Earnings Call: Q2 2018

Jul 31, 2018

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. And for your information, a webcast replay will be available within an hour after the conference is finished. Please visit wwww.proma.com/investorsindex under the Investor Relations section. And now I would like to introduce CFO, Paul Yin. Mr. Ying, you may begin. Thank you, meeting host. This is Pauline. Welcome, everyone. This is the 2nd quarter financial release for Chroma. Work on everyone. Let's start it from the consolidated financial statements. Well, at the 2nd quarter, Chroma consolidated sales revenue, we continue to deliver a very strong growth in the first half of twenty eighteen. This, a very impressive result was mainly contributed from the NASH, the automation business, it represents outstanding growth of 1160 percent, year over year growth. While the promo testing equipment business also presented a double digit growth of 13%. So this is a very impressive record. And if you look at the gross margin, This gross margin, we present at 44% at the first half of twenty eighteen compared to last year It's a 41% growth. However, due to the mix of different kinds of a consolidated entity. So the gross margin compared to last year's 49% is a little bit decrease. But again, the absolute numbers is 41% gross. And for the operating income, after deducting the OpEx in first half of twenty eighteen, if we present $1,772,000,000,000 and compared to last year, This is a 35% growth. So with this very strong growth, the net income, spending at the $1,448,000,000 compared to last year. This is a 80% growth and representing a $3.57 20 dollars as the earnings per share. And this is the strong growth. Actually, it's coming from the mainly some coming from the contribution of the IMF and for the second half of the 2018, I think, our guidance for the for the second half, the first one is the, the actual vehicle, the market remains very strong. The demand for the high power testing equipment from the EV related components, modules, and battery cell in the pack testing remains very strong. The company expects, well, we're still expecting that very steady growth from the power electronic tests, testing and product sectors. And for the semiconductor and photonics testing solutions, We, we expect that will be starting to grow in the second half. And it's really sensing equipment, the shipments increase will be key drivers in the second half. And for that NAS, we we still expect that it will be continued to deliver strong results. And we expect the target for the 2018, the annual sales will be double the sales in 2017. And this is the highlight for the second half financial results. And now open to any questions from anyone. Thank you, Mr. Ian. Ladies and gentlemen, we will now begin our question and answer session. You. Session. The first question is coming from Jeff O' Waller from Macquarie. Go ahead, please. Yeah, hi, Paul. Thanks for the question. 3rd quarter, I mean, I've had very, very strong second quarter sales because of MAS. Is it possible that third quarter can grow Q on Q for consolidated or only really current? Hi, Geoff. Well, we're expecting, as we put on the we now are talking about, discussing with our customers, on the second half delivery and shipment kind of plan. So, we cannot give you, you know, what is the, which quarter that will be lending for the shipments But what we're expecting is the, the total for the 2018 will be fall on the, well, well, as much as the double year cycle of last year 2017. Okay. And and then the guidance, you also said semiconductor will grow in the second half year on year. What about for full year semi after a year on year for 2018. And also can you kind of talk about individual 3 d sensing SLT and then your traditional power testers on a year on year basis for the full year? Thank you. Hi, Jack. I think the since currently our guidance is not going to change. I think we're still expecting the semiconductors will be better than last year, 2,460,000,000. And, just the first half breakdown, I think, 3 d sensing agents in a small percentage versus semiconductors, testers. And second half, I think we will have more 3 d sensing shipment. This is based on the customer's delivery schedules. Yeah. So overall, I think the guidance has not changed. Okay. Just lastly follow-up maybe SLT. How's SLT year on year this year? We see that SLV orders start to pick up especially from second quarter due to old home ICs developments because because the overall IC makers start to build out a thermal controlled capacity. So you probably can see more moving forward in the order for SLC demand. I think it could be last to extend it to next year. Okay. Great. Thank you. I'll get back in the queue. We are now And next we'll have Jeff O' Waller from Macquarie for questions. Go ahead please. I guess Steve is out today. So the next question, on MIS, Yeah. Obviously, you had a very strong first half and and second quarter, and you got it for this year to be double versus last year. So so that looks like 2nd half half on half maybe down a little bit. Is that correct? And then the follow-up question from that is, is that business sustainable in terms of growth over the next several years, or is there any capacity constraints, or do you think just very strong last couple of years, so that may slow down. Just talk about maybe the long term outlook for MIS? Based on your data or projection this to date, yes, I was, is it correct that the second half will be slightly lower, I mean, itself. Versus the first half on that. But based on the older debts currently we discuss with customers next year, still pretty strong, but we we will we will start to comment about that in the second half. About next year. Okay. And then on for Paul, for the tax rate, can you talk a little bit 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 consolidate before in, probably 15 for the year, parent, up and down. And, a little bit higher than that for the, for the, the consolidated due to the effect rate changes. Yeah. And the next one for question is from of the line Citigroup. Go ahead, please. Hey, Paul. Jennifer, thank you for taking my question. So, I have two questions. One is from the, May Updown side. So we we have hearing a lot of Chinese manufacturers right now. They suffer from the tightening, credit and also, you know, the actually, the the, you know, the the they cannot get enough financing. And, also, I I also looked at your, EV peers, like, Shenzhen, there, they are actually quite, quite high. And compared to Chroma's AI actually is, you know, is in a very good level. So can you elaborate more about how this, China credit threatening to impact the whole equipment industry and also why, we can maintain this very good AR label in the, in this market? This is my first question. Thank you. We still thought we haven't got a this kind of a pressure from the China Italian policy. But, our battery business, yes, I think Our 20 solution guidance this year, well, I think you don't hear, we got about 20. The revenues is probably around 1,000,000,000. I think this will not be changed. Okay? Based on our 2 orders 2 big orders this year, we already delivered the first one in the first half. That is the Chinese. And the 2nd half, actually, the 1 Chinese will be delivered, I think, around 3rd quarter to 4th quarter. So since that's actually so far. Yes. We actually not received, like, a very big order like 16 from Baxi. So we continue to receive 10 key solutions orders. And we still have 3 high confidence levels in this in the industry. Because if you look at our test insurance, then I would say this is contacted. I would say more than paying I think almost 10 quarters about maintaining about voting or meetings of growth before this business, as we pull out those product mix, the biggest drivers still come from these high power testing by the DC power motor testing back to tax. I should receive the demand continue to increase. So so far, we haven't received any other short pressure from this credit coaching fee. Yeah. Thank you. And and second question is on the outstanding We were quite, impressed by your SLC Chester, had a very good, assumptions in the first half or, driven by the the cryptocurrency. Can you talk a little bit and the auto visibility into the second half. Do you think any, like, a, you know, extension trend from the all set up from the design house on the SOC Chester. Thank you. That's my second question. Okay. So City contact us business. I just comment that the first half, actually, the biggest portions actually comes from our semiconductor in, I think, the biggest portions come from ATE, which is pretty much in line with you just said, in Cook College with, currency, which is, because the the Bitcoins and also driving by this kind of, our Chinese all set. Okay. But rolling forward, I just mentioned SLT is continuing to build our capacity because there's a auto IT development and IoT. And, also, the gym will just give you the new, Nvidia is about to launch a limited review. So they are also doing our capacity for the new solution. So this year, sorry, 2nd half of USD and inside, it was slowing down for our semiconductor testers. Plus on top of that, on top of that, we see the the shipment for 3 d sensing, will be much better than 1st ha/lf So overall, I think year on year, the 2nd half system conducted sectors will be better than last year's 2nd half. And overall, this shows 2 targets which should be better than last year 2.46 units. Okay. Thank you. Yeah. That's that's all my question. Ladies and gentlemen, we are now in question and answer session. And the next question is coming from Edward Chang from UBSCO. Go ahead, please. Hi. I have one question, related to the MS. Can you give us more color on why the MS and that is so strong, in the first half. Is this something related to the solar, car? Yes. MAS, the shipments from MAS is to China to to to a big Chinese group. And starting from last year, second half. And this is, this is an existing customer And the product is pretty much, it's CIGS. It's not those, polysilicon kind of solo panel. So it's a solar related, but it's a bit of difference with those traditional solar the panel manufacturers. Oh, let me add some information. Okay. Actually, this this is a new technology. It's called CIGS. It's like a The original investor is Hananxi, but Hananxin 2 years ago, they bought 2 companies, YYuan, from US. Who has this kind of a top or high level of a technology in CIGS, and they are planning to import to China. Holly, can you stay on the longer? It's the only player in China. There's another one CNMC. It's also making the CIGS technology. And we are we are also adding these accounts. So right now in China, about 2 or 3 players is actually important technology. So, actually, the order is actually received. It's called this Europe and US customer. Directly not. No. It's not the on China. So the payment is actually based out either transferred teaching or latest credits. And when we book in the first half, it's already been 100% collect. So, given the recently, the government, about the subsidy card. So are you worried about this cover policy change will impact your current situation from now? This part of, so far, we've heard from China our customer, this part of the business is not part of their policy plan. And funding is not also from not from central government. Short budget, no impact. And currently, I mean, not all down hand, I would say cash on hand still exceeds our revenue book. Thank you. Thank you. There are currently no questions now hand it over to CFO, Pauline, for closing remarks. Mr. Ying, please proceed. Well, Thanks, everyone. While this is a record breaking quarters, for the 2nd quarter, yes, we did, very good numbers, breaking the 1,000,000,000 at the bottom line. So, this is the first time we hope we can copy this kind of experiences and for the for the and, thanks for your time. And, bye bye. Thank you, Mr. Ian. Ladies and gentlemen, we thank you for your participation Chroma's conference. There will be a webcast replay within an hour. Please visit www.chroma.comtechw slash investor slash intents under the Investor Relations section. You may now disconnect. Goodbye.