ASE Technology Holding Co., Ltd. - Q3 2019 Earnings Summary
Business Context and Reporting Period
This Form 6-K filing, dated October 30, 2019, reports the unaudited financial results for ASE Technology Holding Co., Ltd. for the third quarter ended September 30, 2019. The company operates in two primary segments: Advanced Technology Manufacturing (ATM), focusing on outsourced semiconductor packaging and testing, and Electronic Manufacturing Services (EMS). The financial data presented includes pro forma adjustments to reflect the consolidation of SPIL's results prior to the actual transaction date.
Key Financial Metrics
| Metric (NT$ Million) | Q3 2019 | Q2 2019 | Q3 2018 |
|---|---|---|---|
| Total Net Revenues | 117,557 | 90,741 | 107,597 |
| Gross Profit | 19,108 | 13,969 | 18,381 |
| Gross Margin | 16.3% | 15.4% | 17.1% |
| Operating Income | 8,385 | 4,143 | 8,372 |
| Net Income (Attributable to Parent) | 5,734 | 2,690 | 6,257 |
| Diluted EPS (NT$) | 1.33 | 0.62 | 1.43 |
| Cash and Cash Equivalents | 61,220 | 55,090 | N/A |
| Total Interest Bearing Debt | 227,601 | 201,443 | N/A |
| Current Ratio | 1.14 | 1.19 | N/A |
| Net Debt to Equity | 0.73 | 0.62 | N/A |
Material Changes vs. Prior Periods
- Revenue Growth: Total net revenues increased 30% quarter-over-quarter (QoQ) and 9% year-over-year (YoY). The EMS segment drove significant growth with a 60% QoQ increase and 20% YoY increase, while ATM revenues grew 13% QoQ and 2% YoY.
- Profitability: Operating income surged 102% QoQ to NT$8,385 million, though it remained flat YoY. Net income attributable to shareholders increased 113% QoQ but declined 8% YoY.
- Segment Performance:
- ATM: Advanced packaging outpaced the overall ATM business. YTD revenues for bumping, flip chip, WLP, and SiP grew 9% YoY. Test revenues grew 6% YoY.
- EMS: Operating income jumped 317% QoQ to NT$2,099 million, with operating margins expanding to 4.1% from 1.6% in Q2.
- PPA Impact: The filing highlights significant Purchase Price Allocation (PPA) expenses related to the ASE/SPIL transaction. Excluding PPA expenses, Q3 2019 operating profit was NT$9,835 million (8.4% margin) and Net Income was NT$7,262 million.
Guidance, Outlook, and Risks
Q4 2019 Outlook:
- ATM: Management projects Q4 2019 business levels to be similar to Q3 2019 in NTD terms, with a slight sequential improvement in gross margin.
- EMS: Q4 2019 business is expected to be slightly above the average of the second half of 2018. Operating margins are projected to be similar to Q1 2018 levels.
Management Commentary:
- R&D expenses grew 15% YoY in ATM and 6% YoY in EMS, driven by new product introductions (NPI) in fan-out, SiP, and flip chip technologies.
- Incremental full-year revenue from new SiP projects is on track to exceed US$100 million.
Risks and Contingencies:
- Forward-looking statements are subject to risks including semiconductor industry cyclicality, regulatory changes, and geopolitical tensions between the Republic of China and the People's Republic of China.
- Other risks include US trade policy shifts, foreign currency exchange rate fluctuations, and potential disruptions from natural or human-induced disasters.
Investor Verification Checklist
- Verify the magnitude of PPA expenses (NT$1.53 billion in Q3 2019) and their impact on reported margins versus adjusted margins.
- Confirm the sustainability of the 60% QoQ revenue surge in the EMS segment and its contribution to overall profitability.
- Monitor the execution of the US$100M+ revenue target from new SiP projects.
- Assess the impact of rising total interest-bearing debt (increased to NT$227.6 billion) on liquidity and the net debt-to-equity ratio.
- Review the pro forma adjustments regarding SPIL consolidation to ensure accurate year-over-year comparisons.