ASE Technology Holding Co., Ltd. - Q2 2018 Earnings Summary
Business Context and Reporting Period
This Form 6-K, filed on July 27, 2018, reports the second-quarter 2018 financial results for ASE Technology Holding Co., Ltd. The reporting period reflects the company's operations following the establishment of the holding company structure on April 30, 2018, which involved the acquisition of Siliconware Precision Industries (SPIL). The filing includes both actual consolidated results and pro forma results that retrospectively combine ASE and SPIL operations as if the merger occurred on January 1, 2017.
Key Financial Metrics
Revenue and Profitability (Actual Consolidated Q2 2018):
- Total Net Revenues: NT$84,501 million (up 30% QoQ, up 28% YoY).
- Gross Profit: NT$13,710 million (16.2% margin).
- Operating Income: NT$5,387 million (6.4% margin).
- Pretax Income: NT$12,920 million, significantly boosted by a one-time revaluation gain.
- Net Income Attributable to Shareholders: NT$11,463 million (up 447% QoQ, up 46% YoY).
- Diluted EPS: NT$2.69.
- EBITDA: NT$24,893 million (29.5% margin).
Balance Sheet and Liquidity (as of June 30, 2018):
- Cash and Cash Equivalents: NT$68,028 million.
- Total Assets: NT$544,971 million.
- Total Interest-Bearing Debt: NT$216,637 million (up from NT$74,538 million in Q1 due to SPIL acquisition financing).
- Current Ratio: 1.11.
- Net Debt to Equity: 0.62.
Material Changes vs. Prior Period
The most significant material change is the impact of the SPIL acquisition completed in April 2018. This transaction resulted in:
- Revaluation Gain: A one-time non-operating gain of NT$7.6 billion recognized in Q2 2018 from revaluing the previously held 33.29% equity stake in SPIL.
- Revenue Surge: Actual consolidated revenue jumped 30% quarter-over-quarter, driven by the inclusion of SPIL's full quarter of operations.
- Debt Increase: Total interest-bearing debt nearly tripled from Q1 to Q2 to fund the acquisition.
- Pro Forma Adjustments: On a pro forma basis (excluding the revaluation gain and including acquisition-related expenses), Q2 2018 Net Income was NT$3,492 million, a 374% increase QoQ but a 55% decrease YoY compared to Q2 2017.
Guidance, Outlook, and Risks
Q3 2018 Outlook (Pro Forma Basis):
- ATM (Assembly, Test, and Marking): Capacity expected to increase 3-4% QoQ; utilization rate expected to increase 2-3% QoQ. Gross margin expected to approach Q3 2017 levels.
- EMS (Electronic Manufacturing Services): Revenue expected to be similar to Q4 2017 levels. Operating margin expected to approach Q2 2017 levels.
Risks and Contingencies:
- PPA Expenses: The company anticipates ongoing Purchase Price Allocation (PPA) expenses of approximately NT$1.46 billion per quarter starting in Q3 2018 due to fair value adjustments on acquired assets.
- Market Risks: Cyclicality in the semiconductor industry, competitive pressures, and foreign currency exchange rate fluctuations.
- Geopolitical Risks: Strained relations between the Republic of China and the People's Republic of China.
Investor Verification Checklist
- Verify the sustainability of Q2 2018 earnings by excluding the one-time NT$7.6 billion revaluation gain.
- Review the pro forma financials to understand the combined entity's performance without the distortion of the acquisition timing.
- Monitor the impact of quarterly PPA expenses (approx. NT$1.46 billion) on future operating margins.
- Assess the company's ability to service the increased debt load (NT$216.6 billion) following the SPIL acquisition.
- Confirm Q3 2018 capacity utilization and gross margin recovery trends in the ATM segment.