ASE Technology Holding Co., Ltd. - 3Q 2014 Financial Summary
Business Context and Reporting Period
This Form 6-K reports the unaudited consolidated financial results for Advanced Semiconductor Engineering, Inc. (ASE) for the third quarter ended September 30, 2014. ASE is the world's largest independent provider of semiconductor packaging and testing services. The results are prepared in accordance with Taiwan-IFRS.
Key Financial Metrics
| Metric | 3Q 2014 | 2Q 2014 | 3Q 2013 |
|---|---|---|---|
| Net Revenues | NT$66,632 million | NT$58,615 million | NT$56,748 million |
| Net Income (Parent) | NT$7,205 million | NT$5,094 million | NT$4,430 million |
| Diluted EPS | NT$0.82 (US$0.137/ADS) | NT$0.64 | NT$0.57 |
| Gross Margin | 21.3% | 21.5% | 20.4% |
| Operating Margin | 12.1% | 11.3% | 10.7% |
| Total Debt | NT$94,918 million | NT$87,046 million | N/A |
| Cash & Current Financial Assets | NT$36,785 million | NT$45,383 million | N/A |
| Current Ratio | 1.25 | 1.23 | N/A |
| Net Debt to Equity | 0.43 | 0.33 | N/A |
Material Changes vs. Prior Periods
- Revenue Growth: Consolidated net revenue increased 17% year-over-year (YoY) and 14% sequentially. Growth was driven primarily by the EMS segment (+37% YoY) and IC ATM segment (+12% YoY).
- Profitability: Net income attributable to shareholders rose 63% YoY and 41% sequentially. Operating income increased to NT$8,084 million, up from NT$6,600 million in 2Q14.
- Margin Dynamics: Consolidated gross margin decreased slightly by 0.2 percentage points to 21.3% due to lower margins in EMS operations. However, operating margin improved to 12.1% due to better expense control (operating expenses as a % of revenue dropped to 9%).
- Non-Operating Items: The quarter included a significant gain on valuation of financial assets and liabilities of NT$1,294 million, contrasting with a loss in the prior year. A net foreign exchange loss of NT$214 million occurred due to USD appreciation.
- Liquidity: Cash and current financial assets declined to NT$36,785 million from NT$45,383 million in the prior quarter. Total debt increased to NT$94,918 million.
Segment Performance and Outlook
- IC ATM (Assembly, Testing, Material): Revenue was NT$42,211 million. Gross margin improved to 28.6% (up 1.6 pts sequentially). Advanced packaging revenue mix increased to 29%.
- EMS (Electronic Manufacturing Services): Revenue surged to NT$26,766 million. Gross margin declined to 8.6% (down 1.4 pts sequentially) due to higher raw material costs (76% of revenue).
- Capital Expenditures: Total CapEx was US$430 million, with US$281 million allocated to packaging, US$74 million to EMS, and US$70 million to testing.
- Guidance (4Q 2014): Management projects IC-ATM capacity to increase ~1% QoQ with utilization up 1-3%. EMS sequential growth is expected to continue. Consolidated gross margin is expected to edge down, while operating margin should remain flattish.
Investor Verification Checklist
- Non-Operating Gains: Verify the sustainability of the NT$1,294 million gain on valuation of financial assets, which significantly boosted net income.
- EMS Margin Pressure: Monitor the trend in EMS gross margins, which declined to 8.6% despite strong revenue growth, driven by high raw material costs.
- Currency Impact: Assess the impact of the strengthening US dollar against the NT dollar on future earnings and foreign exchange losses.
- Customer Concentration: Note that the top 5 customers accounted for 37% of consolidated revenue and 73% of EMS revenue.
- Debt Levels: Review the increase in total debt to NT$94.9 billion and the rising net debt-to-equity ratio (0.43) against cash burn rates.