Welcome to E, Inc. 4th Quarter 2020 Earnings Conference Call. All participants are currently in a listen only mode. After the presentation, there will be a Q and A session. And today's speaker is CFO, Mr.
Lloyd Chen And Finance Director, Mr. Patrick Zhang.
Okay. Good day, everyone. Welcome to Yi Yong on 2020 Q4 Investor Conference. Before I talk about those Financials and market information. Let's take a quick look at the Safe Harbor statement.
Okay, next page. Okay. So I'll quickly Give you a flavor of what happened in 2020 in terms of the P and L. So for the sales revenue, 2020, it was around RMB 15,300,000,000, 13% Y o Y improvement in anti dollar, 18% Y o Y improvement in U. S.
Dollar. In terms of the operating profit, that was 1.85 on billage. And in terms of the Y o Y improvement, that was 230%, I'm going to talk about that a bit later. And for the non up, 2,400,000,000 Year over year, that was 24% decrease due to The FX loss and decreased royalty income. And the net income for 2020 It was TWD 3,600,000,000 and the EPS was TWD 3 NT dollars.
This one point I would like to bring up. In 2020, The operating profit is nearly equal to the 2020 growth income. So that's about the P and L part. So next page. For the operating profit, as I just mentioned, the YY improvement that was around 230% improvement.
Basically, the reason behind Due to the strong demand from the market across all the categories, such as e reader, Enotes, signage and ESLs, of course, Last year, due to the COVID-nineteen, we managed the costs and expenses carefully. That's also one of the minor reasons for operating on profit improvement. All right, next page. So the return on equity, given the growing profitability, As you can see from the previous slides, the ROE has been improved from 9.2% in 2018 and to 11.6% in 2020. That's for the ROE.
Next page. For the cash flow, 2020 year end cash position remained strong, Around RMB13 1,000,000,000 cash at the end of 2020 Versus the cash on hand by end of 2019, That was around $7,000,000,000 And even we have a strong cash flow and position, We still utilize our external bank loan at the lower interest rate on CapEx And dividend cash dividend. So that's for the cash flow part. Okay. The path on the financial, I just presented Our ASAT, advanced COLOR B paper display system, we also Given the market name, EA Gallery has won the 2020 Taiwan Excellence GO Award, Basically, ASAP adopts full color e vapor display technology.
It has achieved full color gamut And visual effects, like post the printing by controlling voltage Having our full color pigments, including yellow, cyan, magenta and white In every pixel for our dynamic color mixing, besides one of our In products of the eNote, reMarkable 2 has been selected the best inventions of 2020 by Time Magazine last year. And another Color technology, it's called the Inc. Collider, basically it's a printing color technology, Oso has been selected the 100th Greatest Innovation of 2020 By a magazine called Popular Science. So that's our accomplishment in the past few months. Okay.
Before I talk about the KALYDO, Actually, our new generation KALYDO is called KALYDO Plus. Before I Talk about it. Let's take a quick look at the video clip to show the ClioPlus video capabilities. Okay. So I believe you already get a feel about how KLEIO plus work with the video capability.
So I would like to briefly explain It's Clidl again with this technology. Basically, it utilizes a new printing color technology. And Together with our latest generation on e paper, basically, it comes faster, it comes brighter. The new printing process alleviates the need for glass based CFA, Making the display thinner and lighter, while simultaneously having overall higher optical quality. Additionally, the ink's faster ink enables quicker updates for Animations and videos, as you can see from the video clip, we just presented.
And with this new color technology, Our eNote product lines are now able to introduce writing tablets With the color, highlighters, pens and markers, giving new options for education And professional devices, especially, we want to the purpose of this technology Combining with the end device, the purpose of it is trying to replace the physical textbook to an e textbook. And as you perhaps still remember that initial KALYTO launch Q2 last year And the market response went beyond our expectation. It went very well. However, we still took our Customers' feedback from the initial launch and incorporate it into this upgrade, Bringing a new level of color situation to our color devices. And basically, we look forward on ClioPlus on being adopted in the textbook market in the future, as I just explained.
From the slide, can you move to the next page? From the slide, I think you can see 2 new devices shown there. Basically, we are quite proud to have the Support of our leading customers. On the left hand side, basically, one of our customers, Onyx, The product is called Books Nova 3 Color. And on your right hand side, One of our customers, Pocketbook, and the model name is Impact Color.
Basically, they already launched these 2 products in the market. So that's about the INCHORIDO plus And given the growing momentum of ESL and e reader eNotes Happened in the 2019, we believe on this growing momentum for this to For those 3 products can still carry forward to 2021. Basically, the advantage of the ESL is to save a lot of manpower and provide real time dynamic pricing Because of the lockdown on the major cities globally, we noticed that there's still a strong growing momentum on GSL From retail, even COVID-nineteen situation later on gets better. The advantage of the dynamic pricing, In other words, online offline, the price needs to be the same. The advantage of the dynamic pricing will still The strong ESL growth.
Apart from that, in response to the anti COVID-nineteen measures, Remote learning and online meeting have become a trend. So the demand of the e reader and eNote to grow. Better Clio Plus, I just mentioned, the color performance, Larger sizes and no taking function, we expect that it will trigger a wave of new device purchases, especially on the education market. Next page. So as I mentioned, the growing momentum on those, yes, so From e reader and e note, in response to the demand of the continuous growth, we endeavor to expand the capacity of the ePaper production.
Apart from existing ePaper production line at Linco, 4 additional e paper production line will be conducted. As you can see from the presentation, line on H1 and H2, basically those investments have been approved by E, Inc. Aboard last year already and additional two lines, line H3 and H4 was just approved a few days ago. Basically, it shows our determination to grow the ePaper business. And looking forward, the future prospects of EDIC, I would like to say the profitability and sustainability are equally important.
So In response to the continuous growth, we will not only focus on Expanding the e paper production capacity, as I just mentioned, but also Cooperating with the module partners continuously to build up a better ecosystem. And recently, such as Yes. Well, yes, Optoelectronics and Microviewelectronics, we had Closely, been working with them. With those, cooperations, we will provide e paper Films and related technology support to the module partners, which also increased the overall Module capacity in e paper ecosystem and also by leveraging their resources in the vertical market. We work with them to develop diverse e paper products And expand on customer for new business opportunities in new retail, healthcare, Very well, logistic, even the transportation.
Furthermore, we definitely understand the importance of the Corporate sustainability. So we will not just only actively seeking long term profitability of the company, But also leveraging the paper's technology advantage, such as lower power consumption And environmental friendly to develop more ePaper products to replace the use of the traditional Print paper. So we can contribute more to a better and clean environment. In addition, We will also enhance the corporate governance, strengthen the compliance with law and regulations, Improve the transparency of the information disclosure to contribute in the aspects of The ESG and environmental sustainability. So last but not least, the profitability and sustainability Equally important once again on this evening's future prospects.
And that's pretty much about my presentation. So let's move to the next session, Q and A session, and Patrick and I are happy to answer whatever question you may have. Thank you.
The first question is from Jerry Hsu. Jerry, you may ask your question. Please remember to unmute yourself.
Hi, Jerry. Feel free to ask questions. We can hear you properly. What kind of visibility do you have? And how should we think about your Q1 and also Q2 revenue and also the margin outlook?
Okay. I think the visibility is quite clear. So in terms of the Q1 outlook, we believe We definitely can grow. But to what extent, it all depends on how our Internal ePaper capacity expansion goes and also how much we can catch up In terms of the driver IC shortage. So the short answer for the Q1, we definitely will grow in terms of the Y o Y.
But to what extent, I would like to help my comments here. And for the Q2, same thing I would like to say. We believe we can still grow. And it may not grow as That much as the Q1, but we definitely can grow. I think that the reason remain the same.
It all depends on how our e paper production expansion trend goes and How much we could catch up is the driver IC shortage. But overall, Everything moves very positively. And we also believe the whole year, 2021 can grow. Okay. And then how should we think about the margin because Gross margin in Q4 has down sequentially.
How should we think about the margin in the first half of this year and perhaps Maybe some comments about the product mix in Q4 and also in first half? Right. In terms of the gross profit margin, actually, we received a lot of Quietly here. And we basically we work quite hard to improve the gross profit margin constantly. However, with the product mix change, Sometimes it'd be hard to comment how the gross profit margin would go.
But in general, I'm sure it's moving positively. It's moving positively. And I'm sure the absolute value of the gross profit margin can also grow. But as I just mentioned, The Q1, the Q2, even the first half, our overall performance will look at that in terms of Y o Y. Okay.
Maybe a last question and I'll get back to you. Is that, how should we think about ESL Our statements are shared. I think in previous results of our analyst meetings, Johnson has mentioned that targeting for 20%, 30% growth year over year And could the salary be 30% to 40%, so how should we think about that for 20 21? I think the growing momentum, as you mentioned, is still there definitely still there. And our situation is not we don't really worry about the demand of the ESL.
What we are worrying about and what we are really working hard is how can we execute the e paper production Expansion efficiently in order to catch up those growing demand. So the growing momentum is still there. And what we Really need to work on is to work harder to execute The e paper production expansion more efficiently. So that's for the ESL. And apart from the ESL, we believe the growing momentum on the e reader and e note It's also there.
Since with the contribution of the KALYDO technology, We believe the opportunity For the education market, definitely, we'll be there. So not from the ES not only from the ESL market, we believe our e reader and eNote market will also grow. Okay, okay. Got it. Thank you.
The next question is from Juno Lee. Please remember to unmute yourself. Juno, you may ask your question.
Hi, Juno.
Hello, yes. Sorry, I would like to ask, can you elaborate How big is the market size? And what's your market share? And who is your Major competitors and who is your top three clients?
Hi, Juniel. Yes, thank you for your question. So Let me answer your question like this. From ESL perspective, our Market penetration is pretty much only 5%. So As you can imagine, how much it grew for us to grow in terms of the ESL market.
So that's for the DSO market. And we also believe The reader market and the D nodes market has further growth associated with our new KALYDO plus technologies. And in terms of the Customers, I'm afraid that we will not disclose from The call here because we don't directly come in to our customers. And I think one of your question is our competitors. Basically, our e paper technology is really in the dominant position in the world.
So I hate to say we don't have any competitors, but we are really in a dominant position in this field. So however, as I just mentioned earlier, With the strong demand from the ESL and even from the eNote and e readers, What we are really working on is how to execute our The paper production expansion more efficiently. So I would like to say Maybe the biggest competitor is ourselves. If we can't get those expansion plan efficiently, We cannot move forward to the next level. So Currently, how we can execute those expansion plan composition is the first priority.
Thank you. Can you let us know what's your utilization ratio at the moment.
I think our currently Our e paper utilization is very, very tight. That's why we need to expand Our e paper production line. And also, for your information, Even our ePaper technology is Can be breakdown into 2 sub technology, 1 is microcapsule, 1 is micro cap. However, All the additional production line we are working on, those two technology are switchable. Switchable.
So in the long run, depends on the market requirement, market demand, These 2 technology can be switchable from our additional line that we are working on now. So our capacity is pretty much booked out by our customers so far. That's why we need to work higher on the production line expansion.
So for your production line expansion, are you
We do need the money. However, as you can see from our cash flow performance Last year, our cash position and cash flow remained very strong. So basically, We can utilize our internal fund for the additional CapEx. However, as I just mentioned, we still utilize our partial bank facility At the lower interest rate for additional CapEx. Basically, it's all about how we utilize our money efficiently and effectively.
Thank you.
So, bye. Okay. Thank you.
The next question is Jane Andrews. Please remember to unmute yourself. Jane, you may ask your question. Thank you.
Hello, Jane. Hello, Jane.
Hello. How are you?
Yes, I'm good. Thank you. How are you?
Yes, and I'm very well. Thank you. And thank you. It's great to catch up. I've just got a couple of questions.
The new capacity, when are you what's the timing of this coming on, please? And Is any of this for new customers? And then my second question is about the component shortage, If you can give any more details on this, please.
Hi, John. First question, I can hear you very well already about the new patent. But second question, what is that? Can you repeat?
Hello. Sorry, the organizer muted me again. The second question is about component shortages. And I think you mentioned driver IC shortage and how long you expect you for and is
there anything you can do about that, please?
All right. Sure, hey, Raj. All right. Let me answer your first questions. So for the new customers, so Jen, let me briefly explain.
For the ESL, basically, I believe We don't deal with our end customers directly. However, our System integrator has been exploring the new customers, especially from the retailer globally. We definitely can see a strong demand from this field Because the advantage of the electronic shelf label is there's a lot of manpowers And basically, it provides a dynamic pricing. So we believe our system integrators Can explore more new customers in the Europe, in the United States. However, Normally, we don't disclose the potential customers' names.
But as I just mentioned, I'm sure there will be some new customers happening going forward in the Europe and In the United States for those branders. So that's for the ESL. And For the eBreazer and eNote, I think I just briefly explained our New generation of KALYDO plus and we believe this will be a very, very good Technology for the education field. The reason is, I think in the past few years, digital learning Has become a trend. And those kids and even the school try to use the Chromebook and even iPad for the digital learning.
However, with those tools, Those students still need pen and pencil to incorporate it with those Chromebooks or iPad. So with our cryo new technologies, We believe the new e reader or the new e node because it provides The pay function and even the counter function, it will be Very, very helpful to replace the eText textbook in the long run. And besides, iPad May could be a tool for the digital learning. However, it's not very good for the kids' eyes. And our e reader or e note basically, It's very good for the kids' eyes because of our technologies on the band bridges.
So we believe With our new cryo technology, that would be a very good driver to replace The textbook in the long run. So we have been working very hard with those on branders in this field. And we do see the potential. But so far, 2 major players, 1 in China and 1 in Europe. I think the one in China, as I just mentioned, is Onyx And the other one is Pocketbook in the Europe because they already launched the new product.
So it's okay for us to mention their names. So I think that the same situation or The potential of those e reader and e note with our KALYDO Plus technology definitely will be the driver for us to go to get more on new customers in this field. So that's my answer to your first questions. And your second question is about the Components shortage. I would like to say, yes, That's The problem for us now because for those driver IC, it does affect Our supply to the toward the stronger demand from our customer.
However, We have been working very closely with our IC driver vendors, and it does affect Our first half business update, however, even with this On that tick impact, we still believe in terms of our Y o Y growth, we can still grow. Apart from the external components shortage such as driver IC, I think internally, as I just mentioned, Our e paper supply It is also quite tight because that's the reason why we need to spend efforts on those for additional We pay for production expansion. So I mean overall, It does affect our supply toward the stronger demand. But I think We are quite okay so far. And overall, we are still growing in general.
Thank you for that. Just when will the new supply, the new e paper supply be coming on? When do you visit that?
The e paper supply, basically, The supply is still ongoing. It's just our demand It's higher than our supply. So that's why we need more production line to meet the growing demand. So the demand the supply is still ongoing. The e paper Supply is still ongoing.
Basically, it is manufactured in our Taiwanese A factory, which is located in Lincol and the other is located in our Boston factory. So basically, we are still manufacturing every day, but it's just very tight. So we need to expand our production line further.
Yes. It was just when will that new capacity come on stream? Maybe
All right. Sorry about that. Yes. So the full additional production line basically Some will be finished by end of this year. The other will be end of next year.
But eventually, On 2023, basically, 4 production lines will be fully ready.
That's great. Thank you very much.
No problem. Thank you. Thank you, Jerry.
The next question is from Juno Lee. Please remember to unmute yourself, Gina, you may ask your question.
Sorry, I just would like to clarify, you mentioned about the market size before. Is it the penetration rate? Is it 5%?
Yes. The market penetration rate is around 5% for ESL. It's correct. So as you can imagine, we still have a massive, massive room for growth.
Okay, good. Yes. So for your new production, production line capacity, what is the main location in Taiwan What else where is your manufacturing right now mainly in Taiwan and U. S. Line?
Right. Our 2 existing production lines, one is in the United States, Boston, Mandy And the other at Bingo. But 4 additional production lines will be still located in Taiwan, of course, But in Xindu, another region in Taiwan. However, Those four additional production lines are switchable from the micro cup and micro capsule ePaper production. So they are switchable.
So you don't really need to worry about it will be restricted In particular, e paper technology, basically, they are switchable.
Thank you. So can I know that what the e paper production, Will they use a lot of water? Because I think right now global investor are watching about the short water shortage in Taiwan. I'm just wondering whether this area will be impacted by the water shortage in the future?
Right. We do use the water, however, No, that's significantly so. I think it will be less concerned from our perspective. So it's in control.
With this industry, Is labor intensive or will you have any labor shortage issue?
Juno, can you repeat?
About the labor shortage, Because in Taiwan, there's a labor shortage.
All right, labor shortage. Oh, sure. I think currently, Our labor force in the production line is quite okay. It's quite okay. No problem at all.
And I think in the past few years, we spent a lot of efforts on the automation. So that reduced the need of the labor along with the production line significantly. So The labor we cope with the labor issue quite okay So far, yes.
Okay. Thank you.
No problem.
The next question is from Jerry Hsu. Jerry, you may ask your question.
Okay. Thank you. Just want to follow-up on the component shortage issue you have commented. So is this going to get worse, I mean, for your monthly for your revenue into the Q2, Because I think that seems to be emerging from later part of last year, but it looks like your January, February Revenue still kind of pretty strong. I'm just wondering, are we going to see some decelerating in your monthly sales in the next couple of months before it before these things get fully resolved?
Right. Yes, good question, Jerry. I think We spent a lot of efforts on this. So I think it will get better and better. So it won't get worse.
However, during the transition, as I just mentioned, the Q2 In terms of the YOY still grow, but I think because of the driver IC shortage, it would affect a little bit in terms of the shipment. But I think in the long run, it will get better, yes. So in terms of quarter over quarter, then I know Q1 should be A down quarter versus Q4, and then we should be expecting Q2 to grow? I think the Q1 and the second quarter, if you are talking about the Year over year comparison, I think both quarter will still grow. But if you're talking about whether our second quarter will be better Worse than Q1, it's a bit hard to say, it is more work.
Okay. Because I think Yes, because I think the March, you just don't give too much revenue, Even less than February, you should be able to achieve year over year growth. So I think year over year will be Quite easy for you to maintain a growth. So that's why I'm asking about quarter on quarter quarter over quarter. Right, right.
I think it's a bit hard to say at this moment, yes. But I think Q2 this year will definitely be better than Q2 last year, that's for sure. Okay. Got it. And then second question is regarding the new product.
And I think you also mentioned about the component shortage. So for this year, the top line growth, Is it mostly going to be coming from unit shipment or we can expect some pricing adjustment because I think across the supply chain a lot of Company has been adjusting the price to a factor in the component shortage issue. So how should we think about that? Right. I think the unit shipment will also grow, of course, due to the Component shortage, inevitably, our cost might be Increased a little bit.
However, with the scale economic scale up, we believe the operational efficiency We can offset the cost pressure from those component shortage. So we are quite confident with that. And in order to grow the market, we try not to shift the cost pressure to the customer. Yes. But yes, a track phase so far, yes, Because we yes, everything will be changing, yes.
But so far, I think Everything is in control, yes, as I just mentioned. Okay. And then, so for KALYDO Plus, should we This could be a better margin and better pricing product versus your current black and white or the 4th generation of KILADO? Right. Yes.
So once again, Jerry, I think that's also a very good Because a lot of people try to ask this question. And we're definitely in a good position To check out the ASD more because of the new generation of color technology. However, what we really want to achieve Yes. We try to grow the market. So we just try to make a reasonable margin On the new technology, so from the margin perspective, I think it would be similar or just slightly better, but The margin will not be increased significantly.
What we are very want is we just try to grow the market To maximize our gross profit. So the for the short term gross profit margin is not something we are after this mode. Okay. So the slightly better or similar margin is comparing with the current e reader product? Mine is slightly better, but it won't like have a significant jump.
Okay, okay. Got it. Thank you. Okay, that's all my questions for now. All right.
Thank you.