Earnings Call: Q1 2021

Apr 28, 2021

Good afternoon, my dear investors and potential investors. This is Paul Yin, CFO of Chroma. Here, Jennifer Chang with me. Welcome to the 2021 First Quarter Investors Web Conference. But today, we are going to conduct this presentation in English. And afterwards, for the Q and A, without talking to your language, we are going to Make the answer by Mandarin or English. Well, Let's start to from the skip a few pages and go to the Slide number 5. You can see that the Q1 condensed consolidated income statement. You can see here That's the net sales for the Q1 of 2021 is around somewhere around TWD 4.27 $1,000,000,000 Compared to last year Q1, this is a 27% growth. And if we go to the detail, you can see that consolidated sales of our test equipment business, which is the mainstream of the of the Chroma operation. It's approximately NT3.34 billion dollars and compared to last year's Q1, This is a 31% growth. Well, as to the sales amount of the MAS It's $143,000,000 and close to a 19% drop compared to last year. Well, as to the new material sales numbers, close to NT 692,000,000 And this is a 24% growth. So overall, it gives us a 27% growth on the top line. Up to the gross margin, You can see that for the Q1, the consolidated gross margin approximately to NT2.1 billion dollars and close to 49% of the gross margin rate. And compared to last year, this is a 21% growth as well. And for the OpEx, we maintain approximately the same level, a little bit over and give us the operating income close to NT890 million and compared to last year, this is a 62% growth as well. But if you look at the and operating margins give us 21% compared to their sales revenue and which is this is a new height. And compared to the last year, if you look at the non operating sections, You can see that they are sitting approximately TWD 1,800,000,000 And this is almost, well, a big chunk of percentage of growth compared to last year. I don't give the numbers to you, but if you look at the income before tax, it's close to TWD 2.60 dollars 9,000,000,000 Antidax compared to last year's 600,000,000 $607,000,000 and this is a 3 43% growth already. And net income, It's going back like a 2.25000000000 NT dollars compared to last year, again, another 3 65% growth. So that give us the Q1, The EPS close to NT5 to NT5.36. I think, well, if you look at this as Big numbers and soft, well, it's all coming from the non operating. Yes, we have we enjoy Capital gain for sales of our original headquarters back to the Huya Industrial Park. If we exclude that section out, if you look at the Slide number 6, we give you a comparison or pro form a income statement. If you look at the blue column, you can see that the operating income, Well, again, it's $889,000,000 And for the Compared to last year, there's a 62% growth. And if we take the capital gain Out of the non operating, then the net income is close to $729,000,000 And this is a 50% growth. So we still enjoy like somewhere like $1.74 of EPS. And that compared to last year, it's a 54% growth. So for the main strength all the year, the core business of Chroma, we're still doing a very good at the Q1. Okay. If we go to the balance sheet, so those highlights, if you look at here, I think I want to highlight to you this year For those good numbers from the income statement, you can see that for the turnover base, For inventory, for accounts receivable or even for the accounts payable, I think they are improving and also in a very healthy status. And for the consolidated for our financial status, you look at this is net cash at the Q1. And for the return on equity, It's 17%, which is excluding all the capital gain already, which is the fair numbers. And It's pretty good numbers to us and return on assets is 10%. It's a double digit. And free cash flow for the Q1 is somewhere $3,300,000,000 a little bit close to $3,100,000,000 As for the Q1 As to the Q1 of the parent company highlights, if you look at here, you can see that the Sales revenue drove to $2,660,000,000 2.66 1,000,000, up to $2,660,000,000 and up to 10% on a q over q basis and 30% on a year over year basis. And the gross margin still maintaining at the over 50%, close to 53%. Operating margin, close to 26%, which is approximately at the high end of the year for the past few quarters. And net income, we are making $2,248,000,000 and up to this is a Q over Q, 2 28% growth and the 3 77% growth on a year over year basis. The major growth in the first quarter It's contributed from the semiconductor and photonics sectors, and this represents a 50 6% growth on either Q over Q or Y year over year respectively. So If we look at the income statement for the Q1, again, if you look at the Slide number 9, you can easily see that again, operating margin is close to NT700 1,000,000 And this is, yes, 28% growth on Q over Q and 38% growth on year over year and a big chunk of the capital gain sitting in the non operating and for the Q1 close to NT1.9 billion dollars and that give us the 1st quarter Net income, NT2.24 billion dollars and close to a NT5.36 $20 only earnings per share. So if we look at the next page On the financial ratio and the balance sheet highlights, again, if you look at here, You also can see that the improvement on the turnover base of the inventory turnover, accounts receivable turnover and also the accounts payable turnover. Return on equity also on the sitting on the high end on the 18% and free cash flow close to $3,000,000,000 All right. Well, one extra slide I would like to Show you is on the capacity expansion. I think maybe you know or you don't know, We have been moved from our original headquarter in Huaiye Industrial Park to our new the Station 87 headquarters. Well, the basic highlights for these floor space, Well, approximately, the new headquarters almost doubled the size of the the original one. And the original headquarters within Seoul and recognize the capital gain at the Q1 of this year. On the growth, Approximately, PLN 1,99,000,000, close to PLN 2,000,000,000 and if we break it down, you can see that, well, The net gain of this transaction will be approximately NT1.73 billion dollars Well, that will be excluding the still have to be excluding the leaseback certain portion of our original headquarters Due to the production, we still maintain on the old site. We have to deduct it by $42,000,000 And also Due to the counterpart that we're selling to is the ADLINK and we're holding ADLINK around 11.26%. So that portion of the capital gain will be deferred in the future. And you also can see that the new site here, we are staying in the Station Taoyuan A7 Headquarters. On the land utilization is approximately 18% of that. So We still have a lot of space to for the future expansions. And after The cash flow for the Q1, you can see that the Q1, our cash free cash flow approximately It's NT3.1 billion dollars and our cash dividend for the last year, 2020, is Approximately TWD 1,880,000,000 And also our ordinary CapEx spending for each of the year is approximately $400,000,000 So we still have the balance of the extra cash flow cash flow, cash inflow Around $800,000,000 for the possible M and A project or the future capacity expansions. I think this is the cash flow for the for our capacity and also the sales of the original headquarters in Bayer Industrial Park. If we look at the operation side, you can see from the Slide 13. So this page, you can see that well, for the Q1 of this year, for the product mix, you can easily see that as an instrument and automatic testing systems for the ADS sections. Well, it's a bit of flat to last quarter and also the Q1 of last year. And for the semiconductor and the photonics Asset Solutions. You also can see from here that both Q over Q and Y over year It's a 53% growth and which is the growth driver for the Q1. And Turkey, again, if you look at the numbers, well, for the Q1, Q over Q, this is a 33% drop. But compared to last year Q1, it's nearly triple the size due to the projects that we deliver to our customers. And again, service and other still Have started to grow compared to last quarter and a big chunk of growth rate on 82% on year over year basis. Well, overall, we still can see that for the Q1, Well, the Chroma consolidated testing equipment business growing like a 4% compared to last quarter and the 31% growth on a year over year basis. For the MAS, again, this is a 19% drop. And for the new material, we have contributed from the semiconductor business booming While the utilization of the special material, I think, is growing, we are looking at the 24% growth on a year over year basis on well, 10% drop on a Q over Q basis. Okay. This is the basically is the My presentation well for the year 2021 for the guidance, we didn't make any Change right now, well, probably until next financial release and the conference, we are going to have a new one. Thank you. And now let's go to the Q and A. Any questions? Hi, everyone. If you have any questions, can you type on the question section? And then we will answer the question through We have received 2 questions. I'll start with Andy from PAG. The question is regarding to what will be the strongest growth in 20 21st, Which occasion? Based on our current order on hand, I think semiconductors the Semiconductor for 20 sectors remain strong. And I think our over visibility can know probably over Good quarter. And I think for the 1st quarters, we generated over 1,000,000,000 From a semiconductor and photonics sectors, I would say about 85% will become from IC testors And then remaining is coming from the photonic sectors. And as you know, We don't cover any memory IC testors. So our major contributions mainly come from first one, SLC system level testers. The drivers come from HPC Markets. Another part of business is actually come from the low GIC market, which is we provide the low frequency of testers. And the next question comes from Mr. Huo Kevin. What is 2nd quarter sales guidance and outlook by segments? Regarding to these questions, I think our guidance, we do give like an overall 2020 1st is overall guidance. For example, the stronger growth will become from the semiconductor and for 20 factories. We expect our leases should be over 20% growth. This kind of guidance will not be changed as you may Notice from the results on 1st quarters. Regarding the 2nd quarter, I think the best answer will be If there is no component shortage in first factors, I think we're supposed to be doing better than 1st quarter. But I still we still need to say that, Carol, this quarter, we do have some Our inference factors from this as some components are still under shortage. And so our delivery time or the lead time to our customer will be Slightly longer than previous or compared to normal practice. Next question actually still comes from Andy. It's in Chinese. IC testors burning regarding to IC testor, we library testing like burning The product cycles, okay, and our customer the product side he's asking about the Customer product cycles and also the customers. Okay. So fiscal level testers, We mainly cover HPC market at the moment and then only partial for the 5 gs mobile. Regarding to the burning system, I think the majority come from high power related SPC type of chips, for example, especially graphic, GPU, AI Center and some of related to auto IC. So regarding to system level testers, we do have 3 major features. First one, compatibility testing, which is how your chips interact with other chips, which is we so called functional testing. 2nd 1, thermal control. And 3rd, sort of burning system. And these customers need to have a burning system or burning functions mostly because these chips are related to high power. For example, some of the NVIDIA customers, They say their new type of GPU already starts on the 600 watts. And if compared to other customers, some of the customers even over 600 watt. And our customer base for HPC, this year, I think the major has come from If you talk about GPU and NVIDIA, we have partial a little bit for AMD and then We do continue to penetrate new customers, for example, Skyworks and Xilinx. And for mobile and other related wireless, We do have Qualcomm loan customers before. From last year, we also have not from last year, from last 2 years, we do cover some of Asia customer include MediaTek, Realtek, high silicon. The high silicon is not the big portions, Very little. And these are all major customers. Next question I didn't quite understand this question regarding to auto IC. Normally for auto IC today, we mostly provide temperature simulations And not really cover the CPU. So I don't quite understand this question. It's really For all those purpose, it's really include sensor or not. So I expecting this investor could These are both clear questions. Okay. The next question is from Claudia, can you share more on the outlook for power testing equipment for EV Industry? Can You share more about the company's perspectives and target for your metrology category, Okay. Okay. I think our power testing in the Q1, as you may notice, we also deliver another EV battery No projects. And obviously, last year, okay, that started from last year, our power testing breakdown It's still 25% to 30% related to EV Industry and 35% is related to consumer electronics goods, Including passive components, it's very hard for us to really divide up the passive components, how much it goes to consumer electronic goods, others for EV purpose. And remaining the percentage majority go to 5 gs related, Including infrastructure, data center, server power, okay. Obviously, last year, the EV investments, I mean, so for overall industry, we didn't see any see like a very strong growth, I mean, for last year, maybe could be a reason because of COVID's inference But this year, we do see the coming up, the picking up on the EV investment, no matter on the EV battery cell over particularly mostly comes from the EV battery pack and the charging station. Because the battery cell projects need to content, every time we deal with this kind of project, we need to include or integrate automation part. As you know, we are a testing equipment company. We do manufacturing automation parts. So sometimes we tend to be very selective On the project we select because if we need to build a lot of automation parts, then we probably face some kind of price pressures, Especially from China's system integrators. So for some approaches, so we tend to building some approaches that deal with European car battery cell manufacturing Spaces instead of China local EV battery sale for the China local car, Okay. And so our talents, our main focus mostly on battery pack, battery module And also charging stations. And we do see this part of business, I mean, the customers' investments continue will start to picking up from Q2. Because the Q1, I think you already read from the markets. I think I review our power testing sectors, the testing measurement, the product sectors in the Q1. I think pretty much in line with the market I think most of the investors upgrade or investment has come from the panel industry. And I think the following but we do Start to see some are picking up on especially from battery pack and battery module investment. And we believe this kind of momentum will continue for the rest of the 3 quarters. And regarding for metrology category, okay, metrology, it's simply they do have a general terms in the overall market For optical inspection, so how is different to the general kind of optical inspections? Okay, methodology is to measure is mostly related to measurement And Murphy is using for foundry process, foundry process, not the back end so called cosmetic inspections. And this is the product factors we have developed for several years. And our core technology, which is homegrown technology It's white light interferometry. And as you noticed, the 2 years ago, we also acquired a company called Camtek, This is they have core technologies. It's 1 light triangulation. All about this is related to methodology because we need to measure because it's due to stack up process or new process or foundry process. So This kind of new, you can say, new process, so they need to add a several Our testers called metrology to measure the dye size during the foundry process. So we don't this is nothing to deal with cosmetic, which is very back end. And we believe this kind of technology, we do in the past 1 years, Maybe we have thought infants or slowed down the project and we have exchange the technology between Chroma and Camtek. But I think we continue to develop a new test which is to cover metrology. And we believe this kind The last year we do have a sales contribution and then this year also we already have some backlog on hand. And we believe this kind of metrology Our testers, by adding foundry customers will help us the semiconductor for 20 sectors. I think maybe in the earlier time, the next 2 or 3 years, our these factors will be reached close to over 50% of Tesla Equipment Business. But as you know, because the semiconductor, the ASP is really higher compared to general power industry. So this is all for these questions. I think there's no more questions. So we I think we will wrap up. Okay? Unless you have any questions right now, otherwise, we're going to well, turn around this Conference. But again, thanks for your attention and also for your ongoing support to Chroma. And we believe, well, the Q2 and onwards, we are going to we are making Our efforts our best efforts to make their contributions to our investors. Thank you. Bye bye.