Business Context and Reporting Period
Company: ChipMOS Technologies Inc. (NASDAQ: IMOS; TSE: 8150)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Date: March 16, 2017
Reporting Period: First Quarter 2017 (1Q17) Forecast vs. Fourth Quarter 2016 (4Q16) Actuals
Business: Industry-leading provider of outsourced semiconductor assembly and test services (OSAT).
Key Financial Metrics (1Q17 Forecast vs. 4Q16 Actuals)
All figures in Thousands of New Taiwan Dollars (NT$) unless otherwise noted.
| Metric | 4Q16 (Unaudited) | 1Q17 (Forecast Range) |
|---|---|---|
| Revenue | 4,667,128 | 4,293,757 ~ 4,480,442 |
| Gross Profit | 961,573 | 687,001 ~ 896,088 |
| Operating Profit | 510,384 | 895,971 ~ 1,061,323 |
| Profit Before Tax | 687,401 | 560,514 ~ 660,554 |
| Comprehensive Income | 543,346 | 1,998,026 ~ 2,274,166 |
| Earnings Per Share (NT$) | 0.72 | 2.69 ~ 3.00 |
| Acquisition of Major Assets | 964,011 | 1,181,917 ~ 1,255,025 |
| Disposal of Major Assets | 72,533 | 2,185,180 ~ 2,321,190 |
Material Changes and Drivers
- Revenue Decline: Forecasted to decrease 4.0% to 8.0% sequentially due to traditional seasonality and fewer working days from Chinese New Year closures.
- Profitability Surge: While operating profit is expected to rise significantly (75% to 107%), profit before tax is forecast to decline 3.9% to 18.5% primarily due to foreign exchange losses.
- Non-Operating Income Spike: Net other operating income is projected to increase by approximately 18,000% to 19,900%. This is driven by insurance compensation for property, plant, and equipment, and the recognition of realized disposal gains from inter-company transactions.
- Comprehensive Income: Expected to increase 267.7% to 318.5% compared to the prior quarter, largely attributable to the gain from the disposal of equity interest in the subsidiary, ChipMOS Shanghai.
- Asset Disposal: The company plans to dispose of 54.98% of its equity interest in ChipMOS Shanghai, with a forecasted gain between NT$1,925 million and NT$2,070 million.
Guidance, Risks, and Contingencies
- Regulatory Context: This simplified forecast was mandated by the Taiwan Stock Exchange because non-operating income/expenses accounted for 18% of profit before tax in the last four quarters (exceeding the 10% threshold).
- Transaction Risk: The forecast assumes the disposal of ChipMOS Shanghai equity interest will close in 1Q17. However, the filing notes that closure is not assured due to uncertainties regarding Mainland China's foreign investment and currency policies.
- Forward-Looking Statements: Actual results may differ materially from forecasts due to business environment changes. The company will announce if the equity disposal transaction cannot close on schedule.
- Cost Drivers: Cost of revenue is expected to decline 2.7% to 3.3%, partially offset by increased accruals for employee bonuses resulting from the anticipated disposal gain.
Investor Verification Checklist
- Confirm the final closing status and timing of the 54.98% equity disposal of ChipMOS Shanghai.
- Verify the actual foreign exchange impact on profit before tax, which is a key negative driver in the forecast.
- Monitor the realization of the insurance compensation and inter-company transaction gains included in other operating income.
- Review the final 1Q17 revenue figures to assess the severity of the seasonal decline and Chinese New Year impact.
- Check for any updates regarding Mainland China regulatory approvals affecting the asset disposal.