SWOT Analysis for TECH and IMI

The status of technology firms in the country were analyzed, based on market data,
regulations and promotion policies, sample cases of ripple effects on export and other
industries presented. The analysis results were presented below in the form of SWOT
analysis.

Through the SWOT analysis, strengths and weaknesses of content industry (internal
environmental analysis) and opportunities and threats for content industry (external
environmental analysis) were extracted. The viewpoints after the extraction were presented
below. Parameters related to the below viewpoints would turn to be Strength/Weakness or
Opportunities/Threats on the SWOT analysis.

Macroeconomic updates
Nikkei PMI show PH is still in expansion mode (although slowing down)

The Nikkei Philippines Manufacturing Purchasing Managers' Index, or PMI, slowed to 52.8 in
July from 53.9 in June. A reading above 50 indicates economic expansion, while a reading
below 50 points toward contraction.

Latest data showed that, while growth in output and new orders remained solid, both slowed
down on a month-to-month. Still, business optimism remained elevated, suggesting that
companies expect the pullback in business activity to be transient.

Factory orders grew at the slower rate in 6 months, albeit one that was still strong overall.
Latest employment growth was the lowest since August and below the annual average.

The main source of growth in the manufacturing sector was the domestic market, as
infrastructure spending under the public-private scheme supported demand for manufactured
goods. Stepped-up fiscal spending in the third quarter should therefore filter through and
provide further support to the manufacturing sector in coming quarters.
Company Updates

Cirtek Holdings acquire US-based Quintel

A definitive agreement has been signed between Cirtek and Trillium International I, GP, as
shareholder representative of Quintel Cayman Ltd. for the former to acquire 100% percent of
Quintel.

Quintel manufactures mobile antenna that are placed on mobile phones. The company was
purchased for $77mn for a 100% stake on the company. The valuation of $77mn was based
on the discounted cash flow and multiples derived from comparative deals. The deal was
priced at 6-7x projected 2017E EBITDA. Apart from this, TECH will be injecting around $30mn
in capex to boost Quintels working capital and increase production capacity.

Management said that they expect the sale to give around $20mn in the remaining 5 months
of 2017. This transaction is not yet accounted for and accretive to TECHs 2Q books. Apart
from this they also expect the acquired unit to generate around $100mn in revenues for 2018.

IMI bottom line now up 14% for 2Q

From registering flattish growth from last year, IMI now jumped up and registered a bottom line
increase of 14%.

With management now seeing acceleration in growth from new businesses, they are
projecting around $475mn won businesses as they expand capabilities in their selected
industries.

Combined revenue in EU and Mexico stood at $171.5mn, 12% y/y while China still dropped
2% to $127.5mn. This is attributable to the slower than expected rollout of the 5G technology.
Local operations went up 2% (Laguna plant) to $119.5mn.

When asked about their market share price, management said that their computations are at
around 16.9x P/E (in line with our estimates) as the market already appreciates the company
compared to last year's single digit P/E.

The 2Q performance of IMI is slightly below our expectations, almost in line. Although 1H
yielded double-digit growth, our computations only saw 3.4% increase in bottom line. The
stronger 1H is attributable to the bottom line of 1Q which registered 35.9% increase y/y.
TECH vs. IMI Comparative

Leverage vs. Profitability

Financial Performance

35%
2016
30%
I 2018E
Return on Equity

25% 2017E

20% 2014 IV
2013
15% 2017/18
10% 2015 2014/15
2016 III
TECH
2013
5%
II IMI
0%
- 1.0 2.0 3.0 4.0 5.0
Asset to Equity

Compared before, IMI has undertaken more debt in order to finance its foreign
acquisitions, especially those companies which are located in Europe. Despite the
leveraging scheme, we consider it below index standards and can still be considered
within range.
Companys ROE has been consistent historically. With the average 3-year ROE of the
index continuing to decline, IMI can still be considered to have a high rate of return.
TECH on the other hand has undertaken more debt to expand its current operations,
especially the expansion of their latest unit CATS. By the looks of it they do not intend to
undertake additional debt in the meantime hence A/E ratios are seen to decline moving
forward.
With the current set up of TECH, we can safely say that it is a high return investment with
lower leverage- based risk.

Legend:
I - Higher IV - Higher
Returns, Lower Returns, Higher
Financial Risk Financial Risk

II - Lower
III - Lower
Returns, Lower
Returns, Higher
Financial Risk
Financial Risk
Perception vs. Profitability

Valuation Isoquants
40%

35%
I 2016
IV
30%
Return on Equity

TECH 2018E
25% 2017E
IMI
20%
2018E
15% 2014/2016
2013/2014
2017E 2015
10%

5% 2013 II III
0%
- 5 10 15 20 25 30 35 40
Price to Earnings

For the past 3 full years, the companys P/E has been consistent on account of some
issues on trading volatility. However when the market saw the benefits of the companys
expansion efforts, prices also reacted accordingly.
Moving forward prospects of the company indicate that current price of the company is
trading at a discount although historical prices at a lower price can only be considered as
fairly valued.
TECH on the other hand is expected to have a lower P/E due to the expected contribution
of the latest acquisition Quintel to company earnings. RCDC made a more conservative
assumption in representing management guidance. Management said that they expect
additional $20mn in topline and $100mn in bottom line for 2018E. Despite this, we see
prices of both IMI and TECH to be traded at a slight discount.

Legend:

IV Fairly
I Undervalued valued

II Fairly valued III

Overpriced
 TECH SWOT ANALYSIS

INTERNAL FACTORS

STRENGTHS (+) WEAKNESSES ()

1 Positive working capital 1 Trading volume currently still thin despite market capitalization (although improving compared historically)

2 Profit margins historically above average despite being a manufacturing firm 2 Company highly leveraged compared to peers
3 Quintel acquisition to contribute to company topline 3 Not much dividend yield compared to peeres
4 Constant efficiency as shown by its profit margins and asset turnovers 4

5 Additional capacity of the Laguna plant 5

EXTERNAL FACTORS

OPPORTUNITIES (+) THREATS ()

1 Quintel's accretive contribution to the company moving forward (exp. Additional $100mn by 2018) 1 Higher interest rates due to expected strengthening of the dollar
2 The technology industry as a whole is constantly developing 2 Internet of Things technology still underexplored - facing engineering and design challenges

3 higher demand for appliances equipped with the Internet of Things Technology 3
4 Global semiconductor sales expected to grow at a CAGR of 7.2% 4
5 Cheaper skilled manpower more apparent compared to other regions 5
 IMI SWOT ANALYSIS

INTERNAL FACTORS

STRENGTHS (+) WEAKNESSES ()

1 One of the top EMS providers in the country, now 6th in the world 1 Industry is highly competitive and is dominated by multinational corporations

2 Projected dividend yields increasing 2 Plant slowown in China due to obsolensence of previous mobile phone technology

3 ROE is seen to increase due to additional top line 3

4 Key manufacturing sites are positioned across borders, hence market presence boosted. 4

5 Market appreciation on the stock now increasing 5

EXTERNAL FACTORS

OPPORTUNITIES (+) THREATS ()

1 Synergies due to its incorporation with AC Industrials 1 Slower than expected take up in car parts sales due to slower growth in PH car industry
2 Accretive contribution of its acquisitions like VIA optronics and STI enterprises 2 Foreign denominated debt might be affected due to stronger US dollar
3 Serbia grants IMI an income tax holiday to support investments on production of electornic goods 3 Slower than expected rollout of 5G technology in China
4 Demand will always be present due to growing population and increasing per capita income 4

5 Growing mobile phone penetration rate, building cellsites to cater demand 5