Stock Code: 9918
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Stock Code: 9918 Shin Shin Natural Gas Co., Ltd. Investor Conference 2018 October 15, 2018 Disclaimer The consolidated financial numbers are based on International Financial Reporting Standards (IFRS) and also audited by CPA. The representation is based on the information obtained from various sources, which the Company believes to be reliable, but at some points in the future, there are a variety of factors which could cause actual results to differ materially from those statements. Therefore, please refer to the information on MOPS website (http://mpos.twse.com.tw/mops/web/index) as the main basis, if any adjustment has been made. This presentation and its contents may not be reproduced to a third party without the written consent of the Company. Agenda 1. Company Profile 2. Operation Highlights 3. Financial Review 4. Operation Prospects Page 1 of 9 1. Company Profile (1) Resisted date: May 25th, 1971. (2) Official operation date: March 26th, 1974. (3) Stock public offering date: December 15th, 1983. (4) Stock listed on the market date: April 26th, 1994. (5) Stock listing capital: NT$672,560,000. (6) Current capital: NT$1,805,370,000. (7) Number of employee: 175, till September 2018. The Company has been authorized, by the Governing Authority, to service and supply customer natural gas as fuel, in approved districts only. Also, the Company could provide household customer piping consultation, natural gas safety device installation and other related works by filing request in advance. 2. Operation Highlights Current Industry Status There are twenty five public natural gas companies in Taiwan, R.O.C., which were approved by the Governing Authority. Their natural gas is provided solely by the government owned China Petroleum Cooperation (Taiwan) or CPC. Market Future Demand Status To meet the local demands and stable the natural gas supply, CPC signed long-term supply contracts with different foreign countries. Also, the rich reserve and mass mining of shale gas around the globe could be another prominent natural gas source to CPC, as far as the supply security concerned. Competitive Niche According to the “Natural Gas Enterprise Act”, the public natural gas company can not provide natural gas to non- Page 2 of 9 service district’s customer without the approval of Central Governing Authority in advance. No overlapping service district between every two nearby natural gas companies, yet. Currently, those companies enjoy the exclusive niche within their own service districts. Service Districts Zhonghe, Yonghe, Xindian and Shenkeng Districts in New Taipei City and Wenshan District in Taipei City. Last three years Natural Gas Volume Sales Statistics Year Volume (in Cubic Meter) 2017 108,569,214 2016 110,074,438 2015 109,772,525 Supply Household Customer Penetration Rate Household Customers Statistics* Yong- Zhong- Xin- Shen- Wen- District All he he dian keng shan Households 500,215 91,088 165,734 127,318 9,610 106,465 Customers 343,079 73,494 120,284 79,313 2,930 67,658 Penetration 68.71 80.68 72.58 62.30 30.49 63.55 Rate (%) *Till August 31st , 2018 Business promotion New residential building projects: For increasing the penetration rate, the Company is striving to all builders, construction compounds in its service districts to be our customers, also targeting the redevelopment areas and urban renewal projects for further pipeline extension consideration. Page 3 of 9 Planning pipeline extension to prominent residential compounds: The Company is targeting chief of village or Management committee of prominent residential area for future pipeline extension consideration and striving for the LPG (Liquefied Petroleum Gas) customer turnover opportunity. Individual prominent non-customer in the serviced residential area: The Company constantly reaches out non-customer households within the pipeline serviced community or residential buildings via telephone or text message for wining the natural gas installation order. Increasing commercial customer account: Due to the declining trend of the household average gas volume sales, the Company is striving for prominent commercial non-customers to switch from oil boiler to natural gas boiler, not only for increasing the growth of gas volume sales, but also the cleaner environmental consideration. Natural Gas Supply Safety Mechanism Main storage and supply equipments: The Company sets up two underground cylindrical tanks with 160,000 cubic meters volume in total, for natural gas pipeline distribution and regulation purposes. Also, the Company has eleven pressure regulator stations for gas pressure stability and supply quality improvement purposes. The Company installed numerous instruments to utilize the effectiveness of natural gas storages and transmission systems monitoring mechanism (SCADA System) to Monitoring Center around the clock, along with on duty personnel in three Page 4 of 9 shifts. The SCADA system can constantly screen the parameters of earthquake, pressure, leaking, access control and flooding. It would automatically inform the on duty personnel for further emergency management, when the abnormal signals went off. The Company breaks down its natural gas pipeline network into 15 segmentations (6 in Taipei city and 9 in New Taipei City). Each of segmentation can be individually shut down for service, maintained, and re-connected to the pipeline network for high quality network management. The Company established levels of emergency response mechanism, along with engineering profession personnel on alert, in order to cope with natural disasters and other situations. According to the Article 51 of Natural Gas Enterprise Act, the Company shall submit the pipeline replacement proposal annually to the Governing Authority. The Company would follow the schedule to replace the outdated or rusted pipelines when the application has been approved. 3. Financial Review (1) Condensed Consolidated Income Statement Unit: NT$ 1,000 Item\Fiscal Year 2016-Y 2017-Y 2018-H1 Net Revenue 1,762,132 1,940,579 1,218,466 Gross Profit 451,432 451,565 327,429 Gross Profit Rate 25.62% 23.27% 26.87% Operating Expenses 232,585 247,661 140,173 Operating Income 218,847 203,904 187,256 Non-Operating Profit 50,162 94,637 45,881 Income before tax 269,009 298,541 233,137 Net Income 221,787 250,611 186,712 EEPS in NT Dollar 1.25 1.41 1.05 Page 5 of 9 (2) Condensed Consolidated Balance Sheet Unit: NT$ 1,000 Item\Fiscal Year 2016-Y 2017-Y 2018-H1 Total Assets 4,338,052 4,567,337 4,796,469 Cash and Cash Equivalents 400,137 294,576 540,323 Financial Assets-Current 709,296 543,743 683,941 Accounts and Notes 184,824 214,037 270,767 Receivable, Net Other Accounts Receivables 1,267,926 1,036,393 772,861 Inventories, Net 27,132 33,594 35,020 Other Assets 250,775 775,077 761,821 Property, Plant and 1,497,962 1,669,957 1,731,736 Equipment Total Liabilities 1,490,205 1,672,923 1,929,278 Current Liabilities 880,112 959,365 1,154,284 Non-Current Liabilities 610,093 713,558 774,994 Total Equity 2,847,847 2,894,454 2,867,191 (3) Condensed Consolidated Statement of Cash Flow Unit: NT$ 1,000 Item\Fiscal Year 2016-Y 2017-Y 2018-H1 Cash and Cash Equivalents at 514,599 400,137 294,576 Beginning of Year Net Cash Provided by 335,558 894,070 368,995 Operating Activities Net Cash used for Investing (238,200) (795,960) (123,684) Activities Net Cash Provided by (211,820) (203,671) 436 Financing Activities Cash and Cash Equivalents at 400,137 294,576 540,323 End of Year Page 6 of 9 (4) Key Financial Indexes Item\Fiscal Year 2016-Y 2017-Y 2018-H1 Current Ratio (%) 295.22 222.34 199.88 Quick Ratio (%) 291.38 217.74 196.58 Inventory Turnover (times) 49.50 49.04 51.94 Days Inventory Outstanding (days) 7.37 7.44 7.03 Accounts Receivable Turnover 8.84 9.61 9.78 (times) Days Sales Outstanding (day) 41.29 37.98 37.32 4. Operation Prospects Safety First To enhance the results of household customer regular two-year checkup, the Company would leave notice to absent customer for re-arrange checkup appointment. To comply the Natural Gas Enterprise Act, the Company replace household natural gas meter every ten years vigorously. In 2017, the Company completed 32,610 gas meters replacement, with 14,056 computerized gas meters (43% in total). In 2018, the Company accomplished 26,909 gas meters replacement, with 14,574 computerized gas meters (54.16% in total), from January to September. In order to coordinate with government’s computerized gas meter promotion policy, the Company adopted several approaches to attract customer’s attention for better understanding of four key advantages of computerized gas meter, such as “overflow shutdown”, “overtime shutdown”, “earthquake shutdown”, and “low pressure shutdown”. Hopefully, customer would choose to install the computerized gas meter for better household safety protection. Page 7 of 9 Priority Service From October 1st 2018, the partially upgraded MIS (ERP) computer system of the Company is officially online for better customer service capability and quality. The Company continually upholds the excellence of customer service activity, for better “Customer Centric Service Quality”. Household’s gas bill is payable via money transfer, credit card payment, convenience store counter, and internet collection & payment platform. Also, household customer could join the Company’s Internet membership program to enjoy the advantage of virtual e-payment facility in a paper-free environment. Business Continuity The Company is a public natural gas enterprise. The gas rate is regulated by the governing authority, which might not reflect Company’s current cost effectively. Despite of the central government recently enhanced the restraint and strength by amending regulations, which might affect the Company’s earning power, the Company still firmly embrace the business philosophy to overcome issues, and seek for growth for the goal for business continuity.