Weikeng Industrial : 2023 Q4 Consolidated Financial Statement

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Stock Code:3033

WEIKENG INDUSTRIAL CO., LTD. AND

SUBSIDIARIES

Consolidated Financial Statements

With Independent Auditors' Report

For the Years Ended December 31, 2023 and 2022

Address:	11F., No.308, Sec.1, Neihu Rd., Neihu Dist., Taipei City
Telephone:	[phone]

The independent auditors' report and the accompanying consolidated financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of the English and Chinese language independent auditors' report and consolidated financial statements, the Chinese version shall prevail.

2

Table of contents

		Contents		Page
1.	Cover Page	1
2.	Table of Contents	2
3.	Representation Letter	3
4.	Independent Auditors' Report	4
5.	Consolidated Balance Sheets	5
6.	Consolidated Statement of Comprehensive Income	6
7.	Consolidated Statement of Changes in Equity	7
8.	Consolidated Statement of Cash Flows	8
9.	Notes to the Consolidated Financial Statements
	(1)	Company history	9
	(2)	Approval date and procedures of the consolidated financial statements	9
	(3)	New standards, amendments and interpretations adopted		9～10
	(4)	Summary of material accounting policies		10～26
	(5)	Significant accounting assumptions and judgments, and major sources	26
		of estimation uncertainty
	(6)	Explanation of significant accounts		27～59
	(7)	Related-party transactions		59～60
	(8)	Assets Pledged as security	60
	(9)	Significant commitments and contingencies	60
	(10)	Losses due to major disasters	60
	(11)	Subsequent events	60
	(12)	Other	61
	(13)	Other disclosures items
		(a) Information on significant transactions		61～64
		(b) Information on investees	65
		(c) Information on investment in Mainland China		65～66
		(d) Major shareholders	66
	(14)	Segment information	67

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Representation Letter

The entities that are required to be included in the combined financial statements of WEIKENG INDUSTRIAL CO., LTD. as of and for the year ended December 31, 2023 under the Criteria Governing the Preparation of Affiliation Reports, Consolidated Business Reports, and Consolidated Financial Statements of Affiliated Enterprises are the same as those included in the consolidated financial statements prepared in conformity with International Financial Reporting Standards No. 10, "Consolidated Financial Statements" endorsed by the Financial Supervisory Commission of the Republic of China. In addition, the information required to be disclosed in the combined financial statements is included in the consolidated financial statements. Consequently, WEIKENG INDUSTRIAL CO., LTD. and Subsidiaries do not prepare a separate set of combined financial statements.

Company name: WEIKENG INDUSTRIAL CO., LTD.

Chairman: Chiu-Chiang, Hu

Date: March 11, 2024.

4

Independent Auditors' Report

To the Board of Directors of Weikeng Industrial Co., Ltd.:

Opinion

We have audited the consolidated financial statements of Weikeng Industrial Co., Ltd. and its subsidiaries ("the Group"), which comprise the consolidated balance sheets as of December 31, 2023 and 2022, the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of material accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2023 and 2022, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and with the International Financial Reporting Standards ("IFRSs"), International Accounting Standards ("IASs"), Interpretations developed by the International Financial Reporting Interpretations Committee (" IFRIC" ) or the former Standing Interpretations Committee ("SIC") endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China.

Basis for Opinion

We conducted our audits in accordance with the Regulations Governing Financial Statement Audit and Attestation Engagements of Certified Public Accountants and Standards on Auditing of the Republic of China. Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis of our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The key audit matters we judged shall be presented in the auditors' report as follows:

1. Recognition of Operating Revenue

Please refer to note (4)(m) " Revenue recognition" for accounting policies with respect to recognizing revenue, and to note (6)(q) "Revenue from contracts with customers" for explanatory notes about revenue.

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Description of key audit matters:

Weikeng Industrial Co., Ltd. is a listed company. The Group is a distributor for the sale of electronic components and computer peripheral equipment. Operating revenue is one of the significant items in the consolidated financial statements, and the amounts and changes of operating revenue may affect the users' understanding of the entire financial statements. Therefore, the testing over revenue recognition is considered a key matter in our audits.

How the matter was addressed in our audits:

Our main audit procedures for the aforementioned key audit matters include testing the Group's controls surrounding revenue recognition in the order-to-cash transaction cycle, including reconciliations between the general ledger and sales system; performing the detailed test of relevant vouchers, as well as assessing whether the Group's timing on revenue recognition and the amounts recognized are in accordance with the related standards.

2. Valuation of Inventories

Please refer to note (4)(h) " Inventories" for accounting policies with respect to valuating inventories; note

1. "Valuation of inventories" for accounting estimates and uncertainties of affairs for inventory valuation, and to note (6)(f) "Inventories" for explanatory notes about inventories and related expenses.

Description of key audit matters:

The Group is a distributor for the sale of electronic components and computer peripheral equipment. Due to the horizontal competition in the industry and constant advancement of related technologies, the price of end electronic products are volatile, and thus, affects the price of electronic components and computer peripheral equipment. Therefore, the testing over the valuation of inventories is considered a key matter in our audits.

How the matter was addressed in our audits:

Our main audit procedures for the aforementioned key audit matters include testing the related controls over the cost operating cycle; evaluating whether the policies for setting aside allowance for inventory valuation and obsolescence losses are in accordance with the Group's policies and related standards; as well as implementing sampling procedures to check the correctness of the aging of the inventories. In addition, we also examined the inventory aging reports, understood the subsequent sales status of slow-moving inventories; and evaluated the adopted basis of the net realizable value to assess the reasonableness of the management's estimates of the allowance for inventory valuation.

Other Matter

Weikeng Industrial Co., Ltd. has prepared its parent-company-only financial statements as of and for the years ended December 31, 2023 and 2022, on which we have issued an unmodified opinion.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and with the IFRSs, IASs, IFRIC, SIC endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

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In preparing the consolidated financial statements, management is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance (including Audit Committee) are responsible for overseeing the Group' s financial reporting process.

Auditors' Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Standards on Auditing of the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with the Standards on Auditing of the Republic of China, we exercise professional judgment and professional skepticism throughout the audit. We also:

1. Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.
3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
4. Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions may cause the Group to cease to continue as a going concern.
5. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
6. Obtain sufficient and appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on this consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

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We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors' report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partners on the audit resulting in this independent auditors' report are Au, Yiu-Kwan and Kuo, Kuan-Ying.

KPMG

Taipei, Taiwan (Republic of China)

March 11, 2024

Notes to Readers

The accompanying consolidated financial statements are intended only to present the consolidated financial position, financial performance and cash flows in accordance with the accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China.

The independent auditors' audit report and the accompanying consolidated financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of the English and Chinese language independent auditors' audit report and consolidated financial statements, the Chinese version shall prevail.

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(English Translation of Consolidated Financial Statements Originally Issued in Chinese.)

WEIKENG INDUSTRIAL CO., LTD. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2023 and 2022

(expressed in thousands of New Taiwan Dollars)

			December 31, 2023	December 31, 2022
	Assets		Amount	%		Amount	%
	Current assets:
1100	Cash and cash equivalents (note (6)(a))	$	2,410,732		6		2,839,507		9
1110	Current financial assets at fair value through profit or loss (note (6)(b))		850		-		644		-
1170	Notes and accounts receivable, net (notes (6)(d) and (7))		13,586,966		35		12,844,427		39
1200	Other receivables (note (6)(d))		387,353		1		366,331		1
1300	Inventories, net (note (6)(e))		20,516,999		53		16,266,457		49
1470	Prepayments and other current assets		960,531		3		142,755		-
			37,863,431		98		32,460,121		98
	Non-current assets:
1517	Non-current financial assets at fair value through other comprehensive
	income (note (6)(c))		77,285		-		81,089		-
1600	Property, plant and equipment (note (6)(f))		146,748		-		129,766		-
1755	Right-of-use assets (note (6)(g))		286,220		1		284,249		1
1780	Intangible assets		6,597		-		10,602		-
1840	Deferred tax assets (note (6)(n))		190,007		1		196,650		1
1900	Other non-current assets		76,012		-		78,376		-
			782,869		2		780,732		2

Total assets	$	38,646,300 100	33,240,853 100

	Liabilities and Equity		December 31, 2023	December 31, 2022
		Amount	%			Amount	%
	Current liabilities:
2100	Short-term borrowings (note (6)(h))	$	14,702,073		38		14,647,898		44
2120	Current financial liabilities at fair value through profit or loss (note (6)(b))		-		-		784		-
2130	Current contract liabilities (note (6)(q))		1,053,924		3		898,765		3
2170	Accounts payable		9,592,848		25		3,560,734		11
2200	Other payables (notes (6)(i) and (7))		846,652		2		1,046,936		3
2230	Current tax liabilities		196,256		1		333,254		1
2280	Current lease liabilities (note (6)(k))		140,303		-		121,746		-
2300	Other current liabilities		481,545			1			423,496			1
			27,013,601		70		21,033,613		63
	Non-current liabilities:
2500	Non-current financial liabilities at fair value through profit or loss (note
	(6)(b))		14,144		-		31,173		-
2530	Bonds payable (note (6)(j))		1,768,116		5		1,870,309		5
2570	Deferred tax liabilities (note (6)(n))		857,291		2		874,328		3
2580	Non-current lease liabilities (note (6)(k))		156,868		-		171,675		1
2640	Non-current net defined benefit liabilities		69,867		-		79,956		-
2670	Other non-current liabilities		193			-			181			-
			2,866,479			7			3,027,622			9
	Total liabilities		29,880,080		77		24,061,235		72
	Equity (note (6)(o)):
3100	Common shares		4,280,715			11			4,235,432			13
3200	Capital surplus		1,526,125		4		1,440,646		4
	Retained earnings:
3310	Legal reserve		1,304,638		4		1,132,248		4
3320	Special reserve		-		-		454,583		1
3350	Unappropriated earnings		1,667,096			4			1,908,636			6
			2,971,734		8		3,495,467		11
	Other equity interest:
3410	Exchange differences on translation of foreign financial statements		79,453		-		89,420		-
3420	Unrealized gains (losses) from financial assets measured at fair value
	through other comprehensive income		(91,807)	-		(81,347)	-
			(12,354)	-		8,073		-
	Total equity		8,766,220			23			9,179,618			28
	Total liabilities and equity	$	38,646,300		100		33,240,853		100

See accompanying notes to consolidated financial statements.

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(English Translation of Consolidated Financial Statements Originally Issued in Chinese.)

WEIKENG INDUSTRIAL CO., LTD. AND SUBSIDIARIES

Consolidated Statement of Comprehensive Income

For the years ended December 31, 2023 and 2022

(expressed in thousands of New Taiwan Dollars, except for earnings per share)

			2023				2022
			Amount	%		Amount	%
4100	Net sales revenue (note (6)(q))	$	70,892,413		100		70,281,179		100
5000	Cost of sales (note (6)(e))		66,401,232		94		64,791,186		92
	Gross profit		4,491,181		6		5,489,993		8
	Operating expenses (notes (6)(k), (6)(m), (7) and (12)):
6100	Selling expenses		2,039,128		3		2,128,553		3
6200	Administrative expenses		556,835		1		632,975		1
6450	Expected credit losses (note (6)(d))		49,367		-		282		-
			2,645,330		4		2,761,810		4
	Net operating income		1,845,851		2		2,728,183		4
	Non-operating income and expenses:
7100	Interest income		25,685		-		7,098		-
7010	Other income (notes (6)(l) and (7))		30,791		-		36,594		-
7230	Foreign currency exchange (losses) gains, net (note (6)(s))		66,794		-		14,526		-
7235	Gains (losses) on financial assets (liabilities) at fair value through profit or loss, net (note (6)(j))		15,868		-		(6,783)	-
7050	Finance costs (notes (6)(j) and (6)(k))		(937,320)	(1)	(448,796)	(1)
7590	Miscellaneous disbursements		(333)	-		(668)	-
			(798,515)	(1)	(398,029)	(1)
7900	Profit before tax		1,047,336		1		2,330,154		3
7950	Income tax expenses (note (6)(n))		260,569		-		631,020		1
8200	Profit		786,767		1		1,699,134		2
	Other comprehensive income:
8310	Items that will not be reclassified to profit or loss
8311	Changes on remeasurements of defined benefit plans (note (6)(m))		3,110		-		30,954		-
8316	Unrealized gains (losses) from investments in equity instruments measured at fair value through other
	comprehensive income		(10,460)	-		(169)	-
8349	Less: Income tax related to items that will not be reclassified to profit or loss (note (6)(n))		622		-		6,191		-
			(7,972)	-		24,594		-
8360	Items that may be reclassified to profit or loss
8361	Exchange differences on translation of foreign financial statements		(12,460)	-		578,532		1
8399	Less: Income tax related to items that will be reclassified to profit or loss (note (6)(n))		(2,493)	-		115,707		-
			(9,967)	-		462,825		1
	Other comprehensive income
		(17,939)	-		487,419		1
8500	Comprehensive income	$	768,828		1		2,186,553		3
	Earnings per ordinary share (expressed in New Taiwan dollars) (note (6)(p))
9750	Basic earnings per share	$			1.85				4.03
9850	Diluted earnings per share	$
		1.61				3.67

See accompanying notes to consolidated financial statements.

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(English Translation of Consolidated Financial Statements Originally Issued in Chinese.)

WEIKENG INDUSTRIAL CO., LTD. AND SUBSIDIARIES

Consolidated Statement of Changes in Equity For the years ended December 31, 2023 and 2022 (expressed in thousands of New Taiwan Dollars)

																						Other equity interest
																										Unrealized gains
																										(losses) from
																										financial assets
																						Exchange		measured at
											Retained earnings			differences on		fair value
													translation of		through other
		Common			Capital			Legal			Special	Unappropriated				foreign financial		comprehensive		Total
Balance at January 1, 2022		stock			surplus			reserve			reserve		earnings			statements		income		equity
$	4,159,342		1,275,927				960,709		365,705			1,715,388				(373,405)		(81,178)		8,022,488
Appropriation and distribution of retained earnings:
Legal reserve appropriated		-	-			171,539	-			(171,539)	-			-			-
Special reserve appropriated		-	-			-	88,878			(88,878)	-			-			-
Cash dividends		-		-				-		-				(1,270,232)	-			-			(1,270,232)
		-		-				171,539		88,878				(1,530,649)	-			-			(1,270,232)
Profit for the year ended December 31, 2022		-		-				-		-				1,699,134				-				-				1,699,134
Other comprehensive income for the year ended December 31, 2022		-		-				-		-				24,763				462,825				(169)	487,419
Total comprehensive income for the year ended December 31, 2022		-		-				-		-				1,723,897				462,825				(169)	2,186,553
Issuance of convertible bonds		-		114,313				-		-				-				-				-				114,313
Conversion of convertible bonds		76,090		50,458				-		-				-				-				-				126,548
Others		-		(52)	-	-			-			-			-			(52)
Balance at December 31, 2022
	4,235,432		1,440,646				1,132,248		454,583				1,908,636				89,420				(81,347)	9,179,618
Appropriation and distribution of retained earnings:
Legal reserve appropriated		-	-			172,390	-			(172,390)	-			-			-
Cash dividends		-	-			-	-			(1,312,988)	-			-			(1,312,988)
Reversal of special reserve		-		-				-		(454,583)	454,583			-			-			-
		-		-				172,390		(454,583)	(1,030,795)	-			-			(1,312,988)
Profit for the year ended December 31, 2023		-		-				-		-				786,767				-				-				786,767
Other comprehensive income for the year ended December 31, 2023		-		-				-		-				2,488				(9,967)	(10,460)	(17,939)
Total comprehensive income for the year ended December 31, 2023		-		-				-		-				789,255				(9,967)	(10,460)	768,828
Conversion of convertible bonds		45,283		85,479				-		-				-				-				-				130,762
Balance at December 31, 2023	$	4,280,715	1,526,125			1,304,638	-			1,667,096			79,453			(91,807)	8,766,220

See accompanying notes to consolidated financial statements.