Business Context and Reporting Period
Company: Advanced Semiconductor Engineering, Inc. (ASE)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Fourth Quarter (4Q) and Full Year ended December 31, 2016
Filing Date: January 26, 2017
ASE is a leading provider of semiconductor packaging, testing, and electronic manufacturing services (EMS). The filing presents unaudited consolidated financial results prepared in accordance with Taiwan-IFRS.
Key Financial Metrics
Consolidated Results (4Q 2016 vs. 4Q 2015)
| Metric | 4Q 2016 | 4Q 2015 | YoY Change |
|---|---|---|---|
| Net Revenues | NT$77,128 million | NT$75,548 million | +2% |
| Net Income (Parent) | NT$7,976 million | NT$4,708 million | +69% |
| Gross Margin | 19.9% | 17.7% (4Q15 implied) | +0.5 pts (vs 3Q16) |
| Operating Margin | 10.5% | N/A | +0.3 pts (vs 3Q16) |
| Basic EPS | NT$1.04 (US$0.164/ADS) | NT$0.62 (US$0.095/ADS) | +68% |
| Diluted EPS | NT$0.86 (US$0.136/ADS) | NT$0.60 | +43% |
Full Year 2016 Results
- Net Revenues: NT$274,884 million (Down 3% vs. 2015)
- Net Income (Parent): NT$21,692 million (Up 13% vs. 2015)
- Gross Margin: 19.4% (Up 1.7 percentage points vs. 2015)
- Operating Margin: 9.7% (Up 0.9 percentage points vs. 2015)
- Capital Expenditures: US$683 million for the full year
Liquidity and Balance Sheet (as of Dec 31, 2016)
- Cash and Cash Equivalents: NT$38,392 million
- Current Ratio: 1.37
- Net Debt to Equity: 0.41
- Unused Credit Lines: NT$176,185 million
- Total Assets: NT$357,943 million
Material Changes and Segment Performance
Revenue Mix (4Q16): Packaging operations contributed 44%, EMS operations 45%, Testing 9%, and others 2%.
Segment Highlights
- IC ATM (Assembly, Testing, Material):
- 4Q16 Revenue: NT$43,463 million (Up 1% sequentially).
- Gross Margin: 26.8% (Up 1.3 percentage points sequentially).
- Operating Margin: 14.7% (Up 0.3 percentage points sequentially).
- EMS (Electronic Manufacturing Services):
- 4Q16 Revenue: NT$34,634 million (Up 11% sequentially).
- Gross Margin: 10.4% (Up 0.4 percentage points sequentially).
- Operating Margin: 4.8% (Up 0.9 percentage points sequentially).
- Non-Operating Items:
- Significant gain on valuation of financial assets/liabilities: NT$2,167 million.
- Net foreign exchange loss: NT$308 million (due to USD appreciation).
- Net gain on equity-method investments: NT$216 million.
Outlook, Risks, and Contingencies
Management Guidance (1Q 2017)
- IC ATM: Business volume expected to approach 2Q 2016 levels; gross margin expected to be similar to 1H 2016 levels.
- EMS: Business volume and gross margin expected to be similar to 2016 quarterly averages.
Material Contingencies: ASE-SPIL Transaction
ASE is in the process of acquiring 100% of Siliconware Precision Industries Co., Ltd. (SPIL). Regulatory status as of Jan 2017:
- Taiwan Fair Trade Commission: Issued no objection letter.
- China (MOFCOM): Review extended to Phase II on January 16, 2017.
- US (FTC): Parties certified compliance with information requests on January 17, 2017; investigation ongoing.
Risk Factors
The filing highlights risks including semiconductor industry cyclicality, regulatory compliance (environmental), competitive pressures, foreign exchange fluctuations, and uncertainties regarding the completion of the SPIL acquisition.
Investor Verification Checklist
- Non-Operating Gains: Verify the sustainability of the NT$2,167 million gain on valuation of financial assets, which significantly boosted 4Q16 net income.
- SPIL Acquisition Status: Monitor the outcome of the Phase II review by China's MOFCOM and the US FTC investigation, as completion is not guaranteed.
- EMS Revenue Quality: Note that EMS revenue is highly concentrated (top 5 customers = 83% of EMS revenue); verify stability of these key accounts.
- Foreign Exchange Impact: Assess the impact of USD/NTD exchange rate fluctuations on future margins, given the NT$308 million loss in 4Q16.
- Capital Allocation: Review the US$683 million CapEx spend against the projected 1Q 2017 business volume to ensure capacity utilization aligns with investment.