Thank you for standing by, and welcome to the E Ink First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the presentation, there will be a Q&A section. Please be advised that today's conference is being recorded. The replay will be available on E Ink's website after today's conference. Joining me today are our CFO, Lloyd Chen. Now, let me turn the call over to Lloyd to get started.
Hi. Good afternoon and good morning to all the participants. My name is Lloyd Chen. Before we start, the cover page of the presentation basically is a photo taken from the Touch Taiwan display exhibition that we had last month. If you were there, you do know what I'm talking about. If you didn't have a chance being there, just give you a flavor of what our booths look like. All right, next page. All right, before we start, let's take a quick look at the safe harbor statement. All right, next page. Okay. Firstly, I'll briefly talk about the first quarter result.
The 2022 first quarter sales revenue was around TWD 5.96 billion. The operating profit was TWD 1.43 billion. The net income was TWD 1.46 billion. EPS was 1.28 NTD. In the first quarter, sales revenue was the 11-year best. For operating profit, net income, as well as EPS, it's all the historical second best. One thing would like to bring up. First quarter operating profit already higher than the operating profit in first half 2021. Last but not least, it's worthwhile to mention that operating profit has been higher than royalty income since 2020. All right, next page. Okay.
For operating profit. The operating profit continues to grow due to the strong demand from markets through eReader, eNote, retail, logistics, and signage. Improved operating profit since 2018. As you can see from the screen, with 640% growth rate, from, I mean, in 2018 to TWD 64 million deficit to 1.4 billion profit in first quarter 2022. Besides, the first quarter 2022 operating profit was already higher than the operating profit in first half 2022. Okay. All right. Talking about the ROE and ROA. These two indexes have been rising since 2018.
The first quarter ROE was 4.5%, and it also grew positively. The Y-O-Y ROA stayed flattish around 2.5% due to higher total assets growth. The Y-O-Y growth was around 24%. Next page. For the assets positive increasing trend, cash assets, total assets, and even net asset value per share. Higher Y-O-Y total assets growth TWD 12 billion, basically caused by strong company growth and financial investments. For the cash flow, basically was increased from TWD 8.8 billion to TWD 9.1 billion because basically we reduced time deposit and increased bank loan to CapEx on ePaper production line expansion to meet strong market demand.
The total financial assets plus cash increased to around TWD 38.2 billion by first quarter this year. We definitely expect more on ePaper production CapEx from second half onwards. Next page. This page, I would like to talk about the first quarter accomplishments. I mean, first of all, in comparison with the TFT LCD display, in general, ePaper is conceived as green products with less carbon emissions, as well as less light pollution in the dark night based on the nature of the ePaper reflective technology, and less light pollution basically being certified by IDA, International Dark-Sky Association.
We continue to work to make it more sustainable with low environmental impact in manufacturing and use, in order to maximize the positive impact it delivers on products to some of the world's most influential brands and manufacturers that use ePaper to you know improve customer experience and enable energy-saving IoT applications. Also, we were rated as the top 10% by S&P Global Corporate Sustainability Assessment last year from the industry of electronic equipment, instruments, and components within 144 companies assessed all over the world. We also have committed to joining the RE100 initiative to hit the goal by 2030.
The Climate Pledge co-founded by Amazon to commit to becoming net-zero carbon by 2040. The Science Based Targets initiative, SBTI, and also other international environmental initiatives, including TCFD supporters and Race to Zero. In the first quarter, MSCI, a leading global index provider, added us to its global standard index. Basically, it shows the recognition of our profitability and sustainability. That's about the first quarter accomplishment. Next one, as I mentioned earlier, after Touch Taiwan display exhibition, we still received massive inquiries about our three color technologies. I would like to take this opportunity to explain further.
The first one is E Ink Gallery 3, the full-color ePaper technology. The update basically is the page turn speed. For the page turn speed, the black and white page turn update time basically is the same as the past black and white ePaper. But for the color ones, the color mode is ranging from 0.5-1 second based on the performance of the applications and products requested. In addition, for the resolution, basically, Gallery 3 has the improved resolution of 300 PPI versus the earlier 150 PPI. Also, the operating temperature of 0-50 degrees Celsius on par with the black and white eReader previously.
E Ink Gallery 3 full-color platform series can be offered for enhanced reading and shopping experience for e-books and for color document viewing and editing in eNotes. The second one is the E Ink Kaleido 3. Basically, it's using E Ink Print Color ePaper technology, where a color filter array is used in conjunction with our black and white ink film, creating a full color device for a more fully realized e-book shopping and reading experience. In addition to improved color performance, Kaleido 3 uses E Ink ComfortGaze, a new front light technology designed by our in-house front light team.
E Ink ComfortGaze has been engineered to reduce the amount of blue light reflected off the surface of the display, providing further comfort while reading. Last but not least, E Ink Spectra 3100 Plus, based on the previous E Ink Spectra 3100 full-color ePaper platform. Black, white, red, and yellow. E Ink Spectra 3100 Plus adopts a new waveform to display the fifth color, orange. We added the new color orange. In addition to offering a wide range of solid and saturated colors, E Ink Spectra 3100 Plus can create a partial image flashing effect. We give it a market name, E Ink Sparkle.
With this special effect, flashing effect, when E Ink Spectra 3100 Plus is equipped with the relevant all-in-one driver IC, E Ink Sparkle can enhance the effect of advertising messages through this motion and help retailers achieve better results for their product promotions. That's about our three major color technologies. On the next page, we're gonna explain on how we commercialize our leading-edge technologies. We always endeavor to present the next generation of ePaper basically satisfying the needs for sustainable and diversified display in smart application. As a leader in the ePaper display technology, we are committed to developing more low carbon emission ePaper applications.
The sustainable ePaper technology brings endless possibilities in IoT and smart world, not only on reading and writing, but also expand to, you know, smart retail, smart logistics, smart transportation, smart paperless office, and even to mobile wearable. One of the good examples is our 7.8-inch E Ink Kaleido Plus was awarded for quality mark by TÜV Rheinland in 2021 for being the most paper-like display tested to date. Next page. This page, I'm gonna talk about how we collaborate with our partners in the supply chain. We proactively cooperate with our supply chain partners to build ePaper ecosystem. We work hand in hand toward the net-zero carbon emission targets.
Those partners are coming from upstream and downstream supply chain, such as TFT panel maker, module maker, the makers from driver ICs, software, hardware, and system integrators, and even to our end customers. Basically, we join forces with supply chain partners to promote ePaper and aim to reduce CO2 emission. As you can see from the screen, E Ink now goes beyond ePaper material. We also dedicated to material film research and development. We manufacture and provide flexible substrate material. For example, PI, polyimide, including PI varnish and PI rolls, as well as some functional material films, such as anti-glare film, OCA, optically clear adhesives, and moisture barrier film.
We do see the potential of those premium quality material and functional films enable a smooth production process of ePaper display modules and modules of other technologies. All right, next page. In this page, I'm gonna talk about how we contribute to the environment in order to create an environment friendly world. Having said that earlier, as a leader in ePaper technology, we are committed to developing more low carbon emission ePaper applications. The sustainable ePaper technology brings endless possibility in IoT and smart world. Our products produce less CO2 than LCD devices, paper books and paper text. Internally, we have a slogan, and we also share the slogan whenever we meet investors, analysts.
We do our best efforts to make services smart and green. Less energy use, less carbon emissions, less light pollution, as I mentioned earlier. I also want to give you a couple of examples with numbers so you can get a better flavor of how we contribute to the environment. Basically, the first example is relevant to the green retail ESL. Under the assumption of five-year time period, 30 million 10-inch ESLs globally shipped, compared with conventional paper ESL, produces 600,000 times less CO2 emission. Compared with TFT LCD ESL produces 12,000 times less CO2 emission.
If we run another simple scenario analysis, assuming 64,000 bus stops in Taiwan being used in five years, compared with the TFT LCD signage, basically we produce 200,000 tons less CO2 emission. If I just simply convert it into the carbon credit, theoretically the carbon credit we can get is around TWD 55 million. Once again, just want to give you a flavor with the numbers when we try our best to make services smart and green. Last part, last page is about the corporate sustainability. Once again, we continuously endeavor to contribute to corporate sustainability on ESG.
Basically, we put product before the ESG because we believe our green product, we're born to be green. Whenever we consider anything into ESG, we always consolidate our green product into consideration. From the product perspective, even we are in the proud position generating 99.93% green revenue evaluated by our Fujitsu Green Model. We are further gradually introducing the use of renewable energy from our manufacturing and operations to reduce carbon emissions. We work continuously to improve our ePaper technology and product design with lower energy consumption and less material use, further reducing carbon emission and electricity use for an environmentally friendly display to our customers.
For the environmental side, as the companies face the environmental impact caused by intensifying climate change, taking steps to improve our carbon footprint is a common challenge and responsibility for all human beings in the world. Once again, as a leader in the green display products, E Ink has committed to joining the RE100 Initiative to hitting the goal by 2030. The Climate Pledge co-founded by Amazon to commit to becoming net zero carbon by 2040. SBTI and other international initiative, including TCFD supporters and Race to Zero. I already mentioned that previously.
In terms of social care, in the first quarter, we have donated $150,000 to UNICEF in the project of war in Ukraine, support for children and families, to support relief efforts to Ukraine. Apart from that, we continuously carry on the Read for the Future global project. On top of that, building a digital library for students. The club is also actively involved in the charity work. In terms of the governance and operation, we have won several awards, such as Asia Responsible Enterprise Award and Taiwan Corporate Sustainability Award. Financially, we have been included in the MSCI Global Standard Index. It's sustainable.
I mean, other ESG related indexes in Taiwan. We additionally remain on top 20 on Taiwan Corporate Governance and also listed in the S&P Global Sustainability Yearbook. Once again, we continuously working on the corporate sustainability. Thank you. That is my updates for the first quarter. We can move forward to the Q&A session.
We are now in the Q&A session. At this time, we will open up for questions. Please press the raise your hand icon on the sidebar if you would like to ask a question. When we take your question, please remember to unmute yourself. Our first question is coming from John Xu. You may ask your question.
Hi, John.
Can you hear me?
Yes.
All right.
Hi, John.
Yeah. Very good. Just in the previous session, you mentioned that the fourth line will probably be delayed to the second quarter next year due to the very long lead time of equipment. My question is that if the demand actually is better than expected, and your four lines cannot fulfill your customer demand. You probably will add another or maybe another one or two new lines in your Hsinchu buildings. Are you prepared for that scenario, which means that you already pay some deposit to your equipment maker just in case that if you really if you guys want to like to expand the additional new lines in your Hsinchu buildings. Thanks.
John, let me confirm your question again. You are asking the assurance over those production line we are building at this moment, right?
Yeah.
Is that your question?
Well, yeah. My question is actually if the next year, I mean, the demand actually is much better than the company expected. The four new lines cannot fulfill the customer demand, and you guys definitely have to build up the one or two lines in your Hsinchu buildings. Once that scenario happens, do you take any step? Can you make sure that you can get the equipment on time? Or maybe you have to wait for another years, I mean, to add your new line in your Hsinchu building if that scenario, if such scenario happens.
Right. Okay. All right. First of all, thank you for your question, John. Basically, we are expecting more and more demand going forward. The first priority we will work on is try to finish the four production line first and then, you know, try to fill the growing demand from the customer this year. Then we will observe how we're going to add additional production lines from the new building we are working on at this moment. Okay.
Okay. Okay, thanks. The other question is that you mentioned that your colorful ePapers and when eReaders or eNotes, I mean, start to adopt the colorful ePapers, just you say, you mentioned in previous session, means that the size, I mean, in terms of the eReaders or eNotes, I mean, what is going to get larger and larger. I mean, in the company strategies, so if that happens, I mean, it means that your customers start to adopt the colorful eReaders, or we will see that the penetration rate is going to be accelerate.
In the colorful eReader, eNote, so are you still increase your strategies that you outsource your modules, I mean, to your partners rather than, I mean, keep your modules assembly in-house? That's my question.
All right. I think for the module assembly activity for our eReader and eNote, of course, we will try to fill in our internal in-house module capacity first. However, with the growing demand, if we don't have enough capacity, we have the 10 module partners in our ecosystem. Our customers can definitely utilize their module capacity for further manufacturing activities. Not to really worry about the module capacity for ePaper, because apart from our in-house module capacity, we still have the 10 module partners in our ecosystem.
With the growing demand for the ePaper-related products, that's one of the reasons we try to invite more and more module partners into our ecosystems.
Okay, thank you. In terms of the color for eReaders or eNotes in your design pipeline, would you please share your idea or some colors about the penetration in next year or maybe in the year 2024? Can we see that the penetration rate is going to accelerate next year or maybe in second half 2024? Thanks.
It's hard to say about the rate of the penetration, but we do believe the potential, you know, of the growing of eReader and eNote market, because with our new color technologies, I think in the past, from a digital reading perspective, we only cover the fiction digital content. For the non-fiction digital content, such as the magazine require color, the textbook require color, and basically, it's not covered. With our color technology, we believe the non-fiction market can be further expanded. That will be the additional contribution to the reader and note business.
Apart from that, from the education perspective on digital learning, as we repeated in the past, basically, we just want to replace the paper, not really want to replace the TFT LCD or that sort of devices. What we want to really replace basically is the conventional textbook. With our devices, we believe it goes very well with the LCD devices such as Chromebook or MacBook. Our stuff together with the LCD can be a very good digital learning package. From those perspective, we believe the potential of the eReader and eNote growth with our new color technologies.
However, how much penetration rate it would grow, it'd be hard to say at this moment, but as I mentioned earlier, we are running out of capacity. I think that the first priority is let us just focus on the completion of this fourth production line first, and then we figure out how to allocate that. Yeah.
Okay. Lloyd, thank you very much. Yeah, back to the queue.
Yes. Thank you, John. Thank you.
Our next question is coming from Max, Maximilian. You may go ahead.
Hey.
Hi, Max.
Thank you very much for taking my question, and congrats with great results. I would just-
Yes.
Interested, due to the delay in the Q4 production plan, how will you do you have any focus in your capacity allocation, especially between ESL and consumer, and in the ESL segment, especially between color and black and white ESLs? Will we see a higher allocation to, for example, color ESL displays, and will that have an impact on your overall margin?
Hi, Max. Some noises from your background. Let me just try to answer your question. I think your first question.
Yeah, yeah. Sorry.
is relevant to the delay of our fourth production line, right?
Exactly. Sorry. I may say it again because it was a bit noisy in our office. Sorry. Probably again. No, I was just asking how your capacity allocation will look like due to the delayed fourth production plan between ESL, consumer, and also within maybe ESL, if there will be a focus on color or black and white.
All right. I think according to the demand from the different customers, we do see a stronger growing demand from ESL. Even there's a possible delay for our fourth production line. You know, we still try to allocate more ESL products. However, we do see the potential of our eReader and eNote products. It's a bit hard to say how much exactly we're gonna allocate, you know, the ESL and eReader. You know, we have a good plan that they should figure out how to best allocate that.
Max, once again, I know where the question is coming from. Whether we allocate more to the ESL or less to the eReader, what we want to achieve is try to increase the market share of the ePaper related products, you know. Whatever allocation we're gonna make, basically we try to check up the sales revenue in order to have more gross profit margin in terms of the dollar value. That's how I would answer your question. Hi, Max. Max, you still there?
Now I should be back. Yeah, thank you very much. That's quite clear. A second question I would have would be regarding the general like capacity utilization. Are you able to increase the capacity utilization of your current production line? How much room do you have essentially left to serve the demand of your customers?
Right. I think we had the Mandarin session, earnings conference just one hour ago. Similar question being asked. I take the one we just finished, the production line we just finished by end of last year. I think the utilization rate hasn't been fully in the first quarter, and it has been ramping up from the second quarter. It is quite normal to spend, you know, one quarter or two in order to get the new production line fully ramped up. The second and third production line would be ready by first half of this year.
Once again, we may also need, you know, one quarter or two to get it fully ramped up. Similar timeframe would be needed for a new production line.
Perfect. Thank you very much for taking my question.
All right. Thank you, Max. Next question is from Jerry Su. You may go ahead.
Yeah. Thanks for taking the question. Hi.
Jerry.
I just want to follow up. Yeah, hi. I want to follow up on the, I think previously discussed about the impact from the China lockdown. I think Johnson was saying that, there will still be some impact into the second quarter. So how should we think about your second quarter revenue? I'm not very sure what you mean by impact lasting to June. Does that mean, you know, the monthly sales in the next couple of months, you know, is going to be weaker than April? Or is that, you know, the will still increase but, the magnitude is, you know, not as great as, you know, you previously expected?
Jerry, your question is about the COVID impact in China? Is that?
Yeah.
Is that your question?
Yeah.
All right.
How is that impacting the second quarter, you know, revenue?
Right. I think there would be an impact, but I believe it's manageable since last year we already had experience for the Yangzhou city locked up. We've already, you know, worked out a plan B when this sort of similar situation happens. We basically reroute to different country or different city in order to, you know, deliver the goods to our customers. But we've a little bit additional logistics costs, but we still be able to deliver. I think it would cost a little bit timing difference in terms of the delivery, but I think it's manageable, but with a little bit logistics cost.
Okay. Okay, thank you. The second question is regarding your CapEx. I know you have mentioned that your CapEx this year could be double or more than double from last year. When I look at your balance sheet for, you know, Taiwan parent only, you know, although the consolidated you have pretty, you know, a lot of cash on hand, but I think Taiwan only as of end of last year, you know, I think the cash balance, you know, cash and cash equivalent, probably adding those financial assets, I think probably is somewhere around TWD 7 billion-TWD 8 billion. So just wondering how are you going.
What's your plan on financing the CapEx spending, especially, you know, all the CapEx now is gonna be in Taiwan. You know, are you going to, you know, increase your bank loans or leverages, or do you need any further fundraising plans?
Right. Basically, in general sense, I don't think we're gonna have another round of big, you know, funding plan. We basically utilize the cash generating from our operation and or utilize the existing bank facility we have on hand. Basically, even we are going to conduct more production of ePaper production like CapEx. But I don't think it would be very much, you know, capital intensive. Internal money, internal fund that we have and, you know, and the existing bank facility should be good enough to deal with it.
Okay. Thank you. Probably lastly is on the operating expense.
Right.
Because the revenue has been growing quite quickly, so I'm just wondering how should we think about your operating expense going forward? Should that be more, you know, a fixed amount or, you know, should we be looking at the amount or a percentage of the revenue? Is there any guidance you can provide for us? Thank you.
Right. Right. One thing I can guarantee, basically, our operating expense will not, you know, go proportionally with our sales revenue growth. It does increase, especially on the R&D related expenses and also the employee-related expenses, because we always need the new technology, you know, to bring up the new products. We always need the good talent to get things going, you know. From the operating expense perspective, employee costs and R&D costs will be increased accordingly. However, from dollar value perspective, it does increase, but it won't increase as much as the sales revenue grows that much. I think. Yeah. That is my answer to your questions. Yeah.
Okay. Thank you, Lloyd.
All right. Thank you. Thank you, Jerry.
Hi. Next question is from Alan Wong. You may go ahead.
Hi. Good afternoon, Johnson and Lloyd.
Hi, Alan.
My question here is that, in the IoT section, besides ESL and the signage, do you see other application that or shipment or demand from the customer is increasing? Looking back the Q1 or looking forward to the next few quarters. Thanks.
Right. I think your question is, apart from the ESL, is there any other products or application will grow significantly, right? What's our next growth engine? I think that's your question, right?
Yes. Thanks.
Right. We do see the potential of the e-signage and the logistics tech. However, I believe it takes a while to grow significantly. We do see the potential of these two applications.
Okay. Cool. Thanks. I have another question. You mentioned that in the new Hsinchu headquarters, there'll be few production line we can build on. Probably six, right? You mentioned like six plus. Is that we plan to do and we still waiting for the board to approve and then we can release this news to everyone. Is that a thing going to happen?
You are correct. We are constructing a new building in Hsinchu, and we reserved the spaces for the production line. The maximum we can have is six production lines. You are correct about that. A lot of discussion going on, you know, however, for the production line expansion, we gotta be very careful and we also need to discuss with the board. What I can tell you now is we do have a plan at this moment, but we still need to further discuss with the board and we still need a little bit more visibility on this. We do have a plan.
Once we get everything clear, we definitely will provide updates during the result conference.
Okay, thanks. That's my question. Thank you.
All right. Thank you. Thank you.
Okay. Now, I would like us to turn the call back to Lloyd at this time.
All right. Thank you very much for your participation. I believe I've answered pretty much all of your questions online or from the phone call. Once again, thank you for your participation, and looking forward to speaking to you again in next quarter. Thank you.
Thank you much. Thank you very much for your time and, see you next quarter. Goodbye.