Airtac International Group

TWSE:1590

Earnings Call Analysis

AirTAC Posts Strong Q3 2023 Financials

AirTAC recorded a vibrant third quarter in 2023, boasting a 26% increase in revenue year-on-year, reaching RMB 1.732 billion. Gross profit matched this growth, achieving a 26% uptick. Gross margin stably posted at 46.4%. Operating income rose by a commendable 32%, with an operating margin of 29.3%, despite a slight deduction due to annual salary raises. Net income before taxes climbed by 39%, resulting in a robust net profit upswing of 41% year-on-year, translating to a net margin of 25.6%. Earnings per share (EPS) for the third quarter stood at RMB 20.97, contributing to an EPS of RMB 26.33 for the first nine months of 2023.

Robust Revenue and Earnings Growth

AirTAC International Group's third quarter of 2023 was marked by notable expansion, with a 26% year-on-year increase in revenue, reaching RMB 1.732 billion. The growth momentum extended to gross profit, which also rose by 26% to hit RMB 8.3 million. Net profit surged by 41% compared to the previous year, amounting to RMB 444 million. This financial vigor is encapsulated in the earnings per share (EPS) for the third quarter, reported at RMB $20, and an EPS of RMB $26.33 for the first three quarters combined.

Margin Dynamics and Operational Challenges

Even amid prosperity, AirTAC grappled with narrowing margins. The gross margin stood at 46.4%, with the operating margin at 29.3%. A notable factor was the annual salary hike, which trimmed the operating margin by approximately 0.6 percentage points in the third quarter. Nevertheless, net margin improved, reaching 25.6%. The company signaled that while operating margins were affected in the short term, the full year 2023 operating margin is still expected to linger around 30%, hinting at a potential revival in operational efficiency towards the year's end.

Forward-Looking Strategy and CapEx Planning

AirTAC's strategic outlook entails expanding its Niigata sales and increasing market reach. The sales in Niigata have been flourishing, with a leap to RMB 50 million recently, indicative of growing customer interest and improved processes. Moreover, the company aims to enhance its payout ratio to 50% in the coming 1 to 2 years. Concurrently, aggressive capital expenditure (CapEx) deployment between RMB 2 billion to RMB 3 billion is anticipated for 2023 to cultivate more robust free cash flow streams.

Market Context and Recovery Indications

AirTAC suggests that the market may have bottomed out around July or August, with an upturn potentially emerging by the end of the third quarter or in early 2024. This assessment stems from observed shipment growth in their pneumatic products and overall improvements in sales. Real estate and construction sectors, which comprise a small portion of revenue, also display signs of rejuvenation, ushering in modest growth prospects for the coming quarters.

Market Shares and Competitive Posture

Holding approximately 20% to 30% of China's battery market share, AirTAC displays a strong competitive position. Additionally, the company is making strides in the pneumatic market with a current 20-25% share and has plans to further consolidate its position by pushing the share to 30% within the next 3 to 5 years.

Product Development and Expansion Efforts

With a commitment to innovation and growth, AirTAC is strategizing to break new ground in untapped markets. A launch of electrical cylinder products is planned for 2024 or 2025, targeting another RMB 10 billion market. The fields of automation and energy lighting are also focal points for future development, where sustained positive growth is expected for the foreseeable future.

Earnings Call Transcript 2023-Q3

[Unknown Executive]

All right. Hello, everyone. Thank you very much for joining AirTAC's Third Quarter 2023 Earnings Call hosted by Goldman Sachs. It is our pleasure to welcome Mr. [ Ivan ] Tsao, CFO of AirTAC. [indiscernible], Head of Asia Industrial's Research of [ Sachs ]. [ Chao Huan ], Tech & Industrial [indiscernible] will be the co-host of this call.

[Unknown Executive]

So hi, everyone. Before we dive into the call. We need to read out the disclaimer statement first. So this call is strictly for a client of Goldman Sachs and anyone invited for AirTAC. This call is not intended for the media and is off the record. Participants will be removed from the call if they cannot be publicly identified. This webcast is not for the purpose of sharing or receiving nonprofit or otherwise confidential information. Attendees are [ publicized market ] participants who may not receive or should not request nonpublic or otherwise confidential information about [ issues ] of securities or about the market for securities. So thank you so much for your participation. We will move to the call. After Ivan gave his introduction of third quarter results, we will move to the Q&A session. So Ivan, the floor is yours.

[Ivan Tsao, executive]

Okay. Thank you, [indiscernible]. And good day, everybody. This is Ivan Tsao from AirTAC, and welcome to joining this conference call. Now let me break our third quarter results and current market situation. First of all, even the overall economic situation is not good. And the revenue in third quarter is still in line as well affected. And in such traditional low season, the order receipt continue to be higher than the shipment amount, indicating that there is still a [indiscernible] for limited component in the market. And in general, the best demand for [ new ] driven by rising labor cost and decline in labor population, especially for the decline in labor operation, the number of new [ births ] have been lower than people [ here ] for years in China, and young generation don't like to work in the bank environment around the world. Costs have to improve automation. I just have one theory has been for some customers whom they have [ seen ] in China [indiscernible] China. As we know, even the China production has not been as good as it in 10 or 20 years ago, but compared to Southeast India, Middle America, China production still could be higher efficacy than other countries. So customers still will stay some capacity in China, and they still have to improve automation. And new metric deal can sustain single-digit growth annually, once there is no to severe [ noncoming ] issues. In addition, new metric is replacing simple manpower to improve machine and also has CapEx demand and component replacement demand at the same time. Whenever there are production activities, they need to replace [ noncoming ] component and poor demand in other automotive segment doesn't mean the [ numeric ] industry also will be bad.

For the reviewed consolidated revenue for the third quarter of 2023 of AirTAC. The consolidated revenue was RMB 1.732 billion, a 26% growth year-on-year. Gross profit at RMB [ 8.3 ] million, 26% growth year-on-year. Gross margin was 46.4%. Operating income was RMB [ 5.8 ] million 32% growth year-on-year. Operating margin was 29.3%, The low operating margin is mainly due to the annual employee salary increase, which has an impact of around 0.6 percentage point on the operating margin of third quarter. I used to take around 2 quarters to do such impact.

Now the net nonoperating income was RMB 59 million, including $65 million of [ scan ], RMB 11 million of interest expenses and RMB 7 million of interest income. Income before income tax was RMB [ 567 ] million, a 39% growth year-on-year. Cash margin was 32.7%. Net profit was RMB 444 million and 41% growth year-on-year. Net margin was 25.6%. EPS for the third quarter of 2023 was new [ $20 9.7% ]. EPS for the first 3 quarters of 2023 was [ $26.33 ]. Revenue from top 8 industry for the third quarter of 2023. The big ones still is electronics, around 21% to consolidated revenue is around 14% growth year-on-year. Second one battery was around 12% of the revenue 1[ 8% ] decline, then energy lighting was around 15% to revenue, 130% growth. [ Gem ] Machinery was around 8% revenue, 31% growth. Packaging was around 8% to revenue, 26% growth. Auto was 1% to revenue is flat in the third quarter. year-on-year.

Machine tool was grown 5% to revenue and 23% growth. The test tile was around 2% of revenue is 10% decline. Basically, traditional application demand in 2022 was [ 5% ] decline. And in the past 3 quarters, most of them had been improved partailly have been brought year-on-year and even those industry have not improved, they still could be low single digit or 10% decline year-on-year. Those traditional applications won't be averted to our consolidated revenue.

And for current situation, although there is some noise in the market regarding to China recent economic situation. As we mentioned earlier, people need some time to restore [ Tesla ] eco consumption confidence due to the strict [ conical ] control for 3 years. In addition, the government still timely proposed robot announcement or substantive -- incentive policies, semi-policies subsidy policies. We expect that to be continuous do some monetary policy, additional local special bond quota, more banks financing policies and real estate position. The economic situation could be able to improve quarter-over-quarter. Necessary consumption has been improved currently and selective consumption can be repaired. We expect more and more customers will restore their confidence and accelerate their expansion.

Moreover, numeric product are -- to support customers' production 9 [ meter than in ] end products, although the current overall economic situation is not good. And product consumers need to consider whether to launch more new products to attract their face consumption or maintain existing expect to reduce relative expenses. If they decide to develop more new products, the demand for [ pneumatic ] product is an opportunity to be stronger. As for the demand of various industry of [ pneumatic ] component in [ 18 ] course. The edge 19 equipment is the newer applications. The overall industry demand will continue to grow, but still can have additional revenue growth from market share gain. And we do expect energy lighting industry revenue still constantly pretty good revenue growth in coming quarter, even coming years and even battery, even they have some most of the [ overly ] in battery industry in China domestic demand and it could be a pretty compensation in China, the government they want to encourage the basic application of industry for many existing player or a new company entering this industry and can sustainably good for strong demand for a period and followed by the [ capacity ] and fierce competition, and they have to test some time to adjust over [indiscernible] currently could in the stage had to digest the overcapacity.

But there's still for many countries they want to serve their own basic capacity in their domestic and Chinese [ players ] still can enjoy such expansion. We expect after [ Sony ] countries have confirmed their domestic expansion process. The demand for battery still can be stronger again. And for electronics, we said new [ medical ] forecast production process not in their end product. And when brand customers, they decreased their sell in [ roles ], it won't affect demand too much. But once they don't have too much model change or upgrade, customers can apply existing capacity to produce their demand. It return [ net demand ].

And in the past 2 to 3 years, there could be limited upgrade or model changed. So in the trust revenue has been not so good for 2 to 3 years. But from this August and September, it has been around 20% growth year-on-year from electronics customers. And we expect such strong demand can be sustained to 2024 from electronics. And pricing, pricing stable and competition is limited in numeric market. The [ weak ] of Japanese yen will not affect the competition with us peers, mainly because the cost of materials accounted for around 40% to 50% of the cost of [ pneumatic ]. Most of the material costs are metal materials. And [ post ] Japan, on production of metal or should be limited. So it need to purchase metro material from price priors. Yen will increase the cost of materials. But it still can enjoy the production in labor cost and [ OpEx ].

In addition to production [indiscernible] main job competitors in Japan is from 40% and another 35% there to see in China, the cost impact to be similar to our tech.

Since December of last year, metal materials has been relatively stable and fluctuated with reasonable rate which will be friendly to our margins in '23 compared to '22. The OP margin still has to depend on revenue scale and cost of [ fluctuation ] rate then we can improve our margins by to more high market new items and continue to improve our production efficiency to reduce production costs. Inventory turnover days was around 155 days currently. And it still is in a healthy situation. Moreover, the production cycle of domestic component is slow and most of them are materials. So the inventory rate of risk is limited. Our current tax rate is [ $0.90 to $0.01 ] for pneumatic and 40% to 50% for lining guiding. So will depend on the shipment to just our tax rate.

For the development of [ Niigata ], the sales process is improving from first quarter of 2023. The master revenue in guide in second half of 2022 is just around RMB 10 million and it's around RMB 30 million from March, July and RMB 45 million, it was RMB 50 million in [ suburb ]. More and more customers have visited our [ laser ] and refine our process. It means more and more agility, we can get the orders from customers. And customers are very interested in the quality and our pricing of the pneumatic elite. And simplification period risk for its customers, still depends on customer situation. In addition, the sales model, [ meaning ] is different from that of invest employment. Most pneumatic manufacturer has direct sales revenue and disburse business. But most of the [ Liiga ] manufacturers sell their product through distress and most distressed need to purchase a certain quantity each year. Than to become the profile for the following years. And when demand is weak, so many [ peers discrete ], they used to [indiscernible] surprise aggressively and that's just their inventory. So many customers they can get much cheaper [ minicar ] products from the existing [ Nemi ] suppliers. So they are not urging changes, they are surprised to tech. And customers that have signed and your purchase contract with their existing suppliers in 2023. But they have come to AirTAC will transfer part of the AirTAC then it can improve our shipment from 2024 of business. And we have bet around 60% of the market production issued many size large types from [ touch 5 to touch 6 ]. At the end of September of 2023 was from RMB 2 billion and will not increase by end of 2024. Current [ testing ] rate was around 40% to 50%. We improved, the improvement according to our sales progress. The gross margin will be around 40% when we have 60% to 70% [ detection ] rate under RMB 2 billion annual capacity and will be around 50% when we have 80% to 90% [ interaction ] rate. Even 40% gross margin is lower than our [ system ] business, we use the same system to do [indiscernible] without too much additional OpEx, it still can improve our consolidated OP margins.

With continued tax rate improved and capacity expansion, gross margin still can be improved. And we divided our system into China and non-China team with different team deals and having their own goals. For China sales team, we expect they could have 30% China pneumatic market share within 3 to 5 years. The markets for pneumatic China could be more than RMB 22 billion and has a single-digit comp pronged annual growth rate. [ Represent ] revenue of $8 billion for the pneumatic business. In 2022, our revenue just from RMB 5.4 billion, and that means we can have additional RMB 2 billion in the next 3 to 5 years from China pneumatic business. And [indiscernible] in China could be more than RMB 16 billion, RMB 17 billion, also have single-digit CAGR. We expect we could have -- we have 30% market share in around 10 years, meaning a revenue of RMB 5 billion to RMB 6 billion in around 10 years. After we have a better progress on unique business, maybe in late 2024 or 2025, we will launch electrical cylinder. It's another RMB [ 10 ] billion market size in China. And we still have fourth and fifth component related to automation in late development. We will find the right timing to launch those 2 new components in coming years. And for non-China system, we still expect achieved 20% of our consumer revenue in coming years, even it could be a very hard task for our non-China team, but they still have to do their best. And we try to set up more sales overseas in non-China countries and recruit more local subsidiary and then more [ content cash ] to improve our non-China business. And the CapEx in 2023 still could be RMB 2 billion to RMB 3 billion. And we could generate much better free cash flow from on, and we still will improve our pay ratio to be around 50% in 1 to 2 years. And the company does not have any acquisition plan in the short term. It's my brief, and we can discuss all your questions. Thank you.

[Unknown Executive]

Thank you so much. We will move on to the Q&A session now. From Goldman Sachs, we actually have 2 opening questions. 3 questions from [ Hyden ]. Why such a strong 24% revenue growth. You did mention about the demand, but even compared to possibly bottoming demand in China, nobody is up like AirTAC, just exception. So I want to ask me more in details about you, not about the competitors for demand. What is driving the solid 24% growth for AirTAC. Is it driven by market share gain, better exposure in the focus market. And more importantly, do you think this over 20% revenue growth can grow to 2024?

[Ivan Tsao, executive]

Thank you. Firstly, we choose customers with orders in past. And when the demand is weak, [ sentiments ] weak or [ mosaic ], we used to consider the pricing and volume relationship and maybe we will receive some orders, we will not assume that past, and we try to sustain [ spitting ] revenue scale to sustain our chain market. So firstly, we still can [ demo ] the overall demand this weak. In addition, we still continue to launch [indiscernible] Most of those new plans, create high application high margin items. And we launched new items. We promote existing customers promote customers also can enjoy [indiscernible]. So basically, we still can sustain critical revenue growth in coming years. And maybe it's still too early to tell the guidance for 2024. But basically, we still can sustain [indiscernible] from new midmarket in China, and we also can improve our [ medical ] shipment from 2024. So to sustain 10% or double-digit revenue growth from 2024. It could not be difficult for AirTAC. Thank you.

[Unknown Executive]

The second question is, despite the solar revenue seasonality, your margin improved, I mean, the GP margin improved and surprising 46.4%. What is going on in there? Is that driven by [ the near ] guide? Or better pricing on pneumatic appreciative to elaborate gross margin improvement.

[Unknown Attendee]

Meaning, that was margin is still much lower than our system business. So the more shipment of the [ mini guy ] still will dilute our average of the margins. And we have increased our [ catering ] business also continue to improve our pneumatic production efficiency. And we mentioned earlier, not more high-margin items is still more, still can improve our margins. So basically, we still can improve our gross margin in coming quarters.

[Unknown Executive]

We would like to move on to the Q&A session and open for everyone. If you have any questions, please raise your hand. Stell, All yours now.

[Unknown Executive]

Okay. Thank you, Ivan. So everyone now we are opening the question to all. Please press raise your hand button be in the queue, and we will open the line accordingly. We appreciate if you can state your name and then company before you ask the question. So we now have Ming Lee. Your line is open now.

[Ming-Hsun Lee, analyst]

Thank you, Ivan. So previously, you believe that China FA sector will start to some demand recovery starting in 4Q on this year. So do you have an updated view for the industry growing outlook? And also, although the property or real estate industry does not have a direct impact to pneumatic, but it also indirect provide a lot of growth for pneumatic, big industry in the past. So what do you think about the real estate industry related in the coming year? That's my first question.

[Ivan Tsao, executive]

Thanks, Lee. And firstly, quick control has effect and demand [ 3D ] even government had released the quick control in early of last December, but the impact is pretty high in front 2 to 3 months. So many customers or even company can now operate their business in a normal situation. So such demand have pinned up to Q3 so China has a pretty good economic number in this February and March. And we think it just depends on demand, not so agreed the channeling opening, and based on such a good number in this [ brand ] March, we heard from the [indiscernible] some source they can achieve the growth percent a year, not be [indiscernible]. So they try to get the market to develop naturally in the past couple of years, whenever they cross the meeting in March, they always announced so many stimulated parties, at least March limited [indiscernible]. So they got very coming in this prominent. So from June to August, they had announced a long so many parties.

And earlier of the year or first half of the year, we expect or we predict the market demand could be better or recovered from fourth quarter or end of the year. But we think after the that market mature development in April and May. Today will take a little longer to resolve market trends. So maybe from [ every ] the economy or demand just a little better. And we have better shipment growth in third quarter. Mostly, we have a better circuit from pneumatic and have improved our in-cash shipment. And we just can say maybe -- we have been at the bottom in this July or August. And when the market will be recovered, obviously, still depends and maybe from end of the third quarter or first quarter of 2024.

And the second question of yours, real estate industry even construction industry just around low single digit of our revenue, but there's still some industries related to real estate. And almost around 10%, even [ 90% ] of our consumer revenue. In 2022, is pretty fat demand almost around 50%, 80% decline year-on-year in 2022 for those real estate related industry. But from 1 to 2 quarter or past 1 to 2 quarters, those traditional application or [ reset ] rented industry improved and some of them could have single-digit even average revenue growth year-on-year already, especially for the -- the [ bathroom ] facilities or the mix industry, we had been around 30, 30-plus percent growth in past 2 months and we put more and more [ stimulus ] launched by government even cannot expect the real estate industry will be such booming as they did for 3 or 4 or 4 or 5 years ago. But it won't be some bad demand in coming quarters in China.

[Ming-Hsun Lee, analyst]

Sorry, one more question for me. In the past, I think your sales team member prefer to sell more pneumatic component compared to the [ Vinda ] product, also they have more understanding on the product and they are [ loans ] for mediums on products. Right now, what is their -- or are they willing to sell the [ linear ] guide based on the latest product design and good quality because in the past few months, year-on-year revenue monthly has improved a lot it in our team.

[Ivan Tsao, executive]

Our people their ecological condition and more willing to promote our new business. And we have a [ basic turn ] some progress for [indiscernible] couple of months. Mostly because the quick control internally to many customers did not allow AirTAC to push them or visit their factory because any one case, essentially have to be shown for 1 to 2 weeks. But this issue have been better from this February or March. We can visit more and more customers gradually. And so we must still came to our Phase [ 3 ] production process. And after the production, more and more customer can place order to us. But I mentioned, some cases the upside annual contract with their existing [indiscernible] and they have some restriction to do more in business in 2003. And from 2024, we could have more opportunity to get more orders from such customers.

And the other reason could be we have around 70% revenue from their account customers and 3% through disperse. And we just have the chance to approach customers from this February and March. And I end up this time, we prefer to approach our [ thereon ] customers. Fourth, to promote our leading guide rather than to approach disperse because once we approach our [ disperse ], and this differs to approach our pneumatic customers. These users will be confused. They buy pneumatic, why is the [indiscernible]. So by end of this June, most of the promotion activities just to approach their customers. And from this July, we began to approach more and more [ discuss ] customers to buy the [ Nayga ] from AirTAC. So from third quarter, it could be more and more customers and the [ disbursement ] and improve our new shipment in coming months or coming quarters.

[Unknown Executive]

Before moving but we would like to prioritize who are already open -- I'm sorry, raise your hands. After those people finish, we will move to some of the questions that we've received from the Zoom QX. So please ask it again.

[Unknown Executive]

So our next question will come from Ting Yu. Your line is open, and please state your name and your companies. And then ask you question.

[Unknown Attendee]

My first question is that considering the current good situation in the [ inline ] business, we plan to increase our CapEx in 2024 to meet further demand or do we plan to maintain the same level of CapEx as 2023.

[Ivan Tsao, executive]

It's still early to tell the CapEx number for 2024. And we mentioned earlier, we will increase our capacity in '24. So by end of '24, our worst [indiscernible] will be RMB 2 billion annually. And the time for pneumatic equipment, just around 3 to 4 months, we can adjust our pneumatic [ tax]. [indiscernible] around [ 6 to 8 ] months. So the expansion plans have to set up a little earlier than numeric, but what we mentioned the [ Ningua ] capacity won't be increased in 2024. And the CapEx for 2023 will be RMB 2 billion to RMB 3 billion. And 2024 is still so early to tell, but it could be around RMB 3 billion.

[Unknown Attendee]

Understood. I hear you loud and clear. And my next question is considering the situation mentioned about a battery plant capacity, glocalization meaning that many countries plan to have their own better capacity within their soil. So in this case, we help companies like [ CAT ] or BYD to build up the capacity in other countries?

[Ivan Tsao, executive]

Pneumatic is very upstream component to support equipment. So basically, we just sell our pneumatic component to the equipment maker or module indicator located in China. [ What the ] percentage they support non-China demand still depends. So the issue we have talked to the market from 2018 because of trade tension. So the customers that to set up capacity out of China. And once those customers have existing in China and set up new capacity out of China, most of their equipment supply chain still came from China. So such situation will affect our pneumatic business too much. Just the difference with total demand to local China equipment maker or not.

[Unknown Attendee]

I have 2 last related questions. The first one is to [indiscernible] to customers is greater order pooling. Do you think that to increase their product capacity in third quarter of next year, so they will have to reach their CapEx second next year. And also, if we see better revenue growth for both -- in that are more opportunistic about our growth next year.

[Ivan Tsao, executive]

Expect high growth rate for customers based on or potentially a bit -- we can speak for and on customers. And that has been no good for 3 years. And just based on the last -- it's real for customers with years [indiscernible] upgrade. And once they have product [ split ], they need to be more [indiscernible]. So we always to predict the demand from highs could be back in [ 2025 and 2022 ].

[Unknown Executive]

I'm sorry. We do have a couple of people in the lines, that's been in the line for the next question. Apologies. But if you want to go live again, please in the queue.

To ask the next question, please Mr. [ Billen ].

[Unknown Attendee]

I have 2 questions. First of all, I think the salary increase on this quarter's operating margin is around 29% something. And given the -- I think part is your lows. So do you expect this full year upon can go [ 80% ]. Secondly, the same thing, I think in the quarter in [indiscernible] about 14% a year [indiscernible]. I just want to understand about the partly low bar relying monumental demand recovery from the [ pneumatic ] industry.

[Ivan Tsao, executive]

Yes. Basically, the OP margin still depends on the revenue scale and touching very closely. And we expect we still can improve our gross margin in coming quarters and openly depends on revenue scale and I'll -- on margin of 2023 still could be around 30% because the company is not very good in the third quarter and will also be loaded patient. So in half of the 2023, we could have more than 30% OP amount. And at this moment, our operating margin for the full year 2023, it could be around 30%. But it doesn't mean we cannot achieve [indiscernible] month for the end of the year. And we still need to improve our product efficiency and there could be better for the [ Inka ] in fourth quarter. So still it's good for our [ barges ] in fourth quarter. But think of it's tail tell the OP margin will be more than [ 3% ] or not in this moment.

And the question, electronics, the revenue in third quarter still was lower than the second quarter because second quarter is the big [ set ] of our business. And even in low season, we say second quarter of '22 still is lower, but our -- in trust revenue in the second quarter of this year still has declined year-over-year. So it will be better demand in such both among electronics, but how can we sustain -- it can sustain in coming months or coming quarters, still depends. And we just based on our expansion or information we got from customers. Electronics could be the trust -- you may think from pneumatic customers could be better in 2024 than 2023. But how better it will be still depends because the item of pneumatic is still pretty short.

[Unknown Executive]

Okay. Thank you. So our next questions comes from Jodi. Jodi your line is open, and please state your company name.

[Unknown Attendee]

This is Jodi from CRP. I have a couple of quick questions. The first one is that I think you mentioned that we're setting up some sales offices overseas. If you don't mind, can you just briefly elaborate like which regions or countries that we are setting our sales offices?

[Ivan Tsao, executive]

We just plan to set up our or offices, but have not entered in that stage. We say more and more customers, they diluted stay out of China to the end. We have Thailand, Manila and Singapore services already. And we -- well, based on the local team to set up new sales offices in Vietnam to other countries still depends on the local demand. Current demand for those new capacity out of China, most of it could be CapEx. And we can support such CapEx demand from [ both ] China equipment, maker provider. And maybe companies data, those new capacities have repair demand, and we have discussed with our [ discuss ] in so many countries. What in first stage, the local demand just a little better than past. We will ask our local [ discress ] to build up the inventory for AirTAC to support to support those local demand in a little shorter AirTAC. Those local demand proved to a little higher. We will set up our own sales offices. So we will set out our own warehouse then set our own sales services. We have different stages for support country demand.

[Unknown Attendee]

Got it. That's very clear. And my second question is, I think previously, we set a goal for the [ Lineage ] sales this year. Now 3 quarters have passed, would you say we're still on track? Want to match that target? Would you like to change the target?

[Ivan Tsao, executive]

Yes. Maybe it's difficult to achieve RMB 500 million for the whole year 2023. But we still have our system to do their base. And it's not good in this moment to say our system cannot achieve such goal because the sales progress have been approved. And once we have more than RMB 16 million, RMB 17 million a the month in following months, even we cannot achieve RMB [ 100 ] million revenue for the whole year, but it's not far away from this number.

[Unknown Attendee]

My last question is about market share. Previously, you said we talked to a 30% market share for pneumatic in China. Would you comment on where you are now? And my second question is for revenue guide. We also target a 30% market share, but this seems to be a more fragmented competitive market. How do you think we can hit the same share in the market?

[Ivan Tsao, executive]

We have around 20%, [ 25% ] market share in the China market already. And we still are launching more new items, and we still can enjoy a bit again in the coming years to achieve 30% market share in around 3 to 5 years. And in [indiscernible], even we have linked sales progress in 2020 and '21, but we still try to find some ways to improve our design and production process. And we have success by end of 2021. Even we just have around RMB 2 billion in [ capacity ]. But once we have 80% attach rate, our production cost would be much lower than Taiwanese, Japanese even lower China players. So in 2025, 2026, we will increase our capacity. We also can have a better fixed cost leverage, production cost even could be much lower and we will base on market situation to launch aggressive pricing to [indiscernible] for the market in China. So we have expectations [indiscernible] in around 10 years, they have to achieve [ 3% ] [indiscernible] for AirTAC.

[Unknown Executive]

Our next question is coming from [ Ally Chen ] Will you open your line. State your name and your company.

Yes. I am so sorry, Willy, appreciate if you could try to reconnect yourself in the meantime, I'll go some of the other people, apologies for that. Your line is open again. So please ask your questions.

[Unknown Attendee]

Yes. My question is considering the utilization rate improvement and also the revenue scale increase, do we expect to see better margin and gross margin in 2024 considering both [ ones ] improving this projection.

So I'll add another to that. Before we mentioned that we see about -- before I mentioned, we see a good high revenue growth consistently in the third quarter. And assuming that we're still going to see continuous growth in fourth quarter to see Q-o-Q sequential growth? Or is it going to be in -- to start growth in first of next year.

[Ivan Tsao, executive]

Yes, basically, we could -- it's more and more behind customers for our process. And once they could [indiscernible] annual purchase cost from '23 then they can press more orders AirTAC. And we also have developed our [ distress ] business from July and the [ verification ] period could be shorter than [ telecom ] customers. So basically, we still expect the shipment of [ Liiga ] fourth quarter -- in fourth quarter that still could be better than later.

[Unknown Executive]

We're going to go back to Willy again. I'll please open the line for Willie Chen.

[Unknown Attendee]

Thank you so much. So 3 questions to Ivan. The first one, you mentioned consumer electronics in third quarter has shown a pretty decent growth. Just wondering, is that driven by Apple or Apple clients? And then are we in business for -- with Huawei?

[Ivan Tsao, executive]

Firstly, it's not good to discuss specific customers. And I mentioned, both companies, all in are AirTAC customers. And most of our electronics came from EMS, OD and OEM or electronics supply chain manufacture. And none of them is a very big customer of AirTAC. Our biggest single customers from 1.2%, 1.3% of our revenue, top 10 customers just around 5% to 6%.

[Unknown Attendee]

Okay. So you basically mentioned it's more like a further recovery from the consumer electronics, not from specific client operate, right?

[Ivan Tsao, executive]

And would be the low base in third quarter last year.

[Unknown Attendee]

Got you. Second question is regarding to the margin on battery and also energy light. I think that's more [ outdoor ] because my understanding the margin for these 2 products, 2 end market is actually quite competitive. I'm just wondering do you see that margin profile for this 2 market is lower than corporate average?

[Ivan Tsao, executive]

Maybe not. Those applications margins still high our average of the company.

[Unknown Attendee]

Is it because you see less competitors in this area? And do you have an estimated market share in this market?

[Ivan Tsao, executive]

We have around [ 20% to 30% ] of China battery market share.

[Unknown Attendee]

Got you. How about Energy Lighting?

[Ivan Tsao, executive]

Energy lighting still could be still because we have material [ success ] customers, and we can [indiscernible] for years.

[Unknown Attendee]

And you see the same competitors like [ SMB Vestas ] in these 2 markets instead of the domestic players. Is that correct?

[Ivan Tsao, executive]

Firstly, we have a pretty good revenue growth from both industries for years, mostly big industries from the company mentioned. Got you.

[Unknown Attendee]

Last question is regarding to the sustainability of energy lighting because we look at the battery contribution in the past 2, 3 years, has been a pretty strong growth and that's not over for second half this year. Don't you read that energy lighting specifically to select, which is also oversupply chain in China, fairly similar in 2024? Or you think it's not like this year, you have your small, your clients to expand capacity, so you are pretty comfortable to the target you mentioned?

[Ivan Tsao, executive]

Yes. We still expect the revenue growth from [ NGL 18 ] still could be pretty good for a couple of years. And even, there could be some noise for solar expansion in the past couple of months, but we still have heard from the market, some cities government that have retained the bank for cities to solar expansion, maybe not freight, the overcome situation will extend it from battery to solar. And energy lighting, we think still could be pretty good for years because even an LED lighting application of [indiscernible] maybe around 10 years, by more than 10 years. But earlier of LED lighting is not so good. You can see the [ bubble ] lighting on the screen. But in the past 3, 4 years, the technology or [ illuminate ] much better and have improved. So in past, even for AirTAC application, we just apply LED lighting and the noncore lighting place, just lighting on the road or some in both. But from 2 to 3 years ago, our main lighting functions have been released by LED lighting modules in the same or major lighting. Even so many car, headlight or domestic degression in the car house decorationg applied LED lighting ready. So basically, such demand still will be better and better. Once you have [ one real ] decoration of your house, so many buildings or offices, you still can apply LED lighting module because you can set your electricity expenses, also can last a little longer time than traditional bank.

[Unknown Attendee]

So just one small query.

[Unknown Executive]

It had already passed time, we have to start closing the call. Thank you so much, everyone. It's already past 5 p.m., so we have closed the call. And do you have any closing commentary that you'd like to have?

[Ivan Tsao, executive]

I'm fine. Thank you.

[Unknown Executive]

Thank you so much for your commentary. Thanks, everyone, for your understanding apologies and we cannot touch everything, but I appreciate it that you could follow with putting respectively. And once again, thank you so much for attending today's call. This is [ Chin-Wun ] hosting Third Quarter 2023 Call. I hope to see you next time, and have a great night.

Thank you, Ivan, and thank you, [ Julie ], for attending today's call. Hope to see you soon.

[Ivan Tsao, executive]

[indiscernible] Thank you, everybody. Have a good day.

[Unknown Executive]

Jim, please close the call. Thank you, everyone. Once again, have a great day.