QVE — Interim / Quarterly Report 2019

Dec 12, 2019

Stock Code: 4438 QVE

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台北總部

QUANG VIET ENTERPRISE CO., LTD.

4438.TW / 4438.TT

越南古芝廠

中國嘉興廠

越南前江廠

越南隆安廠

KHM, 2018

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中東約旦廠
QVA-Jordan, 2017
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羅馬尼亞廠
BSP-ROMANIA, 2017
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沭陽羽絨廠

TOD-CHINA, 2014

Welcome To QVE

1

Key Points

 US-China Trade War Impact on the Ultimate Consumer

• Tokyo 2020 Olympic Business Opportunities for Sports Wear

• Brand

(Recent Financial Results and News on Adidas, Nike, Under

Armour and Puma)

• Updated QVE Global Development and Expansion Strategies

• Down Jacket Fashion Trends

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Source: Reuters

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Source: Adidas Official Website

Nike 2019 1st Quarter Results

(ended August 31, 2019)

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Source: Nike Official Website

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Adidas 2019 3rd Quarter Results (ended September 30, 2019)

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Source: Adidas Official Website

Under Armour 2019 3rd Quarter Results

(ended September 30, 2019)

Source: Under Armour Official Website

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Puma 2019 3rd Quarter Results

(ended September 30, 2019)

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Source: Puma Official Website

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Company Overview

 Date of establishment: October 1995

• Capital: NT $1.034 billion (US $33 M)

 Chairman: Mr. Wen Hsien Yang

CEO: Mr. Charles Wu

R&D Vice President: Mr. Spensen Tsai

 Number of employees worldwide Taiwan: 210 employees Overseas: 20,329 employees

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QVE Group Geographic Location

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2016 BSP-Romania 2014 TOD-Jiang Su, CN 2003 QVC-Zhe Jiang,CN 1996 QVE HQ-Taipei,TW
2018 King Hamm-
TienGiang,VN 2017 QVL-Long An,VN
2017-QVA Amman,JO
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Quang Viet Enterprise Co., Ltd. (QVE)

Top One Down & Feather Shu Yang Co., Ltd. (TOD) Biancospino S.R.L. (BSP)

Atlanta Garment Manufacturing Company (QVA) King Hamm Industrial Co., Ltd. (King Hamm)

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2010 QVT-Tien Giang,VN 1996 KVG-Cu Chi,VN
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QVE Group Profile

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QVN (Cu Chi, Vietnam)
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Year Established: 1996 Land Area: 60,000 M² Number of workers : 6,500 Production lines: 115 Lines

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QVT (Tien Giang, Vietnam)
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Year Established : 2010 Land Area : 81,000 M² Number of workers : 6,500 Production line : 145 Lines

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QVL (Long An)
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Year Established : Q1, 2017 Land Area : 45,000 M² Number of workers : 2,500 (Forecast) Production Line : 60 Lines (Forecast)

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QVC (Jia Xing, China)
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Year Established : 2003 Land Area : 55,000 M² Number of workers : 2,200 Production line : 80 Lines

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TOD (Shu Yang, China)
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Year Established : 2014 Land Area : 20,118 M² Number of workers : 99

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Group Introduction and Position-BSP

Biancospino S.R.L

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Location: Breaza, Romania Year Established: 1998 Number of workers : 530 Production lines: 16 Lines

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Group Introduction and Position-Atlanta

Atlanta Garment Manufacturing Company

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Location: Amman, Jordan Year Established: 2003 Number of workers : 1,600 Production lines: 16 Lines

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Group Introduction and Position-KHM

King Hamm Industrial Co., Ltd.

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新莊金漢總部( KHM )

Location: Xinzhuang, Taiwan Year Established: 1991 Number of workers : 80

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越南金鴻廠( VN-1 ) Location: Hồ Chí Minh, Vietnam Year Established: 2003 Number of workers : 1,200 Production lines: 24 Lines

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越南金漢廠( VN-2 ) Location: Tiền Giang, Vietnam Year Established: 2013 Number of workers : 1,300 Production lines: 28 Lines

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Major Products

• Down Jackets

• Primaloft Jackets, Thermoball Jackets, Padding Jackets

• Softshell Jackets, Seam Sealed Jackets, Bonding Jackets, Spring Light Jackets, Pants, Shorts

• Goose Down, Duck Down

• Knitted garments

Unit ： In Thousands of New Taiwan Dollars

Year Products Project	2019 3rdQuarter	2019 3rdQuarter	2018 3rdQuarter	2018 3rdQuarter
	Net Operating Revenue	%	Net Operating Revenue	%
Down Jackets	5,410,530	41.17%	4,336,645	42.33%
Fiberfill Jackets	3,850,390	29.29%	2,792,418	27.26%
Others(Light Jackets, Knitted Garments and Down Material)	3,882,389	29.54%	3,116,581	30.41%
Total	13,143,309	100.00%	10,245,644	100.00%

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Product Category-Sports Wear Brand

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Adidas Adidas
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Adidas

Adidas

Adidas

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Puma
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Puma

NIKE

NIKE

Reebok

NIKE

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Reebok

Converse

New balance

New balance

Under Armour

Under Armour 16

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Product Category-Outdoor Wear Brand

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Merrell

The North Face

The North Face

The North Face

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Patagonia

Patagonia

Mont-Bell

Patagonia

Patagonia

Mont-Bell

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Ralph Lauren

Ralph Lauren

Helly Hansen

Arc’teryx

Mammut

Arc’teryx

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Milestone

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1997 2005

2006 2007

2008 2009 2011 2013

MONTBELL THE NORTH NIKE PUMA REEBOK ADIDAS PATAGONIA Merrell FACE

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2014 2016 2018 2020 Helly Hansen Mammut ARC’TERYX Marmot Aritzia HURLEY New Balance Under Armour Ralph Lauren

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(Forecast) 2019 Major Customers

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SPORTS WEAR 50% ， OUTDOOR WEAR 50%
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• (Note: TNF for The North Face brand)

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Major Customers Exporting Countries

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Competitive Advantage

1. Vertical Alignment with Material Suppliers

A. Subsidiary TOP ONE DOWN & FEATHER CO., LTD supplies consistent and on-time delivery of duck and goose down, providing a competitive price of raw material. B. Formosa Taffeta Co., Ltd., world renowned fabric supplier, is the main fabric supplier of QVE, and also 20% shareholder of QVE. C. Formosa Taffeta Co., Ltd. has 4 factories located in 3 countries (Taiwan/Vietnam/ China), and is able to support QVE factories in China and Vietnam with onschedule delivery and at a competitive price.

D. Formosa Taffeta Co., Ltd. is an expert in down-proof fabric , providing competency in R&D skill and finest quality.

1. Multi-Country Production Base

A. Export from Vietnam to EU qualify for GSP Plus effective since 2019 B. Free Trade Agreement ( FTA ): Russia, Korean and Japan C. High-end Down Jacket production base: Biancospino (Romania) D. High-end Knitwear production base: Atlanta (Jordan) and King Hamm(Vietnam)

1. Innovative R&D

2. Market Share and Outstanding Management Team

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Innovative R&D

Fully utilize special templates to attain high quality and high efficiency

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A ccuracy, C onsistency, E asy

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Innovative R&D

Customized GORE-TEX® Machines to produce Top Quality for

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Innovative R&D

Speed Factory in QVC – INA Computerized Production Hanger System

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Market Share & Partnership

QVE is an award-winning jacket manufacturer, who produces high technique and finest quality products including down jackets, innovative jackets and thermal jackets for world famous sports and outdoor brands.

The following chart illustrates the market share of QVE against competitor companies:

Market Share Of Down Jacket Manufacturers	Market Share Of Down Jacket Manufacturers	Market Share Of Down Jacket Manufacturers
CLIENT(BRAND)	QVE	Competitor (Ycompany)
NikeGroup	40%	0%
AdidasGroup	75%	5%
PumaGroup	50%	0%
Under Armour	35%	35%
New Balance	20%	0%
VFGroup(The North Face)	35%	35%
AmersGroup(Arc’teryx)	20%	30%
PatagoniaGroup	55%	45%
Mont-bellGroup	50%	0%

25

Operation Overview

QVE Consolidated Revenue

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NTD (Billion)
14.00 13.28 13.14
12.00
10.20
10.00 9.37
9.04
8.49
8.00
6.66 6.60
6.38
6.00
3.74
4.00
2.00
0.00
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019Q3
Year
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Year	Consolidated revenue (Thousands)	Remark
2010	3,741,311	Provided by company
2011	6,657,044
2012	6,378,609
2013	6,597,920	Per Audit
2014	8,488,545	Per Audit
2015	9,368,010	Per Audit
2016	9,038,818	Per Audit
2017	10,203,655	Per Audit
2018	13,280,440	Per Audit
2019Q3	13,143,309	Per Audit

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Operation Overview

0.20 0.60 0.69 0.86 1.13 1.22 0.89 0.68 1.12 1.36 0.17 0.54 0.61 0.64 0.90 0.94 0.70 0.55 0.86 1.08 0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019Q3 NTD (Billion) Year QVE Consolidated Profit	Year	Income before income tax (Thousands)	Capital (Thousands)	Remark
	2010	201,007	290,799	Provided by company
	2011	603,957	363,498
	2012	689,964	454,373
	2013	860,710	645,247	Per Audit
	2014	1,128,222	802,034	Per Audit
	2015	1,221,518	922,339	Per Audit
	2016	888,707	1037,639	Per Audit
	2017	682,996	1,037,639	Per Audit
	2018	1,115,716	1,033,753	Per Audit
	2019Q3	1,358,530	1,033,753	Per Audit
	Year	Net income (Thousands)	Capital **(Thousands) **	Remark
	2010	165,915	290,799	Provided by company
	2011	543,643	363,498
	2012	613,693	454,373
	2013	643,356	645,247	Per Audit
	2014	902,865	802,034	Per Audit
	2015	940,594	922,339	Per Audit
	2016	698,307	1,037,639	Per Audit
	2017	546,996	1,037,639	Per Audit
	2018	857,041	1,033,753	Per Audit
	2019Q3	1,081,058	1,033,753	Per Audit

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Operation Overview

QVE EPS

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NTD (dollar) QVE EPS
12.00
10.47
10.21
9.59
10.00
8.56
8.20
8.00 7.27 7.41 7.43
6.00
5.07
4.00
2.21
2.00
0.00
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019Q3
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		Year	EPS(dollar)	Capital (Thousands)
		2010	2.21	290,799
		2011 2012	7.27 8.20	363,498 454,373
		2013	8.56	645,247
		2014	10.47	802,034
		2015 2016	10.21 7.41	922,339 1,037,639
		2017	5.07	1,037,639
		2018	7.43	1,033,753
		2019Q3	9.59	1,033,753

Year

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Operation Overview

Item/Year	2018		2017
	Amount (Thousands)	%	Amount (Thousands)	%
Operating revenue	13,280,440	100.00%	10,203,655	100.00%
Operating costs	11,070,093	83.36%	8,780,573	86.05%
Gross profit	2,210,347	16.64%	1,423,082	13.95%
Operating expenses	1,104,203	8.31%	767,744	7.53%
Operating income	1,106,144	8.33%	655,338	6.42%
Non-operating income and expenses	9,572	0.07%	27,658	0.27%
Income before tax	1,115,716	8.40%	682,996	6.69%
Income tax expense	258,675	1.95%	136,000	1.33%
Net income	857,041	6.45%	546,996	5.36%
Net income attributable to shareholders of theparent	768,584	5.79%	523,945	5.13%
EPS（dollars）	7.43		5.07

Calculation of EPS is based on weighted average number of shares: 103,375 thousand shares Source: Consolidated financial statements audited by Deloitte Taiwan

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Operation Overview

Item/Year	2019April-June		2018 April-June
	Amount (Thousands)	%	Amount (Thousands)	%
Operating revenue	4,037,192	100.00%	2,938,452	100.00%
Operating costs	3,221,079	79.79%	2,312,128	78.69%
Gross profit	816,113	20.21%	626,324	21.31%
Operating expenses	284,848	7.06%	245,241	8.34%
Operating income	531,265	13.16%	381,083	12.97%
Non-operating income and expenses	(12,961)	( 0.32%)	(26,916)	(0.92%)
Income before tax	518,304	12.84%	354,167	12.05%
Income tax expense	94,787	2.35%	72,866	2.48%
Net income	423,517	10.49%	281,301	9.57%
Net income attributable to shareholders of theparent	372,679	9.23%	257,366	8.76%
EPS（dollars）	3.61		2.48

Calculation of EPS is based on weighted average number of shares: 103,375 thousand shares Source: Consolidated financial statements audited by Deloitte Taiwan

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Operation Overview

Item/Year	2019 July-September		2018 July-September
	Amount (Thousands)	%	Amount (Thousands)	%
Operating revenue	6,790,205	100.00%	6,142,558	100.00%
Operating costs	5,583,553	82.23%	4,988,565	81.21%
Gross profit	1,206,652	17.77%	1,153,993	18.79%
Operating expenses	341,955	5.04%	312,669	5.09%
Operating income	864,697	12.73%	841,324	13.70%
Non-operating income and expenses	19,858	0.30%	(5,716)	(0.10%)
Income before tax	884,555	13.03%	835,608	13.60%
Income tax expense	185,412	2.73%	177,112	2.88%
Net income	699,143	10.30%	658,496	10.72%
Net income attributable to shareholders of theparent	672,371	9.90%	617,158	10.05%
EPS（dollars）	6.50		5.97

Calculation of EPS is based on weighted average number of shares: 103,375 thousand shares Source: Consolidated financial statements audited by Deloitte Taiwan

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Operation Overview

Item/Year	2019 January- **September **		2018 January- **September **
	Amount (Thousands)	%	Amount (Thousands)	%
Operating revenue	13,143,309	100.00%	10,245,644	100.00%
Operating costs	10,899,496	82.93%	8,392,127	81.91%
Gross profit	2,243,813	17.07%	1,853,517	18.09%
Operating expenses	908,418	6.91%	757,428	7.39%
Operating income	1,335,395	10.16%	1,096,089	10.70%
Non-operating income and expenses	23,135	0.18%	(46,440)	(0.46%)
Income before tax	1,358,530	10.34%	1,049,649	10.24%
Income tax expense	277,472	2.11%	234,608	2.29%
Net income	1,081,058	8.23%	815,041	7.95%
Net income attributable to shareholders of theparent	991,396	7.54%	747,981	7.30%
EPS（dollars）	9.59		7.24

Calculation of EPS is based on weighted average number of shares: 103,375 thousand shares Source: Consolidated financial statements audited by Deloitte Taiwan

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Operation Overview

Future Business Plan

QVE has 4 main factories in Vietnam and China, and after M&A 2 subsidiaries – Biancospino(Romania) & Atlanta(Jordan), has a total of 397 production lines and capacity of 1,000,000 pieces per month. Subsidiary KHM has 2 Vietnam factories with a total of 52 production lines. However, current production capacity is still not able to catch up with the growing order demand from our clients. QVE plans to expand QVT, QVL and KHM (VN-2). Production line expansion plan is as below:

Factory	2018 Current Production Lines	2019 Increase	2020 Increase	2020 Increase	2020 Total
QVN (Vietnam)	115	+0		+0	115
QVT (Vietnam)	145	+10		+11	166
QVC (China)	80	+12		+10	102
QVL (Vietnam)	35	+10		+15	60
BSP (Romania)	12	+0		+4	16
Atlanta(Jordan)	10	+2		+6	18
KHM (Vietnam-1)	24	+0		+0	24
KHM (Vietnam-1)	28	+4		+4	36
Total	449	+38		+50	537
		( +8.46% )		( +10.27% )

QVT

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QVL
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Seasonal Products & Industry Characteristics

• The main selling products are seasonal down jackets for autumn and winter seasons. Raw materials are prepared during the end of the year, mass production begins in the beginning of the next year, large quantities delivered from next year’s mid-year to October.

• Production of thin jackets and trousers will begin during winter period for spring and summer wear.

• The operating revenue of each quarter is: 1[st] Quarter: 15%, 2[nd] Quarter: 25%, 3[rd] Quarter 40% and 4[th] Quarter: 20%. The operating revenue for 1[st] quarter is usually the lowest causing temporary loss, while the 2[nd] quarter is able to cover the 1[st] quarter loss. The 3[rd] and 4[th] quarter will usually have massive output delivery and is accountable to be the key highlight of the year. These are some of the key characteristics of down .

• jackets industry

• Due to seasonal factors, we have to plan our production pipeline. The ideal cooperation with our clients would be to pre-order in advance which can reduce the production pressure during peak season and guarantee on-time delivery. This is a win-win solution for clients and QVE. Note: Percentage of operating revenue before acquisition: 5%, 25%, 50%, 20% for each respective quarter

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Business Development

• QVE has exclusively developed new synthetic jackets - Micro Puff, Nano Puff and Macro Puff series with Patagonia in 2017. Micro Puff series also won the best insulation jacket award of 2017 Outdoor Show in Germany and has received many positive feedback from the market.

• Thermoball, the new generation prototype leading to new trends and technologies. It helps TNF evolve from traditional grid system and develop more active and energetic styles on sportswear.

• For the steady development of the company's business, we have touch base with high-end outdoor brand Mammut and sportswear leading brand Under Armour many years ago, which succeeded in 2019. In addition to sportswear and knitwear, Under Armor urgently needs to expand its functional jacket market, which is exactly what QVE specializes in.

• Mammut, a high-end outdoor brand from Switzerland, is known for its top craftsmanship. Each product provides maximum comfort at the same time, able to withstand the harsh environment test. Mammut’s new product Photics HS Thermo Hooded Jacket won in 2019 ISPO. The limited 500 pieces of Photics HS Thermo Hooded Jacket will be issued worldwide in 2019 winter.

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