Let's welcome General Manager Zhang Yuqi from IBF Securities.
Good afternoon, dear investors and institutions. Today, we are honored to invite Primax to the earnings conference held by IBF Securities to talk about their business and financial situations. Today, we have Ying-Yi Hsiao, General Manager and CFO, Ellen Tseng , Investor Relations Senior Director, and Alan Hsiao, Investor Relations Assistant Manager. I'd like to hand over to General Manager Hsiao. Thank you.
Thank you for the introduction, General Manager Zhang. Good afternoon, and welcome, dear investors and friends from the media. Thank you all for attending Primax Electronics Q1 2024 earnings conference. During the conference, we will first talk about the results of this quarter, and then share our market outlook, future strategies, and growth momentum. I feel a bit ill with my feet, so I won't be able to stand and walk around during my presentation.
Sorry about that. First, you can see the highlights for Q1 2024. Q1 is traditionally the low season for the electronics industry, yet we still delivered good results. I think we mainly benefited from rush orders for gaming and the contribution of AIoT products. In Q1 overall, the revenue was better than expected. You can see the Q1 revenue on this slide. Our revenue in Q1 was TWD 13.649 billion, and in Q4 last year, it was TWD 14.023 billion, so it's down by 7% YOY. You can see on the right-hand side, our Q1 GPM gross margin. It was 15.9%, which is a significant increase of 1 percentage point from 14.9% YOY. It's mainly due to the optimization of our product mix and maintaining high gross margin levels.
As we transform towards high value-added products, choose a high margin shipment strategy, and reduce the share of low margin products, this helps improve our profitability and the GPM quarter by quarter. We can see that last year the number was 14.9%, and by Q1 this year, it already reached 15.9%. The number in Q2 last year was 15.9%. I believe that the GPM in Q2 this year should be better than in Q2 last year. That's about GPM. Let's look at the lower left quarter. The OPM was 4.3%. We have explained many times in the past to you that we strictly control expenses. We not only effectively recruit talents but also effectively control expenses. The OPM increased by 0.5 percentage points QOQ and 0.4 percentage points YOY.
This is something that we have been emphasizing over the past few quarters and years. We want to increase GP and GPM while also conducting numerous controls. We see that the overall OPM improved significantly over the past few quarters. In recent years, Primax has actively improved its operating structure and controlled costs in OPEX. In Q1 this year, as you can see, our GPM, our OPM, and also our net income rate, all of these three numbers increased YOY, and EPS was 1.28, also the highest ever in Q1 in our history. I think on this page is presented our performance in terms of revenue, GPM, and OPM in Q1 2024. You can also see our EPS, 1.28. Next, let's look at the income statement.
We just talked about the revenue in Q1, TWD 13.65 billion, down 2.7% QOQ and down 7% YOY. The GPM in Q1 was 15.9%, up 1 percentage point YOY and down 0.2 percentage points QOQ. The overall OpEx was effectively controlled in both QOQ and YOY terms. The OpEx amount was TWD 1.588 billion. It was 0.6 percentage points higher YOY. The OpEx rate increased due to the decline in the overall revenue. We continue to strictly control expenses in order to maintain solid performance. Q1 OP reached 4.3%, up 0.5 percentage points from 3.8% QOQ, and up 0.4 percentage points YOY. OP amount increased by 9.8% QOQ and 2.7% YOY.
I think all of these are made possible thanks to everyone's efforts. You can also see that non-operating item in Q1 went up in both QOQ and YOY terms. Apart from the help from NTD depreciation, you will see later that we also made some gains in the overall capital due to interest income. This is about our income statement. Now, let's take a look at the Q1 balance sheet. As of March 31st, cash level reached TWD 13.087 billion, up 20% QOQ, and up 82.8% YOY. Our net cash exceeded TWD 10 billion. I remember that in the last conference, net cash was close to TWD 10 billion, and by Q1 this year, it exceeded TWD 10 billion. There are a few things to share with you. We maintain a consistent ratio from raw material input to output.
As you may know, each site has a different ratio, probably ranging from 60%, 70%, or to 90% for input, and output is 100% because output is the monthly production value, which is reviewed every month. There's currently no obvious shortage of raw materials on the market, so we can monitor the supply of materials in real time. This allows us to effectively operate on various cash flow positions. In addition, we've been saying about inventory. On the inventory side, whether it is for material or factory operations or shipments, during periods of tight shipping, we may encounter challenges in finding shipping dates. Right now, in Red Sea or somewhere else, there are some tense situations, but so far we haven't been affected, and so everything is operating normally in terms of our shipments.
The point here is that we strictly control inventory, and inventory levels continue to decline. As you can see, in Q1 2024, inventory was TWD 7.7 billion, down 10.3% YOY. You can see that short-term liabilities actually increased. It was TWD 756 million at the end of last year and TWD 1.373 billion in Q1 last year. We reached TWD 2.27 billion in Q1 this year. A small part of it was working capital turnover, and most of it was the transfer of long-term and short-term liabilities with banks in some situations in order to maintain the company's global banking lines. Because as you know, over the past three years, in the company's overall capital pool, whether it's in Taiwan, in China, in Thailand, or in Singapore, we have decentralized and established our decentralized capital at overseas sites.
We will mobilize such capital for overseas loans in a friendly way when needed. These are, these amount to TWD 2.27 billion. These are not random mobilizations. In the process of these mobilizations, they are profitable, the details will not be elaborated on further here. In this process of mobilization, we do bring some shareholder equity. Although we have some short-term liabilities, our cash conversion cycle days were 44 days in Q1 2024, which is a significant improvement from 46 days QOQ and from 56 days YOY. In addition to the inventory improvement that we just presented to you a while ago, there are also accounts receivable and accounts receivable management where we have also made some progress.
This is the cash conversion cycle days that the company has been emphasizing, and this has to do with how to take strategic actions when cash is king. The company's main revenue, as you know, is denominated in the USD. So when the USD is strong or when interest rates are high, the company is well in control. At the same time, we also purchase RP domestically. These interest rates are comparable to those in China, about 5.3% to 5.5%. You know that the separate tax rate of RP is 10%. The corporate income tax is the same, but the company has different ways to make the most effective use of idle capital. That's our balance sheet in Q1 this year. Next, regarding our cash flows, we want to highlight the company's operating activities.
The operating cash flow in Q1 was TWD 559 million, up TWD 180 million YOY. It's mainly the improvement of working capital. If you look more closely, I remember that in Q1 2020, many businesses in the electronics industry experienced outflows of working capital. As the quarters moved on to Q3 and Q4 and revenue increased, working capital gradually improved. Here you can see the results of the company's inventory reduction and strict control over new incoming materials. In the past, our procurement decisions for new materials were determined by the company's procurement and supply chain. As I just explained to you a while ago, we have set relevant standards at each site. As long as there's no global material shortage, we do carry out controls. You can see this.
In terms of investment, the largest investment in the past few years has been Hsinchu Innovation Center. Let me tell you that despite the inflationary environment, the company's plan for Hsinchu Innovation Center was controlled at around TWD 2 billion, whether it was for civil construction or mechanical electrical expenses, and there was no increase due to inflation. Everything was well in line with the company's initial expectations. This year's CapEx is about TWD 1.7 billion, of which around TWD 700 million will be used for Hsinchu Innovation Center. In Taiwan, 5% of retained earnings can be deducted. We have filed for tax refunds from National Taxation Bureau every year for the past few years, and we have received TWD tens of millions in tax refunds each year. We didn't forget this. We have done everything that is needed.
We have taken all the necessary actions. You can see that this year, especially in the second half, we will have expansion in Thailand. Our clients have successively requested production in Thailand, so our production in Thailand continues to increase. Currently, Thailand's production capacity has accounted for about 15% of the overall capacity over the past year, so this is the number from last year. The Thailand site not only has abundant capacity, but also provides more competitive products. Whether from the existing clients or potential clients, they have all proposed relevant transfer plans. We hope to be able to share clearer reports with you in the second half of this year. Such migration, such transfer plans have been ongoing and mainly due to client requirements. This is about our cash flows, and we just talked about the increase of short-term loans.
Well, in terms of CapEx this year, whether it is Primax or reinvestment in Tymphany, if we exclude Hsinchu Innovation Center that we just talked about, we hope that CapEx can be controlled between TWD 1 billion and TWD 1.2 billion. This is the goal that the company must strive for. There will be some new future plans, which should be clearer in Q3. At present, the company can make the most effective use of resources and capital. That's about our cash flows. Let's look at Q1 2024 revenue breakdown for different products and applications. The proportion of information products increased to 53% in Q1 2024, mainly thanks to, as I told you, PC and gaming rush orders. It's up 4.9% YOY.
Consumer demand remained weak, the revenue contribution of smart life products dropped sharply to 21%, down 35.1% YOY. As for auto AIoT, it accounted for 26%. Due to the inventory adjustments of professional audio clients and the postponement of some new projects, it was down 6.9% YOY. The company will continue to invest in auto AIoT applications, the proportion of new business products will increase year by year. Well, over the past two quarters, we have talked with you about the company's overall portfolio optimization. This is not only for products. NRE and engineering service have also been continuously increased. If we look at the overall product mix and applications, Well, we just talked about this part already. I think especially in public safety, fleet management, and auto electronics, these are where we are actively developing now.
We have always emphasized that the current product development cycle can no longer be six months, nine months, or even one year. That's not enough. The overall development time is doubled compared to the past, but the return on investment is high, and the product cycle is long, which takes about three to five years. This is quite different from the past, where R&D took three to six months, and the product cycle was only six to nine months. That's a major difference. In summary, auto and AIoT product lines take longer to develop and are also the source of some major NRE income. These are years of our experience accumulated in the company. A small part of it incurs extra cost, but most of its cost has already occurred in the past. Next page, let's look at our overall outlook for Q2.
I think you can see that the revenue outlook is still pretty cloudy and rainy. You can clearly see that our revenue in Q2 could be down by a high single-digit YOY. We have a chance to see our profit flat YOY. The gross margin in Q2 could be better than Q1. I just said that it would be better, now I can tell you that it could be better than in Q1. With the optimization of product mix, gross profit margin and operating profit margin will continue to increase in Q2. You can see some numbers which I won't elaborate on. Both these two numbers, gross margin, OP margin, and EPS should be better than Q1. Which one would increase significantly? I cannot tell you that right now.
Part of these three will be better significantly. That's for Q2. New projects are expected to gradually contribute to the overall performance starting from the second half of this year. As I told you, the main reason behind revenue is the weak performance of consumer products. In terms of project opening speed or revenue contribution, we haven't seen the market actively opening new projects. As for information products, the performance of PC and gaming products would remain flat Y-O-Y. What we are seeing now is that there are currently many market expectations for AI. Our view is that if there are clear applications on the market, such as Copilot keyboards, it will help with the overall keyboard replacement trend. We believe that this will be helpful to us. We also look forward to better performance in the second half of this year.
Next, we just talked about smart lifestyle, which is relatively weak. In terms of information products, demand for printers and multifunction printers slows down, mainly in China, the Middle East, and South America. The demand for printers and multifunction printers is relatively sluggish. This is what we have seen so far. For smart lifestyle, we just mentioned that the weakness hasn't changed that much. The point here is the audio part. The company will develop high-value added consumer audio products, including entering the auto AIoT fields, sound detection and testing and so on and so forth. These are the directions where the company is actively developing. The last part is auto AIoT. The proportion of AIoT products is gradually, it is growing steadily.
As for auto, let me first say that for EVs, we are not absent from the main American clients, and we have also entered the traditional car manufacturers as well. The problem is that their experience issues are still ongoing. These projects are ongoing, but have some slight delays. As you may know, one traditional major manufacturer had some experiments in California, but the results were not satisfactory. These projects are always ongoing, but we cannot optimistically predict revenue contribution from them in 2025 or 2026. These projects are ongoing, but the time that is needed for us to see results is not as fast as expected. That's for auto. In terms of profit, we have just presented that. The direction is the increase of GPM, OPM, and net income rate. The company continues to strictly control expenses.
Since H2 last year, we have implemented strict controls. Far this year, there haven't been significant requirements on personnel and expense. Currently, expense is on track and under control. We believe that thanks to our strict discipline from the past, expense basically doesn't exceed expectations by much. Well, of course, we have necessary business trips. Some BU heads just visited major clients in Europe and the U.S., and some just came back from ISC West. We talked about AIoT. We have some teams gradually returning. I can only tell you that they have made some progress in terms of these areas, such as public safety, and we hope that such progress can gradually contribute to our revenue in the future.
As for information products, as I just mentioned, the shipment of AI PC-related products, such as Copilot keyboards, will definitely benefit us due to the replacement trend. This will increase high ASP products and continue to optimize our product mix. Well, smart lifestyle, the demand has been sluggish, as I have repeated several times. New business products have higher GPM, and the economy of scale will gradually emerge. I believe that we will gradually see that the economy of scale gradually showing up. Professional audio is affected by inventory adjustments, which will affect profit contribution. This is also a key development area of the company. Next is our dividend information and financial calendar. We can see here that the dividend payout this year is TWD 4. The company plans to hold a shareholders meeting on May 24th. The cash dividend payout ratio is 73%.
Both the payout amount and payout ratio have reached a record high. High dividend payout is a trend, and the company will follow this trend closely. Please don't ask me any further about this later. This is all I can tell you. I cannot say that our policy stipulates a certain percentage. I cannot tell you that. You can trust that both the BOD and the IR Senior Director, Ellen Tseng, we will work hard for you on this. Primax upholds the high dividend payout policy and shares our operating results with shareholders. If we exclude this year, the average payout ratio in the past three years has been between 63% and 65%. As I said, we will follow this trend closely. This is the current direction of the company. In the future, the company will refer to previous years' payout levels to plan the most appropriate dividend payout in order to meet shareholders' expectations. Overall, you can see that Q2 this year, as I said, Q2 will not be too bad compared to Q2 last year, the same period last year. That's the point. Regarding ESG sustainability results, I'm heading over to Ellen Tseng for her presentation.
Okay. I'm now presenting our ESG sustainability results. Primax values this part greatly. We have a dedicated unit called the Sustainability Office under the Chairman's Office, which reports ESG progress and sustainability blueprint to the BOD every six months. Now I will briefly introduce to you the three aspects of ESG. For environmental, we set a zero carbon path based on SBTi goals, commit to carbon neutrality by 2040, and achieve net zero emission goals in 2050. In 2023, we already reached RE40 based on the RE100 target. We expect to reach RE50 this year and introduce a carbon inventory system to effectively manage greenhouse gas inventories. That's for environmental. As for social, we have been awarded HR Asia's Best Companies to Work For in Asia for three consecutive years, and we have been included in Taiwan High Compensation 100 Index for eight consecutive years. We are also consistently engaged in Taitung Flipped Classroom and support local communities there. For corporate governance, we continuously rank top 5% of Taiwan Stock Exchange corporate governance evaluation between 2016-2017 and between 2019 and 2022.
This year, we are included in the S&P Global Sustainability Yearbook 2024 and receive the Industry Mover recognition. We also rank top 3% among all the global ICT industry in S&P Global ESG score. In terms of international ratings, MSCI ESG has lifted us to A level. In addition, CDP has also advanced us into the Climate A List Leadership. We will continue to work hard on other international ratings. These are our ESG results that I would like to briefly share with you. In the past, we have disclosed our taxation policy on the official website. Overall, the company strictly complies with international taxation principles, and the BOD will formulate more stringent taxation policies.
We already comply very strictly with international principles, but our BOD will formulate more stringent tax policies in order to better meet global trends and developments. That's what I wanted to add. Okay. Now we move on to the Q&A session. We have collected some questions previously before the conference, which the CFO will first respond to. The first question is regarding the overall operation. The BUs previously went through some adjustments. I want to know have the adjustments been completed, and what would be the benefits to gross profit margin?
Okay. During the presentations earlier, we mentioned the weak performance of consumer products. I believe you know that consumer products have always been our main source of revenue in the past. We still maintain good relations with these major clients. Although the changes in the consumer product market are not as big as before, our GP, gross profit and GPM, gross profit margin have improved.
In terms of audio, in the past, our products were mostly related to consumer products, gross margin was at the single-digit to double-digit level, roughly. Consumer products bring revenue but are of limited help to OPM. The OPM, OP margin of some BUs, ranges from 4%-6% or 6%-8% or even higher than 8% sometimes. When we produce a lot of these products, when the gross margin is single-digit, it will be very stressful for our OP margin. However, in the process of our product optimization, we can see that over the past few years, our EPS has gradually increased. In the past few years and in the future, product optimization has been and will be the direction of our efforts. Although the decline of consumer products has put pressure on revenue, in terms of our bottom line, we have not experienced much decline, but have been moving in a better direction actually. This is what I want to explain to you.
Another question is, can you provide operational targets or directions for this year? What is the revenue ratio in the first and the second half of this year? Is there a chance to grow quarter by quarter?
Last time I told you that the ratio was about 47 to 53, and this is still maintained. With the current visibility in Q1 right now, we can see Q2 clearly and all the way to the first half of Q3. As for the second half of Q3, I think we still need to observe a little bit more. As we told you previously, the overall visibility is about three months to four and a half months ahead of us with clarity. Regarding PC, we are asked whether there are opportunities for rush orders for gaming and PC to become stable orders. Well, since Q1 last year, this market has been mainly dominated by rush orders. To be honest with you, major clients with higher visibility on consumer products are now very conservative in their provided visibility for us. I just said a while ago that the visibility is high for high unit price and AIoT products. When it comes to PC related products, the ecosystem is a bit different from the situation in the past. This is what we are seeing so far. As for when the rush orders can turn into stable orders, my imagination is that if AI PC can grow steadily, I believe that, well, the PC or notebook related peripheral products will have stable orders. Thank you.
The next question is, what is the company's development and planning in AI? Especially you talked about the project situation in public safety. Can you share a short-term goal with us?
This question involves some edge computing companies that we have been observing recently. I cannot share too much detail with you in this regard, we believe that our products are closely connected with edge computing, these connections make it more convenient or easier for our clients to migrate to the cloud or use AI. Well, I cannot tell you too much detail. There are things that we can only do but cannot say too much about. Thank you.
This question also asks about the project situation in public safety. Could you share a short-term goal with us?
This is also a good question. Let me put it this way. In public safety, let me tell you that there are several important directions. For example, the products we provide include drones, but the most important thing right now is that when public safety is chaotic, whether for communities or for campuses, we actively ship to clients in areas related to public safety monitoring. At the same time, we also receive projects one after another. Let me tell you that from the same client, sometimes we receive, we may receive three to five projects at the same time. Apart from the initial NRE income, after a few months, or I cannot tell you exactly the timing, usually the timing of shipments is after the first year or one year and a quarter. Some of these public safety products, this year in general, the volume is very good. Some of these products are in very good demand, and we are even considering whether or not to provide a service model so that our clients can get the products that they need within the shortest possible time. That's roughly the situation.
The next question, I think the CFO has briefly talked about this, but some investors want to understand the current progress and plans of setting up factories around the world. We've talked a lot about Thailand. I believe that for the relevant information, please refer to the upcoming announcements made after the BOD meeting.
I'm not going to go into detail here. For other regions, we continue to watch closely. Some people asked about the suspension status. The company's position is that only with sufficient orders will the planning begin. We already have factories in the Czech Republic in Europe and in China, in Thailand, in Asia. The stability of European and American clients is quite good, and they have no special requirements immediately asking us to do something different. We are more conservative in terms of CapEx. Our factories are rented basically, and how to plan or what to do depends on clients' requirements to us. Thank you.
Next question, what is AI PC's outlook for the company's product specs, ASP improvement, and growth prospects? Well, let me answer this question for the CFO. For AI PCs, keyboards are required to have Copilot buttons. We will gradually ship them in Q2. At present, it seems more like an enterprise replacement cycle. With the upgrade of AI PCs, we bundle keyboards and mouses for shipments. The output is expected to have a significant increase, and the unit prices of new products are also relatively good. We have certain expectations for AI PC. We hope that the demand stimulation in the second half of this year will continue and that it can grow healthily from the second half of this year into the next two years. Let me also answer this part, this question. The company has not conducted financial forecasts. Some people ask about the outlook and growth ranking of our three major product lines this year. In terms of product line ranking, Auto AIoT has the highest growth and is expected to have double-digit growth. The other is information products, which have a slight YOY growth in Q1.
We expect this product line to have mid-single digit YOY growth. Smart Lifestyle is expected to still have a high double-digit YOY decrease this year. That's roughly the situation. The company has mentioned many times that our strategy is to reduce low margin product lines and focus on profitable growth. The proportion of B2B continues to rise now, and the gross profit margin is also expected to increase year by year.
There's another question which I think the CFO talked about previously. It says TSMC has lowered its automotive outlook to YOY decrease. What is the outlook for the company's automotive products? The largest EV client will lay off 10% of its global workforce in 2024. Will this affect the company's auto products? This mainly asks about the overall outlook for automotive. Let me say that our proportion of auto is not high. It's about single digit. These impacts are not significant to us. The CFO will add more information on this.
The world's largest EV client is an important partner of ours. The stickiness between us has always existed, but it is very challenging to provide excellent service. Some say that the margin is good, some say differently. We focus on technological strengths with them rather than simply pursuing mass production of products. We hope to always bring unique products to clients instead of falling into price cutting competition. As you know, this is not in line with our strategy based on our many years of experience, such as the market for smartphone camera modules. That's not the strategy of our company. We maintain a close relationship with our clients and offer unique products rather than those widely available on the market.
The company will not sacrifice shareholder rights simply in order to retain clients. That's not what we are willing to do and not what we want to do based on our many years of experience. We look forward to and strive to achieve high gross profit and high added value. Profit is more important than revenue expansion. We have emphasized this many times. For public safety, if the goals can be achieved, well, our existing clients, honestly speaking, these clients have high growth potential and will also bring high gross profit and high added value to us. This is what I want to explain to you.
All the pre-collected questions have been answered. Do you have any further questions? If not, our earnings conference will end here. Well, on the tables, there are question slips. If you have written a question slip, please give it to our colleagues on-site. Okay, if there are no further questions, this concludes our earnings conference. Thank you so much for your participation. Thank you.