Earnings Call: Q1 2018

Apr 30, 2018

Hello, everyone. Welcome to Chroma's 2018 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 answer session. Please follow the instructions given the conference if you would like to ask a question. Forgot to release the new key. So, well, finally, I'm just going to speak to the earnings release that's your conference call. Now, presentation. To power now. Welcome, everyone. This is Poying from promo. For the 2018 first quarter earning release conference call. And, in this conference call, I'm going to conduct in English for the presentation. And afterwards, welcome to, give you a access in either Chinese Mandarin or English. And we will take your question and answering, in, opposite same kind of language. So, let's start it with the first quarter earnings release. We have already sent the, those presentation material on the website. 2 o'clock this document. So, please welcome to go to the website to grab the those presentation material. Please go to the slide number 10, and this is a very first page for the first quarter consolidated income statement. In this page, you can easily see that the The total top line for promo consolidated numbers is approximately 3.5 $1,000,000,000 compared to the last year first quarter, this is a 25% growth. If you look at the the detail of those top line, you can see that, for the testing and equipment business, This is a double digit growth, which is a 12% and it could be satisfied by the top management. And secondly, secondly, if you look at the consolidated sales of MAN, you can also consider, compared to the last year first quarter, $80,000,000, we make approximately $600,000,000 at first quarter of this year. And this is a fixed time, almost 6.5 times compared to last year. So in there, you can see that also, the product mix has changed simply because the the NAS portion of the sales revenue increase. So we have slightly, a slightly decrease in the gross margin and ratio, but the, I think for the gross margin, with growth like a 14% is also very, satisfied by the top management. Well, for the OpEx, we have a little bit higher And if we look at the operating income for consolidated financial statements, you can see that, this is a 16% for the OP margin. And also a 20% growth compared to last year. So overall, if we look at the the net income from the consolidated page, you can see that we make a 50% growth from last year first quarter $282,000,000 to $422,000,000. This is represents a basic EPS 1.06 in $90, which is, which is a very good, performance we we think. And if we look at the next page, which is the highlight for the balance sheet, you also can see that we maintain a very high level of the of the cash and short term investments reached approximately $6,800,000,000 at the end of the first quarter. And if you look at the ROE, return of equity for the first quarter end, this is a 12% Well, this is the beginning of the year, of the year. So we, we do believe that we can, improve at a quarter by quarter to the like 20% last year. And, if we look at the cash flow from the operation, which is a positive, and free cash flow, although this is a negative numbers, but basically it's due to we put the, a big chunk of our free cash on the investment account. So basically, it's all in the it's all in the monetary market. And very short term and fixed rated for the return. So it's a risk free kind of investment. Okay. This is for the highlight for the, balance sheet for the consolidated financial statement. Let's look into the first quarter for the parent company operation. We can see in the Slide number 12, The sales revenue is approximately RMB1.97 billion This is a 4% down on a quarter over quarter, base, but this is a 10% growth on year over year basis. So If you look at the bar chart, you can easily see that last year, it's pretty, pretty, it's a pretty a traditional kind of, a seasonality, 1st quarter low, 2nd quarter kind of, backing up, and the 3rd quarter to the peak and 4th quarter down to approximately the average of the year. So we start off with a, a growth compared to last year first quarter already and the gross margin is still maintaining 52%. Which is a pretty satisfied by the management and also in the target range of between 50 and up range. And for the operating margin, for the parent company, it's 21%. It's, we do think this is very good. And many times, reaching that NT $431,000,000 and this is up 51% down quarter over quarter. And this is also a 50% growth on a year over year. And for the first quarter, The sales revenue growth, compared to last year's first quarter is mainly coming from the 20 solutions, this is what we presented at 2 times or 2.4 times growth compared to last year. And for the next page on the Slide number 13, You can see that this is a parent only income statement. And in here, you can see that Well, the gross margin, we still maintained 52% and OpEx compared to last quarter, which is the fourth quarter of last year. And this is, this is, this a decrease. Well, mainly due to the fourth quarter, normally, is the high point of the OPEC spending. And, before the EM closing, compared to last year, we have a slightly increase in the G and A and also R and D expenses Well, mainly is from the, salary increase. In every year, we, we, put the, salary increase into consideration due to our last year's performance and also the market response And, for these few years, at least 2 to 3 years already, we are normally, have a pay raise approximately 4% to somewhere up to 6%. So that's where we are for those, increase in the OPEC. And the another reason for that is the some of the activity for the sales revenue due to the sales top line increase you we were going to pay more, some, like, commissions and freight fees and that. So that's the, part of the reason for the and A increase. So for the non operating, you also can see that due to the demand growth, and also the very steady earnings from the new material. This is a very strong growth and for the amount operating income? Well, another reason is the for the foreign exchange law. Last year, we enjoyed, we pretty much suffered from the, I want, a bit of, on the, on the exchange loss. And this year, we don't have that kind of effect anymore. And so That's pretty much the income before tax. And if you look at the income tax for the first quarter of 2018 is exceptionally high, Well, due to 2 reasons. 1 is the nominal tax rate for talent column has just released that they are going to be from 17% to 20%, and that's one of the reasons. And with that reason, our accumulated tax effect on those, income tax assets. That will be also, a call may be changed, and also the tax rate will be changed. That's increase, and that if those effects will be referenced on the first quarter this quarter of 2018. And this quarter only And along with this year, for the future quarters, and this effect will be kind of, diluted and even to, we believe we used to expect our tax rate in the nominal tax rate at 17%. The effective tax rate for promo will be like 14 to 15 percent, but for the 20 percent nominal tax rate in that in that kind of situations, we're going to change that to estimations to somewhere between 17% to 18%. So we do believe next year, the effective rate will be in that rate to change to 17% to 18%. But the first quarter of this year will be a accumulated effect and adjusting only for this quarter. So the net income again is $1,000,000 and represent $1.06. So This is, for the 4th quarter, for the financial statements, for the balance sheet highlights. We're pretty similar to the to the, consolidated one agency that are we still, maintaining a cash and the short term investment at the 2.9, 1,000,000,000 in dollars level. And, there internal equity is 13% and the return on assets is approximately 9%. Well, Cash flow from the operations is positive, which is $230,000,000. Free cash flow on first quarter was due to the increase for the spending on the, on the, inventory purchasing procurement and also, putting the, additional cash into the investment items and that means the free cash growth pretty much in negative. Well, operating highlights, if you look at the Slide number 16, you can see that on a quarter over quarter basis, Our first quarter top line, $1,970,000,000 is a 4% drop compared to last quarter, which is our 1st, 4th quarter of last year. And, if we look at the same quarter on a year over year basis, you can see that, while we, we still grow the life of 10% and mainly growing from the 20 single digit area. And if you turn to the Slide number 17, you can see here that the breakdown of the consolidated entities, which is a chroma AT and NAS and new material. You can easily see from here that the first, for the quarter over quarter, We've got like a 10% on the on the test and measurement and related system and the product. And for the NAS, yeah, here, we have, we have a, a trough of last 69% compared to last quarter, but over compared to the last year first quarter, this is a 6 point five times of growth. Well, new materials still maintaining the same kind of level, well, up and down by 10% to 15% due to the changes of the copper wire from the gold wire to copper wire. But the, the probability of their new materials still maintaining the same and, winning a profit back every quarter and every year. And in here, again, on a quarter over quarter basis, this is a 34% drop, but compared to last year's same quarter, This is a 25% growth. Well, for the 2018, the guideline Well, we didn't change any, our point to the, to the 2018. In the first quarter, again, the growth driver, for the consolidated sales are coming from the Chroma testing, equipment business and And, for the Chroma testing, equipment business, we're growing like 13%. But, it's growing 6 point five times a bit. And the turnkey solution is the key driver for the parent company sales, growth in the first quarter. And this is a 2 41% growth, on year over year basis. And for the 2018, we still guide that we're going to continue growing. And, well, basically coming from the following parts. The first one is the EV still remaining strong. The demand for the high power and, and testing and related EV components. And the second one is the growth from the semiconductor and photonic testing solutions. And the third one is the M and A and CNG solutions we're expecting, it will be still will be growing and outperform last year. Well, this is the, well, for the for the NAS, I think, the last Our expectation will be, well, at least we're going to double the first quarter numbers, for the for the second quarter, I think. Yes. Well, this is the, my presentation. And I'm taking any questions from anyone? Yes, thank you, Paul. We are now in question and answer session. You. That your question has been answered before it is your turn to speak. Just please press 2 to cancel your question. The first one to ask questions Patrick Chen Nomura. Go ahead, please. M a s what's the key business. The 2 other business So that's Well, the agenda. So just a pretty young bit. So woman, as a maintain woman, they they can get to woman 3. Didn't do the Next question, Jerry Sue from Credit Suisse. Go ahead, please. Thank you for calling. To the segment. You. This is Jennifer. Generally speaking with you, the first question, I think, for semi first quarter, 1st quarter, I think, mainly come from the our AG system. As you know, we in semiconductor sector, we have 3 sections, AT systems, SLT, electronics, who do three d sensing parts. And the first quarter major, I think the biggest challenge actually comes under AD systems. I see, we mostly cover those, the China low, low end type of, SLC. Okay. Moving forward to next three quarters, regarding to the same conductors. I think I know everyone were interesting about the city fencing progress this year. Our bookcases will be many, in second and third quarters. And we also have another driver which is come for SLT. I think, recently, we received a new request for NDA as well as the arrival. Yes, for wireless products. And for EV 20, I think Yankee Proaches, we already delivered the 1st batching orders in the first quarter, okay? That's why we highlight, the 1st quarter, the major growth of discount content in this increased to RMB241. And that is because that is delivered. We also have another few projects will be coming out in the second half. I'm not EV train no. The 2020 in a while, you must have, seen the the the guidance, sir. Thank you, ma. 8%. Last time we mentioned, the order on hand are at least $1,020,000,000, which is already increased to last year, 900 15. Okay. Now, just to come down after the 3 d sensing, the both end. It was a 30 d sensing. So one seat. I'll schedule. You. Okay. Not to notify the saying that you're using the chatbots. So I'll just send this a So Okay. Took a pull in the, with the That's Okay. Ladies and gentlemen, we are now in question and answer session. Thank you. Right now, we're having Steve Wong from Rentale Research. Please go ahead. Hello? We're going through it yourself with your monthly chance to go through with our studio of percent. In a parent for this, for this, for this, just to see your current immunity based So, Oh, okay. Helping the job. You know, that's it. You know, that's it. You know, that's it. You know, that's it. You know, the parent company, the security of the housing. So in contact assets, the Singapore Okay. Okay. Okay. We don't need to call the your concern to the project that gross margin rate soon has to go down around 40% to the up and down, thanks to the average, like, for the present. It's Okay. Okay. A 100% of growth are listed. 100% increase from Q1. You know, SLT can so it's been since that Q 2 year, where it's a strong month. So this is just in 2000. To this is the entities. Now, the best way we can guide to investors since our data actually gained and as we will move to the cancer, just for the sector. And that is the sales in 2nd quarter versus 1st quarter just to double order on deliver on schedule. Yeah. Have 3 d sensing 2 d sensing 2nd 1 third quarter. That's not gonna influence them. So, if anything I can't think it should be answered. This is the best way we can do the we can comment. Okay. Okay. So this was 3 different things like q 2 over q 1 for you. It's a it's a we'll try to we'll just we'll just see the numbers, you know, mail deliver type or the 30¢ each. No. That would be 2nd, 3rd quarter. Okay. Schedule the second, the quarter. This is the best way we can describe. This is for QAD. Yes. You. Okay. Towers, I'm gonna, is. Okay. How is it? Right now, we're having May Rosechu from Morgan Stanley. Go ahead please. AT and C segment. Hi, Merrill. Okay. You'll find out he has a, key himself at the driver. Thank you, Clyde. Please keep us very busy right now. Now going to It's on hard topic. Okay. Just a breakdown to you. Hi. No. This is an outstanding performance. Market will high power to go progress. Well, I take down those seasons of categories. I still can't talk to the 29th, but my industry because they don't mention the turbo engine has just showed up how the back is again closed to talk to or through how to hold your settings up. I'm not contacting any drivers to shut off. 1st time quarter to the earnings call that you hold over 50% also not chiming itself. So so, you know, my mobile devices. Yes. Thank you. Right now, we're having service to Credit Suisse. Go ahead, please. I apologize for Joe. Are you the follow-up question? Well, So the whole sound here. So the operation. So you can choose into quantity. To just backlog. Next, we're having authorized from Citi. Go ahead, please. Hi. Hi, Paul. Good evening, sir. We've been talking out, and I Okay. Thank you. Then just keep I just sent you a video of our kind of driver for the 10 tablets. Now, I'm gonna go to you and then go on my face. The the market deposit at the center, I just wanted to, finish it. I just want to be the one to be patient. Okay. This is another another time team. Sorry. Good. Good. Good. Excel fee. Pretty much activate. Technical international MCU. Now I see you've had to power the management of woman that probably means as mentioned from Spanish. So forecasted has been outperformed better than we expect. Now, then they just damaged the requirement. The replacement is a replacement. While has a new approach. Highlight as myself. Oh, she's she's here. Then I'm calling you. Well, I actually look, and I appreciate it. By the way, so concur with my speaking, and I want you to assist you. Now would you be able to hear me? No. So this is explained why our inventory increased. So a woman. So Yeah. Hi. Good afternoon. Okay. Is that kind of full date account holder in detail? Since they are open now, you have a chance to if she says woman Yeah. I mean, I'll just I'll just give you a moment here. There seems to be no further question at this point. I'm going to hand it over to CFO, Paul Yin, for closing comments. Paul, please go ahead. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Thanks for your time and you also can see that the first quarter We have a very good start, although we still expect that the 2019 will still be enjoying pretty traditional seasonalities. And we also expecting the 2nd quarter, we, we have a better result and thank you for your time and until next time. Thank you. Bye bye. Thank you, Paul. And 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 under the Investor Relations section. You may now disconnect. Thank you, and