Hollysys Automation Technologies : HOLI Presentation FY2020Q1

Automation for Better Life

Hollysys Automation Technologies Ltd.

Investors Presentation

FY2020Q1

Safe Harbor

This presentation may contain forward-looking statements within the meaning of the private securities litigation reform act of 1995. Forward looking statements are statements that are not historical facts. Such forward-looking statements, based upon the current beliefs and expectations of Hollysys' management, are subject to risks and uncertainties, which could cause actual results to differ from the forward looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: business conditions in China; continued compliance with government regulations; legislation or regulatory environments, requirements or changes adversely affecting the businesses in which Hollysys is engaged; cessation or changes in government incentive programs: potential trade barriers affecting international expansion; fluctuations in customer demand; management of transitions to new markets; intensity of competition from or introduction of new and superior products by other providers of automation and control system technology; timing, approval and market acceptance of new product introductions; as well as other relevant risks detailed in Hollysys' filings with the securities and exchange commission. The information set forth herein should be read in light of such risks. Hollysys does not assume any obligation to update the information contained in this presentation or filings.

* All $ amounts in this presentation are in USD unless otherwise noted.

Page 2

Corporation Overview

Market Data

History

Operation

Offerings

Headcounts

• NASDAQ: HOLI
• Approximately 60MM shares outstanding
• Founded in 1993
• The leading provider of automation & control technologies in China
• Headquartered in Beijing
• Nationwide presence in 60 cities
• Worldwide subsidiaries and offices in Singapore, Dubai, Malaysia, India, etc.
• Proprietary technologies and products tailored to Industrial, Rail, Subway and Nuclear Industries
• 3,300 employees worldwide
• 1,900+ in R&D & Engineering

Page 3

Note: Headcounts data as of June 30, 2019

Agenda

1. Business Overview
2. Industrial Automation
3. Rail Transportation
4. Overseas
5. Management & Market Leadership Position
6. Financials

Page 4

Business Overview

Revenue Contribution For FY2020Q1

11.40%

52.50%

36.20%

Industrial Automation

Rail Transportation

M&E Solution

Page 5

Industrial Automation:

• Intelligent plant automation solution;
• DCS, PLC, MC, SCADA, MES and etc.

Rail Transportation:

• High-speedrail signaling system: ATP, TCC, and etc.
• Subway SCADA and CBTC

Mechanical & Electrical Solution and others:

• Design, electrification and engineering service
• Other businesses

Industrial Automation Growth Drivers

Production

Efficiency

Safety	Accelerated Automation and	Environment
Concern	Control Technologies Demand	Protection

Energy

Conservation

Page 6

Industrial Automation - Process Control

Plant Automation Solution

• Offering:

Proprietary technologies in solution, design, manufacture, Integration and installation.

• Products:

DCS, Batch, MES (Manufacturing Execution System), AMS (Asset Management System), SIS (Safety Instrumentation System), etc.

• Track record:

More than 25,000 projects completed.

• Clients:

15,000+ customers, including SOEs, Multinationals, and SMEs.

• Competitors:

ABB, Siemens, Emerson, Honeywell, Supcon

Page 7

Distributed Control System

Page 8

Industrial Total Solution

Page 9

Industrial Automation - Discrete Control

PLC, MC and SCADA

City Transportation and	Coal Mining	Machine Control
Sewage Treatment

• Supply intergrate solution of city transportation and sewage treatment, including SCADA, LE PLC, LK PLC etc.
• Major player
• Plenty of successful completed projects

Page 10

• Provide control application in coal mining industry, as well as intrinsic safety device
• JV with Shenhua Group

• MC1000 motion coordinator and LK/LE PLC control servo or stepper motors, up to 32 Axes.
• Build-inIndustry Ethernet : EtherCAT, RTEX, Ethernet/IP
• Safety: IEC61508 SIL2 Certification
• Security: Achillies Level 1 Certification

Industrial Automation - Nuclear Power Control

France 76.3%

World 11.5%

China 3.0%

	Nuclear	Total	Nuclear
	Electricity	Electricity	Utilization
	(TWh)	(TWh)	(%)
France	419	549	76.3%
World	2,441	21,226	11.5 %
China	161.2	5,373	3.0 %

								China Nuclear Market
80												In # reactors
70																			%
																		0
																	.
60																7															56
													1
												:
											R
										AG																		50
50									C																44
																								38
40																					35
															30
30											24
						20
20			16
10
0			2				3				4				5					6				7
																				E			E			0E
		1			1			1			1				1			1		18		9
	0			0			0			0					0			0			1			2
	2			2			2			2					2			2			0	20			0
																										2				2

(As of July, 2018. Source: World Nuclear Association, IAEA)

Page 11

Nuclear Power - Business Overview

Offerings

• Proven proprietary nuclear power plant control systems and reactor protection system.
• Engineering design, procurement, integration, installation, support, and specialized services for the safe, reliable, and economical operation of the nuclear power plant

Market Position

• The only proven domestic company to supply control systems to nuclear power automation market in China
• J/V with the China's largest nuclear station operator: China General Nuclear Power Group (CGNPG)

Projects

• Qin Shan I/II/III, Da Yawan, Ling Ao, Tian Wan, Hong Yanhe, Ning De, Yang Jiang, Fang Cheng Gang, etc.

Competitors

• SIEMENS/AREVA/INVENSYS

Page 12

Industrial Automation - Competitive Advantages

Items	HOLI	Multis	Local
Brand Name
Pricing
Service
Customization
Quality

Advantages of Hollysys

• Industry leading brand name recognition through more than 20 years' operation.
• Continuous investment in R&D to deliver advanced technology.
• Extensive service network in more than 60 industrial cities across China, focusing on service andlong-term client relationship.
• Cost structure advantage enables Hollysys deliver pricing competitive solution and products.

Page 13

High-speed Rail Market of China

China High Speed Railway Market Growth

45,000

38,000

30,000

19,000

8,358

2010

2015

2020E

2025E

2030E

KM

(As of July, 2016. Source: National Development and Reform Commission)

Page 14

High-speed Rail - Signaling System

Page 15

High-speed Rail - Business Overview

High-speed Rail Signaling System

• HSR signaling products:ATP , TCC, LEU and etc.
• In China:

• Market Position:

• 1 of theonly 3approved providers in 300-350km/h segment;
• 1 of the only 3 approved providers in200-250km/h segment,

Competitors:China Railway Signal & Communication Corp (CRSC),

Academy of Railway Science, Zhuzhou CRRC

• Overseas:

• Market Position:First international contract win from Hong Kong MTR for HongKong-ShenzhenHigh-speed rail line
• Competitors:Bombardier, Siemens, Ansaldo, Hitachi.

Page 16

China Subway Market

URBAN RAIL TRANSIT OPERATING MILEAGE

(2015-2023E)

In # kilometers

		9,276
	4,766
2,891
2 0 1 5	2 0 1 8	2 0 2 3 E

Source: CAMET, Frost & Sullivan

Page 17

Subway Automation - Business Overview

Signaling

System

PlaSCADA

SCADA

• Clients:
  China and international subway construction authorities
• Market position:

One of the key proprietary subway signaling system provider

• Competitors:
  Siemens, Alstom, Thales

• Clients:
  Beijing, Shenzhen, Guangzhou, Hong Kong MTR
• Market position:
  The leading SCADA (Supervisory Control and Data Acquisition) system supplier
• Competitor:
  Nanjing Automation Research Institute (NARI)

Page 18

Internationalization Presence

	Beijing Headquarter
Xi'an Facility
India Office
	Hangzhou Facility
Singapore Office
Indonesia Office	Bond

Concord

Page 19

Hollysys Management Team

Name	Title	Working	Previous Experience
Years

			• General Manager of Hollysys Group
Mr. SHAO Baiqing	CEO	26 years	• Master of Computer Science from the 6th Research
&	Institute of China Electronics Corporation and MBA
	Chairman
		from Peking University

		•Previously as Chief Financial Officer and Vice
		President of Xinhua Lian Investment Co., Ltd.
Mr. WANG Steven		• Previous experience at various managerial positions
	at Globe Specialty Metals Inc. and Zoomlion Heavy
CFO	24 years
		Industry Science & Technology Co.,Ltd.
		• MBA degree in Finance from the Wharton School,
		the University of Pennsylvania.

Page 20

Market Leadership Position

•15,000+ customers •25,000 projects •customer base

•Industry leading automation and control brand name

•Early entry to high-speed rail

• Early entry to nuclear
• Re-focusingin industrial automation
• Increasing R&D investment

Page 21

•JV with China General Nuclear Power Holding Corp

•JV with Shen Hua Group

• Successful integration of rail team
• Acquisition of Concord and Bond

•Wide range of core technologies •Various industry expert solutions

• 1900+R&D & Engineers

State of the Art Production Line

In-house Production

• State of the art production line
• Almost fully automated production process
• Multiple rounds of precise testing
• Flexible and efficient in house production for different demand

Page 22

FINANCIAL SUMMARY

IN US $ MILLION

																							%
																						.2
																					8
																				:
																			R
																		G
																	A
														%			C
													.8
												1											724.9
											R:
										G
									A
									C
																							634.0
									544.3				570.3
								531.4			540.8		529.1
																	477.2			487.6
													431.7
					.1%
				5
			:
		R
	G
	CA
103.3	121.5			108.9	126.2
				70.1
N O N - G A A P N E T I N C O M E		T O T A L R E V E N U E		N E W C O N T R A C T
								FY2015		FY2016	FY2017	FY2018	FY2019
Page 23

National Spread Service Network, Professional & High Quality Service

After-sale

Revenue

In US$ million

110.0					18.1%	20.0%
100.0
					18.0%
90.0						16.0%
80.0				13.7%		14.0%
		12.2%
70.0
		10.8%			12.0%
60.0
9.5%					10.0%
50.0					103.0
40.0						8.0%
			74.3
		66.6			6.0%
30.0
50.4
20.0		46.4			4.0%
10.0						2.0%
0.0						0.0%
FY2015	FY2016	FY2017	FY2018	FY2019

After-sale Revenue% as of Total Revenue

Note: After-sale revenue is calculated as product sales revenue plus service rendered revenue.

Page 24

Gross Margin & EBIT Margin Performance

Gross Margin of Each Business Sector

Non GAAP Net & Gross Margin

Non GAAP Gross Margin Non GAAP Net Margin

Industrial	Total Solution	35% - 40%

FY2019

37.1%

Automation
Nuclear	60% - 75%

22.1%

FY2018

38.2%

20.1%

	High-speed Rail	40% - 50%
Rail	Signaling

FY2017

32.7%

Transportation

16.2%

Subway SCADA

15% - 20%

FY2016

37.9%

22.3%

M&E Solution and	Design,

FY2015

41.2%

others	electrification,	10%- 15%
installation

19.4%

Page 25

Heavy R&D Investment to Continuously Deliver Leading Technologies

		R&D Expenditure		New Products Development
		In US$ million
35.8	36.6	36.6	37.0
		30.1

Subway Signaling

Motion Control

6.7%	6.7%	7.0%	6.8%
			6.5%

FY2015	FY2016		FY2017	FY2018	FY2019	Energy Conservation	Industrial Internet of
	Environment Protection	Things (IIOT)
			% of revenue

Page 26

Sufficient Cash On-hand & Solid Operating Cash Flow Performance

	CAPEX		Operating Cash Flow

Debt Cash

In $MM

			122.2		FY2019	23.2
	In $MM			358.4
				100.5	FY2018	23.9
					286.7
84.0
		69.8				29.1
					FY2017
					237.7
	46.7
					FY2016	30.4
					257.1
4.6	7.9	3.7		10.6		31.1
2.3
		FY2015
					237.2
FY2015	FY2016	FY2017	FY2018	FY2019

Note: CAPEX compiled from items in cash flow statement including purchase of and proceeds from disposal of PP&E, and prepaid land leases. Cash refers to cash and cash equivalents + current and non current restricted cash.

Page 27

Backlog Performance

700
600
						76.6	95.0
500	135.4				112.4
			129.7
400		198.6
						326.5	329.7
300					272.0
299		235.6
200		216.5
100	134.1	158.7		184.6	191.0	165.3
	112.1
0
	FY2015Q4	FY2016Q4	FY2017Q4		FY2018Q4	FY2019Q4	FY2020Q1
	2015/06/30	2016/06/30	2017/06/30		2018/06/30	2019/06/30	2019/09/30
		IA	RT	M&E	Total

Page 28

Automation for Better Work , Life and Environment

Striving to be a world leading automation and control system provider

Macro Enviroment

• Demographic Change, shortage of labor
• Environmental protection
• Urbanization Process of China
• Customer's buying behavior change

ated custom

mized control lternative ene ater process

Strategy

• Automation solutions to offset labor cost increase
• Dedicated customized solutions for energy conservation and efficiency improvment
• Leading position in China's high- speed rail and subway automation control market
• Customer- centric approach, enlarge service team and enhance service capabilities

Page 29

Automation for Better Life

Contact Information:

Investor Relations (8610) 5898-1386

[e-mail]