
421,540
 YoY+6.7%
395,005
400,000  QoQ+13.8%
350,000
300,000
 YoY+11.2%
250,000
 QoQ+19.7%
200,000
150,000
100,000 72,232 79,634 76,835 67,104 80,317  YoY+11.2%
 QoQ+23.3%
50,000
47,311 52,107 60,182 42,659 52,595
0
2016Q2 2016Q3 2016Q4 2017Q1 2017Q2
Revenue Operating Profits Net Profits
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30.0%
23.8% 24.0% 24.5% 24.2%
25.0%
23.1%
20.0%
17.9%
17.6%
17.1% 16.8% 17.0%
15.0%
13.2%
10.0% 11.2% 11.5% 11.7%
10.8%
5.0%
0.0%
2016Q2 2016Q3 2016Q4 2017Q1 2017Q2
Gross Profit Margin Operating Margin Net Profits Margin
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100%
10.9% 8.2% 8.8% 10.5% 12.3%
90%
80%
70%
60%
50%
89.1% 91.8% 91.2% 89.5% 87.7%
40%
30%
20%
10%
0%
2016Q2 2016Q3 2016Q4 2017Q1 2017Q2
China Other Regions
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100%
1.8% 1.9% 1.9% 2.2% 1.8%
11.7% 11.7% 11.9% 12.1% 12.0%
90%
80%
70%
40.2% 41.1% 41.7% 42.0% 43.2%
60%
50%
40%
30%
46.3% 45.3% 44.5% 43.7% 43.0%
20%
10%
0%
2016Q2 2016Q3 2016Q4 2017Q1 2017Q2
Piston Screw Scroll Others
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			88.1% 24.5%		84.0% 26.9%		80.8% 26.9%			77.0% 27.5%		75.5% 27.1%
										23.0%		24.5%
							19.2%
					16.0%
			11.9%
		F-Variable Screw type

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Progress

• ➢ The board of directors 'meeting has been passed in June 2017 to invest RMB94 million for self-production of screw head

• ➢ Expect to purchase related equipment in 2017H2; Plan to start production in 2018Q1 and nearly reach full capacity in 2019

• ➢ Purchase of high quality equipment from Germany and Japan in order to maintain good precision, stability and efficiency of screw heads

Expected Benefits

• ➢ Reach 100% self-production of core accessories; continue to consolidate the supplies and enhance R&D

• ➢ The weighing of screw compressors are in increasing trend; self-production of screw head can ensure the stable supplies , quality and stability of the products

• ➢ Self-production can lower the costs of production and increase the profits of the Group

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2015年度 2016

2016 2017H1年首三季

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Others, 10.1%
Others,
8.8%
Industrial Food Processing, Industrial
Food Processing,
9.9%
Manufacturing, Manufacturing,
9.6%
33.8% 34.9%
Pharmaceutical, CAGR Pharmaceutical,
9.4% 10.2%
Electronics, 7.1% Electronics, 6.7%
Package Package Auto
Auto
printing, 4.7% Mining & Metallurgy, printing, 4.1% Mining & Manufacturing,
Manufacturing, 5.0%
8.1% Metallurgy, 8.9%
5.8%
Textile&Apparel
Textile&Apparel, Chemical & Petrochemical,
Chemical & Petrochemical, , 6.9%
7.4%
4.6%
4.0%
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Source: Lida

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 The of is sensitive and gross margin piston-type compressors high relative to peers conpetition and steel price

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29.0%
27.5%
26.9% 26.9% 27.0%
26.6%
27.0%
26.7% 26.8%
25.0% 25.9%
25.7%
24.5%
23.0%
21.0% 22.0%
21.0%
20.5% 20.4%
19.0% 19.9%
17.0%
15.0%
2016Q2 2016Q3 2016Q4 2017Q1 2017Q2
Piston Screw Scroll
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Steel Prices in China

Steel pricing started to rise on July 2017

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-
DEVELOPMENT OF HIGH
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Change in demand of end users

Automation to replace labour-intensive

Quality of products determine earnings

Key in manufacturing technology

• Continuous increase in labour costs

• Increase in automation to replace labourintensive; speed up the change in structure of the industry and demand of products

• More demanding in quality of products by end users

• Simple operation and high quality products enhance our earnings

Solutions

• Company equipped with good technology can produce high quality products and enhance competitive advantages

Focus on high-end market and increase gross profits market of products

 Made in China  To increase the intelligence of products; and follow the trend of the market to differentiate the quality of our products

Small to medium-size generic

compressors

、 、 Ex: Piston screw scroll

High-end generic compressors

Ex: F+frequency scew 、 oil/oil-free scroll 、 Two-stage screw

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INCREASE OF MARKET COVERAGE
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Distribution of sales in the market

Increase in demand of central and western part of China

Increase in automation in developing countries

Market shares are mainly in the welldeveloped regions in China, 40% in East China and 15% in West China. The recent development of central and western part of China will be the main focus markets in future

In export market, the cost of purchases are the major consideration. But another consideration will be the increased level in automation

Solutions

Increase in market coverage to increase market shares

Start-up of sales in JiangXi factory

Increase market coverage in China

More focus on exports

Start to product some screw compressors in JiangXi factory to lower the cost of delivery

Increase the cooperation of existing distributors, targeting to get 100% coverage in China.

Strengthen our export teams to boost up the sales of exports

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IN DIFFERENTIATION OF
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Existing modes of competition in the industry

Spread and large in no. of players

Small differentiation in products

Price competition in low to medium end products

• Size of small to medium competitors are small

• Major market shares are in the hand of foreign and several major players in China

• More competition in differentiation of products in future

• Increase the price competition for low end products and speed up the industry consolidation

• Lack in competitive advantages  in upgrade of product structures and innovation

• Insufficient in stability and reliability, and low differentiation

Solution

Continuous improvement in quality and differentiation in services

Enhance “3 highs” of products

Competitiveness in products and servcies

Mastering core competence in R&D

Maintain good brand, enhance 3 highs of products(High efficiency, intelligence and energy savings)

More differentiation in product quality and after sales services to maintain the stability of selling prices and market shares.

Mastering core competence in R&D can enhance the brand image

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CONTINUOUS OUTPERFORMANCE
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Existing development of compressors’ industry

Little differentiation of products

Demand from industrial upgrade

Enhancement of environmental policies

• Air compressors extended to wider scopes and more complicated applications

• Trend to increase the level of intelligence

Demand in air compressors are in expanding cycle due to the increase in level of automation

• Enhancement of environment policies and control in China

• Increasing demand for products inhered to such polices

Estimated size of air compressors’ industry

• The Group is continually inhered to the related policies encouraged by the government in order to master and layout the long-term development of industry. We target to outperform

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the growth of industry average. 5Y CAGR 約7%
600 507
477
447
416
386
360
400 325
288
262
240
200
0
2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E
Market size(unit:100 million RMB)市場規模(人民幣億)
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• ➢ Made in China 2025 contrast industrie 4.0 concept. The focus of industrial automation is automation and intelligence during manufacturing process, inhered to the energy savings policies encouraged by the government. This will have positive effects on development of air compressor industry.

Information source：Research Institute of Soochow Securities Soochow Securities

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Unit: NTD’000

Items	2017Q1	2017Q2	QoQ(%)
	Amount ％	Amount ％	TWD RMB
Revenue	1,789,039 100.0%	1,986,947 100.0%	11.1% 13.8%
Gross profits 437,825 24.5%		481,049 24.2%	9.9% 12.6%
Operating profits 303,927 17.0%		355,104 17.9%	16.8% 19.7%
Income before tax 291,901 16.3%		353,288 17.8%	21.0% 23.9%
Income tax (98,690) -5.5%		(120,678) -6.1%	22.3% 25.2%
Net profits 193,211 10.8%		232,610 11.7%	20.4% 23.3%
EPS 1.93		2.33

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Unit: NTD’000

Items	2016Q2	2017Q2	QoQ(%)
	Amount ％	Amount ％	TWD RMB
Revenue	2,090,300 100.0%	1,986,947 100.0%	-4.9% 6.7%
Gross profits 497,695 23.8%		481,049 24.2%	-3.3% 8.4%
Operating profits 357,935 17.1%		355,104 17.9%	-0.8% 11.2%
Income before tax 357,724 17.1%		353,288 17.8%	-1.2% 10.6%
Income tax (123,571) -5.9%		(120,678) -6.1%	-2.3% 9.5%
Net profits 234,153 11.2%		232,610 11.7%	-0.7% 11.2%
EPS 2.60		2.33

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Unit: NTD’000

Items 2016 2016Q2	2017Q2
Cash 2,853,285 1,463,604	3,123,727
Trade receivables 925,129 812,966	943,132
Inventories 253,759 323,273	265,783
Other current assets 1,627,634 1,583,435	1,591,371
Fixed assets 445,417 453,435	485,927
Other assets 47,154 42,257	50,252
Total assets 6,152,378 4,678,970	6,460,192
Short-term borrowings 96,957 101,745	49,346
Tradepayables 569,760 562,789	577,212
Other current liabilities 621,669 582,143	1,482,200
Total liabilities 1,288,385 1,246,677	2,108,758
Share capital 1,000,000 900,000	1,000,000
Capital reserves 1,548,200 536,966	1,548,200
Retained earnings 2,582,641 2,053,161	2,208,462
Other reserves -266,848 -57,834	-405,228
Total equity 4,863,993 3,432,293	4,351,434

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Thank You.

Q&A

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