Lida — Investor Presentation 2016

Jun 23, 2016

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Ticker: 4552

Lida Holdings

Corporate Presentation

June 2016

Contents

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Corporate Overview Products & Industry Operation & Business Model Operating Results

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l. Corporate Overview

可靠，源於專業 專業，始於創新

1

Basic Information

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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$900 million
Business Scope	Engage in the research, development, manufacturing and marketing of self-branded air compressors through trade names including"Luowei", "Lida" and "Chao Bao".
Consolidated Revenue	NT$7.6 billion (FY2015)
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	1,375 (as of March 31, 2016)

2

Holding Structure

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Lida Holdings (Cayman) 100% Wellsoon International Limited (BVI) 100% Lida (HK) Holdings

100% China Operating Entities Lida (China) Machine Equipment Co., Ltd. Est. in March 2001 100% Lida (Jiangxi) Machine Equipment Co., Ltd. Est. in February 2012

3

Key Milestones

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1993	Entered the Chinese air compressor industry
1998/10	Established PRC entity "Fujian Quanzhou Lida Machinery Co., Ltd."
1997/11	Registration of the "Luowei" trademark
1999/10	Registration of the "Lida" trademark
2001/03	Restructured as Sino-foreign joint venture company
2004/06	"Luowei" brand gained recognition as a "Fujian Province Famous Product"
2006/11	"Luowei" brand received the prestigious national "China Famous Trademark" recognition
2009/06	Established Hong-Kong holding company, Lida (HK) Holdings
2008/12	"Lida" brand gained recognition as a "Fujian Province Famous Product"
2010/12	Corporate identity changed to Lida (China) Machine Equipment Co., Ltd.
2012/02	Investment in subsidiary Lida (Jiangxi) Machine Equipment Co., Ltd.
2012/05	Established Lida Holdings, a Cayman Island-incorporated entity for the purpose of Taiwan public listing
2014/07	New Jiangxi plant in full operation

4

Board of Directors

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Title	Entity / Name	Place of Incorporation / Nationality	Shareholding	Shareholding	Education & Past Experiences
			# of Shares	%
Chairman	Yi Yuan Enterprises Limited : Representative: Wu Chien-Neng	BVI / Taiwan	31,500	35.00%	- Oriental Academy of Industrial Technology , Taiwan - CEO of Quanzhou Yida Electrical Appliance - AVP, Home Appliances Division, Taiwan Tsannkuen Co., - Technical Department Manager, Sanyo Electric Taiwan
Director	Gain Fortune Development Ltd Representative: Huang DaPing	BVI / China	16,940	18.82%	- Various business in property development, media, etc.
Director	Leo Holdings Investments Ltd. Representative: John Yang	BVI / Hong Kong	13,455	14.95%	- BS, University of Toronto - Partner, Excelsior Capital Asia; Investment Director, Prime Partners Asset Management Group; Cazenove (Asia)
Director	Kong Wai Fung	Hong Kong	－	－	- BS, Hong Kong Polytechnic University - Certified in Transport and Logistics Professional
Independent Director	Ma Chia-Ying	Taiwan	－	－	- Ph.D. in Accounting, Lehigh University - Professor of Accounting, Soochow University - Independent director of Richtek Technology and and TSC Auto-ID Technology
Independent Director	Huang Ling Fang	Taiwan	－	－	- LLM, National Chengchi University - Independent director of New Palace International Co. and PharmallyInternational Holding
Independent Director	Kelvin Shen	Taiwan	－	－	- Masters of Management, Fu Jen Catholic University - Deputy General Manager, Industrial Technology Investment Corporation 5

Key Management

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Title	Name	Nationality	Education & Past Experiences
General Manager	Chen Yi Ping	China	- Fujian Normal University - Deputy General Manager, Lida (China) Machine Equipment Co., Ltd
Deputy General Manager	Barry Lau	China	- Jimei University, Xiamen
CFO	Daniel Kwan	Hong Kong	- Hong Kong Polytechnic University - Qualified CPA in HK - BDO Limited, Hong Kong
Manager, Sales Division	Kam Chuang	China	- Liming Vocational University, Quanzhou
Technical Director	Wu Chong Hong	Taiwan	- Factory Head, Taiwan Ming Tyan Iron Works Co., Ltd
Internal Auditor	Tony Chang	Taiwan	- Master of Accounting, Soochow University - Taiwan CPA - In-charge Senior, Audit Service, Deloitte & Touche Taiwan

6

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ll. Products & Industry

可靠，源於專業 專業，始於創新

7

Air Compressor Classifications

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Reciprocating
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Jet
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Turbine
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Scroll
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Centrifugal
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Axial Flow
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Piston
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Sliding Vane
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Rolling Rotor
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Screw
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8

Air Compressor Process Flow

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Pressurized air, clean air
Petrochemical industry
Sandblasting
Air Tank
Pneumatic tools
Paint spray, electroplating,
injection molding
Food & beverage
Air Compressor
processing
Dehumidifier and
filter
9
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Applications of Air Compressor

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Industry	Function	Sample Applications
Industrial Manufacturing	Pneumatic Power	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
Food & Pharmaceutical		Spraying, e.g. painting and rust removal
		PET bottle blowing
		Soda carbonation, automated packaging lines
Textile & Apparel		Air-powered sewing machines
		Sandblastingof denims
Transport		Automotive brakes, opening/close of bus doors, railway engineering equipment
Chemical & Petrochemical		Well fracturing, earth frackingfor oil drilling
	Synthesis & Polymerization	Synthesis and polymerization of chemical raw materials, such as synthetic nitrogen, methanol and urea
	Transmission	Longdistance transmission of naturalgas
Refrigeration & Gas Separation	Refrigeration & Gas Separation	Refrigerated air, Freon compressor
	Transmission	Transmission of refrigerated air and/or separated air
Mining & Metallurgy	Pneumatic Power	Drillingequipment, such as rock drill,pneumatic drill & hammer
		Blasting
	Transmission	Transmission of combustiongases, cement, andprovision of air in mines

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Real World Use of Air Compressors

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Textile Equipment

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Paint Spraying

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PET Blowing

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Pneumatic Tools

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11

Real World Use of Air Compressors

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CNC Machine Center

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Medical Equipment

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Production Line Movement

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Printing Press

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12

Real World Use of Air Compressors

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Laser Cutting

Robot Arms

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Dynamic Movie Theater

Measuring Equipment Accessories

13

Industry Composition of End Users

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Mining &
Metallurgy, Machinery &
Chemical & 15% Manufacturing
40%
Petrochemical
20%
Pharmaceutical,
F&B, and
Others
25%
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Source: China General Machinery Industry Association, Compressor Sub-association

14

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Size of Chinese Air Compressor Industry

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Unit: RMB 100 million

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500 456
427
398
369
400
340
312
280
300
252
228
193
200 149
100
0
2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E
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Source: China General Machinery Industry Association, Compressor Sub-association; Qianinfo Consulting

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 45.6 billion by 2019. Various macroeconomic policies launched in recent years, such as "Supply Side Reform" and "New Type Urbanization Plan", will become growth drivers of the air compressor industry.

15

Product Overview

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Product Overview	Product Overview
Category		Revenue % (2015)	Attributes & Application
Piston-type		50%	Ease of use, high mobility, affordability. Wide range of users, from individuals to small- and medium- enterprises.
Screw-type		37%	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%	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.

~~16~~

Growth Rates, by Product

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Unit: NT$ 000's

	Unit: NT$ 000's	Unit: NT$ 000's	Unit: NT$ 000's	Unit: NT$ 000's	Unit: NT$ 000's	Unit: NT$ 000's
- 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000
Type		2012	2013	2014	2015	CAGR
Piston Compressor		2,825,968	3,262,922	3,655,178	3,844,830	10.81%
Screw Compressor		1,571,557	2,012,290	2,423,332	2,855,091	22.02%
Scroll Compressor		-	213,914	542,384	779,684	90.91%
Others		94,990	118,662	127,525	136,044	12.72%
TOTAL		4,492,515	5,607,788	6,748,419	7,615,649	19.24%

17

Gross Margins, by Product

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50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2012 2013 2014 2015 2016Q1
Piston Compressor 20.56% 22.08% 23.02% 23.57% 23.83%
Screw Compressor 24.37% 26.01% 24.49% 25.81% 25.34%
Scroll Compressor 19.01% 22.60% 25.64% 27.05%
Others 34.34% 38.11% 36.93% 39.13% 42.92%
Total 22.19% 23.71% 23.77% 24.90% 25.15%
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18

Lida's End Users, by Industry (2015)

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Textile &
Apparel
Electronics Printing &
6.7%
8.6% Packaging
4.8%
Bio-Pharmaceuticals
Construction
8.8%
5.2%
Auto Manufacturing
& Servicing
6.5%
Food Processing
12.5%
Other
16.3% Machinery &
Manufacturing
30.6%
資料來源：力達公司整理
Source: Lida Holdings
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19

Our End Users

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20

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lll. Operation & Business Model

可靠，源於專業 專業，始於創新

21

Business Model

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Operating Model Through professional competency in R&D, production and marketing, our selfbranded general-purpose air compressors are sold through a comprehensive network of distributors.

Air compressors are widely applied in different sectors such as manufacturing, construction and decoration, textile and garment, food processing, pharmaceuticals, medicals, transportation, petrochemicals and mining and metallurgy.

Currently there is no fully substitutable product for air compressors, therefore our products are subject to lesser impact coming from single-industry cycles.

Production Sites	Location	Area	Positioning
Lida (China)	Quanzhou city, Fujian	37,101 m2	R&D, production and sales for overseas markets and coastalprovinces)
Lida (Jiangxi)	Jiujiang city, Jiangxi	58,529 m2	Production and sales (inland provinces)

22

Sales Networks

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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

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100.00%
89.46% 91.70% 90.10% 91.02% China
50.00%
Overseas
10.54% 8.30% 9.90% 8.98%
0.00%
2012年 2013年 2014年 2015年
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23

Competitive Landscape

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Major foreign players

Name	Introduction	Major Products
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 and portable 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

Market positioning of major foreign players：

1. Primarily focus on the large-size compressors; product life cycle from 30 to 40 years.

2. Product ASP normally double of local players.

3. Mainly serve large manufacturing clients.

24

Competitive Landscape

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Major local players

Name	Introduction	Major Products
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, drilling wagon.
Wuxi Compressor	Found in 1955, invested by Kobe Steel Group in 2011.	Industrial energy compressor, labyrinth compressor for petrochemical industry, piston compressor, screw compressor, centrifugal compressor.

25

Competitive Landscape

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Items	Lida (4552 TW)	Kaishan (300257 CH)	Hanbell (002158 CH)
Revenue, by region (2015)	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 (2015)	Piston 50% Screw 37% Scroll 10% Others 2%	Piston 7% Screw 69% Others 24%	Screw refrigerant 65% Air compressors 21% Others 14%

26

Market Share

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1. According to statistics from China General Machinery Industry Association, the global market size of the air compressor industry was approximately US$35 billion in 2014.

2. According to statistics from Compressor Magazine, China’s air compressor industry market size reached RMB31.2 billion (including piston, screw and other type of air compressors). The industry expected to continue growing steadily, and expected to achieve RMB34 billion of sales in 2015.

3. Based on industry data, Lida’s market share in China reached 4.4% in 2014. Overall, foreign players account for approximately 50% of market share in China.

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Lida is a leading
Foreign
50% player in the
general-purpose
Others air compressor
29.86% segment!
KaiShan Lida
HanBell
6.33% 4.40%
3.06%
HongWuHuan WuXi
2.52% 3.83%
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Basis of calculation: Lida 2014 revenue Information source: Qianinfo Consulting, Lida

27

Competitive Advantages

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Channels
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Production R&D Strength Reliability & Quality Experience

Mature and stable distribution network

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28

New Product – Screw Compressor

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F-Variable Frequency Compressor

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

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Typical Cost Structure of Air Compressor Over Lifetime of Use

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Purhcase
Maintenance Cost, 14%
Cost, 9%
Energy Cost,
77%
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Lida Advantage

1. 23%-40% more energy efficient compared to traditional air compressors.

2. 13%-20% more energy efficient compared to F-Variable Frequency compressors offered by competitors.

Source: Lida, peer websites

29

New Product – Scroll Compressor

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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.

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Dual cooling systems

• Automated system adjustment according to operating conditions.

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

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Radial flexible compensating mechanism offers 10% efficiency ain g

• Lower and more stable operating temperature improves compression efficiency by 1~5%

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

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30

Growth Drivers

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New Products

• F-Variable Frequency screw compressor was launched in 2015H2 and recorded NT$50 million of sales during the second half. Sales increased to NT$60 million in 2016Q1 alone, and we expect full-year revenue of this new product to reach NT$350 million this year. The F-Variable Frequency screw compressor will be one of Lida's key products.

• Scroll compressors: 3 products currently on sale since initial launch in 2013. Lida will introduce an additional 1~2 models this year.

New Markets

• Domestic sales: Assist our tier-1 distributors to expand their tier-2 distribution network and end user space.

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

• Overseas sales: Proactive expansion in Southeast Asian markets. In 2015, we generated NT$360 million of revenue from Southeast Asia, of which NT$93 million was from Indonesia (+39% YoY).

Policy Opportunity

• Initiation of several high-profile national level development policies by the Chinese government, including 13[th] 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. As industries upgrade, we expect a new wave of demand for air 31

• compressors.

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lV. Operating Results

可靠，源於專業 專業，始於創新 32

Revenue and Profit

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Unit: NTD’000
Revenue Net Profit
7,615,649
8,000,000
6,748,419
7,000,000
5,607,788
6,000,000
4,492,515
5,000,000
4,000,000
3,000,000
2,000,000
758,945 934,530
587,118
1,000,000 453,239
0
2012 2013 2014 2015
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33

Profitability Indicators

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Gross profits margin Operating margin Net profits margin
30.00%
24.90%
25.00% 23.71% 23.77%
22.19%
20.00% 18.29%
17.38% 17.10%
15.37%
15.00%
12.27%
10.47% 11.25%
10.09%
10.00%
5.00%
0.00%
2012 2013 2014 2015
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34

Balance Sheet

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Balance Sheet	Balance Sheet	Balance Sheet	Balance Sheet	Balance Sheet	Balance Sheet
Unit: NTD’000
Item	2012	2013	2014	2015	2016Q1
Current assets	1,575,699	1,858,472	2,875,603	3,819,422	4,148,220
Property, plant and equipment	232,142	487,541	510,467	483,323	473,113
Other assets	40,701	62,871	44,590	42,461	42,405
Total assets	1,848,542	2,408,884	3,430,660	4,345,206	4,663,738
Current liabilities	1,297,569	1,418,606	965,829	1,115,752	1,194,941
Non-current liabilities	114,385	－	－	－	-
Net liabilities	1,411,954	1,418,606	965,829	1,115,752	1,194,941
Share capital	465,541	465,541	900,000	900,000	900,000
Capital reserves	0	352,753	536,966	536,966	536,966
Retained earnings	-52,675	164,335	923,280	1,740,810	1,999,008
Other reserves	23,722	7,649	104,585	51,678	32,823
Total equity	436,588	990,278	2,464,831	3,229,454	3,468,797

35

Income Statement

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Unit: NTD’000	Unit: NTD’000	Unit: NTD’000	Unit: NTD’000	Unit: NTD’000	Unit: NTD’000	Unit: NTD’000	Unit: NTD’000	Unit: NTD’000	Unit: NTD’000	Unit: NTD’000
Item	2012		2013		2014		2015		2016Q1
Revenue	4,492,515	100%	5,607,788	100%	6,748,419	100%	7,615,649	100%	1,883,873	100%
Gross profit	996,710	22%	1,329,677	24%	1,604,375	24%	1,896,336	25%	473,754	25%
Operating profit	690,602	15%	974,685	17%	1,154,017	17%	1,392,685	18%	348,521	19%
Profit before income tax	671,795	15%	898,959	16%	1,144,557	17%	1,403,075	18%	368,180	20%
Income tax	218,556	5%	311,841	6%	385,612	6%	468,545	6%	109,982	6%
Net profit	453,239	10%	587,118	10%	758,945	11%	934,530	12%	258,198	14%
EPS (Note)	5.92		7.67		9.15		10.38		2.87

Note：EPS calculation based on retrospective weighed average no. of shares. The retrospective weighed average no. of shares for the years 2012 to 2016Q1 were 76,545,000, 76,545,000, 82,908,000, 90,000,000 and 90,000,000 shares, respectively.

36

2016Q1 Financials

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Unit: NTD’000

Item	2016Q1	2015Q1		Item	2016Q1	2016Q1	2015Q1	2015Q1
Current assets	4,148,220	3,151,556		Revenue	1,883,873	100%	1,679,813		100%
Property, plant and equipment	473,113	497,920		Gross profit	473,754	25%	415,867		25%
Other assets	42,405	43,873		Operating profit	348,521	19%	303,465		18%
Total assets	4,663,738	3,693,349		Profit before	368,180	20%	306,941		18%
Current liabilities	1,194,941	1,161,390		income tax
				Income tax	109,982	6%	99,353		6%
Net liabilities	1,194,941	1,161,390
				Net profit	258,198	14%	207,588		12%
Share capital	900,000	900,000
				EPS	2.87		2.31
Capital reserves	536,966	536,966
Retained earnings	1,999,008	1,013,868		**Type **	2016Q1		2015Q1
Other reserves	32,823	81,125		Piston	877,491	47%	889,654		53%
Total equity	3,468,797	2,531,959		Screw	744,229	40%	631,295		37%
				Scroll	229,401	12%	127,599		8%
				Others	32,752	1%	31,265		~~37~~ 2%

Ratio Analysis

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Items	Company names	2012	2013	2014	2015
Trade receivable turnover days	Lida	37	37	37	36
	F-AirTac	94	94	109	120
	Hiwin	127	142	129	140
	Basso	63	65	65	76
Inventory turnover days	Lida	26	22	19	16
	F-AirTac	139	147	164	163
	Hiwin	167	189	166	194
	Basso	123	120	113	106
Net profit margin (%)	Lida	10.09	10.47	11.25	12.27
	F-AirTac	19.04	23.50	21.32	15.63
	Hiwin	15.62	15.37	15.03	9.37
	Basso	2.29	19.41	30.79	28.48
Return on equity	Lida	118.90	82.29	43.93	32.82
	F-AirTac	19.97	23.50	18.70	13.44
	Hiwin	19.85	17.31	17.81	9.90
	Basso	2.30	20.95	32.87	29.58
EPS (NTD)	Lida	5.92	7.67	9.15	10.38
	F-AirTac	6.67	10.55	10.39	7.64
	Hiwin	7.91	7.73	9.20	6.10
	Basso	0.38	3.43	6.31	6.75

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Thank You

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