Earnings Call: Q4 2020

Feb 25, 2021

Welcome everyone to Karma's 20 2Q4 Earnings Conference Call. All lines have been placed on mute to prevent background noise. After the presentation, there will be a question and answer session. Please follow instructions given at the tone if you would like to ask the question. For information, a webcast replay will be available within an hour after the conference is finished. Please visit ww kuroma.com.twinvestorindex under the Investor Relations section. I want to introduce CFO, Paul Yin. Mr. Yin, you may begin. Hi, my dear friends and investors. This is Paul Ying from Ploma. I'm the CFO. Well, today, We're still in Chinese tradition, we're still within the year Chinese holiday season. So first of all, happy New Year to everyone. And everybody, I think, for the year 2020, it's very difficult And also suffering from the epidemic. Well, today, let's start with the financial numbers for the Q4 of Chroma Parent company. In Q4 of Q4, the sales revenue reached at the NT2.4 billion, this is 1% up quarter over quarter and the 6% down on a year over year basis. However, the gross margin reached at 51% and operating margin approximately 22%. The net income for the Q4 of 2020, Approximately, 6,000,000,000. This is the 18% growth on quarter on quarter basis and up by 14% year over year. The major sales revenue growth is in 4th quarter. It's contributed from the SMT Solutions Definitely. And in here, if we go back to see the year for the 1,000,000 and $200,000,000 compared to last year, this is a 13% 1.3% growth. And the gross margin will still maintain Above 2%, which is reached at 53%. And compared to last year, this is 19% growth reaches at the TWD 4,867,000,000 and the Operating margin reached at the RMB2.2 billion approximately and which is 25% And this is also a very high growth compared to last year. This is a 34% growth. And look at the income before tax, which is reached at the approximately NT2.8 billion dollars And this is 30% compared to the top line and 30% growth on a year over year basis. After tax net income reached at the NT2.3 billion dollars which is 25% of the year compared to the top line and the 25% growth on a year over year basis. And this brings us the earnings per share for the year of 2020 approximately $5.50 $5.50 And again, this is a 24% growth compared to last year. As to the consolidated base, if we look at the consolidated sales revenue, We reached approximately $15,503,000,002,000,530 and compared to last year, it's a 12% growth. And the composition of these sales revenue, the sales revenue coming from the testing equipment business, Approximately NT12 1,000,000,000 and the occupancy is approximately 78%. And compared to last year, this is a 14% growth. Up to The operations of the MA and they reached approximately NT618 million compared to last year, it's a drop by 39%, mainly due to the First is the COVID situation and also the major market of the M and A is focused on the Chinese market, which is and focus on The solar panel and these industries in China, especially in last year, I think it's pretty slow. So The main reason for MAS dropped due to that reason. And after the new material, They reached the NT2.5 billion dollars and compared to last year, this is a 22% growth. And for these gross margin of the consolidated sales revenue, It's approximately 49%. So in here, we make the 2 records. 1 is for the Sales of the testing equipment, we reached the record high and also the gross profit percentage, we also reached at record half. After the operating margins, we reached at approximately NT2.8 billion dollars And compared to last year, it's a 36% growth. As to the net income, again, this is 23,000,000,000 and 2,300,000,000 and compared to last year, this is a 26 Percent growth. And the earnings per share approximately, well, dollars 5.56 So if you look at the numbers, along with the COVID situations, we still Give out pretty good check records. And As to the product mix and the consolidated sales breakdown, again, If you look at the presentation material on Slide number 17, you can look at the test instruments and Automation and testing system, approximately, it's the legacy product of Chroma. It's around NT4.8 billion dollars and it's a 5% growth on a year over year basis. For the semiconductor and photonic test solutions, and this is very strong growth, approximately NT3 billion and year over year this is a 31% growth. For the Tenkey Solutions due to the Election day for the very competitive situations in China market, I think for the year of 2020, we made Somewhere like US456 million dollars compared to 2019, this is a 28% drop. And for the service and others, and this is also a very strong growth on the 51%. I think One of the reason is due to the installation base for our equipment is increasing and for the related Fixtures and service and other component and parts kind of demand increase. So in there, We see a bit of growth in this area. So in here, you can look at the numbers again. The total Consolidated testing equipment business approximately reaches at the TWD12 1,000,000,000 And this is a 14% growth compared to last year. And again, on the NAM, this is a 39% Drop and new material, this is 22% growth. So this brings us the consolidated sales revenue to the US1532 billion dollars and compared to last year, this is a 12% growth. So if you look at if we look at the 2021, this year's the guidance, the first paragraph, Definitely, we've been mentioned that before. It's where we are right now for the 2020, The sales revenue reached NT15.5 billion and this is a 12% growth year over year. And the parent company reaches at the sales revenue reaches at RMB9.2 billion and Presented a growth of 13% on a year over year basis. And again, it's a contributor from the semiconductor And photonics testing solutions and for these sectors increasing by 31% compared to 2019. As to the 2021 this year, our business outlook, we still Continue to see the very strong demand of the semiconductor photonic testing solutions and this is driven by global semiconductor Chips shortage, as you know, and the development of the 5 gs related and high performance chip HPC applications. Those key drivers, including high reliability testing solutions, Say the burning test or system level testing with the thermal control, which is the different kind of A temperature range kind of chamber simulations. And the second one will be the wireless RS and MCU testing solutions. And the third one will be the CMOS image sensor, DIS and the XL And the top testing solutions. And again, the first one is the semiconductor inspection and metrology solutions. So those areas that we consider, it will give us the drivers for the growth of the 2021. As to the power electronics of the traditional testing instrument and ATS, We still think it will continue to benefit from our green energy, including EV related components And battery cell, battery module, battery pack and small grid and 5 gs and server related power testing and we will be steadily growing. So this is for the 2021 business outlook And this is my last presentation. So any questions? Thank you. We are now beginning our question and answer session. The first question is coming from Jeff Hoellner from Macquarie. Go ahead please. Yes. Hi, Paul. Thanks for your time. I guess the first question, looking in 2021, what's the expectations for the mass accounts receivable either Write off potential or write back potential? Well, I think for the private status for the math, I think we're pretty much there already. So we are not expecting it getting worse as now, but It depends, yes. Okay. And for the nanoparticle tester, can you talk about, I guess, that Business overall in terms of new products, new customers and what type of growth you're looking for that particular product or product group this year and beyond? Hi, Jeff. This is Jennifer. I think you can refer to Slide 27. We do have some update regarding to the progress of the nanoparticle. And I think we already stepped from just a slowly testing to already cast out to cover N222. Apparently, this business is mostly target on foundry business and of course include They are outsourcing vendors because they need to check or review their particles before they ship out to the users. And this company already stopped over from last year. Okay, great. Thanks. One more question. On the AOI, is that a joint product with your acquired company or is that a Chroma specific product? You mean the semiconductor inspection and metrology solution? Yes. So far, it's on our own. This is a new department that we set up last year. And this is also another You can say product factors that we also target on the foundry customers. Okay. Thanks. One more quick one before I jump back in the queue. Okay. Did you mention the 7th after tester growth outlook for this year, is 20% plus still, Is that a target? Or what is there a more specific target for that growth? That's a preliminary The growth rate we estimate should be based on our current order on hand. Okay, great. Thank you very much. Thank you. Thank you. Thank you. The next question is coming from Arthur Lai, Citi, go ahead please. Hi, thank you and congrats on the great results. One follow-up is on the XLT side. We learned that Adventist, one of the Japanese vendor, They actually try to break in into this new market and what's your Preliminary thoughts on it. And also they told investor that they categorized it as service revenue. And then I wondered, do you have any read through to why making the XLT is a service rather than equipment? Thank you. Okay. Hi, Arthur. This is Jennifer. At Genentech, they actually acquired 2 companies for to step into SLT markets. But I think we step into SLT markets, I think at least 6 or 7 years earlier than the other 2 major competitor include Azantas and Teradyne. And we start off this SLT business as the first primary target is HPC markets. And so as you noticed, the HPC market are very, very customized and very sticky business because the HPC type of chips Cannot be as standardized as like mobile chips. So we think the advantage of the very first target according to the economic scales would be mobile chip because of 5 gs mobile chips, all the I would say most of the 5 gs mobile chip need to add the SLT testing process. And of course, since we already been doing the SLT business for almost 10 years, we do have some solution and we already start to cover some of the SoD testing for mobile chip as well, not only limited to SPC markets. And regarding to service and others, these factors, I think the one concept that the investor could Bearing in mind is, recently though the SLT become the protocol type of patches because the testing process is under a paradigm shift. We used to test the chips based on the software content to stimulate the chips, but now due to this No, temperature, thermal control issue or the stimulation and also high power consumption. So you need to add SLT testing. But apparently SLT, The content is hardware content. So once you change the testing method from just software to become a hardware, it starts you're having Sales which is a console, the so called consumable parts that's including handler, sockets, contact points and No burning ball, low ball and others. So that will also explain why our service and others A significant increase in last year by 50%. This is not exactly like a software type of services Contracts that we provide to our customers instead actually is more like a consumable part that we sell to our customers. Actually, this also helped to create a thickness between our format with our pools of customers. Okay. Got you. And one follow-up, if I had I missed. There is one of the investment That's in the other industry called Genet, g e n e t. Can you can management comment on why we invest in this company and what's the long term strategy We try to grow there and we try how the synergy between the investment and also your company. Thank you. Yu Bin, that is the company you mentioned that's related to PCR testing? Yes, yes, yes. Okay. Because we SLT content is You need to point your design SLT, the basic concept SLT is to do, you can say, micro size Of automation, micro size. So when the biotech industry start to be, Because they stop booming. We consider maybe we could use our design in the micro size, those All formation that we use for chips could also use it for biotech. So it doesn't mean we do chemical stuff, but we just Provide the kind of photonics, the automation that apply from all industries. So that's why because of synergy, they rely on us for the future because when you need When you have a tester, you also need to have the testers, the chemical stuff. So they want us to They want to increase the tightness and make a relationship between the both parties. So we actually invest now 15 Around 15%. And I think This is the equipment. They want us to further improve their design in the equipment. Okay. Thank you. Thank you. Thank you. The next question is coming from Jerry Su from Credit Suisse. Go ahead please. Thanks for taking my question. I just have two questions. One is that, I think as Paul you mentioned that we've seen the Parent company, the service orders saw pretty significant growth. And that is probably mainly related To solve the fixture or solve the service you provide associated with the semiconductor related business. Do you have a breakdown of what portion of that source and others is coming from is more related to the semiconductor? How should we think about the growth rate into the next couple of years? This is the factor that our Chairman, I think 1 or 3 years ago, he set up a separate department just to focus to improve or further enhance our service provider. So I think especially from the SLT business start to picking up, this kind of business also increased Accordingly. And you could say servers and other, I would say maybe Around close twothree is mostly related to semiconductor service and selling those parts, The technical part. Okay. That's very helpful. And then second question is related to that the disposal you're going booked in Q1 on the Huya headquarter. What are your plans about the use of the proceeds you receive? Well, as you can see that we're going to pay out Like 81% of the dividend. And the rest of that, I think for the increasing of The debt, we're going to pay out the debt as well. Hi, Jerry. We also in the past few years, we always continue to Quite either small or medium size of the, I mean, sort of MA project just to furnish our product mix We're technology. So this we do have several projects on hand and we are in that way at the moment. If we Well, either we spend probably spend on M and A, no country to furnish our products, especially for semiconductor industry or otherwise, we mostly just pay out. Okay. So because I think you have mentioned that the payout ratio this year is about 81%, which is a little bit higher than the past few years. And I think this disposal gain is one of the reasons. So how should we think about the payout in the next 2 years. Is it coming back to the more normal level like 70%? Or you're considering to do some of these Either share buyback or special dividend as well. I think we do appreciate that investors Those considerations, our low payout in the last 2 years because we need to wrap up our new headquarters. So last 2 years, our payout ratio is maybe only close to 70%. I think Chairman this time is just want to increase this Payout ratio to maintain our payout ratio maybe around 75% plus for minus around to even out. Yes. So just to ensure that our payout policy is not changed. Okay. Got it. Okay. Thank you. Thank you. Ladies and gentlemen, we are now in question and answer session. The next question is coming from Gong Wu, JK Capital. Go ahead please. Hello. Thank you for the good results. And I have some general questions. I have 2 general questions. First of all, first one is somehow related to the question before us. It's about first question about the optical inspection machine. Well, if you compare your revenue contribution from, well, traditional signal tracking versus Optical inspection machine, what is your revenue contribution from the optical machine in the recent year? And what is your Plan in the next 5 years. This is a great question. Sorry, did you pick Hold on. I didn't think of what kind of machine you want us to compare? It's comparing to your traditional signal testing. No. Or just any contribution within optical inspection machine within your total testing sales? Yes. And the second one is about the system level testing. What is your total admission market of this 2nd level testing currently? And what will it be in next 5 years? Thank you. I'm not quite clear about the first question, the equivalent. So I sorry. And I'll answer the second one. Our SOT, I think we as I mentioned before, we are principally We are the 1st runner for doing this SLT, I think, back to 10 years ago. And then now We do see this is the SLT become protocol type of test. You can say, if you talk about HPC market, Our GPU or some of the RF, we are pretty much dominated. And I also mentioned That's because the HPC is very customized system. Normally, it's hard to see Our customers shifting to different vendors. So if you talk about the market share, we pretty much cover. And For mobile, just starting from 5 gs. So before 5 gs, I think The exposure to using SOT is very limited. Yes, I think that before, I think the biggest provider is Paradigm and not Paradigm. Yes, Teradyne. It's Teradyne. But because it migrated to 5 gs, 5 gs is mostly related to high power consumption. So the testing method is very much different compared to 4 gs. So I think So I think if you talk about the 5 gs mobile Type of SOT, I think either Chroma or Eduventures have covered several of the required features. So what was the first question, the equipment? All right. For the first question, what is your revenue contribution from the optical inspection machine now and what would it be in the 5 years later? Okay. This is the factors we set up from last year. The reason why we set up that It's because we start to in our we do SLT, right, for many years. We already pretty much cover Most of the fabless companies and we always focus on the foundry as our next target customers. And besides the flooring testers that we've been qualified by foundry customers and already start to adopt these testers, Another driver or another product, we are getting there is Optical inspection. So this is the product that we prepare to having more exposure for the foundry customers. So we probably so far will not disclose the sales at the moment. Very good. And just Quick follow-up on the SSD side. Yes. I can understand that there are more System level testing on the HP HPC side. But because there are more different variety, I mean, Various chips are combined together on the HPC side. But why 5 gs mobile phone should use the T machine more in the future? Because okay, I give you one example. 5 gs signal is very, very short compared to 4 gs. So when you do testing, okay, this is one of the part I will deliver to the mobile chip makers. When you do testing, you need to turn on the signal. And because the signal for 5 gs is very short, they start to interfere each other. You barely to do any further testing. So you need to have so called like we call it Attached okay, attached to isolate the signal, but without turning off the signal from the mobile chips. This is one of the features. And not to talk about if you talk about some several chips, if you say if you want to do In short, reliability testing may need to add a light burning testing or if the chip is very sensitive to temperature, you probably need to add a thermal control So the basic concept of 5 gs is mobile schedule 5 gs is to solving a single problem. Very good. Thank you very much. Thank you. Thank you. Thank you. There are currently no questions. I will hand it over to CFO, Paul Ying, for closing remarks. Mr. Ying, please proceed. The difficulties and then performed pretty well. And for 2021, we still see some Difficulties because the COVID situation is still going on, but I think Thanks for all. We appreciate all the consideration and attention from the investors and friends. And we'll still move on and to give out very good records. Thank you and bye bye. Thank you. Thank you for your participation in GuraMao's conference. There will be a webcast replay within an hour. 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