Chenming Electronic Technology CorporationTWSE: 3013

2023 Annual Report

May 27, 2024 at 1:14 AM UTC · MarketScreener

Stock code：3013

Chenming Electronic Technology Corporation

2023

Annual Report

Published April 30, 2024

This annual report is also available on: http://mops.twse.com.tw/

http://www.uneec.com/

Spokesperson:
Name: Chuang Chia-Ying
Title: Assistant Vice President of Finance Division
TEL: (02)2797-3999
E-mail: Sophia_Chuang@tw.uneec.com Acting Spokesperson:
Name: Su Chung-Ching
Title: Manager, Finance Division
TEL: (02)2797-3999
E-mail: mitch_su@tw.uneec.com

Address and contact number of the headquarter, branches and factory sites Headquarter: 2F, No. 27, Section 6, Minquan East Road, Neihu District, Taipei City
(02)2797-3999
Factory: No. 18, Songjiang North Road, Zhongli District, Taoyuan City (03) 452-5599

Stock Transfer Agency:
Agency: Transfer Agency Department, CTBC Bank Co., Ltd.
Address: 5F., No. 83, Sec. 1, Chongqing S. Rd., Zhongzheng Dist., Taipei City 100, Taiwan (R.O.C.)
Tel: +886-2-6636-5566
Website: https://www.ctbcbank.com

IV. Auditors of the latest financial statements: Name of firm: KPMG

Name of CPA: Michelle Wang, Yvette Chien

Address: 68F, No. 7, Section 5, Xinyi Road, Xinyi District, Taipei City

TEL: (02)8101-6666 http://www.kpmg.com.tw

Name of overseas exchange where securities are listed, and method of inquiry: Not applicable Name of overseas exchange where securities are listed, and method of inquiry: Not applicable

VI. Company website:

http://www.uneec.com/

	Table of Contents
One.	Letter to Shareholders	1
I.	2023 business performance	1
II.	Summary of 2024 business plan	2
III.	Future development strategies	3
IV.	Impacts of the competitive environment, regulatory environment, and the overall
	business environment	4
Two.	Company Profile	6
I.	Date of establishment	6
II.	Company history	6
Three.	Corporate Governance Report	11
I.	Organization	11

Background information of directors, supervisors, President, Vice Presidents,

Assistant Vice Presidents, and heads of various departments and branches

Compensation paid to directors, supervisors, the President, and Vice Presidents in

	the most recent year	16
IV.	Corporate governance	24
V.	Disclosure of auditors' remuneration	91
VI.	Change of auditor	91
VII.	Disclosure of any of the company's Chairman, President, or managers responsible
	for financial or accounting affairs being employed by the auditor's firm or any of
	its affiliated company in the last year, including their names, job titles, and the
	periods during which they were employed by the auditor's firm or any of its
	affiliated company. An affiliated company refers to one that the auditor's
	accounting firms hold more than 50% ownership or more than 50% directorship,
	or any company or institution that the accounting firm has publicly referred to as
	being affiliated	92
VIII.	Details of shares transferred or pledged by directors, supervisors, managers and
	shareholders with more than 10% ownership interest in the last year, up till the
	publication date of this annual report	92
IX.	Relationships characterized as spouse or second degree relative or closer among
	top-ten shareholders	93

Investments jointly held by the Company, the Company's directors, supervisors, managers, and enterprises directly or indirectly controlled by the Company, and

shareholding in aggregate of the above parties	94
Four. Funding Status	95

Capital and shares (in the last year and up until the publication date of annual

report)

Corporate bonds (including offshore corporate bonds), preferred shares, overseas

	depository receipts, employee stock options, restricted employee shares, and
	merger/acquisition/divestment or exchange of shares	101
III.	Progress on planned use of fund	103
Five.	Business Overview	104
I.	Operations:	104
II.	Market and sales overview	107

Employee size, average years of service, average age, and academic background

	in the last 2 years up till the publication date of this annual report	112
IV.	Contribution to environmental protection	113
V.	Labor-management relations	113

VI.	Cybersecurity management	115
VII. Major contracts	116
Six.	Financial Summary	118

Summary balance sheet and statement of comprehensive income for the last 5

	years	118
II.	Financial analysis for the last 5 years	122
III.	Audit Committee's report on the review of the latest financial statements	125
IV.	Latest financial statements and independent auditor's report	126
V.	Latest audited standalone financial statements	188
VI.	Any financial distress experienced by the company or its affiliated enterprise and
	impacts on the company's financial status in the last year up till the publication
	date of this annual report	246
Seven. Review and Analysis of Financial Position and Business Performance, and Risk
	Management Issues	247
I.	Financial position	247
II.	Business performance	248
III.	Cash flow	249
IV.	Material capital expenditures in the last year and impact on
	business performance	249

Causes of profits or losses incurred on investments in the last year, and any

	improvements or investments planned for the next year:	249
VI.	Evaluation of risk management issues in the last year up till the publish date of
	this annual report	250
VII.	Other important matters	255
Eight. Special Remarks	256
I.	Information of affiliated companies	256

Private placement of securities in the last year up until the publication date of

annual report

259

Holding or disposal of the Company's shares by subsidiaries in the last financial

year, up until the publication date of annual report	259
IV. Other supplementary information	259
Nine. Occurrences Significant to Shareholders' Equity or Securities Price, as Defined
in Subparagraph 2, Paragraph 3, Article 36 of the Securities and Exchange Act,
in the Last Year Up Until the Publication Date of Annual Report	259

One. Letter to Shareholders

Ladies and gentlemen:

We express our deepest gratitude for shareholders' support to the management in the past year. Recalling 2023, due to the violent lift rate by the United States and the slowdown in demand, the global GDP growth became sluggish. Notwithstanding, driven by the AI industry, the server industry became booming and thereby led the related industry's supply chain to move toward new opportunities. Today we are gathering together in the first year when AI starts to take off. Benefiting from the AI development, the Company's layout and technology have a new outlook again. The Company invested in establishment of Zhongli Plant in Taiwan established in 2021, which has started operation this year. Further, the Company also increased investment in the construction of the Thailand plant, which is expected to be put into operation in 2025. It will inject new momentum into the Group and make substantial to the operating revenue. In terms of new product technology, the Company has not only entered the fields of heat dissipation and power supplies to meet customer needs, but also in line with the customer's timeliness in the development of water-cooling and submersible liquid-cooling solutions for servers. It is believed that the rising demand for AI servers should remain a bright spot next year. In the future, Chenming will continue observing market trends while adopting automated production and smart process management solutions to further improve production efficiency, product quality, and overall competitiveness. In light of emerging trends such as AI, 5G, IoT, and cloud-based services, Chenming will be undergoing aggressive digital transformation as a means to increase revenues, asset size, and profits in shareholders' favor.

2023 business performance:
1. Financial performance

1. Business results

The 2023 consolidated operating revenue, net was NT$6,461,562 thousand. The 2023 net profit was NT$253,144 thousand, with EPS of NT$1.29, growing by 10.26% from that of NT$1.17 in the previous year. The Company will uphold the ethical management policy to expand its business actively and ensure the ongoing business growth in the intensive industrial competition.

2. Budget implementation: The Company did not publish any financial forecast for 2023.

3. Incomes, expenses, and profitability analysis

Item		2023	2022
Return on assets		3.80%	3.33%
Return on shareholders' equity	8.07	8.37
As a percentage of paid-in	Operating
profit	11.62%	6.54%
capital (%)
Pre-tax profit	14.91%	13.89%

Net profit margin		3.92%	3.38%
EPS		1.29	1.17

Research and development progress
1. Complete the new ID design and moldmaking for Gaming PC.
2. Complete CLONE 2U Server moldmaking.
3. Complete the design of DC-MHS 2U Server.
4. Complete the development of 4U standardized immersion cooling equipment.
5. Complete the development of 7&7.5KW immersion cooling

air-cooling coolant circulation system.

1. Complete phased development of HAP (hydroxyapatite; an artificial bone material).
2. Complete immersion cooling and self-developed heat transfer and heat dissipation testing and verification.
Summary of 2024 business plan:
1. Operational guidelines
2. 1. Manufacturing
    The Company will continue increasing the weight of automated production while introducing automation modules, advanced manufacturing technologies, Industry 4.0, and smart production solutions for greater efficiency. Additional investments will be made at appropriate timing to expand current facilities and incorporate new and enhanced processes for higher production yield.
  2. Products
    D. Continue to promote AI server related products, provide solutions for water cooling and immersion liquid cooling, and continue to increase the involvement in development of computer peripheral devices and server chassis customer services to win new orders.
  3. Management
    The Company will be adopting a total quality management approach that emphasizes on improving operational performance through enhanced organization and personnel allocation, and maintaining consistent growth in business and profitability through reduced production cost and improved cost structure.
  4. Market development
    In response to the upcoming age of IoT, AI and 5G, the Company will continue promoting the use of existing products to create market

demand, while developing AI server-related products proactively and provide solutions for water cooling and immersion liquid cooling to satisfy customers' demand.

Research and development plans
1. Development of 2U MGX Server design.
2. Continued development of standardized immersion cooling equipment.
3. Development of liquid-coolingcabinets/energy-saving cabinets.
4. Development of EV chargers/energy storage systems/outdoor units etc.
5. Development of new 4U standard product server.
6. Continued development of testing, validation, and cooling solutions for various heat transfer and heat dissipation methods.

Expected sales volume and basis
While demand for consumer electronics declined, the server segment has

been presented with new opportunities from changes in lifestyle (e.g. work-from-home and learn-from-home), new trends (e.g. cloud computing, Internet of Things, metaverse, and AI), and a general movement towards digital transformation in the business world. As people rely on cloud service for more of their activities, demand for cloud computing surges and the increase in server implementation should continue to drive server sales in 2024. According to the Market Intelligence & Consulting Institute (MIC), the generative AI boom continues to drive the growth of the global AI server shipment. The global AI server shipment is expected to attain 1.942 million units in 2024, 2.364 units in 2025, and 3.206 units in 2027. The compound annual growth rate (CAGR) is 24.7% from 2022 to 2027. It is expected that the generative AI boom continues to drive the growth of the global AI server shipment and also the global server industry and market demand. It is meaningless to predict sales volume of metal parts as specifications, materials, and production methods vary for each product. Nevertheless, the Company will strive to achieve growth at above-industry rate.

III. Future development strategies

Chenming will continue improving competitiveness and exploring market opportunities in fields such as smart innovation, technological application, industrial evolution, cloud computing, and AI. By making ongoing improvements to R&D, technology, quality, and design capacity, the Company aims to diversify its product lines and maintain the level of competitiveness needed to overcome competition in the future. Chenming will continue building on top of its advantage in cloud servers while at the same time adopt Industry 4.0 smart production, acquire automated equipment, and establish physical and virtual platforms so as to maintain a highly efficient logistic and management system that enables rapid service delivery

and cost reduction. By transitioning into smart production and a technology-oriented business model, the Company hopes to secure the foundation for sustainable growth.

IV. Impacts of the competitive environment, regulatory environment, and the overall business environment

(I) The external competitive environment:

The Company's main products refer to the server chassis and computer chassis. The vigorous development of the server industry is driven by the AI industry, and so is the new opportunities that drive the related industry supply chain to move forward. The Company seizes the market trend and continues to implement automated production and intelligent process management to improve production efficiency and product quality. Internally, Chenming is committed to innovation, R&D, provision of solutions for water cooling and immersion liquid cooling, cost reduction and cost structure optimization, implements application of new materials and process enhancement. Externally, the Company takes the initiative to raise product visibility, explore new customers, and increase in the involvement in development of existing customers to create differentiated competitive advantages.

(II) The regulatory environment:

The Company has complied with regulatory requirements and will be introducing supporting measures and policies such as: independent director system, corporate social responsibility policy, directors liability insurance, manager on-job training etc. to enhance corporate governance.

(III) The overall business environment:

Given the world-wide adoption of new technologies such as smart manufacturing, smart factory, IoT, AI, big data, cloud computing, cybersecurity, and 5G, production and sale of consumer electronic parts and IT products still exhibit immense potentials in the future. The Company will keep aiming at intelligence, innovation, technological application, industrial evolution and cloud computing to upgrade its competitiveness and control the market opportunity.

Due to the violent lift rate in the USA and sluggish demand, the global GDP growth slowed down accordingly. Notwithstanding, the Company's management team still responded quickly with initiative, and

acted cautiously and responsibly to every change. In addition to optimizing cost structure, we also work with current business partners in good faith in a mutually beneficial manner, take pro-active approach towards exploring new customers, and strive to achieve profit growth through competitive advantage and innovative capabilities. We have been refining our management practices to ensure the sustainability and consistency of chenming's business growth. By making ongoing improvements to R&D, technology, quality, and design capacity, the Company not only satisfies the market's demand for product diversity, but also prepares itself with the solid foundation needed to withstand intensifying competition of the industry in the future. Meanwhile, the Company responds to shareholders' support and expectations by directing attention towards corporate governance, social responsibilities, and equity enhancement.

Lastly, on behalf of all employees, I would like to extend my most sincere gratitude to all our shareholders, and look forward to the outstanding performance from the management team.

Chairman: Lin Mu-Ho

Two. Company Profile

Date of establishment: June 17, 1976 II. Company history:

1976	Founded in June 1976 with the name "Chenming Industrial Co., Ltd." and a
	paid-in capital of NT$600,000. It specialized in the manufacturing and sale
	of stamped molds.
1983	Relocated to its Xizhi site and made a cash issue totaling NT$4.4 million in
	June to purchase more advanced and higher precision machinery. The cash
	issue increased share capital to NT$5 million.
1985	Purchased production equipment for computer chassis, and officially
	commenced the production of computer chassis.
1987	Made a cash issue totaling NT$30 million in May to purchase additional
	equipment and improve financial position. The cash issue increased share
	capital to NT$35 million.
1991	Relocated to Dawulun Industrial Park in Keelung City, where the Company
	continued its production of computer chassis and launched service to
	OEM/ODM customers.
1994	Officially became a qualified supplier of computer chassis for IBM.
1997	1. Made a cash issue totaling NT$60 million in November to expand working
	capital. The cash issue increased share capital to NT$95 million.
	2. Passed ISO9001 certification.
1998	1. New shares were issued in November through capitalization of earnings
	and capital reserve. Share capital was increased to NT$190 million as a
	result.
	2. Ranked 485th (by China Credit Information Service Ltd) among the top
	500 private manufacturers.
	3. Officially became a qualified supplier for HP and Acer.
1999	1. Acquired office building at Neihu Industrial Park, Taipei, and established
	Taipei Office as an R&D and operations headquarter.

2. New shares were issued in July through capitalization of earnings and capital reserve totaling NT$152 million, followed by the initial public offering. Share capital was increased to NT$342 million as a result.

3. Officially became a qualified supplier of notebook barebone systems for Quanta Computer.

4. Ranked 263rd in CommonWealth Magazine's "Top-1000 Companies in Taiwan."

5. Received "Outstanding Contribution Award" from HP, "Outstanding Supplier" from First International Computer, and "Best Business Partner

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