ASE Technology Holding Co., Ltd. - 3Q 2017 Financial Summary
Business Context and Reporting Period
This Form 6-K filing, dated October 27, 2017, reports the unaudited consolidated financial results for Advanced Semiconductor Engineering, Inc. (ASE) for the third quarter ended September 30, 2017. ASE is a global leader in semiconductor packaging, testing, and electronic manufacturing services (EMS).
Key Financial Metrics
| Metric | 3Q 2017 | 2Q 2017 | 3Q 2016 |
|---|---|---|---|
| Total Net Revenues | NT$73,878 million | NT$66,026 million | NT$72,784 million |
| Net Income (Parent Shareholders) | NT$6,336 million | NT$7,847 million | NT$5,502 million |
| Basic EPS | NT$0.76 (US$0.125/ADS) | NT$0.97 (US$0.160/ADS) | NT$0.72 (US$0.113/ADS) |
| Diluted EPS | NT$0.69 (US$0.115/ADS) | NT$0.89 (US$0.148/ADS) | NT$0.64 (US$0.101/ADS) |
| Gross Margin | 18.7% | 18.3% | 19.4% |
| Operating Margin | 9.6% | 7.9% | 10.2% |
| Capital Expenditures | US$130 million | US$212 million | US$179 million |
| Current Ratio | 1.37 | 1.30 | N/A |
| Net Debt to Equity | 0.20 | 0.24 | N/A |
Material Changes vs. Prior Periods
- Revenue Growth: Total net revenues increased 2% year-over-year (YoY) and 12% sequentially. Packaging operations contributed ~45% of revenue, while EMS operations contributed ~45%.
- Profitability: Net income attributable to shareholders rose 15% YoY but declined 19% sequentially. The sequential decline was driven by lower non-operating income in 2Q17 (which included a significant gain on equity-method investments) rather than a deterioration in core operating performance.
- Margin Expansion: Consolidated gross margin improved to 18.7% from 18.3% in 2Q17. Operating margin expanded to 9.6% from 7.9% in 2Q17, reflecting better cost control and mix.
- Segment Performance:
- IC ATM (Assembly, Testing, Material): Gross margin improved 200 basis points to 25.1%. Packaging gross margin rose to 22.3%, and testing gross margin rose to 37.8%.
- EMS: Revenue grew 18% sequentially, but gross margin compressed to 10.3% from 11.1% due to higher raw material costs (80% of revenue).
- Liquidity: Cash and cash equivalents decreased to NT$38,975 million from NT$43,891 million in 2Q17. Unused credit lines totaled NT$165,583 million.
Guidance, Outlook, and Risks
Management Outlook for 4Q 2017:
- IC ATM: Business volume and gross margin are projected to be similar to 3Q17 levels.
- EMS: Business volume is expected to be similar to IC ATM 4Q17 levels. Gross margin is projected to be above 1Q16 levels.
Risks and Contingencies:
- Customer Concentration: The top five customers accounted for 36% of total consolidated revenue. In the EMS segment, the top five customers accounted for 80% of revenue.
- Forward-Looking Statements: Results may differ due to semiconductor industry cyclicality, regulatory changes, geopolitical tensions (specifically between ROC and PRC), and foreign exchange fluctuations.
- Unaudited Data: The financial information is unaudited and prepared under Taiwan-IFRS; it has not undergone the same scrutiny as audited statements.
Investor Verification Checklist
- Verify the sustainability of the sequential gross margin improvement in IC ATM operations, particularly in packaging and testing.
- Assess the impact of raw material costs on EMS margins, which consumed 80% of EMS revenue.
- Review the composition of non-operating income, specifically the NT$323 million gain from equity-method investments (including SPIL), to understand its impact on net income volatility.
- Monitor customer concentration risks, especially in the EMS segment where the top five customers represent 80% of revenue.
- Confirm the exchange rate assumptions used for the 4Q17 outlook, given the sensitivity of USD/NTD fluctuations to reported earnings.