Welcome everyone to Chroma's 2018 second quarter 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 the instructions given at that time if you would like to ask the question. For your information, a webcast replay will be available within an hour after the conference is finished. Please visit www.chroma.com.tw/investor/index under the Investor Relations section. Now I would like to introduce the CFO, Paul Ying. Mr. Ying, you may begin.
Thank you, meeting host. This is Paul Ying. Welcome, everyone. This is the second quarter financial release for Chroma. Welcome, everyone. Let's start it from the consolidated financial statement. Well, at the second quarter, Chroma consolidated sales revenue, we continue to deliver a very strong growth in the first half of 2018. This very impressive result was mainly contributed from the MAS, the automation business. It represents outstanding growth of 1,160% year-over-year growth. While the Chroma testing equipment business also presented a double-digit growth of 13%. This is a very impressive record. If you look at the gross margin, this gross margin represents 44% at the first half of 2018 compared to last year. It's a 41% growth. However, due to the mix of different kinds of consolidated entities, the gross margin, compared to last year, 49%, is a little bit decreased.
Again, the absolute number is 41% growth. For the operating income, after deducting the OPEX, in first half of 2018, it represents TWD 1.772 billion. Compared to last year, this is a 35% growth. With this very strong growth, the net income standing at TWD 1.448 billion compared to last year, this is an 80% growth and representing TWD 3.57 per share, earnings per share. This is the strong growth. Actually, it's mainly coming from the contribution of the MAS. For the second half of 2018, I think our guidance for the second half, the first one is the electrical vehicle, the market remains very strong. The demand for the high-power testing equipment from EV-related components, modules, and battery cell and pack testing remains very strong.
The company expects, well, we're still expecting that very steady growth from the power electronic testing product sectors. For the semiconductor and photonics testing solutions, we expect that will be starting to grow in the second half, and 3D sensing equipment shipments increase will be key drivers in the second half. For the MAS, we still expect that it will be continuing to deliver strong results. We expect the target for 2018, the annual sales will be double the sales in 2017. This is the highlight for the second half financial results. Now open to any questions from anyone.
Thank you, Mr. Ying. Ladies and gentlemen, we will now begin our question and answer session. If you have a question for any of today's speakers, please press zero one on your telephone keypad and you are in the queue. After you are announced, please ask your question. If you find that your question has been answered before it is your turn to speak, please press zero two to cancel the question. Now, please press zero one on your keypad if you would like to ask the question. Thank you. The first question is coming from Jeff Ohlweiler from Macquarie. Go ahead, please.
Hi, Paul. Thanks for the question. Third quarter, having had very strong second quarter sales because of MAS, is it possible that third quarter can grow Q on Q for consolidated or only really parent?
Hi, Jeff. We're expecting, as we put on the guidelines. We now are talking about discussing with customers on the second half delivery and shipment plans. We cannot give you, which quarter that will be landing for the shipment. What we're expecting is the total for the 2018 will be as much as double the size of last year, 2017.
The guidance, you also said semiconductor will grow in second half year-on-year. What about for full year semiconductor year-on-year for 2018? Can you talk about individual 3D sensing, SLT, and then your traditional power testers on a year-on-year basis for the full year? Thank you.
Oh, hi, Jeff. I think currently our guidance is not going to change. I think we're still expecting the semiconductors will be better than last year, TWD 2.46 billion. Just the first half breakdown, I think 3D sensing exists in a small percentage versus semiconductors testers. Second half, I think we will have more 3D sensing shipment. This is based on the customers' delivery schedules. Yeah. Overall, I think the guidance has not changed.
Okay. Just lastly, to follow up, maybe SLT. How's SLT year-on-year this year?
We see the SLT orders start to pick up, especially from second quarter, due to automotive IC developments, because of automotive IC makers start to build out thermal control capacities. You probably can see more rolling forward, the order for SLT demand, I think could be last to extend into next year.
Okay, great. Thank you. I'll get back with you.
As a reminder, please press 01 on your keypad if you would like to ask the question. Thank you. We are now in Q&A session. Please press 01 on your telephone keypad if you would like to ask the question. Thank you. Now, please press 01 on your keypad if you would like to ask the question. Thank you. Next we'll have Jeff Ohlweiler from Macquarie for questions. Go ahead, please.
I guess Steve is out today. The next question on MAS. You obviously had a very strong first half in the second quarter, and you got it for this year to be double versus last year. That looks like second half on half, maybe down a little bit. Is that correct? Then the follow-up question from that is that business sustainable in terms of growth over the next several years, or is there any capacity constraints, or do you think that's just very strong last couple of years, but that may slow down? Just talk about maybe the long-term outlook for MAS.
Hi, Jeff. Based on our projection today, yes, it is correct. I think second half will be slightly lower, I mean, sales versus first half on that. Based on the order that currently we discussed with customers next year, still pretty strong. We will start to comment about that in the second half. Yeah. About next year.
Okay. Then for Paul, for the tax rate, can you talk a little about the tax rate in the first half and then maybe the second half?
Well, I think tax rates, we expect the parent or even to the consolidated, we're falling probably 15% for the parent, up and down, and a little bit higher than that for the consolidated, due to the tax rate changes. Yeah.
Okay. Thank you.
Thank you.
The next one for question is from Arthur Lai, Citigroup. Go ahead, please.
Hey, Paul, Jennifer. Thank you for taking the question. I have two questions. One is from the main core top-down side. We have been hearing a lot of Chinese manufacturer right now, they suffer from the tightening of credit. Also, they cannot get enough financing. I also look at your EV peers, like Xian dao Zhi Neng, their AR actually is quite high when compared to Chroma's AR, actually is in a very good level. Can you elaborate more about how this China credit tightening to impact the whole equipment industry, and also why we can maintain this very good AR level in this market? This is my first question. Thank you.
Hi, Arthur. So far, we haven't got any kind of pressure from the China tightening policies. Our battery business. I think our turnkey solution guidance this year, I think beginning of the year, we guide about turnkey the revenue to probably around TWD 1 billion. I think this will not be changed. Based on our two big orders this year, we already delivered the first one in the first half. That is Chinese. The second half, actually, is more Chinese will be delivered, I think around end of the quarter to fourth quarter. Battery cell. We actually not received a very big order, like a 16 from battery cell, but we continue to receive turnkey solutions orders, and we still have pretty high confidence levels in this EV industry.
If you look at our test instrument, I would say this is consecutive, I would say more than 10, I think almost 10 quarters about maintaining, about rolling or meetings as well before this business. As we pull out those product mix, the biggest drivers still come from these high-power testings, like the DC power motor testing, battery pack. Actually, we see the demand continue to increase. So far, we haven't received any other strong pressure from these credit policies.
Thank you. Second question is on the semiconductor side. We were quite impressed by your SOC tester, had a very good six months in the first half, driven by the cryptocurrency. Can you talk a little bit on the order visibility into the second half? Do you think any expansion plan from the offset or from the design house on the SOC tester? Thank you. That's my second question.
Okay. Semiconductor business. I just comment that the first half, actually, the biggest portion actually comes from our semi tester in, I think, the biggest portions come from ATE, which is pretty much in line with what you just said in cryptocurrency, which is because the bitcoins and also driving by this kind of Chinese offset. Rolling forward, I just mentioned the SLT continue to build out capacity because there's also IT development and Internet of Things, and also the, again, with this GPU, NVIDIA is about to launch their new GPU, so they are also building out capacity for their new solutions. Second half, we didn't see any sign of slowing down for our semiconductor testers. Plus, on top of that, we see the shipment for 3D sensing will be much better than first half.
Overall, I think year-on-year, the second half semiconductor sectors will be better than last year's second half. Overall, this year, we still target what should be better than last year, TWD 2.46 billion.
Okay. Thank you. Yeah, that's all my questions.
Ladies and gentlemen, we are now in question and answer session. Please press 01 on your telephone keypad if you would like to ask a question. Thank you. The next question is coming from Edward Cheng from Invesco. Go ahead, please.
Hi. I have one question related to the MAS. Can you give us more color on why the MAS is so strong in the first half? Is it something related to the solar client?
Yes. The shipments for MAS is to China, to a big Chinese group, starting from last year second half. This is existing customers, and their product is pretty much CIGS. It's not those polysilicon kind of solar panel. It's solar-related, but it's a bit of different with those traditional solar panel manufacturers.
Let me add some information, okay. Actually, this is a new technology. It's called CIGS. The original investor is Hanergy. Hanergy, two years ago, they bought two company, one is from Europe, the other one from U.S., who has this kind of top or high level of technology in CIGS, and they are planning to import to China. Currently, they are no longer is the only player in China. There's another one, CMEC, is also making this CIGS technology, and we are also having these accounts. Right now in China, about two or three players is actually importing technology. Actually, the orders we receive is from this Europe and U.S. customers directly, it's not from China. The payment is actually based on either transfer, T/T, or letter of credit. What we book in the first half is already being 100% collect.
Given recently the government subsidy cut, are you worried about this kind of policy change will impact your current situation for now?
Far, we heard from our customer, this part of the business is not part of their policy plan, and the funding is not from central government. Far, there's no impact. Currently, our net order on hand, I would say cash on hand still exceeds our revenue book.
Thank you.
Thank you.
Thank you.
There are currently no questions. We now hand it over to CFO, Paul Ying, for closing remarks. Mr. Ying, please proceed.
Well, thanks everyone. Well, this is a record-breaking quarter for the second quarter. Yes, we did very good numbers, breaking the TWD 1 billion as the bottom line. This is the first time. We hope we can copy this kind of experience for the future. Thanks for your time, and bye-bye.
Thank you, Mr. Ying. Ladies and gentlemen, we thank you for your participation in Chroma's conference. There will be a webcast replay within an hour. Please visit www.chroma.com.tw/investor/index under the investor relations section. You may now disconnect. Goodbye