SE CEMENT — Investor Presentation 2021

Oct 18, 2021

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Investor Seminar
Stock ID: 1110 Report time: 2021/10/19

Notes:

Disclaimer
The contents discussed in this briefing and in the conferences are prepared based on existing information. Some of the financial or business-related information may contain descriptions about the Company’s future prospects. These descriptions are prone to risks and uncertainties, and may lead to outcomes that are different from those described in this briefing.

The Company is not responsible for future updates or amendments to this briefing. Contents of this report have been published solely for the purpose of information exchange and should not be construed as investment recommendations.

I
Company Highlights
II
Industry Highlights

Content

III

Operating Highlights

IV
Financial Highlights

V
Future Prospects

VI
Q＆Ａ

I

Company Highlights

1. Company history
   December 28,1956
   Founder Mr. Chiang-Chang Chen
   founded Southeast Cement

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October 1994
Shares listed on TWSE for trading
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January 1999
Min-Hsien Chen succeeded in the role of Chairman
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October 2009 - Present
Mr. Min-Tuan Chen succeeded in the role of Chairman
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1. Company Profile
   Company profile

Company name: Southeast Cement Corporation 。
Date of establishment: December 28, 1956
Date of listing: October 22, 1994
Paid-up capital: NT$5,720,007,970
Employee count: 102
Chairman: Min-Tuan Chen
President: Chang-Chih Wu
Main products: Portland cement, Portland slag cement and water-quenched blast furnace slag
Business coverage: cement production and trade, house and land leasing, land development, cable TV and recycling business.
Investments and affiliated enterprises

Southeast Investment Co., Ltd., Southeast Paper Manufacturing Co., Ltd., Southeast Asset Development Co., Ltd., Southeast Gao Liang Recycling Co., Ltd., Southeast Construction Co., Ltd., CHC Resources Corporation, Nan Hsia Timber Co., Ltd.

1. Main products and application
   Type 1 Portland cement
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Bagged cement, Bulk cement, Fibc bag
Type 2 Portland cement
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Bulk cement, Fibc bag

Portland slag cement
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Bagged, Bulk, Fibc bag

Southeast waterproof cement
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Bagged cement

Water-quenched blast furnace slag
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Bulk

1. Main products and application
   Type 1 Portland cement
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   Referred to as general cement, it is the most common type supplied in the market. It is suitable for any structural and concrete work that is not exposed to sulfate soil or groundwater.
   Southeast Cement Corporation has been dedicated to the local market since it was founded in 1956. It manufactures Portland cement of excellent stability and quality under the Southeast brand, for which it has earned the trust of its customers.
   Type 2 Portland cement
   Applicable for?(1) Construction works with prolonged exposure to sea breeze or corrosion by seawater, such as breakwater,
   tetra pod, port, caisson and coastal constructions.? (2) Mass concrete constructions, such as a dam, bridge, reservoir, etc.
   (3) Underground foundations, such as a building basement, underpass, tunnel and the underground mass
   railway transit system.
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   Portland slag cement
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   A mixture of Portland cement and blast furnace slag that meets CNS15286 standard.
   Properties: lower hydration heat, high compressive strength in the later period, durability and low cost.
   Bulk slag cement : soil improvement, dam engineering, maritime engineering, tunnel engineering, and sewer, bridge and river bank engineering.
   Bagged slag cement: suitable for tile work. Easy to work with due to the longer final setting time, and able to prevent efflorescence and molds.

1. Main products and application
   Blast furnace slag
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   Steel factories produce molten residues in the form of silicate and aluminate when smelting iron. These residues are quenched into granular form, which are known as blast furnace slag. These blast furnace slag granules are first dried then ground into powder form of appropriate fineness. It is used mainly as a concrete additive or as a cementitious material to replace part of the cement content, or mixed with cement to create Portland slag cement. The raw materials of Southeast slag are water-quenched slag granules sourced from China Steel Corporation. The slag contains no other additive or waste whatsoever, and has been well-known for its consistent and reliable quality.
   Southeast Waterproof Cement
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   To accommodate Taiwan’s humid and rainy climate, Southeast Cement has invested significantly in the development of waterproof products for many years. One of the successes the Company has achieved in this respect was the “Southeast Waterproof Cement” which, despite being water-impermeable, is air-permeable. These characteristics can effectively protect buildings from corrosion due to acid rain or moisture, which may cause problems such as water leakage, weathering, cracking or erosion of the steel structure. The product is free from toxic elements or hazards. It improves the endurance of buildings, hence assuring residents by providing better safety and a lifestyle of higher quality.
   CNS Mark
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   The CNS Mark is MOEA. product quality certification system.Southeast cement has been certified with the CNS Mark for more than 50 years. Our persistence in terms of quality is the strongest commitment and promise that we can offer consumers.

1. Introduction to new products and applications - Bagged slag cement

Low cost
Mold-resistant
Excellent durability

High compressive strength
Inhibits
efflorescence

A mixture of Portland cement and blast furnace slag that meets CNS15286 standard. Lower hydration heat, high compressive strength in the later period, durable and low cost Suitable for tile and stone work. As calcium hydroxide is consumed in the pozzolania reaction of slag powder in the product, this effectively inhibits efflorescence. Moreover, as it is low on alkali content, thus inhibiting the alkali-aggregate reaction, it can prevent molding.

1. Overview of the land development business

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The subsidiary "Southeast Asset Development Co., Ltd." was duly incorporated in May 2015, with Mr. Chen Min-Tuan serving as the Chairman and Mr. Chen Kuan-Hua serving as the General Manager.

Under the supreme guiding philosophy of "satisfactory service is the supreme priority to guarantee quality with our own brand name," the Company has set up strongholds in Kaohsiung, Pingtung and Tainan through investments in the construction of environmental protection-oriented green buildings for residential and commercial purposes.
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In 2017, the Company launched a construction project covering 39 ground-to-rooftop buildings (singIe family houses) in Pingtung which anticipated a sales turnover of NT$400 million with sold-out.
In 2019, the Company has set up Singaporean-styled mansions, a total of 56 housing units, and ­4 ground-to-rooftop buildings (single family houses) in Pingtung City, which anticipated a sales turnover of NT$426 million with sold-out. In June.2021 will start handover.
In2020,the Company launched a construction project covering 41 ground-to-rooftop buildings (single family houses) in Dongshan Dist., Tainan City, with the total sales turnover anticipated at NT$380 million. It is expected that the construction will be completed in Dec.2022.
This year(2021), the Company launched a construction project covering 27 ground-to-rooftop buildings (singIe family houses) in Yanchao Dist., Kaohsiung City which anticipated a sales turnover of NT$330 million,will start construction in September of this year.
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Notes:

1. Overview of the land development business

The Company has also scheduled to design and plan the construction of 16 mixed-use houses as well as 106 units of residential buildings in Renwu Dist., Kaohsiung City, with the anticipated sales turnover of NT$1.2 billion. We gat the building license in March of this year.

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In the Asia New Bay Area, Kaohsiung, the Company owns 8.35 hectares, the redistricting of which is scheduled to be completed by March 26, 2019. By then, the Company will retain a final area of 16,129.6 ping, where the site coverage rate is 60% and the bulk rate [floor area ratio (FAR)] is 490%. The land has been classified with the purposes of use in "7A Special Trading Purposes," it could be used for 36 different business lines, including an international conference center, financial center, cinema business, international tourist hotels, mega-shopping center, recreational centers, retail salesservices. Urban Development Bureau, Kaohsiung City Government will launch a multifunctional economic and trade zone, The third comprehensive review of urban planning , this time will mainly focus on Industry demand ,Sumitomo Comprehensive Development and Reward development to encourage the landlord’s willingness to develop. It is now welcoming investments and catering.
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Notes:

II

Industry Highlights

1. Ready mixed concrete market – Bagged slag cement

Industry Overview ：

The government continues to implement the Forward-Looking Construction . The number of construction cases handled by science and technology factories has spurred the surrounding real estate projects to become hot, and the operating rate of the construction industry has continued to increase. Both of these have contributed to the steady growth of cement shipments.

1. Ready mixed concrete market
   Shipment amount of concrete in Taiwan: Comparison between 2021 H1 and 2020 H1

2021H1			2020H1			Annual growth in amount (%)	Annual growth in sales volume (%)
Annual (thousandm3)	Unit price (NTD/ m3)	Sales volume (Thousand NTD)	Annual (thousand m3)	Unit price (NTD/ m3)	Sales volume (Thousand NTD)
21,530	2,302	49,572,145	21,249	2,068	43,950,866	+281 Thousand/m3 +1.32%	+234 thousand/m3 +11.32%
Department of Statistics, MOEA

1. Housing Market
   Area of construction initiated in the Taiwan Region: Comparison between 2021 H1 and 2020 H1
   Unit: square meters
   | | 2021H1 | 2020H1 | Percentage difference(%) |
   | --- | --- | --- | --- |
   | Northern region | 5,329,006 | 5,673,726 | -6.08% |
   | Central region | 4,335,366 | 4,209,364 | +2.99% |
   | Southern region | 3,498,434 | 3,365,231 | +3.96% |
   | Eastern region and others | 860,903 | 865,887 | -0.58% |
   | Total | 14,023,709 | 14,114,208 | -0.64% |

Construction and Planning Agency, Ministry of the Interior

1. Cement Industry
   Unit: ton
   | | 2021H1 | 2020 | 2019 | 2018 |
   | --- | --- | --- | --- | --- |
   | Domestic volume | 5,100,937 | 9,595,630 | 9,084,338 | 8,607,942 |
   | Import volume (cement + clinker) | 1,132,124 | 2,482,222 | 2,295,554 | 2,075,073 |
   | Domestic cement consumption | 6,233,061 | 12,077,852 | 11,379,892 | 10,683,015 |
   Importers have a low-cost advantage. Importer number has increased in this few years. Importers has eroded the domestic cement market.

III

Operating Highlights

1.Q2 production and sales analysis
Unit : ton
| | Production | | Sales | |
| --- | --- | --- | --- | --- |
| Type | Cement | Slag | Cement | Slag |
| 2021H1 | 278,045 | 79,669 | 276,957 | 77,023 |
| 2020H1 | 261,184 | 96,728 | 264,112 | 95,766 |
| Differential discrepancy | 6.46% | -17.64% | 4.86% | -19.57% |
Sales regions: Southern region, with Kaohsiung, Pingtung and Tainan as the main sales targets, off-shore islands and the Central region

1. Southern region market analysis

Due to the continuous implementation of the Forward-Looking Construction plans in the southern region ,and various entering construction, including the relocation of the intercontinental terminal oil tan ,the Zuoying military port and the new construction of the rear barracks, the construction of the Nanke and Luke parks, the undergrounding of the Tainan Railway, the construction of the Shalun Green Energy Park, and the Kaohsiung Arms Factory Relocation, Pingtung Rong General Hospital, Pingtung Airport Camping Project, etc., as a whole, the increase in the number of major public projects in the south has been contracted, which will help stabilize the delivery of cement and furnace stone powder.

IV

Financial Highlights

1.Operation results

Consolidated income statement
Unit: thousand dollars
| Year | 2021H1 | 2020 | 2019 | 2018 |
| --- | --- | --- | --- | --- |
| Operating revenues | 935,119 | 1,590,986 | 1,584,940 | 1,676,187 |
| Gross profit | 79,614 | 67,372 | 82,289 | 144,454 |
| Operating profit | 27,441 | -30,573 | -8,509 | 40,497 |
| Current net income | 39,552 | 16,949 | 33,243 | 65,589 |

1.Operation results

Consolidated balance sheet
Unit: thousand dollars
| | 2021H1 | % | 2020 | % | 2019 | % | 2018 | % |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Cash and cash equivalents | 208,527 | 1.9% | 176,743 | 1.8% | 207,931 | 2.1% | 214,502 | 2.3% |
| Notes and accounts receivable | 297,684 | 2.8% | 415,858 | 4.2% | 397,060 | 4.1% | 382,764 | 4.1% |
| Inventory | 880,197 | 8.2% | 884,310 | 9.0% | 650,957 | 6.7% | 560,186 | 6.1% |
| Current assets | 1,831,939 | 17.1% | 1,963,779 | 19.9% | 2,026,192 | 20.8% | 2,029,986 | 22.0% |
| Total assets | 10,694,777 | 100.0% | 9,865,320 | 100.0% | 9,740,348 | 100.0% | 9,247,751 | 100.0% |
| Short-term borrowing | 1,040,000 | 9.7% | 235,000 | 2.4% | 200,000 | 2.1% | 49,985 | 0.5% |
| Accounts payable | 139,851 | 1.3% | 223,854 | 2.3% | 199,813 | 2.1% | 222,210 | 2.4% |
| Current liabilities | 1,424,493 | 13.3% | 723,920 | 7.3% | 661,655 | 6.8% | 412,748 | 4.5% |
| Non-current liabilities | 595,900 | 5.6% | 592,681 | 6.0% | 507,709 | 5.2% | 322,865 | 3.5% |
| Total shareholders’equity | 8,674,384 | 81.1% | 8,548,719 | 86.7% | 8,570,984 | 88.0% | 8,512,138 | 92.0% |

1.Operation results

Consolidated revenue performance
Unit: thousand NTD
| | 2021H1 | 2020H1 | Annual growth (decline) |
| --- | --- | --- | --- |
| Operating revenues | 935,119 | 770,491 | 21.37% |
| Operating costs | 855,505 | 750,024 | 14.06% |
| Gross profit | 79,614 | 20,467 | 288.99% |
| Operating expenses | 52,173 | 43,690 | 19.42% |
| Operating profit | 27,441 | (23,223) | 218.16% |
| Other income/expenses | 25,913 | 4,152 | 524.11% |
| Pre-tax profit | 53,354 | (19,071) | 379.77% |
| Income tax expense | (13,802) | (2,096) | (558.49%) |
| Current net income | 39,552 | (21,167) | 286.86% |
| Other comprehensive income - current | 56,861 | (110,616) | 151.40% |
| Total comprehensive income - current | 96,413 | (131,783) | 173.16% |
| Earnings per share | 0.08 | (0.03) | 366.67% |
| Closing outstanding shares(thousand shares) | 572,000 | 572,000 | - |

1.Operation results

Consolidated Operating Revenues by the Department in Q2
| | | | | Unit: thousand NTD | 單位：新台幣千元 |
| --- | --- | --- | --- | --- | --- |
| Department | 2021H1 | Percentage | 2020H1 | Percentage | Growth rate |
| Cement | 644,183 | 68.89% | 615,478 | 79.88% | 4.66% |
| Slag powder | 95,463 | 10.21% | 116,583 | 15.13% | (18.12%) |
| Leasehold | 29,833 | 3.19% | 25,665 | 3.33% | 16.24% |
| Construction | 158,303 | 16.93% | 0 | 0% | 100.00% |
| Others | 7,337 | 0.78% | 12,765 | 1.66% | (42.52%) |
| Total | 935,119 | 100.0% | 770,491 | 100.0% | 21.37% |

1.Operation results

Consolidated Gross Profitability by the Department in Q2
| | | | Unit: thousand NTD |
| --- | --- | --- | --- |
| Department | 2021H1 | 2020H1 | Differential discrepancy |
| Cement | 26,393 | 21,592 | 4,801 |
| Slag powder | 11,029 | 14,043 | (3,014) |
| Leasehold | 10,933 | 5,705 | 5,228 |
| Construction | 29,511 | 0 | 29,511 |
| Others | 1,748 | (20,873) | 22,621 |
| Total | 79,614 | 20,467 | 59,147 |

1. Key financial performance indicators

Consolidated financial analysis for the most recent year
| | 2020 | 2019 | 2018 |
| --- | --- | --- | --- |
| Debt Asset ratio (%) | 13.35 | 12.01 | 7.95 |
| Current Ratio (%) | 271.27 | 306.23 | 491.82 |
| Return on Assets (%) | 0.22 | 0.39 | 0.71 |
| Return On Equity (%) | 0.20 | 0.39 | 0.77 |
| Profit margin (%) | 1.07 | 2.10 | 3.91 |
| Earnings per share (NTD) | 0.04 | 0.06 | 0.12 |
| Cash dividends per share (NTD) | 0.1 | 0.1 | 0.1 |

V

Future Prospects

1. Operating strategy

The Company's operations are still based on the production and sales of existing products. Also, we actively continue to develop new products in response to the market demands, develop sales channels for new products, open up new markets, improve customer service and reinforce quality control, ensuring our competitive advantage and market status.

1. Circular economy

Resources are reused in a circular economy
Slag cement and controlled low strength materials (CLSM)

The Company has established Southeast Gao Liang Recycling Co., Ltd, with CLSM as its main product. Non-hazardous wastes are collected and used as CLSM pallets after processing. We already be full operation in 2021 Q3, officially making the Company a resource reusing company in a circular economy. Will start trial operation and sales of ready-mixed concrete.
Moreover, the establishment of a Class B waste treatment plant in Da-fa Industrial District is currently in the process of the environmental impact statement task force was passed in September 2021.

3.Opportunities and Challenges
Opportunities and Challenges

The government is promoting a circular economy removing industrial waste, which bring unlimited business opportunities.
It is inevitable that the construction industry will be short of jobs due to an aging population, and the construction industry is bound to move forward in the future by precast modular construction
Due to lack of work on the construction site, develop new products in response to new construction thinking to gradually replace the traditional Mud work method.
All of the above have potential business opportunities.
Challenges

The future carbon fee levy is unavoidable and will inevitably increase operating costs.
Since the beginning of this year, international coal prices have risen sharply, leading to a sharp increase in cement production costs..
Green power and natural gas power generation potential increase, and electricity costs must increase.

4.Strengths and weaknesses
Strengths

Improve customer service and ensure quality level. Stabilize market position with existing brand advantages. Develop new products, and increase operating niche.
Continue to upgrade equipment technology to improve production efficiency and increase competitiveness.
Weaknesses

Environmental protection laws and regulation have become more stringent ,making the business environment more severe.
The pandemic and declining birthrate have caused a shortage of labor in the industry, and hidden concerns about human resources.

VI

Q＆Ａ

Thanks for Listening