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May 09 2017 HIM International Music (8446 TT) BUY Close (NTD) 121.50 3M target price (NTD) 144.00 Significant increases in quarterly earnings from 2Q17 onwards; 12M target price (NTD) 144.00 initiate coverage with BUY Last report date, rating, previous close  Key takeaways: (1) Recommendation : We initiate coverage with BUY and TP of NTD144 due to the following: a) the company’s valuation appears low as the current stock price Company information already reflected operating declines during the low season in 1Q17; b) the Paid-in capital (NTD mn) 428 company is expected to organize nearly 20 concerts in and abroad in 2Q17, significantly catalyzing its revenue and quarterly earnings; c) the Market cap (NTD bn) 5 company may organize significantly more concerts in FY17 than it did in FY16 BVPS (NTD) 26.09 and post steady income from other sources; FY17 EPS is forecasted to approach FINI holding (%) 13.98 NTD7.19; d) the market’s demand for live performances has risen persistently, Local fund holding (%) 1.51 suggesting solid earnings in the long run. Major shareholders (%) 35.19 (2) 2Q17 consolidated revenue is estimated at NTD522mn (+104.71% QoQ) Margin buying (‘000 shrs) 1,584 with net profit of NTD67mn (+121.05% QoQ) or EPS of NTD1.57 : In 2Q17, Cash Div. Payout Ratio (F) (%) 76.11 HIM International Music (HIM) is estimated to organize 16 overseas concerts, 3 concerts in Taiwan and six stage plays. The details are as follows: a) ~10 Product mix concerts featuring Taiwanese artists Hebe and Power Station; b) already kicked off two concerts (2017 The Great Yoga) in APR17; he is expected to perform at another four overseas concerts; c) Shin’s 2017 Gentle Monster concert is scheduled to commence later in MAY17; d) Hebe’s JUN17 Serenade stage play is scheduled to be held in and in JUN17. 2Q17 consolidated revenue is forecasted at NTD522mn (+104.71% QoQ) with operating profit of NTD77mn (+58.12% QoQ). Net profit is estimated at NTD67mn (+121.05% QoQ) or EPS of NTD1.57, showing significant increases in quarterly earnings. Share performance relative to TAIEX (3) FY17 consolidated revenue is forecasted at NTD2.050bn (+25.49% YoY) with net profit of NTD308mn (+9.57% YoY) or EPS of NTD7.19 : The income derived from entertainment agency may remain as the company’s major revenue growth driver in FY17. HIM is forecasted to organize more concerts in FY17 than it did in FY16 (the number of overseas ones is estimated at 46), catalyzing FY17 revenue. 2H17 revenue may rise further HoH due to the following: a) more concerts in 2H17 than in 1H17; b) more opportunities for commercial performances and product endorsements at the end of the year; c) Ella, who is a famous artist, may resume work after childbirth in 2H17. Additionally, HIM may continue recognizing shared profits derived from music licensing to Alibaba, KKBOX and Apple Music; its graphics artists may also continue to cooperate with other industries; licensing income is forecasted to rise steadily. FY17 physical product revenue is forecasted to edge down YoY due to a lack of albums released by popular artists like Hebe and Yoga Lin (both released albums in FY16); only artists like Janice Yan and release albums or EP singles in FY17. FY17 consolidated revenue is estimated at NTD2.050bn (+25.49% YoY) with operating profit of NTD372mn (+15.84% YoY). FY17 net profit is forecasted at NTD308mn (+9.57% YoY) or EPS of NTD7.19.

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(Unit: NTD mn) 2015 2016 2017F 1Q16 2Q16 3Q16 4Q16 1Q17F 2Q17F 3Q17F 4Q17F 1Q18F Sales 1,052 1,634 2,050 248 337 449 600 255 522 655 617 301 Gross profit 503 708 833 128 156 189 235 134 205 250 243 176 Operating profit 247 322 372 54 65 87 116 49 77 118 130 82 Net profit 225 281 308 49 68 64 100 30 67 100 111 74 EPS (NTD) 5.27 6.57 7.19 1.15 1.59 1.49 2.33 0.71 1.57 2.33 2.59 1.72 Gross margin (%) 47.85% 43.37% 40.64% 51.58% 46.48% 42.00% 39.25% 52.66% 39.27% 38.22% 39.41% 58.50% Operating margin (%) 23.45% 19.68% 18.17% 21.75% 19.30% 19.32% 19.31% 19.01% 14.68% 17.94% 21.02% 27.19% Net margin (%) 21.43% 17.20% 15.02% 19.90% 20.18% 14.25% 16.62% 11.89% 12.84% 15.20% 17.97% 24.43% Sales YoY/QoQ (%) 9.53% 55.31% 25.49% -20.42% 35.56% 33.33% 33.62% -57.46% 104.71% 25.43% -5.76% -51.19% Net profit YoY/QoQ (%) 17.25% 24.67% 9.57% -38.03% 37.46% -5.84% 55.87% -69.57% 121.05% 48.47% 11.43% -33.63%

Note: Net profit means the net income attributable to the parent company; EPS estimate is based on paid-in capital of NTD0.428bn

 HIM is engaged in pop music production and entertainment agency:

(1) Established in 1999, HIM is engaged in pop music recording/publishing, copyright licensing, entertainer agency, etc. The company’s revenue is categorized as follows: a) the income derived from physical products (mainly sales of audio/video albums, peripheral products and artists’ photo albums); b) licensing income mainly derived from new digital media like Apple Music, KKBOX and Alibaba, as well as music licensing to KTV parlors; c) entertainment agency income derived from artists’ concerts, commercial performances (such as Banana Festival, Spring Wave Music and Art Festival, Strawberry Music Festival in China, year-end banquets, weddings, etc.), dramas and product endorsements. In particular, large-scale concert tours account for the greatest share of the company’s total revenue.

(2) FY16 revenue breakdown was as follows: physical products 3%; licensing 26%; and entertainment agency 71%. As the number of HIM’s concerts may surge in FY17, FY17 revenue breakdown is estimated as follows: physical products 2%; licensing 22%; and entertainment agency 76%.

Exhibit 1: HIM’s revenue breakdown

Source: HIM; Capital Securities

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 Income related to licensing and entertainment agency are major sources of growth momentum:

(1) HIM’s entertainment artists include S.H.E, Yoga Lin, Power Station, Shin, Olivia, Popu Lady and Lin Mei-hsiu; its graphics artists include SECOND, Cherng, ByeByeChuChu and Wan Wan. Since the music industry is undergoing a paradigm shift, HIM, which generated revenue mainly from the sale of physical records in the past, already transformed to mainly derive its income from digital licensing and entertainment agency of live performances.

(2) Digital licensing income is determined by HIM’s bargaining power during each contract signing, which is also determined by popularity of each song in the past. Currently, HIM’s licensing income is mainly derived from three contracts:

 A contract signed with Alibaba in 1Q15: Chinese listeners can access of HIM’s music on Alibaba’s xiami.com and TTPOD. This contract ensures a minimum payment amount and shared profits if clicks exceed a certain level. This contract is scheduled to expire in MAR18. The upcoming contract renewal may generate a new round of revenue growth.

 A contract signed with KKBOX in 3Q15.

 A contract signed with Apple Music in 2Q16.

The contract with Alibaba contributes the most to HIM’s licensing revenue. HIM’s licensing revenue also includes shared profits from the advertisement income derived from YouTube clicks, shared profits derived from the number of HIM’s songs requested at KTV parlors, etc.

 Thanks to strong overseas demand for live performances, artists’ performances and prices have increased:

(1) HIM’s live performance income depends on an artist’s market price, availability and show contents. Generally speaking, as an artist grows in seniority and popularity, his/her market price may rise accordingly. Furthermore, in recent years, since economic conditions of overseas markets (Southeast Asia and China in particular) have matured, these markets start to pursue music and art for pleasure. Their demand for live performances has soared and boosted artists’ prices substantially.

(2) Currently, HIM’s artists spend most of their time conducting overseas concert tours. Maintaining relationships with overseas fans is a key focus of artist management. Thanks to development of social media like weibo and Facebook, HIM has achieved a certain level of success in managing overseas fans and artists’ public images. However, a concert cannot attract audience without concrete contents like new songs, new stage effects and new styles/looks of artists. Generally speaking, after a concert tour, an artist waits for 1~3 years to conduct another one as he/she needs time to recharge and produce/record new songs. Therefore, cultivating many famous artists is critical to HIM’s steady

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revenue growth.

 HIM scouts new talents persistently for long-term deployment:

HIM has set up HIM Music Institute and organized events like online contests of song/lyric composition to cultivate onstage performers and offstage talents. HIM also invested in Ni Guang Movie (a 40% stake) and B2 Studio (a 40% stake) in FY15 and the movie “The Tag-Along” (a 10% stake) in FY16 to establish a diversified entertainment business for more opportunities available to its music/artists. We expect this strategy to help HIM spot talents and make new stars at lower costs, which may catalyze long-term earnings persistently.

 Profile of the music industry:

(1) The music industry includes different segments like production, licensing and live performance. HIM’s business extends from upstream to downstream, and it is an all-around music entertainment company.

(2) According to the Global Music Report 2017 released by the International Federation of the Phonographic Industry (IFPI), the global music market grew by 5.9% YoY in 2016, marking the strongest increase since 1997 and the industry’s second consecutive YoY growth. During 2000~2015, the global music market shrank by nearly 40% in scale. The growth in 2016 was mainly driven by streaming media, which posted YoY growth of +60.4% in market value and enjoyed >100mn paid subscribers globally. The income derived from digital contents grew by 17.7% YoY while the income derived from physical products and downloads fell. In terms of regions, North America was the world’s biggest music market, and Japan was ranked second. China was considered most likely to rival North America as the biggest music market in the future.

(3) The scale of the Chinese music industry/market already reached RMB301.8bn (+5.89% YoY) in 2015, according to the Music Industry Development Report 2016 released by China’s State Administration of Press, Publication, Radio, Film, and Television in NOV16. Specifically, the digital music market has enormous growth potential thanks to the following: a) China’s National Copyright Administration issued a notice in 2015 requesting online music service providers to terminate unauthorized music transmission (by taking all unauthorized music products off the shelf) so that illegal/pirated/free online music may be eradicated while legal/copyrighted music may be promoted in China; b) the emergence of streaming music platforms like QQ and xiami.com.

(4) Regarding music licensing in China, HIM already signed a three-year contract with Alibaba. Under this contract, Alibaba may re-license HIM’s music to other online streaming music platforms in China. Given persistent market growth, HIM is expected to have stronger bargaining power when this contract expires in FY18. HIM may enjoy better licensing payment from Chinese vendors.

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(5) Regarding live performances, the number of concerts in China grew by 37% YoY in 2016. The number of China’s music festivals also rose from <20 in 2007 to nearly 200 in 2016, including Strawberry Music Festival and Zebra Music Festival. Enhancing the impact of live performances through the Internet and live broadcast is expected to be a major development focus in the future.

(6) HIM has cultivated the Chinese market for many years. As the demand for live performances remains strong, we forecast HIM’s artists to continue performing at concerts across China thanks to their cumulative popularity in the country. With additional concerts, the economies of scale may be achieved. HIM may continue maintaining artists’ competitiveness and cultivate new stars. Its long-term development appears promising.

Exhibit 2: Global music market development during 1999~2016 (Unit: USD bn)

Source: IFPI; Capital Securities

Exhibit 3: China’s digital music market scale (excluding telecom operators’ music-related value-added services) during 2010~2018 (Unit: RMB100mn)

Source: Online Music Industry Report 2016; Capital Securities

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Company operating update

 FY16 consolidated revenue hit NTD1.634bn (+55.31% YoY) with net profit of NTD281mn (+24.67% YoY) or EPS of NTD6.57:

(1) HIM’s entertainment agency revenue hit NTD1.157bn (+73.70% YoY) in FY16. Main revenue sources were as follows: a) Hebe, Power Station and Yoga Lin held a total of 28 concerts (If PLUS, Next Station, and The Great Yoga, respectively) in Taiwan and China (versus 9 concerts in FY15). Moreover, Hebe, Ella, Yoga Lin, etc. attended Chinese reality TV shows “Sound of My Dream” and “Masked Singers,” catalyzing HIM’s revenue.

(2) The income derived from physical products reached NTD46mn (+63.54% YoY) because HIM released many albums for its artists in FY16, including Hebe’s “Day by Day,” Yoga Lin’s “sell like hot cakes,” Shin’s “Welcome to My World,” Power Station’s 20th-anniversary album “Power Station 20th,” S.H.E’s 15th-anniversary single “Irreplaceable,” Ella’s single “Me vs Me” and Popu Lady’s “Thai Hot” photo album.

(3) Licensing income reached NTD431mn (+20.43% YoY). In addition to recognizing the revenue derived from its contracts signed with Alibaba and KKBOX in FY15, HIM also added shared profits from Apple Music in 2H16. Thus, FY16 licensing income edged up. HIM’s FY16 consolidated revenue reached NTD1.634bn (+55.31% YoY).

(4) Lower-GM entertainment agency income soared in FY16. While HIM booked higher-GM revenue derived from licensing to Apple Music, it accounted for a low proportion of the company’s total revenue. HIM’s FY16 GM fell by ~4 ppts YoY to 43.37%. Marketing expenses surged by 61.81% YoY to NTD244mn given the following: a) increases in concerts and released music albums/singles; b) fan meetings and promotional events related to S.H.E’s 15th anniversary. Operating expense ratio was 23.68%. Operating profit hit NTD322mn (+30.37% YoY). After booking FX loss of around NTD14mn in 3Q16, FY16 non-operating income was NTD2.00mn. Net profit was NTD281mn (+24.67% YoY) or EPS of NTD6.57 based on paid-in capital of NTD428mn.

 1Q17 consolidated revenue is estimated at NTD255mn (-57.46% QoQ) with net profit of NTD30mn (-69.57% QoQ) or EPS of NTD0.71:

(1) 1Q17 was a typical low season of the entertainment industry. The income derived from concerts, commercial performances and product endorsements in Taiwan and abroad fell QoQ. However, 1Q17 revenue decline was mitigated by the following: a) Hebe’s world concert tour If PLUS performance in Shenzhen in MAR17; b) Power Station’s world concert tour Next Station performances in Kuala Lumpur and Shenzhen in JAN17 and MAR17, respectively; c) Yoga Lin’s “The Great Yoga” concert album. 1Q17 consolidated revenue was NTD255mn (-57.46% QoQ; +2.74% YoY).

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(2) The revenue proportion of concerts, which carried lower GM, fell; thus, 1Q17 GM is estimated to rise by 13 ppts QoQ to 52.66%. Due to moderate marketing expenses during the low season, 1Q17 operating expense ratio is estimated at 33.65%. Operating profit is estimated at NTD49mn (-58.13% QoQ). Due to RMB depreciation against NTD, non-operating loss is estimated at NTD11mn. Net profit is estimated at NTD30mn (-69.57% QoQ) or EPS of NTD0.71 based on paid-in capital of NTD428mn.

 2Q17 consolidated revenue is estimated at NTD522mn (+104.71% QoQ) with net profit of NTD67mn (+121.05% QoQ) or EPS of NTD1.57:

(1) In 2Q17, the events organized by HIM are estimated to include 16 overseas concerts, 3 concerts in Taiwan and six stage plays. The details are as follows: a) ~10 concerts featuring Hebe and Power Station in places like Chengdu and Shanghai; b) Yoga Lin already kicked off two concerts (2017 The Great Yoga) in APR17 at Arena; he is expected to perform at another four overseas concerts in 2Q17; c) Shin’s 2017 Gentle Monster concert is scheduled to commence later in MAY17; d) Hebe’s JUN17 Serenade stage play is scheduled to be held in Taichung and Kaohsiung in JUN17. HIM’s 2Q17 consolidated revenue is forecasted at NTD522mn (+104.71% QoQ; +55.15% YoY).

(2) As the revenue proportion of overseas concerts, which carry lower GM, may surged, 2Q17 GM is estimated to fall by ~13 ppts QoQ to 39.27%. Due to additional promotional expenses related to concerts, stage plays and Calvin Chen’s new single “IN”, operating expense ratio is estimated at 24.59%. Operating profit is estimated at NTD77mn (+58.12% QoQ). Net profit is forecasted at NTD67mn (+121.05% QoQ) or EPS of NTD1.57 based on paid-in capital of NTD428mn, suggesting notable QoQ growth in 2Q17 earnings.

 FY17 consolidated revenue is forecasted at NTD2.050bn (+25.49% YoY) with net profit of NTD308mn (+9.57% YoY) or EPS of NTD7.19:

(1) The income derived from entertainment agency may remain as the company’s major revenue growth driver in FY17. HIM is forecasted to organize more concerts in FY17 than it did in FY16 (the number of overseas ones is estimated at 46), catalyzing FY17 revenue. 2H17 revenue may rise further HoH due to the following: a) more concerts in 2H17 than in 1H17; b) more opportunities for commercial performances and product endorsements at the end of the year; c) Ella may resume work after childbirth in 2H17. Additionally, HIM may continue recognizing shared profits derived from music licensing to Alibaba, KKBOX and Apple Music; its graphics artists may also continue to cooperate with other industries; licensing income is forecasted to rise steadily. FY17 physical product revenue is forecasted to edge down YoY due to a lack of albums released by popular artists like Hebe and Yoga Lin (both released albums in FY16); only artists like Janice Yan and Calvin Chen release albums or EP singles in FY17. FY17 consolidated revenue is estimated at NTD2.050bn (+25.49% YoY).

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(2) As the revenue proportion of overseas concerts, which carry lower GM, may increase, FY17 GM is estimated to fall by ~3 ppts YoY to 40.64%. Due to higher marketing expense, operating expense rose to NTD461mn. However, due to substantial revenue growth, operating expense ratio is estimated to edge down YoY to 22.48%. Operating profit is estimated at NTD372mn (+15.84% YoY). Net profit is forecasted at NTD308mn (+9.57% YoY) or EPS of NTD7.19 based on paid-in capital of NTD428mn.

Exhibit 4: HIM’s concerts and related estimates in recent years

FY13 FY14 FY15 FY16 FY17 (F)

Taiwan 2 6 1 5 6

Overseas 16 7 8 23 46

Total 18 13 9 28 52

Concerts  Yoga Lin’s Fugue  Yoga Lin’s Speaking in  Hebe’s IF Only concert  Hebe’s IF PLUS  Hebe’s IF PLUS concert tour (6) Tongues concert (3); (8); concert (12); concert (16);

 S.H.E.’s 2gether  S.H.E.’s 2gether 4ever  Power Station’s Next  Power Station’s Next  Power Station’s Next 4ever concert (12) concert (8); Generation concert (1) Generation concert (7); Generation concert (9);

 Hebe’s IF Only concert  Yoga Lin’s The Great  Yoga Lin’s The Great (2) Yoga concert (9) Yoga concert (15);

 Shin’s Gentle Monster concert (12)

Source: HIM; Capital Securities

 Recommendation:

We initiate coverage with BUY and TP of NTD144 (22x FY17 diluted EPS estimate) due to the following: a) the company’s valuation appears low as the current stock price already reflected operating declines during the low season in 1Q17; b) the company is expected to organize nearly 20 concerts in Taiwan and abroad in 2Q17, significantly catalyzing its revenue and quarterly earnings; c) the company may organize significantly more concerts in FY17 than it did in FY16 and post steady income from other sources; FY17 EPS is forecasted to approach NTD7.19; d) the market’s demand for live performances has risen persistently, suggesting solid earnings in the long run.

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Exhibit 5: HIM’s forward PE band

Source: CMoney; Capital Securities

Exhibit 6: HIM’s forward PB band

Source: CMoney; Capital Securities

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Balance sheet Income statement

(NTD mn) 2013 2014 2015 2016 2017F (NTD mn) 2013 2014 2015 2016 2017F

Assets 1,178 1,707 1,869 2,396 2,525 Revenue 939 960 1,052 1,634 2,050 Current assets 1,159 634 726 1,214 1,198 Cost of sales 598 573 549 925 1,217 Cash & cash equivalents 1,050 475 598 963 963 Accounts receivable 54 36 43 112 23 Gross profit 340 387 503 708 833 Inventories 2 2 1 4 2 Operating expenses 222 227 257 387 461 Investments in equity - - 0 4 0 0 Operating profit 119 160 247 322 372 method Property, plant and EBITDA 146 228 300 348 355 9 18 15 12 -49 equipment Non-operating items 26 66 39 2 3 Liabilities 455 844 854 1,277 1,351 Current liabilities 447 331 438 964 1,089 Pre-tax profit 144 226 285 324 376

Accounts payable 180 154 195 404 389 Income taxes 29 34 60 42 64 Non-current liabilities 8 513 417 313 277 Net income 115 192 225 281 308 Shareholders' equity 723 863 1,015 1,119 1,175 Ordinary share capital 300 354 425 428 428 Basic EPS (NTD) 2.69 4.49 5.27 6.57 7.19 Retained earnings 130 215 298 386 441 Diluted EPS NTD) 2.44 4.08 4.79 5.97 6.54 Equity attributable to 720 859 1,012 1,116 1,210 equity holders of the parent Note: Basic EPS estimate is based on paid-in capital of NTD0.428bn Liabilities & Diluted EPS estimate is based on paid-in capital of NTD0.471bn 1,178 1,707 1,869 2,396 2,525 shareholders' equity

Cash flow statement Ratio analysis

(NTD mn) 2013 2014 2015 2016 2017F (NTD mn) 2013 2014 2015 2016 2017F

Operating cash flows 176 56 299 468 470 Growth analysis (%) Net income 144 226 285 324 376 Revenue 42.24% 2.31% 9.53% 55.31% 25.49% Depreciation & 3 3 9 24 -49 amortization Gross profit 21.32% 13.75% 29.98% 40.77% 17.61% Increase in working capital 6 -8 35 137 75 Operating profit 53.18% 34.73% 54.19% 30.37% 15.84% Other operating cash flows 22 -166 -30 -17 68 Net income 51.01% 66.99% 17.25% 24.67% 9.57% Investing cash flows -5 -1,084 -3 -109 -219 Capital expenditures -5 -11 -2 0 -1 Profitability analysis (%) Increase in long-term 0 0 -16 -10 -11 Gross margin 36.26% 40.32% 47.85% 43.37% 40.64% investments Other investing cash flows 0 -1,073 14 -99 -207 EBITDA margin 15.58% 23.73% 28.56% 21.33% 17.32%

Financing cash flows 299 452 -170 8 -250 Operating margin 12.65% 16.66% 23.45% 19.68% 18.17% Increase in long-term 0 502 -101 -80 -36 Net margin borrowings 12.27% 20.02% 21.43% 17.20% 15.02% Cash proceeds from issuing 319 0 0 0 0 Return on asset 9.77% 11.26% 12.06% 11.73% 12.19% shares Return on equity Payment of cash dividends -20 -54 -71 -193 -214 15.91% 22.28% 22.21% 25.11% 26.21% Other financing cash flows 0 4 1 280 0 Debt & liquidity analysis Increase in cash & cash 470 -575 123 364 1 Debt ratio 38.61% 49.46% 45.71% 53.29% 53.49% equivalents Cash & cash equivalents - Debt-to-equity ratio 62.88% 97.85% 84.19% 114.07% 115.00% 580 1,050 475 598 963 year begin Current ratio 259.49% 191.50% 165.90% 126.01% 110.00% Cash & cash equivalents - 1,050 475 598 963 963 year end Activity analysis Source: CMoney; Capital Securities

Inventory days 1.25 0.99 0.83 0.96 0.95

Accounts receivable days 25.01 17.05 13.69 17.25 12.00

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Quarterly income statement

(NTD mn) 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17F 2Q17F 3Q17F 4Q17F 1Q18F 2Q18F 3Q18F

Sales 312 248 337 449 600 255 522 655 617 301 520 642

Cost of sales 151 120 180 260 364 121 317 405 374 125 313 377

Gross profit 161 128 156 189 235 134 205 250 243 176 207 265

Operating expenses 72 74 91 102 120 86 128 133 114 94 138 141

Operating profit 89 54 65 87 116 49 77 118 130 82 68 124

Non-operating items 11 5 3 -9 3 -11 5 4 5 8 5 4

Pre-tax profit 100 59 68 78 119 38 82 121 135 90 73 127

Income taxes 20 10 0 14 19 6 14 21 23 15 12 22

Net profit 80 49 68 64 100 30 67 100 111 74 60 105

Paid-in capital 428 428 428 428 428 428 428 428 428 428 428 428

EPS (NTD) 1.86 1.15 1.59 1.49 2.33 0.71 1.57 2.33 2.59 1.72 1.40 2.45

Operating efficiency

Gross margin (%) 51.46% 51.58% 46.48% 42.00% 39.25% 52.66% 39.27% 38.22% 39.41% 58.50% 39.75% 41.27%

Operating margin (%) 28.53% 21.75% 19.30% 19.32% 19.31% 19.01% 14.68% 17.94% 21.02% 27.19% 13.12% 19.28%

Net margin (%) 25.55% 19.90% 20.18% 14.25% 16.62% 11.89% 12.84% 15.20% 17.97% 24.43% 11.55% 16.32%

QoQ (%)

Sales 19.54% -20.42% 35.56% 33.33% 33.62% -57.46% 104.71% 25.43% -5.76% -51.19% 72.41% 23.55%

Operating profit 51.95% -39.32% 20.28% 33.44% 33.57% -58.13% 58.12% 53.22% 10.43% -36.85% -16.80% 81.56%

Pre-tax profit 31.90% -40.73% 14.08% 15.06% 52.39% -68.18% 117.19% 47.76% 11.32% -33.33% -18.27% 73.42%

Net profit 28.40% -38.03% 37.46% -5.84% 55.87% -69.57% 121.05% 48.47% 11.43% -33.63% -18.51% 74.64%

YoY (%)

Sales 18.66% 23.57% 21.20% 71.94% 92.19% 2.74% 55.15% 45.96% 2.95% 18.11% -0.53% -2.02%

Operating profit 102.69% 24.01% 17.16% 48.00% 30.10% -10.23% 18.02% 35.51% 12.04% 68.97% -11.09% 5.35%

Pre-tax profit 10.42% 7.59% 24.57% 2.62% 18.56% -36.36% 21.17% 55.60% 13.67% 138.16% -10.37% 5.19%

Net profit -1.07% 26.39% 52.79% 2.99% 25.03% -38.61% -1.28% 55.66% 11.28% 142.72% -10.53% 5.24% Source: CMoney; Capital Securities Note: EPS estimate is based on paid-in capital of NTD0.428bn

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STOCK RATING STRONG BUY Based on the last closing price prior to our initial STRONG BUY recommendation, our 3-month target price implies upside exceeding or equal to 35%. BUY Based on the last closing price prior to our initial BUY recommendation, our 3-month target price implies upside between 15% and 35%. TRADING BUY Based on the last closing price prior to our initial TRADING BUY recommendation, our 3-month target price implies upside between 5% and 15%. NEUTRAL We are unable to issue investment recommendation based on the company’s current fundamentals. We expect the share price to consolidate in the near term and recommend investors to look for a better entry point.

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