Business context and reporting period
ASE Technology Holding Co., Ltd. (ASEH) filed this Form 20-F for the fiscal year ended December 31, 2019. It reports annual results, not a standalone quarterly filing; the filing also provides unaudited quarterly figures, including fourth-quarter 2019. ASEH provides semiconductor packaging and testing and electronic manufacturing services (EMS), with operations across multiple regions. Financial statements are prepared under IFRS and presented in New Taiwan dollars (NT$); dollar figures below are NT$ millions unless noted.
Year-over-year comparisons require caution: ASEH acquired SPIL on April 30, 2018, so 2018 includes SPIL only from the acquisition date in consolidated results, while 2019 reflects a full year of combined operations.
Financial results and key metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Operating revenue | 413,182 | 371,092 | +11.3% |
| Gross profit / margin | 64,311 / 15.6% | 61,163 / 16.5% | +5.1% / down 0.9 percentage point |
| Operating profit / margin | 23,258 / 5.6% | 27,019 / 7.3% | Down 13.9% |
| Profit before tax | 23,280 | 31,938 | Down 27.1% |
| Profit for the year | 18,269 | 27,424 | Down 33.4% |
| Profit attributable to owners | 17,061 | 26,221 | Down 34.9% |
| Diluted earnings per share | NT$3.91 | NT$6.07 | Down |
| Operating cash flow | 72,303 | 51,075 | Up 41.6% |
| Cash capital expenditures | 56,810 | 41,386 | Up 37.3% |
2019 revenue growth reflected the SPIL acquisition and higher EMS revenue. Packaging revenue was NT$198,917 million, testing NT$42,659 million, and EMS NT$165,790 million. Packaging and testing benefited from stronger demand and volume; EMS growth was attributed to increased orders for SiP communications products. The overall gross margin declined as packaging loading softened and lower-margin EMS represented a greater share of revenue. Operating expenses rose 18.2% to NT$40,784 million, including higher research and development costs.
Fourth-quarter 2019 revenue was NT$116,023 million and gross profit was NT$19,849 million, for a 17.1% gross margin. Fourth-quarter 2018 revenue was NT$114,028 million, gross profit NT$18,684 million, and gross margin 16.4%. On this reported basis, Q4 revenue rose about 1.7% and gross profit about 6.2%; quarterly results are unaudited and the filing cautions that quarterly periods may not be comparable.
Cash and cash equivalents were NT$60,131 million at year-end, current assets NT$202,001 million, current liabilities NT$154,300 million, and working capital NT$47,701 million. Unused credit lines were NT$225,418 million. Total debt, including current and long-term borrowings, bonds and lease liabilities, was NT$220,749 million; total liabilities were NT$344,421 million and total assets NT$557,224 million. Net cash provided by investing activities was NT$54,579 million and net cash used in financing activities was NT$6,499 million. Cash increased by NT$8,612 million before the NT$2,613 million adverse effect of exchange-rate changes.
Capital expenditure commitments were NT$25,119 million at year-end, of which NT$5,145 million had been prepaid. Management said expected cash, operating cash flow and existing credit lines should cover capital expenditures, working capital, debt and lease obligations for at least the next 12 months. The filing does not provide a single total 2020 capital-expenditure forecast.
Material changes and unusual items
- Reported 2019 revenue increased, but operating profit and owners’ profit declined; gross, operating and net margins also weakened.
- 2018 included a NT$7,421 million gain from remeasuring the prior SPIL equity investment on acquisition. The comparable 2019 gain was NT$320 million, reducing non-operating income year over year.
- SPIL purchase-price allocation increased 2019 depreciation and amortization in operating costs by NT$4,797 million, with additional PPA amortization in operating expenses. These acquisition accounting effects weighed on earnings.
- Effective income tax rate rose to 22% from 14%, mainly because 2018 included more tax-exempt income related to the SPIL remeasurement gain.
- IFRS 16 was adopted in 2019 without restating comparative figures. It added right-of-use assets and lease liabilities and changed the presentation of lease-related expenses and cash flows.
- 2019 included NT$400 million of impairment losses on equity-method investments, primarily DECA, and NT$601 million of impairment losses on assets, primarily property, plant and equipment and goodwill. A US$5 million Broadcom settlement was recognized in 2019.
Outlook, risks and contingencies
Management emphasized investment in advanced packaging, testing and EMS capacity, research and development, and technologies including SiP, fan-out, and 2.5D/3D packaging. It identified no other trends during 2019 that it believed were reasonably likely to have a material effect, but provided no quantified earnings or revenue guidance. The filing describes COVID-19 as a material uncertainty to operations, supply chains and demand; the scale of its effect was not yet clear at the filing date.
Key risks include semiconductor-industry cyclicality, pricing pressure and capacity utilization, customer concentration (the five largest customers represented 51.1% of 2019 revenue), raw-material availability and cost, foreign-exchange and interest-rate exposure, and substantial capital requirements. Taiwan and China operations also face geopolitical, regulatory, environmental, natural-disaster and water or power-supply risks. Management reported no breach of financial covenants at December 31, 2019; debt covenants and potential cross-defaults remain relevant risks.
Environmental matters include a pending Chinese proceeding concerning alleged waste-disposal pollution; the subsidiary’s potential corporate liability had not been determined. In Taiwan, a NT$47 million wastewater fine was re-imposed in February 2020 and appealed; the filing said no additional payment was outstanding. A civil action seeking the removal of director and COO Tien Wu remained pending; his criminal case had resulted in an acquittal that prosecutors appealed in March 2020. The proposed US$450 million FAFG acquisition remained subject to regulatory and other approvals. The board proposed a NT$2.00-per-share cash dividend in March 2020, subject to shareholder approval.
The independent auditors issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded that internal controls were effective; however, its assessment excluded three 2019 acquisitions, and the auditor’s work likewise excluded those acquired entities.
Most important facts for investors to verify
- Assess how SPIL consolidation timing and purchase-price-allocation charges affect year-over-year comparisons and ongoing earnings.
- Confirm the Q4 figures against the audited annual statements and consider reported seasonality and acquisition-related comparability limits.
- Monitor segment utilization and margins, especially packaging and EMS, alongside the rising capital and depreciation burden.
- Review debt maturities, variable-rate exposure, covenant terms, available credit, and the funding needs for committed capital spending and the FAFG transaction.
- Track COVID-19 effects, pending environmental and director-related proceedings, and goodwill and investment impairment assumptions.