ASM Pacific Technology Ltd

HKEX:522

Earnings Call Transcript 2018-Q3

[Operator]

[Audio Gap]

Technology 2018 Third Quarter Results Announcement Investor Conference Call.

Before we proceed, I would like to note that during this conference call, there may be certain forward-looking statements with respect to ASM Pacific's business and financial conditions. Such forward-looking statements may involve known and unknown uncertainties and risks, which could cause actual results, performance and events to differ materially from those expressed or implied during this conference call. For your reference, the IR Presentation related to our Q3 results can be downloaded from our website, www.asmpacific.com.

With us this morning are Mr. WK Lee, CEO of ASM Pacific Technology; and Mr. Robin Ng, CFO of ASM Pacific Technology. We will start with a brief discussion about our 2018 third quarter results, followed by a Q&A session.

Without further ado, let me hand this over to Mr. WK Lee. Mr. Lee, please?

[Wai Kwong Lee, executive]

Thank you, Leonard. Good morning, and good evening, ladies and gentlemen. We appreciate you joining us for our 2018 third quarter investor conference call. I will first provide you with a summary of our third quarter results followed by the Q&A session.

We are very pleased to report that the group has continued to deliver a solid performance, driven largely by the SMT Solutions and the Back-end Equipment Segments in the third quarter and for the first 9 months this year.

At a group level, both billing and bookings saw year-on-year growth, while the quarter-on-quarter decline were in line with expectation. Group booking in the third quarter was greater than anticipated, led by the SMT Solutions segment, which has achieved yet another new record, topping the record set in Q2.

The Back-end Equipment Segment also showed higher-than-expected booking and achieved a year-on-year growth of 5.8%. The continued success of the Group in winning market share is well reflected in the strong bookings of these 2 segments. The IC and Discrete market contributed strongly to the booking growth of the Back-end Equipment Segment during the third quarter. Booking of the IC and Discrete market showed a strong year-on-year growth of 24%. Booking of the IC/Discrete market for the 9-month period already exceeded the full year booking in 2017.

Booking of the Materials Segment, on track compared with the same period last year and the preceding 3 months, mainly due to customers started to adjust different inventories in accordance to the sentiments of market conditions. However, the Materials Segment did achieve a new billing record in the third quarter, which indicated that customers' production activities retained their momentum.

Group revenue for the third quarter this year was USD 658.3 million, representing a growth of 1.1% year-on-year but a small decline of 2% as compared with the preceding quarter. Group booking for the third quarter amounted to USD 618.6 million, representing a year-on-year growth of 7.7% and a quarter-on-quarter decline of 15% due to seasonality.

Both group revenue and booking attained new records for the first 9 month this year. Group revenue was USD 1.89 billion, and booking was USD 2.1 billion, representing year-on-year growth of 11.2% and 13.9% respectively. Backlog as of end of the quarter was USD 769.8 million, a decrease of 33.1% from the same period last year.

Profit after tax of the group amounted to HKD 780.6 million and HKD 2.62 billion for the 3 -- for third quarter and the first 9 months of this year respectively, representing a year-on-year reduction of 26.5%, but an improvement of 2.8%, excluding the non-cash gain of HKD 202.1 million arising from the adjustment of liability component of convertible bonds last year.

Group gross margin was 37.8% for the third quarter and 39.7% for the 9 months period this year, representing year-on-year reductions of 283 and 88 basis points respectively. The reduction in gross margin was mainly due to product mix and underutilization of factory capacity.

The trade friction between the U.S.A. and China had insignificant direct impact on the group's third quarter results. The direct impact of a tariff raised by the U.S. Government on Chinese products is estimated to be less than 0.5% of group billing. However, as the tension continues to develop, it's difficult to ascertain its indirect impact to the group.

For the short term, the trade dispute is casting uncertainties in the market. But for the mid- to longer term, the group remains confident and optimistic of the prospects of the semiconductor industry. Nevertheless, the group does feel that the ongoing development of the trade friction has caused customers to become more cautious. So far, there had been delay in taking delivery of orders by a very small number of customers in China and a few putting new investment on hold.

On the other hand, these have been compensated in part by increased orders from customers in Southeast Asian countries who experienced increases in loading. At the same time, for those customers in China who are focused on serving domestic demand, they continued to expand their capacity.

By geographical distribution, China, Europe, Malaysia, the Americas and Thailand are the top 5 markets for the group in the third quarter.

Now let me discuss in more detail each of the 3 business segment's performance. Back-end Equipment Segment continued to do well in the third quarter. It achieved year-on-year growth of 5.4% and 5.8% for billing and booking respectively. Despite the quarter-on-quarter decline, billing of the segment in this quarter is a new record for the third quarter and the year. Billing of the segment for the 9 months of the year attained a new record of USD 947.9 million, representing a year-on-year growth of 11.4%. With the strong performance over the past 3 quarters, the Back-end Equipment Segment is expected to set new record in the full year billing in 2018. Billing of the Materials Segment in the third quarter achieved a new record of USD 76.9 million, representing growth of 4.1% and 1.0% over the same period last year and against the second quarter this year respectively. Billing of the 9-month period was also a new record at USD 227.9 million, representing a year-on-year growth of 9.2%. With strong performance over the past 3 quarters, the Materials Segment is expected to set new record in full year billing this year.

The SMT Solutions segment continued its excellent performance in the third quarter, achieving a new quarterly booking record. Billing of the segment in the third quarter amounted to USD 278.8 million, representing a growth of 19.8% as compared to the second quarter and a small decline of 3.9% as compared with the same period last year respectively. Last year's third quarter billing was an exceptional record for the segment. For the first 9-month period, billing of the SMT Solutions segment achieved a new record of USD 709.8 million, representing a year-on-year growth of 11.6%. New booking for the segment grew 17.1% year-on-year and 1.6% quarter-on-quarter respectively, during the third quarter to USD 300.8 million setting a new quarterly record. New order booking for the 9-month period was a new record at USD 870.8 million, representing a year-on-year growth of 22.3%. With strong performance over the past 3 quarters, the SMT Solutions segment is expected to set new records in the full year booking, billing and segment results in 2018. Billing of the SMT Solutions segment is expected to be close to, if not exceeding the USD 1 billion mark.

As evident from the results so far, the group is on track to set new booking and billing records for the full year of 2018. All 3 business segments are expected to set new billing records.

For the fourth quarter this year, we anticipate group billing will be in the range of USD 550 million to USD 620 million and booking to experience a double-digit percentage decline from the level in the third quarter this year. The SMT Solutions segment is expected to achieve both quarter-on-quarter and year-on-year growth in the fourth quarter billing, while billing of the Back-end Equipment and the Material Segments are anticipated to experience sequential declines. The trade friction between the U.S.A. and China has caused much uncertainty in the global economy and the semiconductor industry with customers becoming more cautious. The group is closely monitoring the situation and continuously assessing any potential impact.

With the investments that the group has been making over the past few years in its spread and depth in enabling technologies and financial strength, the group is in an unparalleled position to face the challenges. ASMPT has now entered a high-growth -- a new high-growth period. We are confident that the group will continue soaring to new highs.

With this, we thank you for your attention, and we are ready to take your questions.

[Operator]

[Operator Instructions] Okay, our first question comes from Donnie Teng from Nomura.

[Donnie Teng, analyst]

My first question is regarding to -- do you have any preliminary booking outlook for the first quarter next year? I know there are lots of uncertainties, particularly due to the trade war but is there any outlook for the booking only in the first quarter next year?

[Wai Kwong Lee, executive]

Well, I would say this is a very difficult question. As you can imagine, we believe the trade friction between U.S.A. and China really casts a big uncertainty in the market. We are, entering into the third quarter, we did see change to become much more cautious. So at this point in time, I will say nobody was able to give us a very clear forecast in the activities in Q1. However, on the other hand, when we talk to all the customers, everybody indicate that the direct impact on them due to the trade war actually is not obvious. I think today everybody's problem is everybody is taking a wait-and-see attitude. So how long this wait-and-see attitude will continue and will this wait-and-see attitude will turn into causing the market to enter into a totally different phase is difficult to assess at this point on time. On the other hand, in our opinion, the positive side is that entering Q1, there will be new round of CapEx budget available for customers to spend. And as of this point of time, no customer indicated to us they will significantly cut back their CapEx budget next year. So with this, I will be picking a more cautious, optimistic attitude towards the beginning of next year, probably it may be starting a little bit slower than 2018. But overall, we don't expect at this point of time a major correction in terms of CapEx spending from our customers next year. So I think that's how we look at 2019 and Q1 at this point of time.

[Operator]

Our next question comes from Bill Lu from UBS.

[William Lu, analyst]

I want to ask for some details on your 4Q guidance. I did the math very quickly, so I don't know if this is totally right. But if I assume that SMT is still going to be up, I think that looks like back-end revenues might be down about 20%, 25% quarter-on-quarter. I wonder if you can help me verify that. And secondly, if that is indeed right, we haven't seen a run rate in a while. Can you help me with where the gross margin will be at that run rate? And then lastly, maybe just some color on what part of back-end is coming down so drastically?

[Wai Kwong Lee, executive]

I think for this segment, definitely, I will say at this point of time, we are forecasting a contraction or a decline in billing compared to this third quarter. Rather than -- the reduction will be more than 20%, I will say probably, I can't be very certain. At this point of time, we are a little bit more, I will say, optimistic than this. But however, this quarter continues to develop and all those news regarding the trade war continue to come out, how our customers are going to adjust their pen, this is really difficult to predict. So I will say, if everything goes normal, we are expecting the reduction of the SMT billing probably better than what you had just highlighted, however, a big uncertainty over there. Now with a smaller contribution from the back-end equipment revenue, will that affect our gross margin? Certainly, there's some effect on that because, so far, back-end equipment business do enjoy a higher gross margin than the other business. So however, with all these big uncertainties ahead, it's a little difficult for us to really make all these forecasting, I will say, a good level of certainty at this point of time.

[Operator]

Our next question comes from Kyna Wong from Crédit Suisse.

[Kyna Wong, analyst]

I would like to ask more about the gross margin and I would like to ask your elaborations on which part is actually underutilizations in the third quarter and this may continue into the fourth quarter or not? And wanted to -- second question is, I wanted to have some better feeling on the 2019 outlook, like which drivers will continue because, firstly, you mentioned like software and new driver including line memory, advanced packaging and also like multi cameras et cetera. Wanted to have an updated outlook on this. And I want to have a follow up on Bill's question. The third quarter billings, in the back end has actually declined -- actually from your previous expectation, declined Q-o-Q versus, now it's like more miniscule. So what kind of like business is projected to decline in the third quarter back-end business?

[Wai Kwong Lee, executive]

Okay. Well, in response to your follow-up question on Bill's questions on what are -- which business drop attract the decline for the back-end equipment. As we have reported, we see a very strong booking from this IC/Discrete business. So the IC/Discrete market has been strong. We see some weaknesses in that particularly for the LED market going into the second half of the year. It probably related to customer has expanded aggressively and they reassess or relooking at their investment, expansion plan. For the CIS market, we see a mix effect over there. Certainly, customers become more cautious with overall economic situation. However, we also see that customers -- they continue to invest in preparing for the new generation of phones. We're aware many customers -- many phone makers are still putting their vision on the cameras, on their new generation phones. So this is the area we are seeing, is a mix of momentum. Overall, if we look back at the 3 quarters of this year, actually, this quarter has been very strong. CIS, not so bad. A strong -- the major weakness is really coming from the LED market. Now to your question on the gross margin, which part of the factory has been underutilized, it's mainly related to the back-end equipment area. Our factory utilization for the SMT has been quite good. As you can imagine, booking continued to set a new record in Q3. So the challenge is really on the back-end equipment segment. It's partly because of in response to the trade war and also the wait-and-see attitude of our customer, we also adjust ourselves. We make sure we manage our inventory going forward in a way, in a level we feel very comfortable. So this is some of this effect over there. And partly, all this gross margin also, when the factory utilization is low, when some of those production will go into the inventory, so it also has certain effect on the gross margin due to all these accounting treatments over there. So we expect over a longer period of time the gross margin would become a bit more normal rather than such a drastic picturization in Q3. In terms of driver for 2019, we see -- the group continued to make very good progress in advanced packaging, together with those new acquisitions we have made, including the ASM, NEXX acquisition just completed in October this year, we are seeing good momentum in this area. We have many design wins in these customers. And we continue to do a lot of the new versions for different customers for their new applications in advanced packaging, so we are very confident the advanced packaging revenue will continue to grow. So we will be -- most likely by releasing our Q4 result, we will share with you lot more details on our progress on this advanced packaging. So this will be one of the major growth driver. We continue to be optimistic about our CIS business. As I mentioned earlier, while this year customers are a bit cautious, careful about their further expansion plan, but actually, overall, the momentum of the CIS business is not bad. On the other hand, there's been so many new projects we have with the customers on their new generation of camera units. So this also puts us in a very good position, and we expect these innovations from our customer will drive for a new line of equipment requirement today, even together with the car freight, 3D-sensing applications. So we believe this will continue to be the case. Automotive is another important driver. While we noticed there are reports talking about the automotive shipments as probably slowing down, but we, from our core perspective, we don't really feel that. We tried to explain the situation, is that the semiconductor content in the automotive has increased significantly. And with all this new designing when the new car go into production, we expect all this semiconductor content will continue to increase. When we follow our customers announcement, we see a similar pattern of announcement from our customers, so people are really exciting. This automotive is one of the important driver. Now so far, in the 9 months of this year, we also see another important driver for the business, is this power management. We see this has been a very strong growth area, and we expect this to extend into 2019. So when it comes to this area, it's really not only a capacity related, we see many customers have their new designs into their new applications. So far for margin of 2018, industrial electronics is also a very important driver for us. So I think -- we believe all this will continue to push our business into 2019 and beyond.

[Operator]

Our next question comes from Jean-Louis from Haitong.

[Jean-Louis Lafayeedney, analyst]

Just a couple of quick ones. Firstly, just, if you wouldn't mind, a little bit more detail on the segment profit of the back-end equipment business. Could you perhaps give a little bit more detail why it was -- I'm a little bit surprised why it's so weak because the top line is all right, but 20% segment profit, I think was a bit surprising for me, that low, was there any particular reason or one-off or anything like that that caused that? And then my second question is related to SMT. You guys have previously stated that SMT cycles typically lag back-end cycles by a couple of quarters considering we went into, my view, anyway downcycle on back-end roughly in Q2. Can we expect a similar sort of situation as you described previously for SMT, i.e., that will be going into a downcycle for that perhaps couple of quarters after starting back-end?

[Wai Kwong Lee, executive]

Okay. Well, as to your first question on the back-end equipment segment profits, as I mentioned earlier, it's mainly due to the cost margin. And then in Q3 also, this acquisition effect on those optics has gone up and gross margin has come down, so it's a combination of these prudent segment profit. Other than this, I would say there's nothing really specific or very structural. We do not book any one-off effect over there. But there's also a certain effect due to this inventory provision with slower production activities, other than that there is nothing really special. However, as I mentioned earlier, we do expect some of those effects to get normalized over longer period of time. So we do not expect the gross margin of this segment to continue to stay low for too long a period. For SMT cycle, the SMT has been consecutively making new booking records for the past 3 quarters. Certainly, we will not continue -- it will continue this pattern in the next coming quarters as the semiconductor back-end equipment show -- start to show some adjustment. We believe, sooner or later, the SMT cycle will also follow. But however, obviously, due to the past 3 quarters, we believe our success is not only be riding on the wave of industry, but really we are getting market shares. So this structural area of gaining market share I, think, we expect will continue. So one, there could be -- the SMT segment following this typical cycle pattern, but we continue to believe our SMT will be outperforming the market in general, continue to be at a -- stay at a high level in the next few quarters to come.

[Operator]

Our next question comes from Arthur Lai from Citigroup.

[Arthur Lai, analyst]

I actually have 10 questions, but I will just ask you 3 questions. So the first question is actually the back-end like you mentioned, the back-end margin actually went up to 50% and down to 44%. I wonder why all the big change, you probably already highlighted utilization of idle capacity. But if any mix effect, for example, I wonder if that Discrete [indiscernible] such as TCB went down to cause this big change. This is the first question. And second question, I think a lot of clients wonder the data centers growth rate slowdown much. And since you are the leader in the data centers packaging industry, can you share with us your view? The third one is, a client want to -- a client asked me to ask this question, so wonder why the expense went up in the financial chart, went up to HKD 84 million from the previous cycle of HKD 7 million. So these are my first 3 questions, and I will have follow up.

[Wai Kwong Lee, executive]

Okay. For your first question on the back-end margin, I will say the gross margin in Q2, over 50%, a little bit on the high side. So the third quarter gross margin, I will say a little bit below our expectation. So because of this effect, so that's why it shows -- depict the delta over there. You're absolutely right, there's also an effect of product mix, as I highlighted earlier. In Q2, we are still seeing aggressively a lot of equipment for CIS, active alignment issue, whereas in Q3, the proportion of the CIS product, shipment of CIS product has come down. So there's also, partly due to this, this effect. But there is only one other factor. Unfortunately, when this product mix effect coupled together with this factory utilization, also this inventory provision due to the slower movement of the production activities, all these, unfortunately, come into effect still in the same quarter so that's why that you saw this. However, we are careful to analyze the situation, and we don't see any alarming effect over there. We don't see any structural changes over there. So that's why we are confident that over a longer period of time, some of this effect will be normalized, will smooth out, okay? Whereas your question on data center, we -- actually, we continue to be optimistic about the data center. And you probably also aware some of our customer they are in this semiconductor business. They reported the shipment for -- the demand for PC and data centers has continued to be strong. So we actually -- we don't really feel our customers are slowing down any investment in the data center. While people may react to the various short-term market outlook, but people are more preparing for the longer future. So we see this investment in technology preparation for the new generation of communication requirement for the data center for the 5G actually continues. So we don't see the slowdown over there. Your third question, is on the -- can you repeat your third question?

[Arthur Lai, analyst]

Yes. The third question is the client wonders why there is a big financial charge in [ Boidine Co ] HKD 84.6 million foreign exchange; versus last year, it was only HKD 7 million. I think this is because of after the financial charge so, it’s closed by like some like one-off event or the CPs?

[Wai Kwong Lee, executive]

Not really, Arthur. We have made 3 acquisitions this year. So part of the acquisition is funded by [ Ranus ]. So we actually see the financial charge increase year-on-year.

[Arthur Lai, analyst]

Okay. So that's one-off. Actually this quarter, we will not see this big charge?

[Wai Kwong Lee, executive]

The loan will remain for a period of time, but we intend, Arthur, to repay them by -- as soon as we generate more cash flow.

[Operator]

Our next question comes from [indiscernible].

[Unknown Analyst]

Sorry to asking about these margins, but if I look at kind of Q3 versus Q3 last year at the back-end, we got a very similar level of revenue but obviously the 5 point difference in gross margins. And you said before that's related to capacity utilization and some product mix. But I just wonder, how much capacity have you added year-on-year? How much growth do we have? And if there is indeed kind of surplus capacity, whether that's for next year's CapEx? Are you considering falling back on some of that CapEx?

[Wai Kwong Lee, executive]

Well, I think it's not so much how much capacity we have acted over the past few months. It's mainly how we prepare for the production of the subsequent few quarters. So as we feel at this time there's a bit more uncertainty in the market and we look -- customers are really taking a wait-and-see attitude, so that's why we are adjusting our run rate. So because of this, we see some capacity underutilization, we see some -- due to some accounting treatment we have to make slightly higher provision for those slow-moving materials we have bought into the factory to prepare for the production, so maybe some of those effects over there. However, if you look at our 9-month basis, then you can see, actually, we are very stable actually. When you're looking at on alignment basis, if we compare carefully, then we will see even in our production, because of the first 2 quarters, we are utilizing our production capacity in a very driven way. So we're comparing the 2 9-month periods. We don't see any of this underutilization effect at all, it will average out in the 3 quarters. So the margin has improved by 0.9% -- sorry, 1.1% gross margin, mainly due to, as I mentioned about, some of those stock provision, additional amortization due to the acquisitions. So more of this kind of effect. So -- and when it comes to the stock provision, actually, we are feeling confident those will be reversed in the subsequent quarter as those material are being utilized. So we don't really see anything structural in the gross margin deterioration during the third quarter.

[Operator]

Our next question comes from Leping Huang from CICC.

[Leping Huang, analyst]

I have 2 questions. One is about the advanced packaging. So can you share some color around the competition landscape on the advanced packaging -- the equipment side? Because what we see in this quarter is [indiscernible] since 2017 start to recall quite a significant revenue for advanced packaging. I was wondering whether -- when the advanced packaging business pick up? It seems to me not all die company, the foundry companies start to do a lot of the packaging. And it seems that you have not recognized too much revenue on the advanced packing equipment sales, so when the margin pickup whether you can maintain profitably market share in this segment as your back-end equipment?

[Wai Kwong Lee, executive]

Okay. Well, I think advanced packaging market is really picking up momentum. As you highlighted, it's not only from [indiscernible]. Actually, today, I will say the foundries, the IBMs are also participating in this area. Our advanced packaging business, TCB, continue to lifting the overall. So our TCB momentum is good. On one hand, the major customer for us, the TCB continues to invest. On the other hand, our TCB solution has been adopted by other customers. So going into 2019, we are very confident that our customer base for our thermal conduction bonding will be expanded and will be enlarged. And hopefully, we would be able to also expand into these memory applications as well as fan-out applications for the TCB, not only in the high end computing, the modern applications. On the other hand, the new acquisition we have made, these are the ASM, NEXX, for DCD and PVD applications, is also having a good momentum. Although we only have this for 1 month, but I -- we can really see good talent, good design win. So we expect they will contribute to our advanced packaging business in 2019. There will be limited contribution in 2018 because it's only 1 quarter, but I think there will be a more significant contribution in 2019. Now our pick-and-pace machine for the fan-out applications, fan-out as well as this [indiscernible] are also getting very good momentum. This platform has been adopted by many customers into many of their given applications-driven projects, new product developments. Although I'm not able to name those customers, but I will say, we're almost into most of their projects. So as this customer ramp-up their production of the new packages, we expect the production roll-out of this machine will also increase. And also, another important area is our laser business in Holland, we are also seeing a very good momentum. When it comes to this new generation of advanced packaging laser-proofing, laser-dicing also become very important for us, so we're also seeing this good momentum. In fact, this business, we acquired a few years back, made a new record in 2017. However, the new record already being surpassed in this year by now. So we have seen very good momentum. Another area is also, we have the machine for the wafer level, this pick-test-inspect application, we're also getting a good momentum. At this time, the size of the normal wafer level fan-out application, we also see customer adopting the solution for their RF applications, the radiofrequency component application. As you know, for the 5G applications, when the 5G application takes off, actually there will be a lot more RF-related components on the smartphone. So we see customers are aggressively preparing for this era of the 5G. So we see or we have successfully developed a multi-fan product portfolio, so addressing the different area of applications in advanced packaging and we are making very good progress in all these areas. So we expect, as we have expected in 2018, the advanced packaging contribution has increased. And we believe by 2019, it will reach a very interesting level for the group.

[Operator]

Our next question comes from Donnie Teng from Nomura.

[Donnie Teng, analyst]

I just have 2 questions. Firstly, regarding the gross margin. So you mentioned that [ TIL ] momentum. For sure, it's almost going [ this corner ]. So from a product mix perspective, what kind of sales breakdown in third quarter to break down the gross margin. It’s like the [ OEDs ] in case you get asked. Or is there any low-end product breakdown of gross margin for third quarter? And how should we look into fourth quarter for different business development? And my second question is regarding your SMT. So previously, some senior analysts already asked about SMT momentum normally follow the [ petchem ] momentum and sometimes they – well, that’s – as you just see the SMT is still pretty strong indeed, and I believe some momentum is from India market. I'm not sure whether India market momentum can be sustainable into next year. But wondering if you could give us more color about what happened -- what is happening in the India market and how often the momentum can be sustained.

[Wai Kwong Lee, executive]

Okay. So for the back-end equipment for the billing in Q3, as I have shared earlier, IC/Discrete is a major market driving the growth, not only in the booking but also in the billing. The Auto electronic show, I will say, more significant reduction compared to the other business. I will say the CIS business in Q3, it has not been as strong as a year ago. So I mean, the contribution to the back-end equipment has come down. So that is the reason, I would say partly the reason of the gross deterioration, due to this product mix. We are not really shipping a lot more low-end product in Q3 not by [indiscernible], it's really more of the application market. So for the discrete semiconductor applications, you can imagine those machines are less sophisticated, so relatively the margin will not be as high as those margins for CIS products. So that's part of the reason. For the SMT, you asked about the situation about India. India [indiscernible]. However, we believe India is still -- this India market is still at the beginning of development stage. Customers place big order in the second quarter, so we continue to deliver machines to them. However, we don't expect this kind of momentum sustainable in the near future. In fact, actually, the contribution from India has obviously come down in Q3. But yet, in Q3, our SMT booking set a new record. So we don't expect our performance being affected by India in a big way. We did benefit from it. But however, we -- as I mentioned earlier, we are really getting market share in [ a host of funds ] for this SMT business. So I think we will continue to enjoy this benefit. However, going into 2019, we will prepare. The SMT has to come down from this very strong level, but probably will not be a major correction as we have successfully put ourselves into a much better market position.

[Operator]

Our next question comes from Mr. Eric Chao from Morgan Stanley.

[Eric Chao, analyst]

I just -- I would just like to follow up on the previous question on SMT momentum. Could you just share a little bit more color on the relative strength in the SMT market? I just wanted to know a little bit more about each market. Like based on our knowledge, like, we haven't seen a strong recovering overall also. It's mainly just the India market, smartphone market that's driving the strength? Or is there any other color that you can provide?

[Wai Kwong Lee, executive]

Well, as I mentioned earlier, from a booking perspective, the contribution from India was very small in Q3, okay? So the strong momentum is not because of the India market. The India market contribute strongly to our second quarter booking but not in the third quarter, okay? So where do we see the strength? Automotive is still very strong. As I shared earlier, although we read from the media report, we'd noticed automotive company start to indicate shipment of automotive has slowed down. However, on outside, we don't feel it. So as I comment earlier, probably, it's reflected by the fact that electronic content, automobiles has increased [ heavily ]. And the new design has been designed in to the new models. So when this new models go into production, so the demand for semiconductor, the demand for additional equipment for all these automotive electronics continually increase. Another important area driving our SMT business is the industrial electronics. So this has also been strong. And also, furthermore, as I reported in the past, this year, we really see -- we are making some good progress in gaining some market share in the China smartphone supply chain. So these are the combination of factors combined together put ourselves into a very strong position in this SMT market.

[Operator]

Our next question comes from Simon Wu from Bank of America Merrill Lynch.

[Simon Woo, analyst]

So first question is, could you please break down your revenue? You mentioned that the India contribution very minimal, but your previous financial report already confirmed roughly 40% revenues from China, and then you have a lot of big exposure ex China Asia as well also. Could you provide your revenue breakdown or billings breakdown by country? If the Greater China, including the Taiwan exposure, remained high, the key concern is some potentially negative impact from the trade wars. So could you combine your view regarding the regional breakdown and then the impact?

[Wai Kwong Lee, executive]

Earlier, when I say the contribution from India has been small in [ cubic ], I'm referring to the booking, okay? So you can imagine when we receive the booking in Q2, they do -- they did contribute to our billing in Q3. So that's the difference over there. Now China, the Greater China, I will say, in particular mainland China, Hong Kong, they continue to be a major market for us. So they continue to contribute to roughly around 50% of the business. This year, we see some slow momentum in Taiwan whereas we see stronger momentum in Southeast Asia countries. So that's why when we report our quarterly results, we also highlight that Thailand has become the fifth largest market for us during the third quarter of this year. This is the first time Thailand has stand out by itself. Malaysia continue to be standing up very strongly, continue to occupy the third position by size of market for ASMPT. So we expect the Southeast Asia market continue to be strong. We do feel there's some increases in order activity from this market related to a trade war, so we do feel that. However, we don't see at this point in time a major shift of production activities from our customer from China to Southeast Asia because we do -- we are not aware of any customer in Southeast Asia really putting up a major factory expansion plan, building up new factories, but they are ordering more new equipment filling up their factory space, we do see this. So this is a geopolitical situation at this point of time.

[Simon Woo, analyst]

Great. So last question is, very quickly the financial area. So Could you update overall you're currently outstanding total debt and then the current set of convertible bond versus your cash on hand to assess your overall net debt cash position? And then yes, it would be great if you can highlight some balance sheet items in your press release statement next time if you don't mind.

[Cher Ng, executive]

Typically, for Q3 and Q1, we don't publish the balance sheet, that's why you don't see those number. But I can give you a very general picture. So in terms of -- you mentioned earlier net cash, yes, certainly, if we take our cash and also those promissory notes in China, LC, these are all considered new cash, right, anytime you can actually discount it and get the money in. And so if we take all these into consideration, we're still net cash at this point in time, although our borrowing has gone up because of the acquisition, which I mentioned earlier.

[Operator]

Our next question, we have Laura Chen from BNP.

[Laura Chen, analyst]

Yes. We discussed a lot about the macro uncertainty recently, but do you have any visibility? Although it might be difficult at this moment, but at earliest stage, when will we see better recovery next year? We know that usually, we have quite good bookings in Q2 if we look at seasonality in the past few years. So we still see like Q2 next year will see better recovery? And which part of the business may see a better or sooner recovery? And also, could you talk a little bit more about your CapEx plan for the next year? Which part will be the major investment for you next year?

[Wai Kwong Lee, executive]

Okay. Well, I think for the question on how do we see when we can expect a stronger recovery whether it will happen in Q2 or not, it's really a very difficult question because of the uncertainty brought about by the trade war. Other than that, as I mentioned, we -- when we talk to customer, no customers really telling us they are suffering from a strong direct impact of the trade war. So they’re more -- their cost is more because they want to take a wait-and-see attitude. So when they think our costs are [indiscernible] continue to operate as usual. So once people either trade war is or people come to this conclusion, they can't wait-and-see anymore, they just have to operate under this new uncertainty environment, then I will say things will start to go. So hopefully, this will not be -- it will not take too long. Especially, as I mentioned, the new CapEx cycle will start to kick in, in 2 months time, so hopefully, that will be the case. And continuously, after the Chinese New Year, things are moving back to normal. Now as of this point in time, what we can say for certain is that for those people, they are investing in new capability. In advanced packaging, there's no sign of slowing down. That one we are very certain about it. We also see, therefore, those customer, they have successfully won some design wins into the new generation of product, new generation application with their end customer. This group of people continue to push ahead very aggressively, so these are something we can see very clearly at this point in time. Now for the CapEx, we -- our factory in Malaysia is getting ready, so we will be putting up this factory. Although on one hand, we say and we face some capacity underutilization usually in Q3, but we remain optimistic about our long term. So that's why we want to prepare ourselves for this. Now one of the major area of expansion will be our capacity expansion for SMT. So with this billing for the SMT business this year expect to be around or close or even crossing over USD 1 billion mark, so we believe we need more capacity, and in particular, we want to have more capacity in Asia businesses. So the expansion part -- or the reason for the expansion of the Malaysia factory is to free up more space for this expansion of the SMT production in Malaysia. So this will be one of our major area. The other area will be automation for our own paid human Factory. So we will continue to push ahead for this automation with our aim to have a rise of factory for most of our end equipment SMT factories. So this will be the area we continue to push ahead.

[Operator]

We have another follow-up question come from Bill Lu from UBS.

[William Lu, analyst]

In your investor presentation on Page 25, you've got a really good slide on the interconnect, which is growing by 9% CAGR. They're now growing by 25%, et cetera, in terms of units. Now we've been seen these more events packages for a few years now. As you think about the underlying equipment business versus the units, can you comment on whether you think equipment is going to grow faster or slower than units? And then secondly, can you give us some help on advanced packaging as a percentage of your total back-end business right now?

[Wai Kwong Lee, executive]

At summertime, it's real difficult to have a very accurate correlation to the question you just mentioned about whether equipment will grow faster or the units or the number of wafers will grow faster. At this point in time, we definitely see customers are more -- some customers in this high volume production, some customers are really investing in the new technology. So during this investment, they brought in some equipment. At this point in time, some of this equipment are underutilized because of -- not because of demand is not there; it's because of customers still fine-tuning their own process. So some of these customer, they are -- this concept of reduction take a little bit longer time than what we and they have expected. So because of this, it's a little bit difficult to tell. However, we -- our feeling is that 2019, probably we'll see more customer will be, start to go into production. So with this one then, there will be new one-off investment in advanced packaging. So that's why we are optimistic about the contribution around strategical business will start to grow next year. As of this point in time, I'm not able to give you the breakdown you just asked for. We are trying to pull the numbers together and maybe we're able to share with you in a few months' time for the full year. We want to make sure when we share the number, it will be an accurate number. At this point in time, on a quarter-on-quarter basis, there's still a lot of factories over there because of the [ lead ] share of the investment cycle. As I mentioned, people are really making investment into the new technology development. So however, we believe that we pull the numbers for the full year, maybe this will be a more -- we give you a more realistic and accurate picture. So please allow us a few more months to share with you these numbers.

[Operator]

Another follow-up question comes from Kyna Wong from Crédit Suisse.

[Kyna Wong, analyst]

I wanted to confirm about the SMT business next year. Certainly you mentioned there will be a contraction in 2019. I just wanted to clarify. Another thing, if I look into the other business, as you did mention, some of the business are LED, so perhaps by next year we'll come back to a contraction from a recovery this year. Am I right?

[Wai Kwong Lee, executive]

First of all, SMT, while we [ plan and be planning ] for, I will say, come down a bit, however, we are not, internal we are not budgeting or we are not forecasting a major contraction for SMT. But after few quarters of such a strong momentum, we do believe that, from a market perspective, it has to come down a bit. So -- but not -- we are not projecting a 30% kind of market correction. No, we are not seeing this. We are not seeing this at all. So I forgot the second question. Yes. So what is your second question? Can you repeat it a little bit?

[Unknown Executive]

Sorry, he just canceled his question.

[Operator]

Can I move to the next question? We have another follow-up question come Arthur Lai from Citigroup.

[Arthur Lai, analyst]

So basically, you mentioned that the advanced packaging CIS and also automotive power those become a big challenge in the next year. Can you help us to rank which in impact perspective which 2 or 3 will be a bigger impact on the analysis? This is my first question. And then second question, I want to ask about the market share. So we are seeing your active alignment. [ In terms of size ], they are -- at least could be in-house. Right now, they decide to purchase from outside. Can you share in your active alignment market? This is my second question.

[Wai Kwong Lee, executive]

Well, certainly, for the active alignment, we are getting market share. As we shared in the past, just about typically will move from internal increments [ of pie ] to adopt external solution, so it does happen so far. And we also see more and more customer adopt these active alignment solutions, so we do benefit from this one, okay? Now regarding your first question on which will be the bigger driver, from a percentage growth point of view, we believe advanced packaging will continue to show the highest growth rate. However, we start from a smaller base. So I guess from an absolute amount point of view, it would still be between these CIS applications and IC/Discrete applications. I think from an absolute point of view -- or the power management, this will come absolute point of view there will still be larger contributor. From a growth rate point of view, I think advanced packaging definitely will be the highest growth rate for our [ equipment ] business in 2019.

[Operator]

Our next question comes from Leping from CICC.

[Leping Huang, analyst]

There was some [indiscernible] news about one Chinese company may purchase your share from your current larger shareholder. So I think [indiscernible], I also denied that. What's your current relationship with your corporation with your [indiscernible]? And what's the -- if there's any change on your major shareholders, what's the impact on you?

[Wai Kwong Lee, executive]

Well, ASMI considered to be our largest shareholders at this point in time. They hold slightly more than 25% of our shares. This amount do not participate into our day-to-day operation. So they are in our board. So however, on the detailed day-to-day operation is our own decisions. So first of all, we do not have any information other than probably similar to you, right on the topic announcements from these 2 companies, ASMI and every the other Chinese company. We don't have any other further information on that. But anyway, as I mentioned, ASMI has been our largest shareholder for us. They don't get involved into our detailed day-to-day operations. So if there's a change of shareholding, will that be changed? We don't think so. Of course, we can't know for sure. And actually, we are not aware there will be such a shareholder change in the near future.

[Operator]

Our next question comes from Jean-Louis from Haitong.

[Jean-Louis Lafayeedney, analyst]

Easy one for you, CIS and LED, could you please give us your perspective on what's going on in those end markets?

[Wai Kwong Lee, executive]

Well, for the CIS, I think you can see that there are 2 factors affecting the market. On one hand is the shipment wage [indiscernible] shipment of the smartphone has been slowed down. On the other hand, all the major phone makers are competing with new innovations centering around the chamber. So that is to our favor because this customer need new equipment solutions to support their innovation, so we are seeing good momentum for us in this area as we are engaging with different customers to support their different innovation in this area. So at this time, the shipment of smartphone has slowed down. We continue to expect our CIS business will continue to be doing very well. For LED, for the past few years, there has been a lot of consolidation in our customer space. And [indiscernible] in many aspects we have hundreds, if not thousands, of customer with LED application. But today, I will say 80%, 90% of business will be focusing or maybe take over a large LED customers. So the market is consolidated or not. So with this one, sometimes, the customer, they have their own pace, their own cycle of investment will have a significant impact on the industry. Well, as I mentioned earlier, when it comes to the second half of this, we do see the market experience some weaknesses. However, we do not necessarily translate this into forecasting a big 2019 market for LED. If the -- have adjust their own investment pace in the second half of 2018, they may complete this adjustment in the early part of 2019. So I think really depends on how the customer will react. So far, as I have shared in a previous conference call, our top solutions there are the trade war between U.S.A. and China has minimal effect on LED. Because most of these customers in China do not have a major export business into the U.S.A. for the LED. So the direct impact for them is minimal, so as a result, I don't blame their investment pace to the adjustment to the trade wars. So we believe the LED demand will continue. It's only because they might have to adjust their own investment pace. On the other hand, from a technology point of view, we continue to see mainly customers engage us in their mini and micro LED technology development. So that part is exciting. However, it has not translated in to a major revenue contribution yet. But from a technology point of view, technology point of view, it's exciting.

[Operator]

Our next question comes from Sean [indiscernible] from [ Overlook ].

[Unknown Analyst]

I think you bought back some shares last year from [indiscernible] , the CB and trying to offset any dilution from that. And I'm just wondering if given the-- what is your price is now the kind of volatility. It looks cheap arguably. Low PE and you're kind of net cash position. Why wouldn't you buy some of your own shares or have a policy to kind of keep going with that? And if so, I would suggest maybe giving a multi-year policy that was kind of clear to the market. But is that something that's been discussed internally? And if so, what is the thoughts with that?

[Wai Kwong Lee, executive]

Well, I think the board continuously review all the option available to us. We certainly will not do a share buyback. So share buyback, special dividends, I will say some of those tools, we believe available for the company to create shareholder value. So we continuously -- we weigh all those options available to us.

[Unknown Analyst]

But do you currently have a mandate still? And what is that mandate?

[Wai Kwong Lee, executive]

We have a mandate approved in the AGM, so we can buy around up to 5%, 5% of the shares, so this is available to us. So as I mentioned, the board will constantly review what should we do.

[Unknown Analyst]

But the prior buybacks were all connected to the CB, is that correct?

[Wai Kwong Lee, executive]

Yes, that was the previous one. And already finished because of the mandate of the expire by -- before the AGM this year.

[Operator]

Our next question comes from Donnie Teng from Nomura.

[Donnie Teng, analyst]

I have a housekeeping question. So tax rate in third quarter is like 23%, so it looks like it's a little bit higher. I'm just wondering, what kind of tax rate we should be looking at [indiscernible]?

[Cher Ng, executive]

Yes, it's alright. The tax rate we compare this last year is higher. Principally, because of the higher SMT contribution this year. As you heard all the discussions as now. SMT has been doing very well this year. So naturally, because of that, the tax rate are higher than last year. Now on a full year basis, because of that, we are forecasting that the full year tax rate will be slightly above 30% this year.

[Donnie Teng, analyst]

And another question regarding to OpEx. The OpEx ratio [indiscernible] level? I remember [indiscernible] like [indiscernible]. It's not far away, but I'm wondering because we acquired 2 entities [indiscernible] so in China, I'm not sure whether you will have some type of OpEx in the future? So what kind of OpEx ratio [indiscernible]?

[Wai Kwong Lee, executive]

Well the acquisitions will increase our OpEx level a bit. But relatively, they're smaller business. So the actual impact on [indiscernible] will be not very significant. But however, you're right, we -- with the acquisition, we expect the ratio will go a little bit. But however, they will be physically part of the synergy we can pursue together to hold on to bring down their cost as well as their OpEx level. And also, I think the most important when we have to increase the market share, the top line, we're confident keeping the little business some time, their OpEx level will catch up with the [indiscernible] So we're feeling pretty confident that we can keep our OpEx level in line.

[Operator]

Our next question comes from Mr. Simon Woo from Bank of America Merrill Lynch.

[Simon Woo, analyst]

A very quick follow-up question regarding your dividend policy, dividend payout ratio for this year. And then could you recap overall the dilution impact from the current outstanding CB, i.e., we deliver around a low single-digit dilution in terms of CB convertible bond?

[Wai Kwong Lee, executive]

Actually, last year, we over the [indiscernible] we switched to a new dividend policy going forward. Instead of focusing on the payout ratio, actually, we are adopting sustainable and gradually increasing dividend payout policy. So this has been the practice in 2017, and we also will be continued to adopt this for 2018 and forward. So your second question?

[Cher Ng, executive]

The dilution impact. Yes, we mentioned that before. If fully converted, we got single digit, let me look [ 5%, 6% ] Yes.

[Operator]

Thank you. There seems to be no further question at this point in time, sir. Thank you. There seems to be no further question at this point in time. Would you like to wrap up, sir?

[Chuen Chow, executive]

Yes. Sorry. We had very good discussion this morning with very good questions. I think in the interest of time, we have to conclude the conference call now, and thank you very much for joining our conference call today, and we'll talk to you again next time. Bye-bye.

[Wai Kwong Lee, executive]

Thank you.

[Operator]

Thank you for your participation. This concludes your conference. Thank you.