Earnings Call: Q1 2019

Apr 30, 2019

Welcome everyone to Chroma's 2019 First Quarter Earnings Conference Call. All lines have been placed on mute to prevent background noise. After the presentation, there will be a question And for your information, a webcast replay will be available within and out after the conference is finished. Please visit www.chroma dotcom.tw/investorindex until the Investor Relations section. And now I would like to introduce the CFO, Paul Ng. Mr. Ng, please begin. Thank you, Jason. This is Paul Ng, the CFO of Prama AT well, welcome to the first quarter financial release for Chroma. This conference will conduct in mainly English. During the Q And A session, you're welcome to use Mandarin Chinese or English to, to, to, ask. But, I think I will answer according to the language that you are using. So let's start from the presentation material. I think we sent out this afternoon. We will be we will be starting, from the, slide number 12. Which is the condensed consolidated income statement. Compared, you can see that first quarter of 2019, the sales revenue, top line of Chroma consolidated, and it is that it will be $2,742,000,000. And this represents a 21% fall down, star compared to last year first quarter. And mainly, the biggest difference will be the consolidated sales of MAS, which is struck by 55%. And for the parent company consolidated sales of testing equipment business, it fall down by 14%. And while the new material business that fall down by 7% And for the gross margin, we enjoy 48%, which is a record high. And the absolute number is the $1,317,000,000 And this represents a 16% drop, well, compared to the top line, it's due to the increasing of the gross margin ratio. And for the expense, you can also see that we control expense, well, compared to last year's first quarter on a Y oy base, pretty similar. So the operating income, is the $289,000,000, we present a 48% drop compared to last year. So the net income for the first quarter, it goes to the 297 $1,000,000 compared to last year's first quarter, it's a 30% drop. And that represents a earnings per share on a basic basis, $0.72 compared to last year, $1.06 Again, this is a 32% drop. And to the, condensed balance sheet, if you look at this page, you can also see that it's quite similar to the last year, 4th quarter. So the total assets amount is pretty similar. And due to the slow season effect, So we can see that the inventory turnover high. And also the accounts turnover, again, with the same kind of effect compared to last year fourth quarter. And again, return on equity and return on assets, it's still a single digit due to the first quarter against the slow season effect. So in there, you can see the free cash flow for the first quarter is approximately $387,000,000. And this is the consolidated basis, highlight. And if we go to next page, which is the wholly highlight, for the first quarter of 2019, you can see that parent company, the sales revenue reaches at the $1,541,000,000. This is a 9% down on a Q over Q base. And 22% down on a year over year basis. The gross margins maintaining upper 50% reached to 55% and this is 8 quarter high, which is a management is pretty satisfied with the with this gross margin. The operating margin reaches up to 19%, also in the expectation of kind of frame. And the net income reached to $80,296,000,000. This is 38% down on a Q over Q base and 31% down on a year over year basis. And again, if The first quarter, the highlight will be due to the slow season, which is the Chinese New Year period, The first quarter sales revenue reflect pretty low. The gross margin, again, which is the highest in the past eight quarters. So This is a highlight for the first quarter. It will go to the, slide number 15. You can see that the first quarter condensed income statement for the parent company. Again, the sales revenue $1,541,000,000,000, representing a 9% drop by a Q over Q base and 20 percent drop by year over year. And you also can see that from the gross margin portion, you can see that 50% gross profit reached at the $845,000,000. Well, pretty much same as the fourth quarter of last year. This is only within a 4% drop compared to the first quarter of last year. This is a 17% drop. And again, if you look at the expense level, you also can see that we maintained the expense level pretty stable. So that we can enjoy the $289,000,000 and see that as the operating income and reach up to 19% which is a 4% growth on a Q over Q base, but a 31% drop on a year over year base. And the For the net income, again, it's $296,000,000 and compared to the last quarter. It's a 38% drop and compared to the last year, first quarter, that will be a 31% drop. And again, earnings per share on a basic will be $0.72. And compared to the last year, it's 30 2% drop. If you look at the next page, which is the balance sheet highlights and the financial ratio, Again, it seems that still on the slow season effect for the inventory turnover, and accounts receivable turnover will be a little bit higher than the last year. So in there, you also can see that return on equity and return on assets. So in the single digit area, which is we expect if we can improve the profitability Then it will go to the double digits in the next few quarters. And for the free cash flow, for the 1st quarter, we enjoyed like $428,000,000 $28,000,000. And this is the highlights for the balance sheet for the parent company, then we can go to the next slide will be slide number 18. In this slide, you can see that the product mix and also the consolidated sales breakdown. Here you can see that the for the first quarter, the Chroma consolidated Sales reached at the TWD 2,742,000,000, and it comes from the promo solidated testing equipment business, which is So I mentioned is $2,223,000,000. This represents a 14% a 15% drop on a Q over Q base and a 14% drop on a year over year basis. And all crossover, all the, industrial applications from the testing instrument, to the semiconductor and for time. To ten key solutions, it all dropped, from 70% to somewhere like a 10%. Were still due to the effect starting from last year fourth quarter. I think all the ethnicity from the from the trade war between the China and the United States. So, a bit of, hesitate in the expansion and also in the new purchase of the old procurement for the equipment. Slowing down. I think this is, this is the final effect on that on the first quarter of 2019. And, another factor for Chroma to drop is the MA as if you look at the MA as, first quarter of this year, It only goes to the $274,000,000 compared to the last quarter, it dropped by 71% compared to last year's first quarter, it dropped by 55%. So that means, yes, MAA has is in the in between all the project based kind of a business and, it's in black. And for new materials business, well, steadily, well, customers transfer the utilization of the gold wire to the copper wire. So it dropped, from the 1st quarter top line $395,000,000 by 7% on a year over year basis. And 22% on a Q over Q base. So in there, you also can see that for our Q over Q base, the total consolidated Chroma top line dropped by 30% on year over year base comparison, it dropped by 21%. So that's the total breakdown of the top line from a consolidated point of view. Of Chroma. So if you look at the 2019, I think we guide like this, well, firstly, The Koma 1st quarter consolidated sales revenue, represent a decline on either Q over Q base or y over Y base on 30% 21% respectively. The consolidated gross margin still can maintain on a higher level, which is a record high on the 48%. For 2019, for the year 2019, we still think that testing equipment business sales will be picked up from the 2nd quarter and move into peak season just like our ordinary kind of seasonality. And the testing equipment business expect to grow quarter over quarter. For those overseas activities like U. S. Market, European and, and the Japan market, will start to pick up from the second quarter after a short term swing from the U. S.-China trade war. And due to the 5G market demand, think that the IC system level testers treatment will be started to contribute in 2nd ha/lf While those, for times, will be continuing to benefit from the big sale and optical fiber demand increase, And for the FinKey solutions mostly will be mainly contributed in the second half. And for MAS, for the automation process business will be stopped to pick up in the second half as well. I think this is our overall guidance for 2019. And thanks for your listening. And now we open for the question. You. After you are announced, please ask your question. Please press 2 to The first question is coming from Steve Guinde of Yandha Research. Go ahead please. Hi. The the guidance for now. So, to the 3rd moment, I took them into this earlier this year. Open the guidance. Right? Yes. I mean, I found the resource, like, the earning each and the earnings, half board will be no lower than 1718 label. The gross margin. So being there, this is up percentage of things I want to consider or take away with an SMS or just some more consequence in the margin, your an aggregate gross margin. Yeah. Time. Forward woman to that to a blend and to automation, right? So I don't project into our gross margin predominantly back to plan. And the one you might have to attach your advertising system, ma'am, not that I'm beyond plan why the robotic was handled by Ma'am, so gross margin related for I'll call you in managing the R and D talent. Our booth and the battery. So don't you plan to issue automation that it means as a project based type of the business? Oh, okay. So is it parent company internally? Okay. Okay. Incrementally in both your share declined procurement Okay. Okay. Hi. This is settle Okay. Okay. And the next question is coming from Jerry Sue of Credit Suisse. Go ahead please. Huishan, when you said to come on to the presentation, our client guidance, buffeting your teed out, so you oversee the buffet margin or make Sangouche Tung, BRG cases, where you'll recover. In the application that drives down the Now, Ling White, just, sorry, need to talk about your key also, visual optical fiber. The demand will increase. That will also take a visible optical fiber to the demand increases in the This is to the frequency of the marketing So with the new application sir. Oh, okay. Smooth and the order on international overall. Okay. Ah, to the other driver, just like VCSEL, Hial, just the optical fiber. That's So contract, which is double ranging completely. You don't need the mass production. I can't have a mood since the power on your woman, so I'm going to throw down the order. You guys should carry around the order, like the mass production order. For VCSEL live short or Hwa English to Android. Now, because in first half, we are upgrading So, this year. So the major, the current Xiamhui transistor related higher optical fiber. Moved and faster and up to fiber both the current yields and that we should not order yields and that we to So, sir. So if I the data is moving soon, not changed. Of this optical fiber your laptop driver, it goes to VCSEL, it goes to optical fiber. Young. Okay. And the next one is coming from George Chu from Fubank. Go ahead, please. Hi, Jennifer. Now to the guidance Milu Tito to the driver. No, the cash commitment food one in whole The next question is coming from Jerry Tsai of JP Morgan. Go ahead please. To to some donation that has to be in arts, the main reasons for the technology my question communication device now. The you. Up to 5 headroom to the age emitter, okay? Just that will do a laser. So, information. Okay. In terms of inspection, is the handle time industry operating process. Fiscal Mango Sysco is our current user industry senior woman that's So, you know, that those who don't know, that those who don't know the PC vaccine, you can eventually attack once in a function. Being the knowledge, you can know how. Okay. Ladies and gentlemen, we're now in question and answer session. And the next question is from Jeff of Macquarie. Go ahead please. Yeah. Hi, Paul and Jennifer. You mentioned SLT pickup in, in second half. Can you talk about how how SLT growth or I believe over the last, say, 3 or 4 years? Okay. I'll answer what it demands, actually. No, these days most of the chips are using this kind of integrate designs. So they need to stimulate those, you know, those chips are very sensitive to environmental change and they need to do this kind of physical condition testing. If you want to implement local physical condition testing, yeah, I see handler, you know, back pick up this kind of we so called IC handlers didn't have to increase. We call it pick and place. And recent demands we actually come from first is our effort, okay? And I sometimes do also combine with cancer simulation. So currently, we do have, 1, international, F Makers they are they are replacing their whole systems in Southeast Asia. So this is the the order we plan to deliver in third quarter. And then we all show we receive another auto eye makers from Europe. And then they are also have this kind of demand and they constantly drop us the orders. So we think we our IP handler, which is a so called SLT testers, will be start to have a even quite a big contribution from these parts. Okay, thanks. Just one more remaining question. So just overall, if you talk about competition in the SLC market for you guys? Thank you. Currently, if you combine thermal control, which is able to still make the the temperature for minus 50 degrees, 150 degrees over minus 120 to 120 degrees. I don't think there is a we don't see any comparing at the moment. Yeah. It's quite a niche market. Thank Thank you. Ladies and gentlemen, We are now in question There are currently no questions Then I will hand it over to CFO, Paul Ng, for closing remarks. Mr. Ng, please proceed. Thanks, Jason. Well, The first quarter of 2019, it looks a bit of a slow, which is also, filled up into the expectation of, you know, traditional seasonality or nearing seasonality. And we are expecting that, 2nd quarter will be warm up and then pick up by the first quarter on a peak season. So if that's the case, let's see, definitely, it's going to deliver what we committed. And thanks for your time. And, yeah, see you next time. Thank you. Thank you. We thank you for your participation in Commerce conference call. There will be a webcast replay within an hour. Please visit www.chroma.com.tw /investorindex under the Investor Relations section. You may now disconnect. Goodbye.