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Airtac International Group
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Good afternoon and good morning, everyone. I am Ally Chen, Talent Strategies and Machinery Analyst at UBS. It's our great honor to host AirTAC Management today for their fourth quarter earnings release. So now, let me pass to Mr. Hsiang Tsao, the CFO of AirTAC, for opening remarks.
Hsiang?
Yes. Thanks, Ally, and good day, everybody. This is Hsiang Tsao from AirTAC and welcome to join this conference call. And after all, let me make sure brief into our current business of fourth quarter results.
In general, we believe the demand for pneumatic is still in uptrend and not only supported by decreasing labor force, but also by more past production activities from new infrastructure and smart city demand. And pneumatic industry still can sustain single-digit growth annually, but shipment still will be affected by non-income issue, something that could power world recession or pandemic issues.
And we also think that such impact could be shorten and won't be disappeared -- the demand won't be disappeared. It's just pent-up to coming months and shipment of this fourth quarter was affected by the worst pandemic situation and power recession from October to late November in China.
And shipment had been better from end of November. But we still have to suffer lower OpEx cost leverage and lower OP margin in the fourth quarter. In addition, as the cost of aluminum materials was still increasing from last September to early December and did not decrease or keep threat as our expectation.
The gross margin of fourth quarter of 2021 was lower than originally expected. On approved consolidated revenue for the fourth quarter of 2021 was RMB 1.325 billion, a 7% growth year-over-year. Gross profit was RMB 626 million, a 0.4% growth year-over-year. Gross margin was 47.3%. Operating income was RMB 414 million, a 4% growth year-over-year. Operating margin was 31.2%. Net non-operating income was RMB 61 million, including RMB 38 million from subsidy government and RMB 20 million of FX gain, RMB 10 million of interest expenses and RMB 7 million of interest income.
Income before income tax was RMB 474 million, a 1% growth year-over-year. Pretax margin was 35.8%. Net profit was RMB 369 million, a 1% growth year-over-year. Net margin was 27.8%. EPS for the fourth quarter of 2021 was TWD 8.1. And on approved consolidated revenue for the whole year of 2021 was RMB 5.853 billion, a 31% growth year-over-year.
Gross profit was RMB 2.843 billion, a 29% growth year-over-year. Gross margin was 48.6%. Operating income was RMB 1.893 billion, a 36% growth year-over-year. Operating margin was 32.4%. Income before income tax was RMB 1.932 billion, a 30% growth year-over-year. Pretax margin was 33%. Net profit was RMB 1.484 billion, a 31% growth year-over-year.
Net margin was 25.4%. EPS for the whole year of 2021 was TWD 33.67. And revenue from top 8 industries for the fourth quarter of 2021, the biggest one still was electronic, around 26% to consolidated revenue. It's flat in fourth quarter year-over-year. Second one, battery was around 13% to revenue, 50% growth. General machinery was around 8% to revenue, is flat in fourth quarter.
Packaging was another 8% to revenue, also was flat year-over-year. Auto was around 6% to revenue, 35% growth. Machine Tool was 5% to revenue, 5% growth year-over-year. Energy Lighting was 4% to revenue, 20% growth. And Textile was around 3% to revenue, 66% growth.
For current market situation, shipment has been better and recovered gradually from end of November or after affected by the epidemic situation and power restructuring in China. Pricing is stable and competition is limited in the market. And pricing either still could be essence in AirTAC.
And even the material cost was decreased in last July and August. And aluminum cost increased from last September to early December, and also have decreased from mid of December. Even we can improve our margins by launching more higher-margin new products, continuing to improve internal efficiency and reduce production cost, and enjoying better scale in production and operation to have a better leveraging of this cost.
But we cannot offset all of those cost disadvantage in short term. Once the material costs accelerate in short period, we still have to test some time to offset those cost disadvantage. Inventory turnover days was around 124 days at end of the year of 2021 and still was much lower than our standard turnover days, 160 days.
And we still keep our still recession rate to be around 110%. And such high mutation rates still will be sustained to the next couple of months to build up more inventory and support customers' traditional strong demand from March of the year. And for the demand [indiscernible] everything is still on track.
And new capacity at end of '21 was around RMB 700 million to RMB 800 million and will be increased to RMB 1 billion by end of first quarter of 2022 and around RMB 2 billion by end of 2022. And we have detected more than 60% of the market product portfolio including mini size and large types from type 5 to type 50.
We have achieved 40% gross margin for mini size from March of 2021 and continue to run-up large types mass-production experience. Even 40% gross margin from Linear Guide is lower than our existing business, and we used the same system to do cross-selling of pneumatic and Linear Guide. And we don't have to spend too much additional OpEx. It still can improve our consolidated OP margin.
And with continuous capacity expansion, gross margin still could be improved and to be better and better. And we predict the new met industry could be mid-single-digit growth for the whole industry of 2022 in China. And second half of the year will be better than the first half of the year.
And AirTAC still wanting to have additional 10% revenue growth over the industry growth from market share gain.
So on the premise that the epidemic situation won't be worsen and there are no serious oncoming issues, our annual guidance for 2022 is a high teen percent for our revenue growth, 33% of OP margin and the CapEx will be around TWD 3.2 billion, including workshop construction cost, new metal equipment and mini gas equipment expansion. But the CapEx still depends on the monthly shipment and market situation to decide when and how much will be spend.
That's my briefing. And should you have any questions, so we can discuss it. Thank you.
Okay. Thank you, Hsiang. Now let's begin the Q&A session. Operator, please let everyone know how to raise questions. Thank you.
[Operator Instructions]
Okay. So while we are waiting for questions, let me kick off with 2 questions from my side. So Hsiang, you just mentioned about the -- for China market 2022 pneumatic market. You are expecting a mid-single-digit growth. Last analyst meeting, I think you kind of gave a range of mid to high single-digit. So can we take your new guidance as a more -- relatively more conservative? Or it's just -- it's just a range, it's still fall into a similar range as last time you mentioned? So how should we view this new guidance?
Okay. Maybe my guess is still -- is the same as I gave to the market. And what I mentioned earlier, mid-single-digit for the whole industry, maybe just in conservative base. And the beta is still pretty short. And we used to give a little conservative offshore guidance in the beginning of the year. And we still worry about the pandemic situation in China and still will affect the end demand of shipment.
And that's why I mentioned earlier also, the -- even the shipment will be affected by the pandemic control or limitation, but such demand won't be disappeared, just will be pent-up to the next coming months. So basically, we still expect the whole industry's growth rate still could be mid-single digit at least and still could be mid to high single-digit for the whole year of 2022.
And because the high base in first half of 2021, so the steel growth rate for the first half of 2022 maybe will be lower than second half of 2022.
Okay. And as a follow-up to your guidance just now, you are expecting a high-teen growth, a top line growth. Is this just for pneumatic or this also include contribution from Linear Guide?
Yes. We split the pneumatic growth rate could be low teens to mid-teens percent. And we have another contribution from Linear Guide low single digit. And totally, it could be high teens percent, including pneumatic and Linear Guide revenue contribution.
Okay. That's very clear. Let's -- okay. Let's check if any question on the line. Operator, any questions from the floor?
Yes, some questions has arrived. The first one is coming from Ming-Hsun Lee.
Thank you, Ally, for hosting the call, and thank you, Hsiang, for your time today. So I have 2 questions. The first question is regarding the raw material price and also the pricing. I think that in the past, you always maintained the price pretty stable because you don't want to change too much your selling price to clients to maintain their satisfactory. So will you maintain a similar pricing strategy for this year? That's my first question.
And second question, what is your current market share of linear guide in China market? And do you have some expectation for capacity expansion beyond 2022?
Okay. Pricing for AirTAC, we still prefer to keep stable pricing to our customers. If the raw material cost or some material cost rate is established to our business and once we can still can be controlled by AirTAC, we still want -- we still don't want to pass those dissemination to our customers.
So our pricing still could be pretty stable in 2022. And for the Linear Guide market share in China, we just have around RMB 140 million revenue in 2021. Even we expect we could have RMB 500 million revenue in 2022, but the market share in China still not very high.
And we have gotten some information from our customers. And most of the information could be a pretty good feedback. So just the issue, how much we can produce out. And mass production of the large types, it could be better and better, but still have not been very high attrition rate. So basically, RMB 500 million revenue in 2022 is our expectation, but mostly could be from second quarter.
The revenue will be better and better from second quarter, and second half could be much better than first half of this year. So we still have very limited market share in China and India market currently.
The next one is coming from the line of Helen Fang.
I just want to ask a question maybe on the current utilization rate of power pneumatic control. And also, I know the order visibility is relatively well short. But can we have an idea regarding the orders coming from smartphone and coming from the lithium battery in the near term for 2022?
Okay. Firstly, the traditional peak season of these tools be started from March of the year. So before that time, we have to build enough inventory to support customer demand.
And in second quarter of 2020 and 2021, even we have expanded our capacity aggressively, but the inventory obviously still cannot support our customer demand, and we will force to reject orders from customers.
So at this moment, we still have to improve our utilization rate and 110% is basic percentage for the UT. And we cannot tell which segment will be better, but basically EV or EV battery still could be one of the China government, they want to simulate it mostly.
And such demand still could be better and better and enjoy a pretty good revenue growth year-over-year. And auto, we have a pretty good growth in past 2 to 3 quarters because of the share gains. So we still expect in 2022, such demand still will be improved. Electronic have been not so good from third quarter of 2021, mostly could be high base in 2020 and also was affected by so many consumer product. You have no too much upgrade or model changed in 2021.
So customers don't have to spend too much additional CapEx or production process to support such demand because most of our product pneumatic component just for customer production process, not in their end product. So once cost don't have too much or don't have too many model change or upgrade and the demand for pneumatic will be lower than model changed.
And we also think consumer product still don't to have 2 years no model change or set upgrade. So basically 2022, the growth rate of the electronic, it should be better than 2021.
Understood. And then if I may, can I also ask you to comment on packaging because packaging has been pretty good last year. Do you expect them to remain strong this year or maybe moderating a little bit?
Our packaging industry, just for the food beverage or some product of packaging, not for the semi-packaging. So basically from third quarter of 2021, the growth rate was not so good, just flat; not that good as they did by second quarter of 2021.
So this moment, the demand just -- that's the situation of second half of 2021; it just flat in past couple of weeks. So basically we still ask our system has to do their best to find and approach some potential customers. And we also expect the existing customer demand still will be better and better or recover in 2022 for packaging customers.
And it's coming from the line of [ Hank Fu ].
I have a follow-up question concerning the order from different sectors. Actually, you mentioned that we need to see some spec upgrade for the electronic industry to increase their CapEx. If so, will we see this kind of CapEx demand in like second quarter or will it be more likely to happen in the third quarter?
Firstly, we don't want to comment any specific customers for any product. And basically, such demand used to start it from May or June of the year and becomes too pretty short. We still connect with our customers closely.
Obviously. And as far as we see that the material price increases continuing into 2022. So I'm wondering if the -- for example, it increases by 10%, 20% per quarter. Is it possible that we set up some kind of contract with our customer to regularly review this to prevent further gross margin decrease or damage our gross margin? I know that the price for the aluminum is difficult to forecast. So if where we see a very big price hike, is there a company strategy for to counter this situation?
I mean, costs have been stable from mid-December and still pretty stable in past couple of weeks. And to make a long contract with suppliers, it doesn't mean it's good for the company because nobody want to lose money.
Once you do a long-term contract to suppliers, maybe it will mark up the potential material hike in future to the company. So basically, we give pretty good commitments to our aluminum suppliers and they will do some hedge for AirTAC. But -- so it were difficult for AirTAC to hedge ourselves because our volume is now big enough to do hedge by ourself.
So basically, we still will improve our internal efficient, launch more higher-margin products and expand our production scale to improve or sustain our margins.
Same question would be that the sales, we're continuously seeing our capacity remain at 110%. Does it mean that most of our shipments still fall in the 2- to 4-week lead time? Or do we see a lead time increase due to the order increase in the first quarter?
Lead times still could be 3 to 5 days after we get the order from customers. And in -- it's too early to tell the time in peak season in the second quarter of this year because nobody knows the end demand, how strong it will be.
So basically, why we say the visibility is around one month because the shipment to customers in the month could be higher probability. And in past, whenever the economy is good or bad, we always say our visibility is one month. So no -- it's not visible with the current inflation rate or demand situation.
Okay. Thank you, Hsiang. I also have a couple of questions received by e-mail. So first one is also similar to the questions.
The OPM, your guidance for 2022 is 33%, which is slightly higher than last year. So is this margin already factored in the possible raise in salary and also higher material costs? And what is your view on the outlook of material cost? And will you raise ASP?
Okay. Basically, we still don't to raise ASP to customers if the cost disadvantage that can be controlled by AirTAC. And 33 OP margin guidance have included the salary adjustment.
And raw materials, we have low single-digit -- potential low single-digit hike in 2022. And mostly we still could be worried about the pandemic situation because it will affect customers' shipment, our customers' demand. And once the pandemic is as good as current situation, we think the room scale still could be better.
And once we have high-teens percent revenue growth in 2022, we could have a better leverage than 2021. And second one, once we have a higher inflation rate of large types in Linear Guide, leverage still could be better. So it still can help our OP margin number to be better than 2021.
Okay. And another question from the same investor. For first quarter revenue, because of the high base, can you give us a direction whether it could continue to be a Y-o-Y growth?
Basically we didn't give any quarterly numbers and also because the shorter time. It's very difficult to tell first quarter situation year-over-year base. But basically, it still could be positive than last first quarter.
Okay. Understand. Operator, do we have other questions on the line?
Yes. The next one is from Jerry Su.
Just want to check with you on your comments about the linear guideway product. You had mentioned that you have last year is $150 million and this year $500 million. Could you give us a sense of what is the revenue contribution in the fourth quarter or first quarter of this year? And -- because I think you mentioned that your second half will see a much stronger ramp. So I just want to get an idea of what is the current revenue contribution coming from the Linear Guide way?
Fourth quarter of 2021, the revenue was around -- was around RMB 50 million to RMB 60 million. And in January or February, because of the Chinese New Year holiday, the number may be is not so objective. So basically, first half of 2022, because the output of large type is still not very high, so the revenue distribution will be much lower than second half of this year.
Okay. Then regarding your CapEx, can you give us some breakdowns of that -- the CapEx guidance for this year? How much is for pneumatic, how much for Linear Guide and then how much is for the facility construction?
Most of CapEx of 2022 was focused on equipment expansion. And there's still so many equipment can be shared by pneumatic and Linear Guide. So basically in the first beginning of the year, we don't want to support the -- of each segment.
The next one is from [ Kiki Teo ].
I just want to double-check with you. What about tax rate? Because in the past 2 years, the tax rate seems to be lower than the previous year. So going into this year, how will tax rate trend, effective tax rate?
Tax rate just came based on operating income, not the income before income taxes, because we have not up and not up will affect the tax rate. For example, in past we have FX loss. And most of our FX loss was accrued in -- came in this entity. And also again of FX cannot deduct the taxable income in China. So our effective tax rate just can based on operating income, 25% to 26%. It has been pretty stable for years.
Okay. And for the second half, previously, you were saying second half is better than the first half of this year. Why is that? What do you see that is better? Is it because of the Linear Guide, especially the large size or in terms of manufacturing activity? Yes, what's driving the second half?
Both of them. First one, the first half of 2021, the base was pretty high. And the income base was much lower in second half of 2021. And second one, we expect our Linear Guide revenue contribution will be much better even could be more than 1x, 2x in second half than first half.
And third one, electronic equipment will be better and better from May or June of the year, substantive to third quarter. So basically this is the reason why we say second half growth rate will be better than first half of 2022.
The next is from the line of [ Ping Wu Tan ].
I understand that the visibility for you is based one month. So just wondering why the mid-single-digit guidance for the growth for the full year. I heard you mentioning the electronics segment and how about the other industries, like in the batteries or the autos? And also on your 10% growth above the pneumatic market guidance, I'm just wondering these share gains are where -- from which sectors will this come from mainly?
Mid-single digit for the whole industry growth just based on our prediction. So once you say our visibility is just on one month, how we can tell the whole year industry growth and could you accept, I don't give any guidance for revenue for you. So basically, guidance just for guidance. We cannot say we will achieve such guidance in 100%. But in the first beginning of the year, we used to give a little conservative guidance. It just based on our prediction. We cannot sure, we can achieve all the guidance of the year. And sorry, what's your second question?
Yes. On the end demand from the various sectors like autos and from batteries, I understand you are expecting electronics to be very strong. How about for autos and batteries? And what would the drivers be?
Mostly demand still could be coming from, we have new product launched, especially for the high application, we can enjoy higher margin. And the top 2 players in global in pneumatic, they have more than 600,000-700,000 items; LT just around 200,000 items. So in 2022, we still will launch around 10,000 items. We can support more existing customers, approaching more new customers.
And once we have a wider product portfolio, we still can convince more customers to do business with us, without warned or harassed by their existing players. And we also based on what kind of SKU LTT now produce in sale, the market size was bigger, demand is urgent.
We passed those items and developed them in first priority. So basically, demand still will come from the new items how we launched and mostly still could be Japanese spec. And the whole industry, the scale still is increasing and increasing.
And we also don't expect those smaller players can enjoy the scale leverage and to bother our smaller customers. So we still will put an eye in local China players and smaller players, and also have a special discount to their bigger customers and start the growing bigger.
So market share mostly still could be gotten from bigger international players and partially from smaller players. And just why we mentioned visibility could be pretty short. We just can expect the whole industry could be in mid-single-digit growth. Which segment will be better, it's too early to tell. But I also have mentioned auto and battery will have better growth rate in past couple of quarters. In 2022, those 2 industries still could be better. And we also expect the China industry in 2022 will be better growth rate than 2021.
Okay. If I can follow-up on the margin side as well. I understand that for the Linear Guide business, as you scale up and especially in the second half, the margins will be improving. But at the same time, the Linear Guide business still has lower gross margins than the pneumatic business. So just want to understand these 2 factors. One, on the increasing margins for Linear Guide, but also overall with the increasing revenue exposure to the Linear Guide business, how that will play out?
Existing mini-size Linear Guide gross margin is around 40-plus percent. 40% is lower than our pneumatic business, but still is higher than our consolidated OP margin. We used the same sales team to sell pneumatic and Linear Guide. Then we don't have to spend too much to additional OpEx to sell Linear Guide. Further same, still can improve our consolidated OP margin.
And once we have a higher duty rate, more output of large types, the leverage, this cost leverage still could be better and better. The gross margin will be improved to higher than 40-plus percent. We have a specific assessment once we have RMB 2 billion annual capacity and have 80%-90% of high sharing rate, the gross margin could be similar, even higher than pneumatic business. So basically, second half, the margin could be better than first half of '22.
The next one is from Ming-Hsun Lee.
I have another question. The first question is regarding your capacity expansion play. So last time you guided that the capacity of the Linear Guide can reach around $1 billion at the beginning of the first quarter. But now it is by the end of first quarter. Is it because the demand is very strong, so it takes a longer time to get equipment? Or is it mainly because the COVID to impact the logistics? And also, right now what is the lead time when you place orders on Linear Guide equipment until you can install it?
Negative. The RMB 1 billion capacity in past I'd say early of 2022, not early of fourth quarter of 2022, so the expansion still is on track. And it still could be better because we still try to find an improvement to have a higher output based on the same equipment.
So basically, I suggest we don't have to -- don't have to it looks like some RMB 1 billion or RMB 1.1 billion output in first half in beginning of the 2022 or RMB 2 billion or more than RMB 2 billion output end of 2022.
We always continue to find the best way or better way to improve our output for the production. And Linear Guide still is our new business. There still could be so many ways to improve our output of Linear Guide. So the situation has not been changed, but I'd say to the market in 2021.
Got it. And how is the lead time between you place the orders until you can install the equipment if we just get an idea?
Once we have enough capacity, we expect we could focus demand after we got order in a month. And the Linear Guide equipment lead time could be 6 month, still similar to 2021.
Got it. And another question is that can we just then assume that your annual effective output is around RMB 1.5 billion considered a year beginning RMB 1 billion and the year-end is RMB 2 billion. So 2/3 will be for internal use and 1/3 could be for external sales?
Negative. First quarter just could be RMB 1 billion. End of 2022 is RMB 2 billion, not 2 plus 1 divided by 2, because the whole year from first quarter to end of the year, just RMB 1 billion, from end of the year $2 billion. So the whole year, we just can produce RMB 1 billion, including third-party demand and internal demand, now RMB 1.5 billion.
The next one is coming from the line of [ Yin Shu ].
I have 2 questions. First of all, if we take a 2- to 3-year horizon and slightly longer, so what would be the key growth drivers for AirTAC looking to next, let's say, 2 to 3 years?
And also the second question is on the market share gain, AirTAC has been gaining market share. In terms of competition level, are you seeing more Mainland Chinese competitors are increasing investment and the capital into the industrial components or automation components areas? Do you think that would have some meaningful impact in the next 2 to 3 years?
Okay. Main business or main revenue contribution currently could be pneumatic. And we have around 23%, 24%, even little higher percentage in China market, share in pneumatic. And we expect by 2025, we could have around 30% market share in China.
So before we have 27%, 28%, we expect we could have additional 10% over the industry growth in pneumatic. And the total market size of pneumatic in China could be a little more than RMB 20 billion, and we just sold RMB 5 billion. So we expect maybe by 2025, we have RMB 1 billion revenue from pneumatic.
And Linear Guide market, Linear Guide market size in China could be more than RMB 22 billion even higher and still have annual industry growth by single digit. And we have nothing today. And we have pretty good or competitive to get more shares from Linear Guide market in China. So by 2025, we expect we could have RMB 3.5 billion, RMB 4 billion revenue from Linear Guide. And we have another new product will be launched in 2022 or 2023 because we prefer to have a better progress in one new thing Linear Guide, then we entered to another new product, electronic trade.
So electronic trade, the market size in China is still more than RMB 15 billion. It still can support our business in the next couple of years.
We have another new whole new product in developing also has been in late stage. So we will base on our business situation to launch this new product in coming years. So basically, we expect we could have stable revenue growth in coming years, even in 10 years later.
And the competition in China for pneumatic is limited. Pneumatic is a pretty complicated component. In past 20 years, we just saw so many players out of the market. The first year at entered in China market of pneumatic in 1998, there could be more than 2,000 local China players.
But hundreds, even more than 1,000 players have out of the market. There just had to around 300 to 400 pneumatic players in China currently. And past 10 years, even have limited new player entered in pneumatic market in China. All of them have out of market and bank drop. So basically we say, pneumatic industry, including global market, it still is in consolidated. Big players always will be bigger. Smaller one cannot survive.
Competition in pneumatic in China still could be SMC, Festo and AirTAC. And Festo is a private company. They don't have too high pressure from shareholders. So they have pretty conservative pricing stage. So we say pricing leaders in China pneumatic market still could be SMC and AirTAC. Once those 2 players have no aggressive pricing, the market price could be pretty stable.
And Linear Guide market, it could be a little simpler than pneumatic. And we still find so many local China companies want to enter in Linear Guide market. So that's really why in past couple of years, even we could produce Linear Guide much earlier than what we did.
But we still want to find a better way to design and produce it, then find the lowest cost to produce it because we expect AirTAC, the quality we could compete with international or Taiwanese competitors. But production cost, we prefer to compete with local China players because eventually we still have to compete with local China Linear Guide players.
The next question is from the line of [ Kenny Chen ].
I got a couple of questions for the results. And the first one is, if I may have lost the QA before, but I just wanted to double check what's your Linear Guide's internally using external revenue ratio in last year? And how does such ratio changing in 2022?
Linear Guide revenue in 2021, just around RMB 140 million. Percentage you can calculate. And we expect we could have RMB 500 million in revenue in 2022 from Linear Guide.
Yes, I just wanted to double check what's your external revenue contribution. So it's just RMB 500 million and some will be used internally, right?
Revenue just for external, internal cannot take you to revenue for the consolidated basis.
Sure. Okay. Got it. And the other question is regarding depreciation amount and year-on-year growth in 2022, do you have any idea now?
It still could be higher. The whole year expenses still could be higher than 2021. And -- but the growth number will be lower than 2021 because we don't have to spend such high CapEx in 2022 than 2021.
The next one is coming from Narci Chang.
I just want to understand your seasonality a little bit better. In the past few years, typically, your revenue kicked in second quarter. But you mentioned from a year-over-year perspective, you see a very backend-loaded year. So I was just wondering whether we are still going to expect similar seasonality that revenue to kick-in second quarter or do you have a different view on that?
Traditional synergy for pneumatic second quarter could be the peak than third quarter, fourth quarter have meaning to have single-digit decrease quarter-to-quarter. Fourth quarter always was the lowest quarter in the year.
And in 2022, it's very difficult to say because for pneumatic second half could be better than first half. And in addition, we could have much better revenue contribution from Linear Guide second half. So it's very difficult to tell the synergy of AirTAC businesses for 2022.
Okay. May I know why you think the pneumatic demand will be stronger in second half? You mentioned about electronics recovery. But typically, you also say your order visibility is very short. So just wondering like what gives you the confidence in second half, revenue will be higher than first half?
It's just our prediction.
Okay. I think we are approaching the end of -- we will take one more question from the floor. Operator, do we have any more questions?
Yes, this is the last question in the queue, and it's from the line of Johnny Chen.
Hsiang, I'll make this very quick. I just wanted to double check. Historically, when China market or the consumer sentiment of the market corrects, do you see that there is usually a big impact to your overall business operation?
Pardon?
So usually, when the Chinese consumer market, so consumer purchasing behavior changes, is there usually any impact or whatsoever in terms of your overall business operations, like do you see that there typically will be a very sharp decline or actually the corporates actually looking to take the opportunity to expand from -- given different horizon or different scenarios?
Okay. Basically, the impact could be pretty limited. And we -- just for customers' production process. And even spec industry, the whole demand was decreased, but we still can get issues from other competitors to support our business growth in this industry.
And we have pretty diversified industry as partial. And once we continue to launch more new items, we still can diversify each segment's impact. So basically, if the non-income issue is not too severe was worsened, we think the impact could be pretty limited.
Okay. My just one quick follow-up there, in terms of the overseas exposure, do you have any plans to expand into overseas exposure by targeting more clients outside of China?
Okay. Even 93%, 94% of our revenue come from China. But the potential revenue growth in China is still pretty big. And we also have divided our system to be China and non-China sales team. The team leaders were so different, each of them have to do their best. And non-China business, we still want to improve it aggressively.
However, pneumatic is an industrial component, so many customers that still believe Japanese made, European made, Chinese made. So we still have to take some time to convince more non-China customers, at least good enough.
And we still will set up more sales services, just sales offices and recruit more local sales people, attend more customers in iteration to improve our credit and reputation. And the progress, it could be better and better, just back 10 to 20 years ago in China.
In that time, we even have to convince local China companies, here it's good enough. And just in past 10 years, we have better progress. So maybe a couple of years later in non-China business, we still can have much better progress than past couple of years.
Okay. Thank you. So Hsiang, do you have any closing remarks?
No, it's good.
Okay. All right. Okay. Thank you, everyone. Thank you for the call. Thank you, Hsiang. Okay. This concludes the call here. Thank you. Bye.
Thanks, Ally. Thank you, everybody. Have a good day. Bye-bye.
Thank you, everyone. This is the end of the conference call today. Thank you for joining. You may now disconnect. Enjoy the rest of your day.