Integrated Micro Electronics WED 07 OCT 2020

Expecting better 2H results

on continued recovery
Continued recovery expected as utilization ramps us. In 2Q20, IMI’s automotive
manufacturing sites globally were forced to shut down due to the pandemic. Nevertheless,
management said these manufacturing sites have recovered to 75-80% utilization rate since
June, which is just slightly off their optimal 85% utilization rate. Despite the improvement,
HOLD
we expect a slower recovery of the automotive and industrial segment due to subdued
demand post-pandemic. The two segments account for around 71% of total revenues. TICKER: IMI
Meanwhile, the company’s telco and medical segments are expected to remain stable after
its strong performance in 1H20. Management is also optimistic on the consumer segment FAIR VALUE: 6.00
as it sustained its resilience with the increased demand for work from home needs such as CURRENT PRICE: 5.57
laptops and other user display devices.
UPSIDE: 7.72
FY20 capex kept at manageable levels. Management disclosed that they are planning to
spend another US$10-11Mil in capex for 2H20, after spending around US$12Mil in 1H20.
This should bring FY20 capex to US$23Mil, which is significantly lower than the FY19 capex SHARE PRICE MOVEMENT
of US$38.8Mil. IMI also mentioned that they have no plans to take on additional debt to
finance the capex as IMI has more than enough cash for the remainder of the year. As of
end June 2020, IMI’s cash level amounted to US$165.5Mil. 120

VIAO raises US$94Mil through IPO, lackluster debut in NYSE. VIA Optronics AG (VIAO) 110
managed to successfully list in the New York Stock Exchange (NYSE) last week, raising
US$93.75Mil. VIAO will use the proceeds to fund its capex, R&D, and potential M&A in the 100
future. The completion of its listing in the NYSE, brought down IMI’s stake in VIAO to 50.3%
from 76.01%. 90

Better performance expected for 2H20. Management believes that the worst is over 80
for IMI, after booking a US$21.5Mil net loss during 1H20. IMI should not see a repeat
of its 1H20 performance as their core businesses continue to recover post-pandemic. As 70
mentioned above, IMI’s automotive and industrial segments, which contribute to around 8-Jul-20 8-Aug-20 8-Sep-20 8-Oct-20
71% of consolidated revenues, have already started their recovery. Should top line recovery
continue and cost cutting efforts bear fruitful, IMI may even book profits for 2H20. However,
IMI PSEi

this will likely not be enough to offset the huge net loss booked in 1H20.
Reiterate HOLD rating. We reiterate our HOLD rating on IMI with an FV estimate of ABSOLUTE PERFORMANCE
Php6.0/sh. At its current price of Php5.45/sh, capital appreciation potential is limited. In
addition, sentiment on the stock will most likely stay depressed as the company is expected 1M 3M YTD
to book losses in FY20. IMI also faces possible downside risk if there is a second wave of IMI -3.97 -5.59 -29.40
infections as these could hurt the company’s plant operations. PSEi -1.15 -6.37 -24.92

FORECAST SUMMARY
Year to December 31 (US$ Mil) 2017 2018 2019 2020E 2021E 2022E
Revenues 1,090.59 1,349.40 1,250.37 1,153.16 1,275.73 1,391.53 MARKET DATA
% change y/y 29.4 23.7 -7.3 -7.8 10.6 9.1
Gross Profit 129.60 134.42 102.23 92.31 118.62 132.16
Market Cap 12,350.32Mil
% change y/y 27.9 3.7 -23.9 -9.7 28.5 11.4 Outstanding Shares 2,217.29Mil
Gross margin (%) 11.9 10.0 8.2 8.0 9.3 9.5 52 Wk Range 3.20 - 8.76
Operating Income 40.44 37.49 -3.99 6.36 23.97 30.48
3Mo Ave Daily T/O 2.97Mil
% change y/y -5.8 -7.3 -110.65 -259.36 276.56 27.2
Operating margin (%) 3.7 2.8 -0.32 0.55 1.88 2.2
Net Income 34.00 47.19 -7.78 -4.06 10.33 15.73
% change y/y 20.9 38.8 -116.49 -47.84 -354.52 52.2
Net margin (%) 3.1 3.5 -0.62 -0.35 0.81 1.1
Adrian Alexander Yu
EPS (Php) 0.91 1.14 -0.18 -0.10 0.24 0.37
% change y/y 27.3 24.8 -116.05 -47.84 -354.52 52.2 Research Analyst
adrian.yu@colfinancial.com
RELATIVE VALUE
P/E (X) 6.0 4.8 -29.8 -57.0 22.4 14.7
Kerwin Malcolm Chan
P/BV (X) 0.7 0.6 0.6 0.6 0.6 0.6
Dividend yield (%) 4.2 4.5 1.9 -1.0 -0.5 1.3 Research Analyst
ROE (%) 13.3 13.9 -2.0 -1.1 2.7 3.9 kerwin.chan@colfinancial.com
so urce: IM I, COL estimates

Disclaimer: All content provided in COL Reports are meant to be read in the COL Financial website. Accuracy and completeness of content cannot be guaranteed if reports are viewed outside of the
COL Financial website as these may be subject to tampering or unauthorized alterations.
 COMPANY UPDATE I IMI: EXPECTING BETTER 2H RESULTS ON CONTINUED RECOVERY

WED 07 OCT 2020

Continued recovery expected as utilization ramps us

In 2Q20, IMI’s automotive manufacturing sites globally were forced to shut down due to
the pandemic. Nevertheless, management said these manufacturing sites have recovered
to 75-80% utilization rate since June, which is just slightly off their optimal 85% utilization
rate. Despite the improvement, we expect a slower recovery of the automotive and
industrial segment due to subdued demand post-pandemic. The two segments account
for around 71% of total revenues.

Meanwhile, the company’s telco and medical segments are expected to remain stable
after its strong performance in 1H20. Management is also optimistic on the consumer
segment as it sustained its resilience with the increased demand for work from home
needs such as laptops and other user display devices. However, management remains
cautious on the potential impact of the US-China trade war on supply chain for the telco
industry.

FY20 capex kept at manageable levels

Management disclosed that they are planning to spend another US$10-11Mil in capex
for 2H20, after spending around US$12Mil in 1H20. This should bring FY20 capex to
US$23Mil, which is significantly lower than the FY19 capex of US$38.8Mil. IMI also
mentioned that they have no plans to take on additional debt to finance the capex as IMI
has more than enough cash for the remainder of the year. As of end June 2020, IMI’s cash
level amounted to US$165.5Mil. For 2021, management noted that capex could revert to
around US$40Mil should the need arise for new production lines, but the company has
yet to finalize next year’s budget.

VIAO raises US$94Mil through IPO, lackluster debut in NYSE

VIA Optronics AG (VIAO) managed to successfully list in the New York Stock Exchange
(NYSE) last week, raising US$93.75Mil. VIAO offered 6.25Mil American Depository Shares
(ADS) at an offer price of US$15.0 per ADS. VIAO will use the proceeds to fund its capex,
R&D, and potential M&A in the future. The completion of its listing in the NYSE, brought
down IMI’s stake in VIAO to 50.3% from 76.01%.

COL Financial Group, Inc. 2

 COMPANY UPDATE I IMI: EXPECTING BETTER 2H RESULTS ON CONTINUED RECOVERY

WED 07 OCT 2020

Following its listing in the NYSE, VIAO experienced a lackluster reception, opening at
US$12.0/sh, down 20% from its offer price of US$15.0/sh. VIAO shares reached a low of
US$8.91/sh last week before recovering to its current price of US$9.0/sh. At its current
price, VIAO has a market cap of US$203.1Mil or Php9.8Bil. VIAO shares currently account
for 39.4% of IMI’s market cap.

Better performance expected for 2H20

Management believes that the worst is over for IMI, after booking a US$21.5Mil net
loss during 1H20. IMI should not see a repeat of its 1H20 performance as their core
businesses continue to recover post-pandemic. As mentioned above, IMI’s automotive
and industrial segments, which contribute to around 71% of consolidated revenues, have
already started their recovery. Should top line recovery continue and cost cutting efforts
bear fruitful, IMI may even book profits for 2H20. However, this will likely not be enough
to offset the huge net loss booked in 1H20.

Reiterate HOLD rating

We reiterate our HOLD rating on IMI with an FV estimate of Php6.0/sh. At its current price
of Php5.45/sh, capital appreciation potential is limited. In addition, sentiment on the
stock will most likely stay depressed as the company is expected to book losses in FY20.
IMI also faces possible downside risk if there is a second wave of infections as these could
hurt the company’s plant operations.

COL Financial Group, Inc. 3

 COMPANY UPDATE I IMI: EXPECTING BETTER 2H RESULTS ON CONTINUED RECOVERY

WED 07 OCT 2020

Integrated Micro- INCOME STATEMENT (IN US$MIL)

Electronics (IMI) in US$Mil 2016 2017 2018 2019

Revenues 843.0 1,090.6 1,349.4 1,250.4
% Growth 3.5% 29.4% 23.7% -7.3%
COMPANY BACKGROUND
Gross Profit 94.03 101.31 129.60 134.42
Integrated Micro-Electronics, Inc. (IMI), % Growth 0.1% 7.7% 27.9% 3.7%
a subsidiary of Ayala Corp. under the EBITDA 65.4 64.7 68.6 31.3
% Growth 11.0% -1.1% 6.0% -54.3%
umbrella of AC Industrials, is an EMS
Operating Profit 42.94 40.44 37.49 -3.99
manufacturer and is primarily focused on
% Growth 13.2% -5.8% -7.3% -110.7%
the automotive and industrial industry. IMI Interest Expense -3.88 -6.90 -11.99 -13.14
is capable of providing clients the complete Other Income/Expense -4.24 8.37 31.33 5.93
manufacturing service from the ground up Pretax Income 34.82 41.91 56.82 -11.20
such as the design, production, testing, and Tax Expense -6.81 -7.46 -8.04 -1.99
Net Income 28.12 34.00 47.19 -7.78
order fulfilment. Currently, the company
% Growth -2.3% 20.9% 38.8% -116.5%
has 22 manufacturing solutions locations
EPS (Php) 0.72 0.91 1.14 (0.18)
across, but not limited to, the Philippines, % Growth 1.9% 27.3% 24.8% -116.1%
China, Bulgaria, Mexico, Germany, and the
UK. BALANCE SHEET (IN US$MIL)
in US$Mil 2016 2017 2018 2019
Cash & Equivalents 86.5 90.6 108.5 152.7
REVENUE BREAKDOWN
Trade Receivables 198.2 263.1 304.7 290.6
Inventories 106.1 199.6 192.7 152.6
4%
1% Other Current Assets 16.1 27.1 20.8 19.1
0%
PPE 117.4 164.6 196.8 194.3
4% Other Non-Current Assets 111.5 176.3 190.2 228.1
Automotive
10% Total Assets 635.9 921.4 1,013.7 1,037.4
Telecom
Accounts Payable 195.7 284.3 291.2 267.1
Industrial
ST Debts 51.4 135.1 136.3 126.1
Other Current Liabilities
Consumer 23.0 33.0 98.6 60.7
48%
LT Debts
Multiple market
121.1 158.2 124.5 114.4
Other Non-Current Liabilities 6.8 34.2 15.9 44.4
Computer peripherals
25% Total Liabilities 398.0 644.8 666.6 612.6
Medical
Total Equity 237.9 276.6 410.6 483.8
Total Liabilities
Aerospace (STI) & Equity 635.9 921.4 1,077.2 1,096.3
8% BVPS 0.13 0.15 0.19 0.22

CASHFLOW STATEMENT (IN US$MIL)

2016 2017 2018 2019
Income (loss) before income tax 34.82 41.91 56.82 -11.20
Automotive
Depreciation & Amortization 22.47 24.24 31.10 35.31
Telecom
Other Non-Cash Exp (Gains) 2.28 2.01 -20.91 0.79
40% Industrial Net interest income (expense) 0.57 0.47 1.94 1.21
Consumer Increase (decrease) in Working Cap -9.91 -78.90 -65.50 43.82
Multiple market Income tax expense -6.03 -7.95 -8.03 -7.37
Computer peripherals Operating Cash Flow 44.20 -18.21 -4.58 62.55
Capex -48.34 -61.87 -63.82 -37.40
Medical
Other Investments -55.17 -16.51 -26.15 -20.81
Aerospace
Investing Cash Flow -103.51 -78.38 -89.97 -58.21
Proceeds (Payment) Debts 53.29 101.48 25.02 -55.05
Payment of Cash Dividends -8.62 -8.43 -10.13 -4.44
Others 0.0 6.8 97.8 92.5
Financing Cash Flow 44.65 99.87 112.67 33.03
Effects of changes in forex rates in cash -0.32 0.81 -0.21 -0.20
Change in Cash -14.98 4.08 17.91 37.17

COL Financial Group, Inc. 4

 COMPANY UPDATE I IMI: EXPECTING BETTER 2H RESULTS ON CONTINUED RECOVERY

WED 07 OCT 2020

INVESTMENT THESIS: KEY RATIOS

2016 2017 2018 2019
Medical segment continues to grow
GPM (%) 11.2% 9.3% 9.6% 10.8%
amid the pandemic EBITDA Margin (%) 7.8% 5.9% 5.1% 2.5%
The company’s medical segment in China OPM (%) 5.1% 3.7% 2.8% -0.3%
continued to operate in 2Q20. Their NPM (%) 3.3% 3.1% 3.5% -0.6%
Times Interest Earned (X) 11.1 5.9 3.1 (0.3)
operations focused on making PPEs and
Current Ratio (X) 1.51 1.28 1.31 1.49
other different sensors necessary for Net D/E Ratio (X) 0.40 0.76 0.53 0.24
the medical group to fight against the Days Receivable 85.8 88.1 82.4 82.4
COVID-19 pandemic. Days Inventory 52.2 75.8 57.9 57.9
Days Payable 96.3 108.0 87.5 87.5
Asset T/O (%) 132.6 118.4 125.3 114.0
New business opportunities in the ROAE (%) 12.0 13.3 13.9 (2.0)
medical and telecom market
There will be a resurgence in the medical MAJOR CORPORATE DEVELOPMENTS (5-YEARS)

and telecom segment as businesses go Acquired a 76% stake in VIA Optronics GmbH (VIA) 08/18/2016
continue to operate under the new normal.
The new normal would put a lot more
Acquired an 80% stake in STI Enterprises Limited 05/17/2017
value in digitalization. This would result in
an increased demand for sensors, displays,
and ability to interact in a digital space. IMI Inauguration of IMI's 21st manufacturing site in Serbia 09/29/2018
is already pursuing business opportunities
in both segments. The company has seen
increased demand for products used in
medical equipment and 5G infrastructure.
They plan to pursue plans to diversify
outside the automotive segment as car
manufacturers went into shutdown affecting
the company’s automotive business.

IMI’s subsidiaries expected to see an

uptick in demand
STI Ltd, a subsidiary of IMI, has begun
producing components for medical
ventilators, as part of the Ventilator
Challenge UK. Companies involved in the
Ventilator Challenge UK help produce
ventilators in response to COVID-19. In
addition, VIA Optronics is expected to see
an increase in demand on laptop and other
touch sensors as people work from home.

COL Financial Group, Inc. 5

 COMPANY UPDATE I IMI: EXPECTING BETTER 2H RESULTS ON CONTINUED RECOVERY

WED 07 OCT 2020

Valuation VALUATION ASSUMPTIONS

Methodology For DCF

Risk Premium 9.0%
Risk Free Rate 4.0%
Beta 1.20
Cost of Equity 14.8%
Cost of Debt 6.0%
Tax Rate 17.8%
WACC 11.1%
Terminal Growth Rate 1.0%

Enterprise value 331,254

Less: Net Debt -240,437
Add: Cash 164,136
Equity Value 254,952
NAV in Php 13,257,512
USDPHP Rate Assump. 52.00
O/S 2,208,579
FV Estimate 6.00

COL Financial Group, Inc. 6

 COMPANY UPDATE I IMI: EXPECTING BETTER 2H RESULTS ON CONTINUED RECOVERY

WED 07 OCT 2020

I MP OR TA NT R AT ING DEFINITIONS
BUY
Stocks that have a BUY rating have attractive fundamentals and valuations based on our analysis. We expect the share price to outperform the market in the
next six to 12 months.

HOLD
Stocks that have a HOLD rating have either 1) attractive fundamentals but expensive valuations 2) attractive valuations but near-term earnings outlook might
be poor or vulnerable to numerous risks. Given the said factors, the share price of the stock may perform merely in line or underperform in the market in the
next six to twelve months.

SELL
We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the share price to underperform in the next six to12 months.

I MP OR TA NT DISC L AIM ER
Securities recommended, offered or sold by COL Financial Group, Inc. are subject to investment risks, including the possible loss of the principal amount invested.
Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and said information may
be incomplete or condensed. All opinions and estimates constitute the judgment of COL’s Equity Research Department as of the date of the report and are
subject to change without prior notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of
a security. COL Financial and/or its employees not involved in the preparation of this report may have investments in securities of derivatives of the companies
mentioned in this report and may trade them in ways different from those discussed in this report.

C O L R E S EAR C H T EAM

APRIL LYNN TAN, CFA

VP & HEAD OF RESEARCH
april.tan@colfinancial.com

CHARLES WILLIAM ANG, CFA GEORGE CHING RICHARD LAÑEDA, CFA

DEPUTY HEAD OF RESEARCH SENIOR RESEARCH MANAGER SENIOR RESEARCH MANAGER
charles.ang@colfinancial.com george.ching@colfinancial.com richard.laneda@colfinancial.com

JOHN MARTIN LUCIANO, CFA FRANCES ROLFA NICOLAS JUSTIN RICHMOND CHENG
SENIOR RESEARCH ANALYST RESEARCH ANALYST RESEARCH ANALYST
john.luciano@colfinancial.com rolfa.nicolas@colfinancial.com justin.cheng@colfinancial.com

ADRIAN ALEXANDER YU KERWIN MALCOLM CHAN

RESEARCH ANALYST RESEARCH ANALYST
adrian.yu@colfinancial.com kerwin.chan@colfinancial.com

C O L F INANC IAL G R O UP, I NC.

2402-D EAST TOWER, PHILIPPINE STOCK EXCHANGE CENTRE,
EXCHANGE ROAD, ORTIGAS CENTER, PASIG CITY
PHILIPPINES 1605
TEL NO. +632 636-5411
FAX NO. +632 635-4632
WEBSITE: www.colfinancial.com

COL Financial Group, Inc. 7