Today we are going to report our Q3 financial numbers. As usual, we will have our IRO running the reporting numbers to you. Today we not only have some of the visitors on site, but also we have the audience online. I mean, we will also answer the questions online. Thank you for coming today.
It has been a very long while that we haven't really held a physical analyst meeting. As usual, the numbers have been reviewed by CPA. Thanks to the healthy demand and better component supply, our Q3 revenues reached an all-time high of TWD 106.3 billion. Representing a 33% year-on-year growth and an 18% QOQ increase.
It is noteworthy that the fast year-on-year growth was partially related to the appreciation of the US dollar and the lower comparison base in Q3 of last year. With the better economies of scale and more pass-through of the cost hikes, GP in Q3 grew by 43% year-on-year and 22% quarter-on-quarter. GP margin improved to 13.3% in Q3 from 29.4% in Q2 and 28.3% a year ago. In terms of the expenses after the reopening in the US and EU, there was an increase, I mean, in the marketing events and business trips. Hence, Q3 expenses grew by 26% year-on-year and 11% quarter-on-quarter. Meanwhile, wage inflation also added to the increase in the R&D and SG&A expenses compared to a year ago.
Despite the fast increase in expenses with a much faster top-line growth, the R&D expenses as a percentage of sales shrank to 8.6% in Q3 from 8.5% in Q2, and 8.6% a year ago. Likewise, the SG&A expenses as a percentage of sales also contracted to 9.6% in Q3 from 10.1% in Q2 and 9.9% a year ago. The OPEX ratio in Q3 dropped to 17.5% in Q3 from 18.7% in Q2 and 18.5% a year ago. With the expansion of GP margin and contraction of OPEX, the OP margin in Q3 significantly improved to 12.7% in Q3 from 10.7% in Q2 and 9.8% a year ago.
In terms of the performance by segment, sequentially, we found decent growth in each segment, with power electronics and infrastructure growing faster than automation. Year-on-year, with the lower comparison base, we saw even more robust growth across the board, with over 30% year-on-year growth for power electronics and infrastructure, and a 27% year-on-year increase for automation. Notably, despite the weakness of the China IA market, the strong demand for building automation and the incremental contribution from the UI acquisition has contributed to the fast growth of the automation segment. Earnings-wise, thanks to the operating leverage, we found substantial year-on-year and quarter-on-quarter profit expansions for each segment. Here we also provide revenue breakdowns by segments for your information.
For the non-operating profit was around TWD 1.7 billion in Q3, attributable largely to the significant foreign exchange gains. We had a small interest expense instead of the usual income as a result of the expanding spread between the borrowing and the deposit rates. With the interest rates likely hiking further, we may continue to see small interest expenses before the reversal of the environment. In Q3, we had TWD 15.1 billion profit before tax, up 40% quarter-on-quarter and 83% year-on-year. In Q3 was TWD 0.1 billion, up 29% quarter-on-quarter, 59% year-on-year. Q3 tax expense was about TWD 3 billion, representing a 19.4% effective tax rate.
Non-controlling interest was similar to Q2, but surged significantly compared to a year ago as a result of Delta Thailand's strong earnings growth. The net profit after tax in Q3 was about TWD 11.1 billion, up 45% quarter-over-quarter and 74% year-over-year. It was the highest quarterly profit we have ever had. The Q3 EPS was 4.26, which was certainly also a new record. Now we are going to let me have a look at the accumulated numbers for the first three quarters of the year. The revenue was TWD 278.8 billion in the first three quarters, up 21% from a year ago.
GP was up 20% year-over-year, with a GP margin of 29.1% versus 29.4% a year ago. Operating expenses in the first three quarters was up by 15% year-over-year, with SG&A up 17% and R&D up 13%. Thanks to the better economies of scale, the OPEX ratio shrank to 18.1% from 19.0% a year ago. SG&A, as a percentage of sales, dropped to 9.8% from 10.2% a year ago. R&D spend ratio contracted to 8.3% from 8.8%. OP in the first three quarters was up 27% year-over-year, with OP margin improving to 11.0% from 10.4% a year ago.
By segment, we found this increase in revenue growth. This meeting is being recorded. Otherwise, except for automation, which was significantly impacted by the slowdown in the IA market, we saw substantial profit expansions for the other two segments. For the first three quarters, we had about TWD 3.9 billion non-operating profits. In total, we had TWD 34.5 billion pre-tax income, up 27% from a year ago. Our EBITDA was TWD 48.8 billion, up 22% from a year ago. The tax expense was around TWD 6.6 billion, representing a 92.2% effective rate. Now controlling interest was more than double as a result of Delta Thailand's strong earnings compared to a year ago.
The net profit after tax was TWD 24.8 billion in Q3, i.e. the first three quarters. The EPS in the first three quarters of the year was 9.53 versus 7.991 a year ago. Here we have reported all the financial numbers to you. We are going to answer the questions from the audience. We will start from the questions from the on-site audience, and then we will answer the questions from the online audience.
Can you share some of the details of your inventory level in Q3? And what was the impact on GP margin, I mean, in terms of your inventory write-downs?
How do you see the inventory level in Q4?
I mean, this question we will have our CFO to answer.
For the inventory level in Q3, I mean, the end of Q3 was around, like, TWD 78.8 billion, which was slightly higher than the end of Q2. Where we had, like, about 40% was the materials and, like, around 10% was the work in progress, and then the rest was the finished goods. In Q3, we had about, like, 1.88 billion inventory write-downs. What was the impact on your gross margin in terms of the inventory write-down in Q3? I think it was around like 1%.
I know, I mean, your business, I mean, EV business is growing really nicely. Currently, I think we heard some noises, I mean, in the auto market. Some of the legacy OEMs, they have been pushing out some of their orders and slightly revised their targets of shipment this year. What's your view on this?
We actually, the CEO and myself, just got back from our European trip. We actually have some conversations with our European sales staff. From what we have learned, we think that currently, actually, we still see a nice, I mean, order momentum for our EV business.
Actually, this year is actually the year that we started to see some initial success of this business. I think that for your questions, I mean, regarding the noises in the market. I think it's actually quite common when there is a new product, I mean, in the market. In the early days, there was only one OEM in the market. Nowadays there are more and more players in the market. I think that actually compared to the early days, I mean, I think actually it is a good thing that if we see the
I mean, the prices of electric vehicles coming down because in the early days, I think the electric vehicles are still I mean, kind of a luxury product I mean, for the mass market. We actually think that I mean, it's a good thing I mean, to see some price adjustment in order to see the further penetration. I mean, to accelerate the penetration rate of the electric vehicles I mean, in the market. I think that though the pandemic I mean, has been easing I mean, today.
There are still many, I mean, major challenges such as the inflation and the economic slowdowns and the capex cuts. Many major international tech companies, they also have this layoff plans. What do you see? I mean, what's your view on these major challenges?
Yeah. Well, as I used to say, I mean, we are not the expert of any macro economy, so it's hard for me to comment, I mean, on the macro factors. I think that, roughly speaking, actually, I mean, those macro factors actually may impact the consumer market.
May have more impact on the consumer markets, I mean, compared to the industrial or the B2B market. As we always say that nowadays, we actually don't really have that much or that many business or revenues from the consumer market, but we have more B2B sales. Of course, if the overall demand is going down or the overall macro environment is deteriorating, we are not immune, as it's not possible for any company to really be immune from this kind of factors. At least I think that we are much more diversified in many ways, so we should be okay.
Can you give us, I mean, any idea of, like, the outlook, I mean, in Q4, revenues and the outlook for next year?
I think that for Q4, I think it's actually just as the normal pattern, so it's maybe quite similar to Q3 or more or less, I mean, compared to Q3. For the next year, I mean, for 2023. I think the challenges, I mean, the markets, I mean, the market is facing actually more relatively, I mean, short term. We have been, Delta, always trying to capture the mega trend. For example, the cloud computing, the electric vehicles and those kind of things, I think, will continue to grow.
I think that, for next year, I mean, we will continue to grow.
What do you see the Q1, I mean, sales momentum of next year? Are we going to see a year-on-year growth? Yeah, I think so. It's like. Yeah. I mean, for Q1. I think. In Q1, are you still expecting the weakness, I mean, of IA business?
Yeah, I think that in the near term, well, we don't really have, I mean, very high expectations for the industrial automation business, but actually, I mean, as a matter of fact, it is not, I mean, declining, but it is just we don't really have very high expectations for it, I mean, in terms of the growth rate in the near term, given the macro factors and the macro environment.
So can you, I mean, share your capacity expansion plans around the globe?
Yes. I'd say that we have been building up our factories and manufacturing bases, I mean, in China, in Taiwan, in Thailand and India. In the early days, we didn't really think about to, I mean, building up capacity in the U.S.
Now we actually have this plan. I think one of the reasons because we are moving towards to more solution and system oriented system businesses. For example, I mean, taking our EV solution business, for example. I mean, the EV components they are actually much heavier in terms of the size, I mean, of the product. They are also much bigger than the electronic, I mean, products. It would be too pricey and taking too long, I mean, if we ship those EV products from Taiwan to the U.S. That's the one of the reasons why we have this plan to increase our capacity in the U.S. because we want to have more flexibility to serve our clients.
I think in going forward in the future, the competition is not just within the country, but you also need to compete against like the international companies. It's actually pretty crucial that we have to have the flexibility, more flexibility to serve the clients. I think everyone knows, well, I mean, today the geopolitical issues has become more and more complicated. The only thing we can do, I mean, as a company, is we always try to increase, I mean, to be more diversified and then increase our flexibility in terms of the manufacturing or in terms of the manufacturing basis.
that is the thing that we have been doing, I mean, for the past, I mean, 10 years. For example, we not only have a hub order in New Zealand, but also now we have another, I mean, office center, I mean, in Helmond. We not only, I mean, well, increased our capacity, I mean, in different countries, but also we actually need to hire more from front-end sales, I mean, to serve the local clients. In the old days, I mean, when we were still in the OEM business, we didn't really need that many front-end sales.
Nowadays, because we are, I mean, having more and more solution and system business, we will need to have. That's why we need to have more and hire more front-ended sales to serve the clients. I think that, as we can see the energy crisis in Europe, well, since Delta is a global leader in energy management sector.
Do you see any opportunities in this?
Yeah, I think this crisis, the energy crisis just came suddenly. Many countries, they didn't really expect this crisis. If you asked me about like the what would we see like the future business opportunities in this kind of crisis.
I would say, I think that energy efficiency is definitely one of the very crucial criteria when, I mean, the customers or the consumers, they are choosing your products, are choosing the products. In the past, when the cost of electricity was still pretty low. I mean, people may not be that sensitive to the energy efficiency of the products. When they see, I mean, when we see the energy price hikes, so the energy efficiency has become more and more important to the clients and customers. Everyone knows that, when we are, I mean, using, I mean.
When the equipment or devices are in operations, they are actually dissipating the heat. The cooling is also another crucial part in order to, I mean, save the cost from the air conditioning. I know that people are saying they're worried about the recession, and that might, I mean, have some impact on like every company. We still see the positive side, I mean, even in the challenges.
How do you see your energy storage system business?
I think your current major challenge is still the lack of the battery cells. Because I mean the electric vehicles are using more and more batteries.
I mean, currently, I mean, the batteries, the battery cells are still in a short supply. I think going forward in the future, when there is higher proportion of the renewable energy within the grid, that you will definitely need an energy storage system to help you stabilize the output of the electricity.
Do you have any market share data, I mean, regarding your EV business in the market?
For this year, we actually, I mean, saw the fast growth of, I mean, the EV business. We not only penetrated into the European customers, the US clients, but also the Chinese clients.
Actually, there is not. I mean, we don't find very reliable third-party data regarding the market share, I mean, the EV market share. We believe that we should have, like, somewhere around, like, 10% of the market. Yeah. The all-in-one, or at least the three-in-one or four-in-one, is also another big trend, I mean, for the EV, in the EV market. One of the very important reasons is that actually, I mean, it makes the customers much easier when they are doing the assembling of the final products. Also by, I mean, integrating, I mean, fewer components together, we can also save some costs, especially the material costs, from, I mean, integrating the prod
I mean, some of the components into one product. For the reason why we, I mean, we first set up a subsidiary to work on the, I mean, the third-generation semis. We actually have been working on the third-generation semiconductors for more than 10 years. We definitely think that the use of the third-generation semiconductors will be the future trend of power electronics, especially when you want to make some technology breakthroughs, I mean, in the market.
I think the advantages of, I mean, using GaNs, I mean, in the products is, it actually is for the application-wise for the higher frequency applications. Currently, in terms of the price is still pretty high. Let me give you an example. I think that one of the very special applications for the gallium nitride chips is actually the satellite power supplies, because it actually carries very high values, but also it requires very small size. The reason why we spin off this subsidiary, because I think that actually the semiconductors business is quite different from our core business.
We also want, I mean, by spinning off this business, and we also hope that, I mean, the subsidiary has more, I mean, opportunities to meet more customers and also maybe the external investors. That's the reason why we separate this business.
Yeah, I think that as many people they just mentioned in the past week, we actually saw the cloud companies, especially some hypers. I mean, the cloud companies or the tech companies, the international tech companies, they are revising some of the guidance for next year. People are really worried about this. What's your view on this?
I think that in the near term, we haven't really, I mean, seen any significant, I mean, impact or major changes in our outlook. For the long term, we definitely believe that it's going to be one of the growth drivers of our business. I think that maybe I can add some points on the on your question. I think the way the actually the cloud companies they are using their well the data centers are a bit different from the early days. In the early days, I think that people normally we've only treated, I mean, the cloud as a storage system to storage, I mean to to store some of our data on in the cloud.
Nowadays, I mean many companies, they are running their applications in the cloud system. We think that is a very powerful business model.
Can you give us more colors on your products and solutions?
I mean, within your EV solution business. Well, we actually, I mean, started this business from providing the energy management products to the customers, such as our DC-DC inverters and our on-board chargers. We also have been working on the motors for a very long time. In the early days, we were mainly, I mean, making the industrial motors. We also, I mean, leveraged the know-how and the experiences and leveraged that, I mean, to the auto motors. To be honest, if you really...
If you ask me about, like, what we would be worried about, I mean the competitive advantages, I mean, for our EV solution business, I think that we are actually not worried about the technology at all because we have been working on the products and technology knowledge for a very long time. We are actually more, I mean, worried about the cost, whether we can, I mean, successfully or continue to lower down, I mean, lower the prices of the products. That would be the thing that we will continue to do, I mean, going forward.
As far as we know, one of your peer companies, I mean, they recently just acquired a sensor company. Do you have any plans to, I mean, to acquire sensor companies as well?
I think we have been, I mean, always keep an eye on the market and. We also have, I mean, our own, I mean, sensor products in-house. Actually, there are many, I mean, different types of sensors. Can you share, like, well, the factors which are supporting your growth and, I mean, your expectations on your data center related business and the server power business as well.
I think there are actually not only, I mean, not just the cloud companies, they are building up the data centers. There are also some other customers which are the telecoms, I mean, the telecom operators. They are also making this transition from the voice to the data. They also need to deploy more and more data centers. They are also another type of the customers.
The next question is how do you see the pricing trend, I mean, for your products? I think that the pricing is actually pretty dynamic. When there is more supply, of course, I mean, the
There is more pressure on the pricing and vice versa. Do you still, I mean, see any component shortages?
I think that in terms of the component shortage is very largely eased, I mean, today. But there are still some components such as, I mean, the high-end semiconductors or the automotive chips are still in short. Before we call it a day, then we would like to have our chief sustainability officer to share some of our progress, I mean, in the ESG with you. For the latest results of DJSI that we were selected, I mean, as the number one, I mean, in the electronic sector.
What's the fluctuations of the foreign exchange rates impact on your GP margin? I think we actually sell mostly in the USD dollars, and then we also pay mostly in the USD dollars. The fluctuations of foreign exchange rates doesn't really have much impact on our GP margin.
Would you be worried about the China economy after the 20th National Congress?
Well, to be honest, I don't have any comment on this, because I think that everyone is still processing the impact after this National Congress. The only thing we can do is we just, I mean, focus on our job.
Do you think that you can reach the breakeven point of your EV business?
I think that if we continue to grow fast, I mean, especially if we can achieve like the rapid growth of the EV business last year, then it's possible that we can see the breakeven, I mean, of the EV business. What's your view on the U.S. high tech export control to China? What's the impact on your business? I think the restriction is more about the semiconductors, so it is not really. I mean, we don't see really direct impact on us.
What's your capex plan, I mean, for next year?
Because we are still reviewing our budget, I mean, currently, so I don't really have the number. But this year, I think, we are going to have, probably, like TWD 15 billion capex. For next year, it's not going to lower than this number.
Thank you, I mean, for joining our meetings today.
Yeah, thank you.
Take care. Bye-bye.