Technology 2018 third quarter result announcement investor conference call. Before we proceed, I would like to note that during this conference call, there may be certain forward-looking statements with respect to ASMPT's business and financial conditions. Such forward-looking statements may involve known and unknown uncertainties and risks which could cause actual results, performance, and events to differ materially from those expressed or implied during this conference call. For your reference, the IR presentation related to our Q3 results can be downloaded from our website, www.asmpt.com. With us this morning are Mr. W.K. Lee, CEO of ASM Pacific Technology, and Mr. Robin Ng, CFO of ASM Pacific Technology. We will start with a brief discussion about our 2018 third quarter results, followed by a Q&A session. Without further ado, let me hand this over to Mr. W.K. Lee. Mr. Lee, please.
Thank you, Leonard. Good morning and good evening, ladies and gentlemen. We appreciate you joining us for our 2018 third quarter investor conference call. I will first provide you with a summary of our third quarter results, followed by the Q&A section. We are very pleased to report that the group has continued to deliver a solid performance, driven largely by the SMT Solutions and the Back-end Equipment segments in the third quarter and for the first nine months this year. At the group level, both billing and booking saw year-on-year growth, while the quarter-on-quarter decline were in line with expectation. Group booking in the third quarter was better than anticipated, led by the SMT Solutions segment, which has achieved yet another new record, topping the record set in Q2. The Back-end Equipment segment also saw higher-than-expected booking and achieved a year-on-year growth of 5.8%.
The continued success of the group in winning market share is well reflected in the strong bookings of these two segments. The IC and discrete market contributed strongly to the booking growth of the Back-end Equipment segment in the third quarter. Booking of the IC and discrete market showed a strong year-on-year growth of 24%. Booking of the IC discrete market for the nine-month period already exceeded the full-year booking in 2017. Booking of the Materials segment contracted compared with the same period last year and the preceding three months, mainly due to customers started to adjust different inventories in accordance to sentiments of market conditions. However, the Materials segment did achieve a new billing record in the third quarter, which indicated that customers' production activities retained their momentum.
Group revenue for the third quarter of this year was $658.3 million, representing a growth of 1.1% year-on-year, but a small decline of 2% as compared with the preceding quarter. Group booking for the third quarter amounted to $618.6 million, representing a year-on-year growth of 7.7% and a quarter-on-quarter decline of 15% due to seasonality. Both group revenue and booking attained new records for the first nine months this year. Group revenue was $1.89 billion , and booking was $2.1 billion , representing year-on-year growth of 11.2% and 13.9%, respectively. Backlog as at end of the quarter was $769.8 million , a decrease of 33.1% from the same period last year.
Profit after tax of the group amounted to HKD 780.6 million and HKD 2.62 billion for the third quarter and the first nine months of this year, respectively, representing a year-on-year reduction of 36.5%, but improvement of 2.8% excluding the large cash grant of HKD 202.1 million arising from the adjustment of liability component of convertible bonds last year. Group gross margin was 37.8% for the third quarter and 39.7% for the nine-month period this year, representing year-on-year reductions of 283 and 88 basis points, respectively. The reduction in gross margin was mainly due to product mix and underutilization of factory capacity. The trade friction between the U.S.A. and China had insignificant direct impact on the group's third quarter results. The direct impact of a tariff raised by the U.S. government on Chinese products is estimated to be less than 0.5% of group billing.
However, as the tension continues to develop, it's difficult to ascertain its indirect impact to the group. For the short term, the trade dispute is casting uncertainties in the market. For the mid to longer term, the group remains confident and optimistic of the prospects of the semiconductor industry. Nevertheless, the group does feel that the ongoing development of the trade friction has caused customers to become more cautious. So far, there have been delay in taking delivery of orders by a very small number of customers in China and a few putting new investment on hold. On the other hand, this have been compensated in part by increased orders from customers in Southeast Asian countries who have experienced increases in loading. At the same time, for those customers in China who are focused on serving domestic demand, they continue to expand their capacity.
By geographical distribution, China, Europe, Malaysia, the Americas, and Thailand were the top five markets for the group in the third quarter. Now let me discuss in more detail each of the three business segments' performance. Back-end Equipment segment continued to do well in the third quarter. It achieved a year-on-year growth of 5.4% and 5.8% for billing and booking respectively. Despite the quarter-on-quarter decline, billing of the segment in this quarter is a new record for the third quarter of any year. Billing of the segment for the nine months of the year attained a new record of $947.9 million, representing a year-on-year growth of 11.4%. With the strong performance over the past three quarters, the Back-end Equipment segment is expected to set new record in the full year billing in 2018.
Billing of the materials segment in the third quarter achieved a new record of $76.9 million, representing growth of 4.1% and 1.0% over the same period last year and against the second quarter this year respectively. Billing of the nine-month period was also a new record at $227.9 million, representing a year-on-year growth of 9.2%. With the strong performance over the past three quarters, the Materials segment is expected to set new record in full year billing this year. The SMT Solutions segment continued its excellent performance in the third quarter, achieving yet another new quarterly booking record. Billing of the segment in the third quarter amounted to $278.8 million, representing a growth of 19.3% as compared with the second quarter, and a small decline of 3.9% as compared with the same period last year, respectively. Last year's third quarter billing was an exceptional record for the segment.
For the first nine-month period, billing of the SMT Solutions segment achieved a new record of $709.8 million, representing a year-on-year growth of 11.6%. New booking for the segment grew 17.1% year-on-year and 1.6% quarter-on-quarter respectively, during the third quarter to $300.8 million, setting a new quarterly record. New order booking for the nine-month period was a new record at $870.8 million, representing a year-on-year growth of 32.3%. With the strong performance over the past three quarters, the SMT Solutions segment is expected to set new records in the full-year booking, billing, and segment results in 2018. Billing of the SMT Solutions segment is expected to be close to, if not exceeding, the $1 billion mark. As evident from the results so far, the group is on track to set new booking and billing records for the full year of 2018.
All three business segments are expected to set new billing records. For the fourth quarter of this year, we anticipate group billing will be in the range of $550 million- $620 million, and booking to experience a double-digit percentage decline from the level in the third quarter this year. The SMT Solutions segment is expected to achieve both quarter-on-quarter and year-on-year growth in its fourth-quarter billing, while billing of the Back-end Equipment and the Materials segments are anticipated to experience sequential declines. The trade friction between the U.S.A. and China has caused much uncertainty in the global economy and the semiconductor industry, with customers becoming more cautious. The group is closely monitoring the situation and continuously assessing any potential impact.
With the investments that the group has been making over the past few years and its breadth and depth in enabling technologies and financial strength, the group is in an unparalleled position to face the challenges. ASMPT has now entered a new high-growth period. We are confident that the group will continue soaring to new heights. With this, we thank you for your attention, and we are ready to take your questions.
Thank you, sir. We will now poll for a question. If you'd like to register for a question, please press star one on your telephone. Ladies and gentlemen, should you have any question, please press star one. Thank you. Okay, our first question come from Donnie Teng from Nomura. Thank you.
Good morning, CEO, and [inaudible] and Leonard. My first question is regarding do you have any preliminary booking outlook into the first quarter next year? I know there are lots of uncertainties, particularly due to the trade war. If there is any outlook for the booking at the current time, [inaudible], in the first quarter next year.
Well, I would say this is a very difficult question. As you can imagine, we believe the trade friction between U.S.A. and China really caused a big uncertainty in the market. Entering into the third quarter, we did see customer tends to become much more cautious. At this point in time, I will say, nobody is able to give us a very clear forecast in these activities in Q1. However, on the other hand, when we talk to all the customers, everybody indicate that the direct impact on them due to the trade war actually is not obvious. I think today everybody's taking a wait and see attitude. How long this wait and see attitude will continue, and will this wait and see attitude will turn into causing the market enter into a totally different phase, is difficult to assess at this point in time.
On the other hand, in our opinion, the positive sign is that entering Q1, there will be a new round of CapEx budget available for our customers to spend. At this point in time, no customer indicate to us they will significantly cut back their CapEx budget next year. With this, I will be taking a more cautious, optimistic attitude towards the beginning of next year. Probably it may be starting a little bit slower than 2018, but overall, we don't expect, at this point in time, a major correction in terms of CapEx spending back from our customer next year. I think that's how we look at 2019 and Q1 at this point in time.
Thank you, sir. Our next question comes from Bill Lu from UBS. Thank you.
Yeah. Hi. I want to ask for some details on your full Q guidance. I did the math very quickly, so I do not know if this is totally right. But if I assume that SMT is still going to be up, I think that looks like Back-end revenues might be down about 20%, 25% quarter-on-quarter. I wonder if you could help me verify that. Secondly, if that is indeed right, we have not seen a run rate in a while. Can you help me with where gross margin would be at that run rate? Lastly, maybe just some color on what part of Back-end is coming down so drastically. Thank you.
Well, I think, for this Back-end , definitely, I would say at this point in time, we are forecasting a contraction or a decline in billing compared to this third quarter. Whether the reduction will be more than 20%, I would say probably I cannot be very certain. At this point in time, we are a little bit more, I would say, optimistic than this. However, as this quarter continue to develop and all those news regarding the trade war continue to come out, how are customers going to adjust their plan? This is really difficult to predict. I would say, if everything goes normal, we are expecting the reduction of the Back-end Equipment billing probably better than what you have just highlighted. However, a big uncertainty over there. Now, with a smaller contribution from the Back-end Equipment revenue, will that affect our gross margin?
Certainly, it has some effect on that because so far Back-end Equipment business still enjoy a higher gross margin than the other business. However, with all these big uncertainties ahead, it is a little difficult for us to really make all these forecasting with, I would say, a good level of certainty at this point in time.
Thank you. Our next question comes from Kyna Wong from Credit Suisse. Thank you.
Good morning, management. Thanks for taking my questions. I would like to ask more about the gross margin. I would like to ask your elaborations on which part is actually under utilization in the third quarter, and this may continue in the fourth quarter or not. My second question is, I wanted to have some better feeling on the 2019 outlook, like which drivers will continue, because previously you mentioned several new drivers, if today my memory, advanced packaging and also multi-camera setups, et cetera. I wanted to have an updated outlook on it. I want to have a follow-up on Bill's questions. The third quarter billing in the back end is actually declined actually from your previous expectation, right? Small decline quarter-over-quarter versus now it's more magnitude. What kind of business is actually driving the decline of the quarter back end business then?
Okay. Well, maybe I respond to your follow-up question on Bill's question on which business track the decline for the Back-end Equipment. As we have reported, we see a very strong booking from this IC and discrete business. So the IC and discrete market has been strong. We see some weaknesses, in particular for the LED market, going into the second half of the year. It probably related to customer has expanded aggressively and we assess or we looking at their investment expansion plan. For the CIS market, we see a mixed effect over there. Certainly, customers become more cautious with the overall economic situation. However, we also see their customers, they continue to invest in preparing for the new generation of phones. We are aware many phone makers still putting their on the cameras of their new generation phones.
This is still the area we are seeing is a mix of momentum. Overall, if you look back at the three quarters of this year, [inaudible] has been very strong, CIS not so bad. The major weakness is really coming from the LED market. Now, for your question on the gross margin, which part of the factory have been underutilized, mainly related to the Back-end Equipment area. Our factory utilization for the SMT has been quite good. As you can imagine, booking continue to set a new record in Q3. The challenge is really on the Back-end Equipment segment. In part it because of, in respond to the trade war and also the wait-and-see attitude of our customer, we also assess ourselves. We make sure we manage our inventory going forward in a way, in a level we feel very comfortable.
This is some of this effect over there. Partly, all these gross margin also when the factory utilization low, when some of those production will go into the inventory. It also have certain effect on the gross margin due to all these accounting treatments over there. We expect, over a longer period of time, the gross margin will become a bit more normal rather than such a drastic deterioration in Q3. In terms of driver for 2019, we see the group continue to make very good progress in advanced packaging. Together with those new acquisitions we have make, including the NEXX acquisition just completed in October this year. We are seeing good momentum in this area. We have many design wins, with different customers, and we continue to do a lot of the new evaluation for different customers for their new applications in advanced packaging.
We are very confident the advanced packaging revenue will continue to grow. We will be, most likely by releasing our Q4 result, we will share with you a lot more details on our progress on this advanced packaging. This will be one of the major growth driver. We continue to be optimistic about our CIS business. As I mentioned earlier, while this year customer a bit cautious, careful about their further expansion plan, but actually overall the momentum of the CIS business are not bad. On the other hand, there's still so many new projects we have with the customers on their new generation of camera units. This also put the group in a very good position, and we expect these innovations from our customers will drive for a new round of equipment requirement, okay? Even together with the 5G sensing applications.
We believe this is continue to be the case. Automotive is another important driver. While we notice there are reports talking about the automotive shipment has probably slowing down, but from our perspective, we don't really feel that. We try to explain the situation, is that the semiconductor content in the automobiles has increased significantly. With all this new design in, when the new car go into production, we expect all these semiconductor content will continue to increase. When we follow our customers' announcement, we see a similar pattern announcement from our customers. People are really citing this automotive system, one of the important driver. Now, so far in the nine months of this year, we also see another important driver for the business is this power management. We see this has been a very strong growth area, and we expect this will extend into 2019.
When it comes to this area, it's really not only a capacity related, and we see many customers have their new design into a new applications. So far for 2018, industrial electronics is also a very important driver for us. I think we believe all this will continue to boost our business into 2019 and beyond.
Thank you. Our next question comes from [Sean Lewis] from Haitong.
Hi. Thanks for taking my question. Just a couple of quick ones. Firstly, if you wouldn't mind, a little bit more detail on the segment profit of the Back-end Equipment business. Could you perhaps give a little bit more detail why it was I'm a little bit surprised at why it's so weak, because the top line is all right, but 20% segment profit I think was a bit surprising for me, that low. Was there any particular reason or a one-off or anything like that that caused that? My second question is related to SMT. You guys have previously stated that SMT cycles typically lag back-end cycles by a couple of quarters.
Considering we went into a, my view anyway, down cycle on Back-end roughly in Q2, can we expect a similar sort of situation as you've described previously for SMT, that we'll be going into a down cycle for that, perhaps a couple of quarters after spanning Back-end? Thank you.
Okay. Your first question on the Back-end Equipment segment profits. As I mentioned earlier, it's mainly due to the gross margin. In Q3 also, there's acquisition effect on those optics has gone up, and gross margin has come down. So it's a combination of this pull down the segment profit. Other than this, I would say there's nothing really specific or very structural. We do not book any one-off effect over there. There also a certain effect due to this inventory provision. We have to make with the slower production activities. Other than that, there's nothing really special. However, as I mentioned earlier, we do expect some of those effect to get normalized over a longer period of time. So, we do not expect the gross margin of this segment to continue to stay low for too long a period.
For the SMT cycle, the SMT has been consecutively making new booking records for the past three quarters. Certainly, we will not continue to predict it will continue this pattern in the next coming quarters. As the semiconductor Back-end Equipment start to show some adjustment, we believe sooner or later, the SMT cycle will also follow. However, obviously, during this past quarter, we believe our success is not only we riding on the wave of the industry, but really we are gaining market shares. So this structural area of gaining market share, I think we expect will continue. While there could be the SMT research following this typical cycle pattern, but we continue to believe our SMT will be outperforming the market in general and continue to stay at a high level in the next few quarters to come.
Thank you. Our next question comes from Arthur Lai from Citigroup. Thank you.
Hi, good morning. I would like to thank Robin and Leonard for taking my question. I actually have 10 questions, but I will just ask you three questions. The first question is actually the Back-end, like Bill mentioned. The Back-end margin actually quite volatile. Went up to 60% and down to 44%. I wonder what drove the big change. You probably already highlight the utilization of idle capacity. But is any mix effect, for example, I wonder if that discrete up and then the dense semi, such as the TCB went down to cause this big change. This is the first question. Second question, I think a lot of the clients wonder the data centers growth rate slow down or not. Since you are the leader in the data centers [inaudible] , can you share with us your view?
The third one is a client asked me to ask this question. She wondered why the expense went up in the financial chart, went up to HKD 84 million from the previous cycles, like HKD 70 million. This is my first three question, and I will ask follow-up. Thank you.
Okay. For your first question on the back-end margin, I would say the gross margin in Q2, over 50%, a little bit on the high side. Whereas the quarter gross margin I would say a little bit below our expectation. Because of this effect, that's why it show a big delta over there. You are absolutely right. There's also an effect of product mix, as I highlighted earlier. In Q2, we are still shipping aggressively a lot of equipment for CIS active alignment machine, whereas in Q3, the proportion of the CIS product, shipment of CIS product has come down. They are also partly due to this effect. But they are only one of the factor, unfortunately, when this product mix, the effect coupled together with this factory utilization and also this inventory provision, due to the slower movement of the production activities.
All this, unfortunately, come into effect still in the same quarter. That is why we show this. However, we carefully analyze the situation, and we do not see any alarming effect over there. We do not see any structural changes over there. That is why we are confident that, over a longer period of time, some of this effect will be normalized, will be smoothed out. Okay. Whereas your question on the data center. Actually, we continue to be optimistic about the data center, and you are probably also aware, some of our customer, in the semiconductor business, they reported the shipment for demand for PC and data centers has been continually strong. So actually, we do not really feel our customers are slowing down any investment in the data center. While people may react to the very short-term market outlook, people are more of preparing for the longer future.
We see this investment in technology, preparation for the new generation communication requirement for the data center, for the 5G actually continues. We do not see the slowdown over there. Your third question is on the— Can you repeat your third question?
Yeah. The third question is, the client wonder why there is a big financial charge in the For example, HKD 84.6 million in the quarter three versus last year is only HKD 7 million. I think it is because of the asset financial charge. So it is caused by one off event or the CB?
No, not really. We have made three acquisition this year. Part of the acquisition is funded by vendors. That is why you see financial charge increase year-on-year.
Okay.
Yeah.
That's one off. After this quarter, we will not see this picture.
The loan will remain for a period of time. But we intend to repay them back as soon as we generate more cash flow.
Thank you. Our next question comes from [Dean Well] from Overlook.
Hi, good morning. Sorry asking about these margins, but if I look at Q3 versus Q3 last year at the back end, you've got a very similar level of revenue, but obviously the 5 points difference in gross margin. You said before that's related to capacity utilization and some product mix. I just wonder, how much capacity have you added year-on-year? How much growth do you have? If there is indeed surplus capacity, what is that for next year's CapEx? Are you considering pulling back some of that CapEx? Thanks.
Well, I think it's not so much how much capacity we have added over the past few months. It's mainly how we prepare for the production of the subsequent few quarters. As we feel at this climate, there's a bit more uncertainty in the market. And we noticed our customers are really taking a wait and see attitude. That's why we are adjusting our production runway. Because of this, we see some capacity under-utilization. We see due to some accounting treatment, we have to make slightly higher provision for those slow-moving materials we have already bought into the factory to prepare for the production. Mainly are some of those effects over there. However, if you look at our nine-month basis, then you can see actually, we are fairly stable, actually.
When we're looking at on a nine-month basis, we compare carefully, then you will see even in our production, because of the first two quarters, we are utilizing our production capacity in a very efficient way. Comparing the two nine-month periods, we don't see any of this under-utilization effect at all when we average out in the three quarters. The margin has been pulled down by 0.9%, or sorry, 1.1% cost margin, mainly due to, as I mentioned, about some of those stock provision, additional amortization due to the acquisition. More of this kind of effect. When it comes to the stock provision, actually, we are pretty confident those will be reversed in the subsequent quarter, when those materials are being utilized. We don't really see anything structural in the cost margin deterioration during the third quarter.
Thank you. Our next question comes from Leping Huang from CICC. Thank you.
Okay. I have two questions. One is about the advanced packaging. Can you share some color around the competition landscape on the advanced packaging, the equipment side? Because what we see in this quarter, for example, TSMC starts to record quite a significant revenue from advanced packaging. I was wondering whether when the advanced packaging business takes off, it seems to be not OSAT companies, but foundry companies start to do a lot of the packaging. But you have not recognized too much revenue on the advanced packaging equipment sales. When the market takes off, whether you can maintain current leading market share in this segment of packaging equipment. Thank you.
Okay. Well, I think the advanced packaging market is really picking up momentum. As you highlighted, it is not only from OSAT. Actually, today, I would say, the foundries, the IDMs, are also participating in this area. Out of our advanced packaging business, TCB continue to lead overall. So our TCB momentum is good. On one hand, the major customer for us, the TCB, continue to invest. On the other hand, our TCB solutions are being adopted by other customers. So going into 2019, we are very confident that our customer base for our thermal compression bonding will be expanded, will be enlarged. Hopefully, we will be able to also expand into these memory applications as well as fan-out applications for the TCB. Not only in the high-end computing, the logic applications.
On the other hand, the new acquisition we have made, the ASM NEXX for the ECD and PVD application, is also having a good momentum. Although we only have it for one month, we can really see good technology, good design win. So we expect they will contribute to our advanced packaging business in 2019. There will be limited contributions in 2018 because it is only one quarter, but I think there will be a more significant contribution in 2019. Our pick-and-place machine for the fan-out applications, panel-level fan-out as well as this wafer fan-out, also getting very good momentum. This platform has been adopted by many customers into many of their different applications, different new project developments. Although I am not able to name those customers, I will say we are almost into most of their projects.
As this customer ramps up their production of the new packages, we expect the production volume of this machine will also increase. Also, another important area is our laser business in Holland. We are also seeing a very good momentum. When it comes to this new generation of advanced packaging, actually, the laser grooving, laser dicing, also become very important component for us. So we are also seeing this good momentum. In fact, this business we acquired a few years back, made a new record in 2017. However, the new record already being surpassed in this year by now. So we are seeing very good momentum. Another area is also we have the machine for the wafer-level, this test pad inspection application. We are also getting a good momentum.
At this time, besides the normal wafer-level fan-in and fan-out application, we also see customer adopting this solution for their RF applications, the radio frequency component application. As you know, for the 5G applications, when the 5G applications take off, actually, there will be a lot more RF-related components on the smartphone. So we see customers are aggressively preparing for this year of the 5G. So we see we have successfully developed a multi-pronged product portfolio, so addressing the different areas of application in the advanced packaging, and we are making very good progress in all these areas. So we expect, as we have expected 2018, the advanced packaging contribution has increased, and we believe by 2019, it will reach a very interesting level for the group.
Thank you. Our next question comes from Donnie Teng of Nomura. Thank you.
Thank you for taking my question. May I just have two questions? First is still regarding the gross margin and OpEx. CEO, you just mentioned about the CIS momentum for sure is normally slow in the second half. From product mix perspective, what kind of sales breakdown in the third quarter to drag down the gross margin? Is it like LEDs increasing a lot, or is there any more low-end product to drag down the gross margin third quarter? How should we look into the fourth quarter for different business development? My second question is regarding to SMT. Previously, some senior analysts already asked about SMT momentum normally follow a second momentum and by some time late. As you just see that SMT sales is pretty strong this year, and I believe some momentum is from India market.
I am not sure whether India market momentum can be sustainable into next year, but wondering if you could give us more color about what is happening in the India market and how long the momentum can be sustained.
Well, for the Back-end Equipment, for the billing in Q3, as I have shared earlier, IC and discrete is a major market that is driving the growth, not only in the booking but also in the billing. The optoelectronics show, I would say, more significant reduction compared to the other business. I would say, the CIS business in Q3 it has not been as strong as a year ago. As a contribution to the Back-end Equipment business has come down. That is the reason, I would say, partly of the reason for the gross margin deterioration due to this product mix. We are not really shipping a lot more low-end product in Q3, not by exactly. It is really more of the application market.
For the discrete semiconductor applications, you can imagine those machines are less sophisticated, so relatively the margin will not be as high as those margin for CIS products. That is part of the reason. For the SMT, and you ask about the situation around India. India, this year really developing very well. However, we believe this India market is still at the beginning of the development stage. The customers placed big orders during the second quarter, so we continued to deliver machines to them. However, we do not expect this kind of momentum will be sustainable in the near future. In fact, actually, the booking contribution from India has always significantly come down in Q3, but yet in Q3, our SMT booking set a new record. So, we do not expect our performance will be affected by India in any big way.
We did benefit from it, but, however, as I mentioned earlier, we are really gaining market share in our product fronts for this SMT business. So I think we will continue to enjoy this benefit. However, going into 2019, we do prepare the SMT has to come down from this very strong level. But it probably will not be a major correction, as we have successfully put ourselves into a much better market position.
Thank you. Our next question comes from Mr. Eric Chow from Morgan Stanley. Thank you.
Hi. Good morning. I would just like to follow up on the previous question on SMT momentum. Could you just share a little bit more color on the relative strength in the SMT market? I just wanted to know a little bit more about each end market. Based on our knowledge, we have not seen a strong recovering overall at all. Is mainly just the India market, smartphone market that is driving the strength, or is there any other color that you can provide? Thank you.
Well, as I mentioned earlier, from a booking perspective, the contribution from India was very small in Q3. The strong momentum is not because of the India market. The India market contributes strongly to our second quarter booking, but not in the third quarter. So where do we see the strength? Automotive is still very strong. As I shared earlier, although we read from the media report, we noticed automotive companies start to indicate that shipment of automotive has slowed down. However, on our side, we don't feel it. As I commented earlier, probably it's affected by the fact that the electronic content in automobiles has increased rapidly. And the new design has been designed into the new models. So when these new models go into production, the demand for semiconductor, the demand for this additional equipment, for all these automotive electronics, will continue to increase.
Another important area driving our SMT business is the industrial electronics. This also has been strong, and also furthermore, as I reported in the past, this year we really see we are making some good progress in gaining some market share in the China smartphone supply chain. These are the combination of factors combined together, put ourself into a very strong position in this SMT market.
Thank you. Our next question come from Simon Wu from Bank of America Merrill Lynch. Thank you.
Okay. Yeah. Good morning, sir. So first question is, could you please break down your revenue? You mentioned that the India contribution very minimal, but your previous financial reports already confirmed roughly 40% revenue to China, and then you have a lot of big exposure ex-China, Asia as well. So could you provide your revenue breakdown or billings breakdown by country? If the Greater China, including the Taiwan exposure, remains high, the key concern is some of the potentially negative impact from the trade war. So could you combine your views regarding the regional breakdown and then the impact? Thank you.
Okay. Earlier, when I say, the contribution from India has been small in Q3, I am referring to the booking. Okay? You can imagine, when we receive the booking in Q2, they did contribute to our billing in Q3. So, there is a difference over there. Okay? Greater China, I would say, in particular, mainland China, Hong Kong, they continue to be a major market for us. So they continue to contribute to roughly around 50% of the business. This year, we see some slower momentum in Taiwan, whereas we see stronger momentum in Southeast Asia countries. So that is why, when we report our corporate results, we also highlight that Thailand has become the fifth-largest market for us during the third quarter of this year. This is the first time Thailand has stand out by itself.
Malaysia continue to be standing up very strongly, continue to occupy the third position, by size of market for ASMPT. So, we expect the Southeast Asia market continue to be strong. We do feel there is some of these increases in order activity from these markets is relating to the trade war. So we do feel that. However, we do not see at this point of time, a major shift of production activities from our customer from China to Southeast Asia, because we are not aware of any customer in Southeast Asia, really putting up a major factory expansion plan, building up new factories. But they are ordering more new equipment, filling up their factory space. We do see this. So, this is the geographical situation at this point of time.
Yeah. Great. So last question is, very quickly, the financial area. So could you update the overall your currently outstanding total debt, and then the current status of the convertible bond versus your cash on hand to assess your overall net debt cash position? And then, yes, it will be great if you can highlight some balances item in your press release statement next time, if you do not mind. Thank you.
Yeah. Typically, for Q3 and Q1, we do not publish the balance sheet, and that is why you do not see those numbers. But I can give you a very general picture. So, in terms of, you mentioned whether your net cash. Yes, certainly. If you take our cash and also those promissory notes in China, LCs, these we are all considered as near cash. Right? Anytime we can actually discount it and get the money in. So, if you take all these into consideration, we are still net cash at this point in time. Although our borrowing has gone up because of the acquisition, which I mentioned earlier.
Thank you, sir. Our next question, we have Laura Chen from BNP.
Hi, good morning. Thank you for taking my question. We discussed a lot about the macro uncertainty recently. Do you have any visibility, although it might be difficult at this moment, but at earliest stage, when will we see better recovery next year? We know that usually we have quite good booking in Q2, if we look at the seasonality in the past few years. Do we still see like Q2 next year, we will see better recovery, and which part of the business may see better or sooner recovery then? Could you talk a little bit more about your CapEx plan for the next year? Which part will be the major investment for you next year? Thanks.
Well, I think, for the question on how do we see when we can expect a stronger recovery, whether happening in Q2 or not, it is really a very difficult question because of the uncertainty brought about by the trade war. Other than that, as I mentioned, when we talk to customer, no customer really telling us they are suffering from a strong direct impact of the trade war. Their cautious more of because they want to take a wait-and-see attitude. When they think, now that is the new normal, we just have to continue operate as usual. Once people, either the trade war ease or people come to this conclusion, they cannot wait and see anymore. They just have to operate under this new uncertainty environment, then I would say things will start to move.
Hopefully this will not take too long, especially as I mentioned, the new CapEx cycle will start to kick in two months time. Hopefully that will be the case, then continuously after the Chinese New Year, things are moving back to normal. As of this point of time, what we can say for short-term is that for those people, they are investing in new capability, like the advanced packaging, there is no sign of slowing down. That one, we are fairly certain about it. We also see that for those customer, they have successfully won some design wins into the new generation of product, new generation application with the end customer. This group of people continue to push ahead very aggressively. These are something we can see very clearly at this point in time. For the CapEx, our factory in Malaysia is getting ready.
We will be tooling up this factory. Although, on one hand, we say we face some capacity underutilization issue in Q3, we remain optimistic about our long term. That is why we want to prepare ourselves for this. One of the major area of expansion will be our capacity expansion for SMT. With this, the billing for the SMT business this year expected to be around or even closing over the $1 billion mark. We believe we need more capacity, and in particular, we want to have more capacity in Asia for this business. The expansion part or the reason for the expansion of the Malaysia factory is to free up more space for this expansion of the SMT production in Malaysia. This will be one of our major area. The other area will be automation for our own Back-end Equipment manufacturing.
We will continue to push ahead for this automation. Our aim is to have a lights off factory for most of our Back-end Equipment assembly factories. This will be the area we continue to push ahead.
Thank you. We have another follow-on question come from Bill Lu from UBS. Thank you.
Yeah, hi. Thanks for taking my follow-up question. In your investor presentation on page 25, you have got a really good slide on the interconnects, flip chip growing by 90%, CAGR fan-out growing by 25%, et cetera, in terms of units. We have been seeing these more advanced packages for a few years now. As you think about the underlying equipment business versus the units, can you comment on whether you think equipment is going to grow faster or slower than units? Secondly, can you give us some help on advanced packaging as a percentage of your total Back-end business right now? Thank you.
At this point of time, it's really difficult to have a very accurate correlation to the question you just mentioned about whether the equipment will grow faster or the units or the number of wafers will grow faster. At this point of time, we definitely see customers are more. Some customers in this high volume production, some customers are really investing in the new technology. During this investment, they bought in some equipment. At this point in time, some of this equipment are underutilized, not because demand is not there, it's because of customers still fine-tuning their own process. Some of these customers, this process deduction takes a little bit longer time than what we and they have expected. Because of this, it's a little bit difficult to tell. However, our feeling is that 2019 probably see more customer will be start to go into production.
With this one then, there will be new wave of investment in advanced packaging. That's why we are optimistic about the contribution of advanced packaging to our business will start to grow next year. As of this point of time, I'm not able to give you the big number you just asked for. We are trying to pull the numbers together, and then maybe we are able to share with you in a few months time for the full year. We want to make sure that we share the number, it will be accurate number. At this point of time, on a quarter-on-quarter basis, there's still a lot of fluctuation over there because this is a late share of the investment cycle. As I mentioned, people are really making investment into the new technology development.
However, we believe when we pull the numbers for the full year, maybe this will give you a more realistic and accurate picture. Please allow us a few more months to share with you these numbers.
Thank you. Another following question come from Kyna Wong from Credit Suisse. Thank you.
Thank you. I wanted to confirm about the SMT business next year. I heard you mentioned there will be a contraction in 2019. Just wanted to clarify. Another thing is, looking into other business segments. You didn't mention some of the business like LED, so perhaps by next year we'll come back to a contraction from a recovery this year. Am I right? Thanks.
First of all, the SMT, while we in our planning, we plan for, I would say a come down a bit. However, internal we are not budgeting, or we are not forecasting a major contraction for SMT. But after a few quarters of such a strong momentum, we do believe, from a market perspective, it has to come down a bit. But we are not projecting a 30% kind of market correction. No, we are not saying this. We are not saying this at all. I'm sorry, what was the second question? So what is your second question? Can you help me to recall it?
Sorry. He just canceled his question.
Oh, okay.
Can I move to the next question? We have another following question come from Arthur Lai from Citigroup. Thank you.
Thank you for taking my follow-up question. [inaudible], you mentioned that the advanced packaging, CIS, and also automotive power, those become a big driver in the next year. Can you help us to rank, in the impact perspective, which two or three will be bigger impact than others? This is my first question. My second question, I want to ask about the market share. We have seen in your active alignment equipment clients, they are used to be in-house made, and right now they decide to purchase from outside. Do you gain a share in the active alignment market? This is my second question. Thank you.
Well, certainly for the active alignment, we are getting market share. I think this, as we shared in the past, customer typically will move from an internal equipment supply to adopt external solution. It does happen so far. We also see more and more customer adopt this active alignment solutions. We do benefit from this one. Regarding your first question of which will be the bigger driver. From a percentage growth point of view, we believe advanced packaging will continue to show the highest growth rate. However, it starts from a smaller base. I guess from an absolute amount point of view, it will still be between these CIS applications, and these IC and discrete applications. I think these, from an absolute point of view, or the power management, from an absolute point of view, they are still the larger contributor.
From a growth rate point of view, I think advanced packaging definitely will be the highest growth rate for our Back-end Equipment business in 2019.
Okay, thank you.
Thank you. Our next question come from Leping from CICC. Thank you.
Okay. There was one news about one Chinese company may purchase your share from your current largest shareholder. I think ASMI also denied that. But what is your current relationship with your cooperation with your ASMI, and if there is any change on your major shareholder, what is the impact are you thinking?
Well, ASMI continue to be our largest shareholder at this point in time. They hold slightly more than 25% of our shares. ASMI do not participate into our detailed day-to-day operation. They are in our board. However, on the detailed day-to-day operation, it is our own decisions. First of all, we do not have any information other than probably similar to you, read from the public announcements from these two companies, ASMI and the other Chinese company. We do not have any other further information on that. Anyway, as I mentioned, ASMI has been the largest shareholder for us. They do not get involved into our detailed day-to-day operations. If there is a change of shareholding, will that be changed? We do not think so. Of course, we cannot know for sure. Naturally, we are not aware there will be such a shareholding change in the near future.
Thank you.
Thank you. Our next question comes from [Sean Lewis] from Haitong.
Thanks for the follow-up. Easy one for you. CIS and LED, could you please give us your perspective on what is going on in those end markets next?
For the CIS, I think you can see there are two factors affecting the market. On one hand is the shipment rate, volume of the smartphone has been slowed down. On the other hand, all the major phone makers are competing with new innovations centering around the camera. That is to our favor, because this customer needs new equipment solutions to support their innovation. We are seeing good momentum for us in this area as we are engaging with different customers to support their different innovation in this area. Despite from the volume shipment of smartphone has slowed down, we continue to expect our CIS business will continue to be doing very well. For LED, for the past few years, there has been a lot of consolidation in our customer space.
At a point of time, many expect we have hundreds, if not thousands, of customers in the LED application. But today, I would say, 80%, 90% of business will be focusing on maybe 10 over large LED customers. The market has consolidated a lot. With this one, sometimes really the customer, their own pace, their own cycle of investment will have a significant impact on the industry. Well, as I mentioned earlier, when it comes to the second half of this year, we do see the market experience some weaknesses. However, we do not necessarily translate this into forecasting a weak 2019 market for LED. If the customer adjust their own investment pace in the second half of 2018, they may complete this adjustment in the early part of 2019. I think it really depends on how the customer will react.
So far, as I have shared in the previous conference call, our observation is that the trade war between U.S.A. and China has minimal effect on LED because most of these customers in China do not have a major export business into U.S.A. for the LED. The direct impact for them is minimal. As a result, I don't link their investment pace to the adjustment to the trade wars. We believe the LED demand will continue. It's only customer have to adjust their own investment pace. On the other hand, from a technology point of view, we continue to see many customers engage us in their Mini and MicroLED technology development. On that part, it's exciting. However, it has not translated into a major revenue contribution yet. But from a technology development point of view, it's exciting.
Thank you. Our next question come from [Sean Ross] from Overlook.
Hi. Thanks again for taking the question. I think you bought back some shares last year, connected to the CB and trying to offset any dilution from that. I'm just wondering if, given where the share price is now, the kind of the volatility, it looks cheap, arguably, low PE and your net cash position. Why wouldn't you buy some of your own shares or have a policy to keep going with that? If so, I would suggest maybe doing a multi-year policy that was clear to the market. But is that something that's been discussed internally, and if so, what are the thoughts with that? Thanks.
Well, I think the board continuously review all the options available to us. We certainly will not rule out share buyback. Share buyback, special dividends are, I would say, some of those tools we believe are available for a company to create shareholder value. We continuously review all those options available to us.
Do you currently have a mandate still, and what is that mandate?
We have a mandate approved in the AGM, so we can buy around up to 5% of the shares. This is available to us. As I mentioned, the board will constantly review what should we do.
But the prior buybacks were all connected to the CB. Is that correct?
Yes. That was the previous one.
Okay.
That already finished because of the mandate already expired before the AGM this year.
Okay. I see.
Thank you. Our next question come from Donnie Teng from Nomura. Thank you.
Sorry, I have a housekeeping question. The tax rate in third quarter is like 23%, so looks like still a little bit higher. I am just wondering what kind of tax rate we should look in the future.
Yes, you are right. The tax rate, if you compare this last year, is higher. Principally because of the higher SMT contribution this year. As you heard all the discussions just now. SMT has been doing very well this year. Naturally, because of that, the tax rate are higher than last year. Now, on a full year basis, because of that, we are forecasting that the full year tax rate will be slightly above 20% this year.
Another question regarding to OpEx. OpEx ratio is like 21% level. I remember our target is like around 100%. It is not far away, but I am wondering, because we acquired two entities, like NEXX and [inaudible]. I know NEXX is expanding some business in China. I am not sure whether it will have some impact to OpEx in the future. What kind of OpEx ratio we can look in the coming quarter? Thank you.
Well, the acquisition will increase our OpEx level a bit. But relatively, they are smaller business. The direct actual impact on overall whole group will be not very significant. However, you are right, with the acquisition, we expect the ratio will go up a little bit. However, this will be part of the synergy we can pursue together, to help them to bring down their costs as well as their OpEx level. Also, I think the most important one, we have to increase their market share, the top line. We are confident, giving the new business some time, their OpEx level will catch up with the overall growth. We are still pretty confident that we can keep our OpEx level in line.
Thank you. Our next question comes from Mr. Simon Wu from Bank of America. Thank you.
Yeah. Thank you very much. A very quick follow-up question regarding your dividend policy or dividend payout ratio for this year. Could you recap the overall dilution impact from the current outstanding CB? We believe around the low single-digit dilution impact from the CB convertible bond. Thank you.
Actually, last year we already announced, we switched to a new dividend policy going forward. Instead of focusing on the payout ratio, actually, we are adopting a sustainable and gradually increasing dividend payout policy. This has been the practicing for 2017, and we also will be continue to adopt this for 2018 and forward. Your second question. The dilution effect. Yeah, we mentioned that before. If fully converted, we get single digit, maybe around 5%, 6%. Yeah.
Okay, thank you very much.
Yes.
Thank you. There seems to be no further questions at this point in time, sir. Thank you. There seems to be no further questions at this point in time. Would you like to wrap up, sir?
Yes. I think we have had a very good discussion this morning with very good questions. I think in the interest of time, we have to conclude the conference call now. Thank you very much for joining our conference call today, and we will talk to you again next time. Bye-bye.
Okay, thank you.
Thank you for your participation. This concludes your conference. Thank you.