Taiwan Executive Forum:Key takeaways

Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it. Issuer of report: HSBC Securities (Taiwan) Corporation Limited View HSBC Global Research at: https://www.research.hsbc.com   HSBC hosted its fourth Taiwan Executive Forum in Taipei  22 listed companies attended the forum to discuss the fundamental outlook for businesses and the tech industry  We have Buy ratings on Catcher, Epistar, Radiant, FocalTech, King Slide, Vanguard, FPCC, and Yeong Guan Semiconductor and LCD/LED: Vanguard is looking to allocate more capacity to power management and sensors over the next few years to help support its margins. Chroma expects its 2016 revenue growth to return to 2014 levels, driven by system-level test (SLT) and by customers such as HiSilicon and Spreadtrum. FocalTech has turned more positive on its long-term business outlook given its more diversified product portfolio. The company identified integrated driver controller (IDC) as the key growth driver in 2H16e, followed by fingerprint solution. Epistar is undergoing a transformation and expects high-value-add or high-margin products to make up 40-50% of revenue in the next 2-3 years, up from 20-25% now. ODM and components: Catcher expects sales momentum to pick up in 2H16e, with a gross margin sustainable at its historical average level in 2016e. Management believes weaker-than-expected iPhone demand is just a short-term issue and remains positive on end demand of Apple’s new products. Chicony expects 2016e to be a good year, with balanced revenue growth across major product lines versus last year and growth from image products being the key driver. King Slide believes that the furniture business is its long-term growth driver and that the company can launch its first European-standard product in 2016. Non-tech: China Steel believes steel capacity closures in China are positive for sentiment but will have a limited impact on fundamentals in the near term. FPCC expects strong refining margins and olefin spreads to continue in 2016e. Yeong Guan is expanding its wind turbine production capacity in Taiwan and China, which will lead to a changing product mix that could boost margins. Makalot thinks the sector’s inventory issue is already behind it, and the company is expanding its capacity in Southeast Asia as well as its sales of sportswear, though margins may be under pressure before new plants are ramped up. Buy rated companies: Within the tech space, we have a Buy rating on Catcher, Epistar, Radiant, FocalTech, King Slide, and Vanguard. Within non-tech, we have a Buy rating on FPCC and Yeong Guan Group. 22 March 2016 John Chung* Head of Research, Taiwan HSBC Securities (Taiwan) Corporation Limited john.chung@hsbc.com.tw +8862 6631 2868 Steven C Pelayo, CFA Head of Technology Research, Asia Pacific The Hongkong and Shanghai Banking Corporation Limitedstevenpelayo@hsbc.com.hk +852 2822 4391 Carrie Liu* Analyst HSBC Securities (Taiwan) Corporation Limited carriecfliu@hsbc.com.tw +8862 6631 2864 Jerry Tsai* Analyst HSBC Securities (Taiwan) Corporation Limited jerrycytsai@hsbc.com.tw +8862 6631 2863 Yolanda Wang* Analyst HSBC Securities (Taiwan) Corporation Limited yolandayywang@hsbc.com.tw +8862 6631 2867 Jenny Lai*, CFA Analyst HSBC Securities (Taiwan) Corporation Limited jennylai@hsbc.com.tw +8862 6631 2860 Chloe Wu* Analyst HSBC Securities (Taiwan) Corporation Limited chloe.c.wu@hsbc.com.tw +8862 6631 2866 Jeff Yuan* Analyst The Hongkong and Shanghai Banking Corporation Limitedjeffsyuan@hsbc.com.hk +852 3941 7010 Joyce Chen* Associate HSBC Securities (Taiwan) Corporation Limited joycechchen@hsbc.com.tw +8862 6631 2862 David Huang* Associate HSBC Securities (Taiwan) Corporation Limited david.s.huang@hsbc.com.tw +8862 6631 2865 *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations Taiwan Executive Forum EQUITIES TAIWAN Key takeaways abc EQUITIES  TAIWAN 22 March 2016 2 Summary of 2016 HSBC Taiwan Executive Forum Technology companies (1) Semiconductor: Chroma, Vanguard, FocalTech, Sporton Chroma ATE believes its Turnkey Solutions sales (12% of 2015 revenue) can more than triple in 2016. Battery cells will account for most of the sales in the turnkey solutions business due to the Chinese government’s policy support for domestic battery production. The Semiconductor Test segment declined 30% y-o-y in 2015 as customer consolidation reduced demand for system-level test (SLT). Looking to 2016, management expects revenue growth to return to 2014 levels, driven by SLT and customers such as HiSilicon and Spreadtrum. Vanguard is looking to allocate more capacity to power management and sensors over the next few years. This is notable from a positive mix shift perspective, as power management integrated circuits have the highest margins, while small-size ICs have