Qisda Corp

TWSE:2352

Earnings Call Transcript 2024-Q3

[Operator]

[Interpreted] Qisda Corporation Investor Conference 2024, the Third Quarter Results. I'm IR of Kista Vincent. This conference is chaired by Chairman, Peter Chen; and President, Joe Huang; and CFO, Jasmin Hung, Co-Chaired by GM of each business group; GM of Information Technology Business Group, Daniel Hsueh; GM of Commercial and Industrial Business Group, Yuchin Lin; GM of Medical Business Group, Harry Yang; GM of Business Solutions Business Group, Joshua Tzeng; GM of Networking and Communications Business Group, April Huang. This conference should take 1.5 hours.



Agenda is as follows: Jasmine will bring us the third quarter of 2024 financial results. And our Chairman, Peter and President, Joe will bring us business update and outlook, followed by GM of each business group to bring us highlights and the fourth quarter outlook, and we will enter a Q&A session. You can use the question sheet. [Operator Instructions] [Interpreted] Before we commence, we want to remind you the safe harbor notice on Slide 4 as the forward-looking statements are subject to risks. Please spend some time to read through Slide 4. Thank you. Now let's pass the ball over to Jasmin to give us the third quarter results and highlights.

[Chiu-Chin Hung, executive]

[Interpreted] Hello, investors. Good afternoon. I am Jasmin Hung. Welcome you to come to our third quarter investor conference. First, I will bring the business results of the third quarter. Before we begin, let's briefly go through Qisda Group information. Qisda is a global technology group with 4 major industries: information technology, medical and smart business solutions, AIoT and networking communication. We have more than 40-year history, and we have gone public for 28 years. Capital, NTD 19.7 billion.



Yesterday, our Board has deducted 2% treasury shares. Capital dropped to NTD 19.2 billion. And we have won many international and domestic awards. In 2024, we have won 6 consecutive "Best Companies to Work for" award and consecutive 2 years AREA award and Finance Asia, "Asia's Best company". And global presence, we have designed manufacturing and sales R&D services, manufacturing sites located in Taiwan, China and Vietnam. And we have more than 200 location worldwide sales offices. Our R&D centers focus on Taiwan and China, and we have more than 26,000 employees worldwide.



The first 3 quarters 2024 revenue reached NTD 147.6 billion. Revenue breakdown by area, Asia, 54%; America, 27%; Europe, 18%. In the business group, the green blocks, IT original business reached NTD 81.4 billion. Major contributed from displays reached NTD 55.7 billion. We are ranked #2 in OEM worldwide. And second, we have projectors. Purple blocks are HVA business groups. Medical reached NTD 18.8 billion year-to-date. And we have BenQ Hospital located in Nanjing and Suzhou, and we also provide medical management consulting services. We have Equipment & Consumables and Dialyzers. For AIoT, BSG Group reached NTD 22.4 billion.



The entire deployment locates in IT intelligence partner. We have AI computing, cybersecurity, edge to cloud integration and digital transformation. OT intelligence partner, we have green energy and automation and industrial computer and OMO solution.



NCG revenue reached NTD 15.8 billion. We have LAN/MAN, wireless broadband and digital multimedia and system integration. And we also have other banking materials we have functional film, advanced battery material and polarizer. And Qisda's major investment, as we all know, Darfon, Topview and AUO. And in the past 2 years, we also invested in Norbel Baby, which is also called Ding Ding Drug Store and RapidTek, low earth orbit satellites.



The third quarter financial results. First, in the third quarter, revenue and profit in this year grew on QoQ basis. The third quarter revenue compared to last quarter is growing. Revenue reached NTD 50.8 million, up by NTD 0.9 billion, up by 2%. Operating income, NTD 1.25 billion Q-o-Q, up by NTD 0.06 billion. Profit attributable to Qisda NTD 1.05 billion. EPS, NTD 0.54, up by NTD 0.2. Gross margin continued to grow, reached 16.8% QoQ, up by 0.1 percentage point, hit highest in 20 years, and we have surpassed 16% for 6 consecutive quarters.



Operating income margin reached 2.5% rising for 3 consecutive quarters. Revenue in IT original businesses. Revenue reached NTD 28.8 billion QoQ, up by NTD 1.5 billion, up by 5%. Among then contributed mostly from display. Revenue grew 5% QoQ, not only revenue, gross margin, OP income margin and OP income amount grew on both YoY and QoQ basis. HVA business revenue reached NTD 22.9 billion, up by NTD 0.1 billion remained flattish. Medical slightly grew by 1% QoQ. BSG, up by 5% QoQ. NCG decreased by 13% QoQ.



Individually, Medical, gross margin and op income margin slightly decreased on a QoQ basis. BSG -- gross margin, op income margin and op income amounts increased on a QoQ basis. NCG, although revenue dropped 13%; however, gross margin and op income margin and op income amounts increased on QoQ basis. The third quarter year-to-date revenue reached NTD 147.6 billion, down by NTD 5.4 billion YoY, down by 4%. In IT business, especially Display and Medical, in the first 3 quarters are on an upward trend, mostly affected by NCG and BSG. NCG still in the inventory digestion phase, revenue dropped by NTD 5 billion.



BSG affected by overseas subsidiary revenue drop. Therefore, we can see display revenue accounted for the entire Qisda Group revenue is high. Revenue reached NTD 55.7 billion, up by NTD 3.6 billion, up by 7% YoY; not only revenue, group margin, OP income margin and OP income amount also grew on a YoY basis. On September 23, our Board approved a tender offer to acquire 13.95% equity Norbel Baby at NTD 175 per share, aiming to enhance our presence in medical and retail channel market and the tender offer is still ongoing. Now let's take a look at consolidated statement of comprehensive income. Revenue reached NTD 50.7 billion, up on -- increase on QoQ basis, up by NTD 0.9 billion, up by 2%.



Group margin, 16.8%, up by 0.2 percentage point YoY, up by 0.1 percentage point. OP income, NTD 1.25 billion, up by NTD 60 million, up by 5% on QoQ basis, down by NTD 0.1 billion YoY. Non-OP income in the third quarter is a positive number. The second quarter is also positive, up by NTD 42 million QoQ compared to last year, down by NTD 0.57 billion. This is because the third quarter last year enjoyed a one-off disposal. The entire third quarter net income attributable to Qisda reached NTD 1 billion, EPS NTD 0.54 compared to the second quarter, up by NTD 390 million compared to the same period last year, EPS down by NTD 0.07, down by NTD 0.2 Q-o-Q.



Let's take a look at consolidated statement of comprehensive income. Third quarter year-to-date revenue, NTD 147.5 billion, down by NTD 5.3 billion, down by 4%. As aforesaid, this is because of NCG and BSG performance. However, gross margin, 16.5% compared to last year, the first 3 quarters, up by 0.2 percentage point. OP income, NTD 3.5 billion, down by NTD 0.7 billion. This is because of revenue dropped overpowered gross margin increased amount. Also the operational expense, we are suffered from increasing commodity price and freight change and warehouse rents.



Non-OP income, NTD 333 million compared to last year, NTD 1.3 billion, down by NTD 1 billion. That is because of last year, the first 3 quarters, we enjoy gain from some events. Net income attributable to Qisda, NTD 1.9 billion, down by NTD 0.57 billion. EPS, NTD 1 compared to the first 3 quarters last year, down by NTD 0.29 Y-o-Y.



Let's take a look at consolidated balance sheet highlights. At the end of September, total assets was NTD 199.2 billion compared to last quarter, NTD 195.8 billion, up by NTD 3.4 billion. This is mainly coming from the inventory level increase up by NTD 2.6 billion. This is to prepare for the fourth quarter.



Let's take a look at cash and equivalent, NTD 24.3 billion. And you can also see other financial assets current NTD 3.1 billion. This is because 3-month fixed deposit is defined in finance. In total, Qisda cash and equivalent reached NTD 27.4 billion, remained flattish on a Q-o-Q basis.



Financial debt, up by NTD 8.2 billion. You can look at the other liabilities down by NTD 4.4 billion and because September is usually when we issue dividend. So this goes to the dividend. Second, we have mentioned inventory NTD 2.6 billion and repurchasing treasury share, we spent NTD 0.7 billion compared to last year's same period. Total assets up by NTD 10.2 billion. This is coming from the cash and equivalent up by NTD 3.7 billion, partially used for M&A and our capital allocation arrangement and inventory up by NTD 3.1 billion.



Also our property, plant and equipment, up by NTD 1.6 billion. BenQ Material and BenQ Hospital has planned tangible assets for future operation. For intangible assets, up by NTD 1.1 billion. DFI and MetaAge has performed M&A. That was the reason. And financial debt up by NTD 12.9 billion. Also, the increase is because of the capital allocation arrangement as before said. Although inventory level increased, however, inventory turnover remained the same, 88 days, account receivable turnover 74 days, cash conversion cycle remained around 3 months.



Okay. Let's take a look at financial trend, quarterly trend. Q-o-Q performance let's take a look at revenue has risen for 3 consecutive quarters. It's growing quarter-by-quarter. Other than revenue, of income, grew from NTD 0.87 billion to NTD 0.93 billion to NTD 1.19 billion to the third quarter, NTD 1.24 billion, growing quarter-by-quarter. Gross margin remained around 16% and in the third quarter, 16.8%. Op income margin, around 2% has grown since the fourth quarter last year. Now the third quarter this year is 2.45%. Gross margin reached 16.5% yearly. OP income margin 2.28%. This is because of the first quarter performance was low. Financial trend, the third quarter on Y-o-Y basis revenue around NTD 50 billion compared to last year, slightly grow. OP income slightly decreased on Y-o-Y basis. Gross margin, similar to quarterly growth aforesaid.



Next slide, this is business group revenue trend. Let's look at high value-added business group. In this quarter, NTD 22.9 billion compared to the second quarter, slightly up by NTD 0.1 billion Q-o-Q and remain NTD 20 billion scope. Medical, other than the first quarter this year, impacted by Lunar New Year and after that, it has returned around NTD 6 billion. The third quarter reached NTD 6.5 billion. BSG revenue reached around NTD 7 billion. The third quarter, NTD 7.7 billion. NCG continue to digest inventory at around NTD 5 billion scope. IT high value-added business, the third quarter reached NTD 3.8 billion. IT Original, revenue reached NTD 25.1 billion, which was the highest among these quarters.



Next slide, you can refer to the financial highlights. We have revenue portion, revenue amount and also gross margin range in these business groups. Medical, the third quarter gross margin range at around 20% to 25% BSG at around 20% to 25%, NCG was 15% to 20%, IT_HVA at 20% to 25%. IT Original was 10% to 15%. In general, most of the business groups are at 20% to 25%. The gross margin only had minor changes on Y-o-Y and Q-o-Q basis.



Next slide, you can refer to the revenue breakdown details.



And next slide, which was the Qisda Group's listed company results. IT, we have DataImage and SIMULA. The first 3 quarters revenue down by 2-digit decrease, net income also down by 2-digit decrease. Medical, we enjoyed better performance. We have BenQ Medical Tech, ConcordMed and DIVA. BenQ Medical Tech and ConcordMed revenue grew on 1-digit growth. Net income also increased. DIVA, revenue down by 7%.



Net income up by 18 million hit highest in the same period in 9 years. BSG, our listed company, we have DFI, AEWIN, Ace Pillar, Partner Tech and MetaAge. In the past year, the stock price went up for AEWIN and Ace Pillar. Revenue and net income went upward trend and hit highest in the same period in 2 years. DFI revenue slightly dropped by NTD 0.4 billion, down by 6%. Net income down by NTD 60 million.



MetaAge, we also mentioned before. Revenue has the largest decrease among BSG, down by 11%. Net income also dropped by 55%. This is because of the overseas subsidiary performance, NCG, IDT revenue up by 39%. Net income up by 56 million, up by 49%, hit highest in the same period in 3 years. Alpha and Hitron revenue down by 2 digit. Net income also decreased. BenQ Material revenue went up. Net income down by NTD 0.2 billion. It was affected by polarizer performances. This is the third quarter financial results.



Next, let's pass the ball over to our Chairman, Peter, to share our business update and outlook.

[Peter Chen, executive]

[Interpreted] Okay. Hello, investors and friends from Press Media. I think everyone who sits here must pay close attention to the ongoing intensive U.S. presidential election. Now look at the number, it is not decided, but it seems like Trump is in a good position. And now we begin to feel worried. If Kamala is to win this election, then the change can be predicted because she will follow the Biden 4-year policies.



However, if Trump is going to be elected, it reminds us to the face before the pandemic. Trump has a special characteristic. He has the gut to speak. He also has the gut to put in action, like the Trump war, the U.S.-Mexico border war. He really built it. If he really win the election, the supply chain globalization speed, the tariff, the trade barrier and trade protection, the trend of those elements would be hugely impacted, not only affecting a lot of countries, including Mexico due to the NAFTA, now known as USMCO, the tax-free policy.



Trump might set very high tariff toward Mexico and semiconductor, how would Taiwan as the heavy weight of semiconductor industry, how would us be impacted? And it would also impact next year's plan. In the past years, we have been prepared to respond to any changes. In China, the manufacturing site in Suzhou, it is growing prosperously. 4 years ago, 2020, February 28 in Northern Vietnam, our factory begin to mass produce and the operation is smooth. Adding the factory in Taoyuan, our own factory. We are fully prepared. We have complete capacity and integration is also in place.



We are confident no matter what kind of change is to come, under the geopolitical conflicts, we should be able to respond to all kinds of impacts; this is inevitable. So because this is ongoing, so I just put some of my own thoughts. This is not necessarily accurate, but I think overall, this is the trend because swing states hasn't finalized, and the result should come out soon. Maybe before we end this conference, it would reach 270 votes and the election would end.



And second, in the past quarters, we have analyzed and communicated with investors and friends from press media in past quarters. The first 3 quarters were online investor conference. Today is face-to-face physical investor conference. We can offer more detailed analysis and in-depth communication. This year, we announced our financial statement in the third quarter. And after this investor conference, we will also have further communication in the later press conference.



In the past 3 quarters, this year, we hope to see growth quarter-by-quarter. Our CFO also mentioned our revenue has reached the goal. The first quarter, NTD 46.8 billion; second quarter, NTD 49.8 billion; the third quarter, NTD 50.8 billion growth quarter-by-quarter. Profit grew from NTD 0.1 billion to NTD 0.3; the third quarter, NTD 0.54 billion. The fourth quarter, it is certain that revenue would grow up. The profit, we don't have enough to confirm.



And in October, our revenue is around NTD 18 billion. In November, it should be better than October. And the fourth quarter should have better performance than the third quarter. We have confidence in this. And we will further put effort in profit growth. In our past deployment, you might feel worried. In 2022, we enjoyed good performance on revenue and profit. However, 2023 and 2024, it seems to be sluggish. This is because of the pandemic. This is the external factors.



During pandemic, in general, people may be worried about the supply chain and leading to double booking or triple booking, it is hard to estimate the real demand and delivery volume. In 2022, revenue reached to NTD 239.8 billion. EPS, NTD 4.2 billion. 2023 to 2024 begin to digest inventory. Each industry due to material deficiency or key component deficiency leading to difficulty in satisfying orders, especially under overbooking situation, inventory timing has a gap than the material providing.



So from last year, it is pretty apparent in IT industry, we have seen a decrease, lower demand and high inventory level. That is the first wave of impact, following by working from home situation during pandemic era. So in the past 2 years, IT product, display and PC notebook the recovering speed is slow, but slowly, slowly coming back. The third quarter, IT products is gradually picking up. It is not as good as we expected and the second wave of recession, industrial computer and networking products, especially NCG, last year's second half, it was dropping rapidly.



The first half also dropped, but the scope was not as good as the second quarter last year. I believe the fourth quarter should be the trough. And January next year, NCG and AIoT, those 2 business group that has delayed response should be able to digest inventory and the demand should also come back. How about next year outlook? Some of friends from press media before this conference begin also asked me, what is the keyword for next year for economy? They also did that in the previous years. The word I choose was different from others. Do you know which word I choose? I choose soft. Why soft?



First, soft landing, because high inflation rates should be suppressed by high interest rate. This is economic theory, resulting in soft landing results. If it is not operated smoothly, what would be the result? The consequence is hard landing, just as crushing, air crushing. In the past years, we have performed soft landing policy. The recovery speed is not fast. However, next year, we should see the outcome of soft landing. We should see the upturn in the next year. So first, soft landing, echoing the word I choose, soft. The second reason, as you all know, the hardest topic is AI. The concept stock, basically as long as it is involved in AI. it is not difficult to gain investors support.



The major three elements. First, computing power. Talking about AI, you must have these three elements, then you're qualified to talk about AI. First, computing power. Take NVIDIA CPU, for example, the computing power increase or high computing computer, establishing high computing power servers in clouds or cooling solutions. Those are so-called computing power. TSMC providing GPU or NVIDIA are having strong computing power. Second, data with big amount of data, we can establish AI. The bigger pool of the data, bringing out bigger effects. Go on Internet, you can retrieve data from the worldwide through data mining, you can have useful information, useful tool. This is so-called data center, the effect of big data.



And of course, you have to have good data mining technology. Through the development of Internet, it will be more and more powerful. And the third element, algorithm. Actually, you may not have overall knowledge about algorithm, but it's actually just software. You have to have algorithm to have clear information other than just statements. Algorithm is actually the exemplification of software. For AI to implement to each field, we have to rely on software upgrade through smart solution to implant software to move toward intelligence development.



I am worried about software development in Taiwan. In the past, we're strong in hardware development. We're ranked #1 worldwide in hardware development. However, software, not really. On the contrary, India focus on software development, Wipro, Tata or Infosys, that is a completely different world. So software is the third key element for AI to development. Taiwan doesn't have the environment for software development. For example, how much the software valued. Not many people in Taiwan has the ability to decide the value of the software. That also lead to slower development in software in Taiwan.



Echoing the reason why I picked the word soft. Taiwan is supposed to acknowledge how full back we are in software development. Software is profitable. How can we change the environment through governmental policy to boost talent to actively deploy all the necessary resources and keep up the development, so that was the perspective for next year. We hope to enjoy the result of soft landing. Each industry can enjoy high demand, can see revenue growth and get rid of the haze in the past years.



In 2022, revenue reached NTD 239.8 billion. In 2023 and 2024, around NTD 200 billion, it was not good. And this is to clarify. And we will continue to put effort after two years of regulation phase, we hope to see the overall comeback. And please rest assured, in the past, we have distributed original IT business, in transformation into high value-added business group, we have good base.



In medical, starting from next year, it should grow faster and faster. For hospital to go public, we have filed the application and hope to receive good news recently. Development in the hospital is important for Qisda Corporation. And we want to expand one hospital to another. And this strategy is to help us to be the leading company among the same industry. To expand a hospital overseas, it is not easy. We have to find a pretty good learning curve, and we hope to expand medical device development as well. And next year, we will also have bigger action in medical development. This year was impacted by post-pandemic effects. And also the overall environment in China is also suffering. It is not as good as we expected, which also affect the operation in the hospitals.



In the beginning, I was also optimistic. And because in the hospital, many items are at own expense. And we also offer high-end services like high-end health check or high-end asthmatic medicine. And also, those are not elastic demands. That is the reason why we only enjoy small scope of growth. It is not as apparent as 2022. We did not see the growth as we estimated maybe around 10% to 20% growth that did not occur.



However, in general, hospital in China, everybody suffers. However, Qisda Hospital management is still robustly developing. So please rest assured, compared to other hospitals, we are distinguishedly different from them. Hospital arrangement would allow us to have outstanding performance than others. AIoT related to computing power, the group that is benefiting from computing power that also include Qisda Corporation. We're also involved. First, Ace pillar, manufacturing robot arms.



The stock price reached NTD 134 it has in-depth development for many years. AEWIN begin to ship for high-end server and 2-phase immersion cooling solutions. If you have attended our exhibition, you can see our product, and it is also begin to ship. So computing power, that was our performance. Second, AIoT implementation. Currently, it is still in computing power stage, but 9 to 10 years ago, we have acknowledged the importance. smart hospitals, smart plant, smart store. If you visit our BenQ Hospital, you can see smart hospital.



If you visited our factory in Taoyuan, you can see smart factory. And we are also helping the entire industry to implement AI into stores or hospital, our team can help. Smart Store partners and La Fresh are focusing on providing the services. We're establishing all kind of smart field implementation, application of AI. So we can do unmanned factory. We can do unmanned store. This is the value of AI or drone, where in national teams, it should apply AI technology.



On the vehicle, we have autonomous ship and drone and also robot dog used in armed conflict or disaster detection. We have seen the opportunity. So Qisda Group, you can see that we have solid ground for AIoT development. In the past 2 to 3 years, we enjoyed more than NTD 30 billion revenue. In NCG, it is about infrastructure. Current Internet speed is not enough, relying on 6G or Wi-Fi 6 or Wi-Fi 7 to solve the issue of slow speed or even lag or insufficient broad width, but that is not enough. We also need to have low earth orbit satellites for the overall coverage.



And we have RapidTek launched a satellite already, whomever dominate the space technology will secure the market share. We have planned in the past. However, it takes time to bring out the effects per the development pace of each industry. In the past 2 years, each industry is digesting the inventory, also struggling through high inflation rate.



And I believe next year, we can see a good effect of our previous efforts. Hopefully, we can get rid of the haze of the past 2 years, and we can respond to all kind of external factors. And after rain comes the fair weather. Thank you. Next, I will pass it over to Joe. And if you have any question, you can hand it to our staff, and we will answer them in the later Q&A session. Thank you very much.

[Joe Huang, executive]

[Interpreted] Hello, good afternoon. I think our Chairman has given us pretty detailed explanation. I will simply summarize the highlights. First, I think many of you pay close attention to the presidential election. The inductor has jumped from likely to very likely to most likely. And I think Trump has almost reached the goal. And in America, both represent different images. Harris would gain support from those who's eager to stay the same and remain stable and those who support Trump might be thirsty for changes.



And for the change, not only the U.S., the global supply chain would also experience huge impact and change. And the overall economic environment, U.S. soft landing and interest rate cuts are progressing per our expectation. The future trends are promising. And in the future, display has around 2% scope of change. For IT, we enjoy pretty good performance and our growth should be more than our op.



And from the first quarter to the fourth quarter, it should grow quarter-by-quarter. The fourth quarter should have stronger performance than the third quarter. And BSG and NCG performance did not meet our expectation. In the fourth quarter, we can expect BSG and NCG to have better performance, especially first quarter next year, NCG should enjoy orders from emerging market. I won't explain in detail. Medical, BenQ Hospital is stably growing and filed application to go public.



We have experienced 7 months of in process, and it is in our estimation within 9 months, supposed to be normal. Even China Security Regulatory Commission should review our application, and we need to file document to CSRC and Hong Kong Exchange. Norbel Baby Incorporation is also in line with our expectation and plan. And this is my brief assumption. On October 18, we held supplier convention. We have more than 700 suppliers.



We talked about 2 topics. First, resilience. The image of change for Trump is echoing to this concept. In China and Vietnam, we have distribution, not only Qisda, Alpha Network is also planning. As long as our client has demand, our factory in Vietnam could satisfy them. 5 years ago, we have established plants and has been in mass production and could produce 400,000 capacity. And if our client has a request, we can have more than 50% production in Vietnam.



And now since Trump is likely to win, this ship might go faster; and made in U.S., if our client requested us to manufacture in the states, we can also satisfy this need. And the manufacturing services is not just for Qisda or just for Alpha Network. It is for the entire group. They can enjoy the Vietnam factory capacity. Our grand fleet could enjoy the manufacturing resources in Vietnam. And we have also resources in the United States for manufacturing. This is the resilience part.



Now we're talking about sustainability, ESG demands from the governments or from international regulations. There are 2 topics. In 2030, carbon reduction should reach 30% in the category 3 for our suppliers. And in 2022, we have our future plans. In 2030, carbon reduction should reach 30%. In 2040, we should use green energy 100%. And in 2050, we should reach net zero carbon emission, reach carbon neutral. 2030 is approaching. So this is our first stage goal.



Carbon deduction reached 30%. So in 2023, we have carbon inventory and carbon reduction curriculum, and carbon inventory is to be finished in 2024, and we will initiate a carbon deduction reach 30% goal. And this is our effort in resilience and sustainability. If Trump is to be elected, we're fully prepared. So don't worry, we're fully prepared to respond to the entire situation; not only Qisda, also the entire supply chain.



And for short chain, in the past, manufacturing shipment is in a global scope. Now if our client requests to manufacture in U.S. or India locally, we're fully prepared for that kind of demand. And the trend, I've mentioned, it should grow quarter-by-quarter. So this is my summary. Next slide. Next slide let's welcome GM of each business group to come to the stage.



Let's welcome GM of each business group to bring us the highlight and outlook. If any of our participant has any questions, please hand the question sheet to our staff near you.



Let's pass the ball over to our Chairman, now our President. All right. Next, let's welcome GM of each business group to give us the outlook and highlights. Daniel,

[Daniel Hsueh, executive]

[Interpreted] Hello, everyone. I'm Daniel Hsueh, I'm GM of ITG. Here to bring the third quarter highlights and the fourth quarter outlook. In the third quarter, global display market hasn't seen strong demand. Domestic and commercial market remained flattish and domestic basic model enjoyed better performance. And in the market, we did not see good performance as our expectation. However, display sales in the third quarter grew compared to the second quarter. For the fourth quarter, display market sales are expected to be unchanged for domestic market. OLED model is anticipated to grow continuously. Although our client from commercial market have digested inventory resulted from overly optimistic assumption, we will pursue double-digit growth rate in the fourth quarter. Next, let's have Yuchin Lin to bring the performance of CIG.

[Yuchin Lin, executive]

[Interpreted] Hello, investors. I am Yuchin Lin. I'm responsible for CIG. In the third quarter highlights, in the past, we have some new product, gradually launched and enjoyed pretty good market demand and revenue and profit grew on Y-o-Y and Q-o-Q basis. For tractor, our clients in the third quarter, mostly for tenders for urgently chasing materials and manufacture to fulfill clients' need. For commercial and industrial need for new product, we enjoyed pretty good demand. So revenue grew in double digit compared to the same period last year. And automobile customers in the third quarter, demand momentum went beyond our expectation. Revenue grew in double digit compared to the same period last year.



Looking forward to the fourth quarter, projector remained the same. Our clients are mainly demand for tenders and urgent orders. For industrial and commercial use, in the second and third quarter, demand went up. And in the fourth quarter, it has changed to conservative trend. Our client will observe the market demand and make some change. And demand for automobile industry continued to grow in minor scope. other than some new model mass production in the fourth quarter, we also budgeted a new expenditure for the fourth quarter preparing for next year for mass production models to augment our equipment and resources. Next, let's have Harry.

[Harry Yang, executive]

[Interpreted] Hello, everyone. I am GM of Medical Business Group, Harry Yang. For the third quarter, on a Y-o-Y basis, revenue grew 50%. Medical devices up by 10% and has hit highest in the past years. And in the third quarter, we have new member, AREA Biotech enterprise manufacturing endoscope. And we have new deployment and new incorporation plan. And in the previous quarter, we have mentioned the centralized procurement in China, and it is in progress. and under climax phase.



And in India and China, we have localized manufacturing medical devices. And looking forward to the fourth quarter, other than the original medical devices, the highlight should be our tender offer of Norbel Baby, Ding Ding Drug Store, we are holding 26.72% and our goal is to have 40% share of Norbel Baby. And we hope to achieve the goal in the fourth quarter, and everything should be in accordance with Fair Trade Act. And before the tender offer, before consolidating Noble Baby, we have initiated business already. And in the future, Ding Ding Drugstore would have new forms. In the early stage, it has pretty strong performance in maternity and baby products. Now it is undergoing transformation. The first new store would be shown to everyone in the fourth quarter, and we have new form of stores such as CareSource, transformation of traditional drug stores and cosmetics.



And after investing in Ding Ding Drug Store, we also transform medical devices such as hearing aid and healthy supplement through the policy of channel ahead, we established store in-store in Ding Ding drugstore for the integration. And this is the outlook of the fourth quarter. Thank you very much.

[Operator]

[Interpreted] Thank you, Harry. Next, let's have GM of NCG April, April is also the President and Chairman of Alpha Network.

[April Huang, executive]

[Interpreted] Hello, everyone. NCG from the second half of last year, we have underwent regulation and the 2 major products that has strong drop resistance. First, data center, we have complete customer base, and those have distributed in India market. And for those has weaker presence or incomplete customer base that would suffer from the regulation. And we anticipate to have a period of struggling.



But among the period, we have some actions. And we have also shared and reported about what we have done. First, actively developing new markets and we have seen the results. This year, we have established subsidiary in India, and the new product should be in mass production phase in December. And we are also undergoing constitutional regulation, especially in China and Vietnam, we have implemented factory integration, and we believe this action could boost better operation efficiency.



And this is for long-term goal. In the past year, our estimation is that we can see a comeback in the second half of this year. However, even until now, the entire NCG performance has not seen fully recovery. I believe the third quarter is the trough, not only the revenue and profit are on a downward trend on a Y-o-Y basis. Among NCG Hitron, starting from June, it has single month in the third quarter, single quarter has enjoyed growth on a Y-o-Y basis. So we believe in the wideband products, we can see the recovery.



And other than the economic environment, Hitron, we've also explained in the past, wired broadband product is undergoing technology iteration. We have brought up DOCSIS 4.0. It should be in mass production phase in December and should bring pretty good contribution in next year's revenue. Hitron is the leading company in DOCSIS 4.0. And next, IDT, the subsidiary of Hitron has brought out pretty good performance this year.



And the fourth quarter is traditionally the peak season for SI industry, and we expect to see the growth after the incorporation of IDT and Hitron. Alpha Network focus on switch development and among them, enterprise use switch is the highlight. Although the broadband product recovery is more apparent. However, we think it might take a longer time for enterprise switch to come back.



But I do believe it should pick up gradually. Alpha network, the major growth momentum will be contributed by the new products in mass production phase in December and next year enjoying climax. And the fourth quarter is supposed to have better performance than the third quarter. But compared to the same quarter last year, we might not be able to surpass the performance of the fourth quarter last year. The reason is in 2023, the fourth quarter, our clients in Switch has the arrangement to change their plans from China to Vietnam.



So they have prepared 3 months buffer for that change. So other than that factor, we believe we can have better growth momentum. So we have explained new market growth driver. We also believe that we have experienced the trough. Next year, we have new market growth. For NCG, we hold the prudent and optimistic attitude.



Thank you, April. Next, let's have Joshua. Joshua is appointed to be the GM of BSG on November 1.

[Joshua Tzeng, executive]

[Interpreted] Hello, investors and friends from press Media. I am GM of BSG. The third quarter compared to the second quarter revenue up by 5%. Group margin reached 21.3%. For AIoT, we have 3 major pillars: information technology and the second, operation technology, OT intelligence and the third, OMO online and offline integration. For IT intelligence, we have MetaAge focused on ESG, cybersecurity and AI. And recently, AIoT is the highlight.



So to emphasize the cybersecurity and provide services and software is our highlight. This is IT. For OT, we have DFI. This is in edge computing, industrial computer company, the BB ratio has over 1% and seeing the recovery in the market. And this year, we have seen gradually increase in revenue. And we've also seen the infotainment, gaming and kiosk demand. For IPC, our B ratio also above 1 also returned to its normalcy. And AEWIN, cybersecurity and AI server providers, this is the focus of AI development.



And the third quarter enjoyed the growth, have good performance. And in the fourth quarter, we have seen some rush orders. It is developing pretty good. We have advanced R&D in 2-phase immersion cooling solution. We put the M board in the sealed space. This is the leading technology. we have some POC server to be shipped. In the third quarter, we also have AI server shipment. And this is the customized high-end server services. And this is also the future focus of AEWIN.



For automation, we have Ace pillar, the application of robot and plant automation. In the third quarter in Taiwan, we have key account shipment and growing stably in the market. We also invested in Standard Technology Corp., providing semiconductor equipment to satisfy the advanced process for companies such as TSMC. For OMO online and offline integration, we have partner performance this year on a Y-o-Y basis in the third quarter, up by 8.5% Y-o-Y and up by 10% Q-o-Q, returning to better performance, and we will keep enhancing the post product portfolio.



And other than that, we also expand our AI application products such as self-service kiosk. And in Europe, we also provide self-checking services from hardware to expand to software application, and we will expand to Southeast Asia market to seize the opportunity. This is the third quarter highlight. For the fourth quarter, we see the edge-to-cloud integration, cybersecurity, AI computing, new energy and smart automation and track transportation remain elastic demand.



And after I was appointed as the GM, I emphasize on the synergy of BSG in both investment and management perspective. We emphasize on the management of our overseas subsidiaries. We will emphasize on those companies' synergetic effects. So all the GM has already given pretty positive results. Now I will hand over the microphone to Peter.

[Peter Chen, executive]

[Interpreted] Okay. Because of limited time, I will try my best to answer the questions one by one. So I will give a brief response to the questions. For details, I will have RGM to reply.



[Question] [Interpreted] First, the medical business group, can we reach the NTD 30 billion goal this year? And second, Ding Ding Drug Store.



[Answer] [Interpreted] First, Dingdin Drug Store is still undergoing tender offer process, and we should finish all the necessary process. It should proceed smoothly. And it might not bring contribution this year. This action is for next year's performances. And currently, it is under equity method. It is not consolidated company. So the effect might happen in the next year.



And last year, we should enjoy better performance in medical, but might not reach the goal of NTD 30 billion this year. And because of some incorporations, we should be able to see the outcome next year. And because I have said earlier, last year, performance did not surpass that in the year before last. That is because of the high-end services are at all expense, and they are not urgent needs. So it has been impacted highly. And also the overall financial environment lead to this result. And there is a term called DRG.



In Taiwan, it has been implemented for 1 to 2 decades. And in China, it has 2-year history only. And the government issued a credit. to decide a total benefit amount. And recently, especially in the third quarter, they have reduced the benefits. And of course, our operation, not just us, all the hospital operation have been affected. However, we still enjoy small scope of growth in revenue. This is not easy. In China, most of the hospital revenue in general dropped 15% to 20%, and we remain stable and anticipated to see slight growth at the end of the year. This is what makes us different from other hospital. We have pretty acceptable outcome.



[Question] [Interpreted] Next question, the dialyzer capacity.



[Answer] [Interpreted] We have 2 factories, one located in Taoyuan. The capacity is around 2 million per year to provide Taiwan market. Our demand annually is around 9 million. Our capacity is not fully in place. It's slightly over 50%. And in China, it has been in mass production phase for a while. And since this year, in medical industry, Chinese government has adopted centralized procurement approach. This is similar to the approach in Taiwan.



We have to go to the governmental platform to win the bid. And if we get the bid, we will be listed in the centralized procurement platform and all the public hospital, all the institution should go to the platform for this procurement process. In Taiwan, such as projector, we also have such platform. For those organizations, they have to go up to the platform. And we are pretty lucky. This one has been in mass production phase for less than 2 years, and we have encountered this policy change. this changed entirely. For us, it's an opportunity because we are a newcomer. And luckily, self-made dialyzer in Shanghai have been listed on the platform.



And next, we want to see how this new policy can benefit us. For us, this is a beneficial change. Most of our products could be listed on the platform. This encourage us to muscle in the market. It is difficult to estimate. After we have clear data, I could have more clear explanation. In China and Shanghai plants, the capacity I have reported in Taiwan, it is 2 million to 3 million. In China, the full capacity can reach 30 million to 40 million dialyzers.



[Question] [Interpreted] And the next question, when would partner to go public?



[Answer] [Interpreted] And in the past 2 to 3 years, it has pretty good performance. So we originally planned to have it public. But I have a personal principle. I wish to see a good EPS before it is to be listed. So it all depends on the performance in 2024. And I believe in the future years, we can reach the goal for it to go public. And the progress of hospital IPO we have also mentioned earlier, it is in progress smoothly. Our President, our CFO has mentioned because we have to go through the CSRC, China Security Regulatory Commission and Hong Kong Exchange to review our document.



And Hong Kong Exchange has a very rigorous review process, and it takes more resource from us, and we can only collaborate. But so far, it has been going smoothly and hope to see good results in the fourth quarter and should be in accordance to our original plan. And how much fund can we raised; it is difficult to estimate for now. We have to go through the entire process, after gaining some clear numbers, maybe in the next investor conferences, I could share more in detail.



[Question] [Interpreted] Next question, the overseas subsidiary inventory digestion of BSG.



[Answer] [Interpreted] And since the end of March, we have performed organizational adjustment to solve the inventory level issue in the overseas subsidiaries. And in the past 6 months, we have exhausted partial inventory level to try our best to sell the products to mitigate the cost. And in the fourth quarter, we're putting the final effort in exhausting the inventory level. And in the past 6 months, partially digested inventory levels.



[Question] [Interpreted] And next, for NCG progress in India, should we have April to answer this question?

[April Huang, executive]

[Interpreted] In India, currently, we have direct order from telecom service providers. So far, we have already received orders. And that order alone should be able to have the client to be the top 4 client of our network. And for the new order in India, we should see the outcome in December, and we want to accelerate the progress and to see the contribution of the order in December and focus on the performance in January next year.

[Peter Chen, executive]

[Interpreted] [Question] And next question, would the revenue in 2024 surpass that in 2023?



[Answer] [Interpreted] I have reported earlier, the performance should remain around the same. However, in 2025, each business group, I can say that Medical business group would definitely surpass NTD 30 billion. I have mentioned the third quarter or the fourth quarter this year, we have some incorporation activities such as Norbel Baby. And we will further have more and more among our grand fleets. And we also have enjoy growth in other product line. such as medical, medical devices. So we should enjoy faster, bigger growth.



[Question] [Interpreted] And next question, NCG is the slowest in inventory digestion.



[Answer] [Interpreted] And after the four quarter trough, it should enjoy a pickup next year. In IT, the recovery speed is slower than expected. However, it should come back gradually. And AIoT, we have also mentioned, whether it's about AI-related product, we will speed up the progress for the product to be able to go through small quantity shipment. And after reorganizing our structure and have new team to have better growth momentum, whether it's original business group or our three major business group, we should see apparent growth.



[Question] [Interpreted] And next question, in the next year, do we still have other incorporation plan?



[Answer] [Interpreted] So the strategy of Grand fleet is ongoing and will not stop. And we hope to have the goal of profit over 50%. And after that, we will not stop our pace. This year, we have some incorporation activities. In BSG, we have incorporated Transpack. That is a company has high market share, good growth margin. And in the fourth quarter, it has already contributed to the performance, whether it's high-end or basic packing solutions, it also offer all kinds of devices. And for Ding Ding Drugstore, we will expand the scope and hope to have a chain store drug. Now we have around 10,000 drug stores in Taiwan. All of them are dispersed, not like the convenience stores in Taiwan.



They are independent and localized drug store. And in the future, the trend should change. The form of drug stores is to change because of those independent and localized drug store, they have high homogeneity. And they should undergo integration and make it into a chain drug store and use the B2C localized advantages. And for the shipment and procurement and logistics of the supply chains should be integrated like Seven-Eleven or Family Marts and the concept of integration of prescribing and dispensing, we want to emphasize the principle of channel ahead. We want to actively deploying this distribution and arrangement.



And after successfully going public for the hospital, we will rapidly expand this arrangement. And we want to enlarge the gap from our opponent because of the high entry threshold and our team has already had the technique for hospital management and to reach profit and loss balance. And we want to accelerate the synergy. As you know, you should, you can only pay in cash in a hospital. This is universal. This is not a business in B2B model. So the financial constitution is good for business development.



[Question] [Interpreted] And next question where do we get the fund for the incorporation?



[Answer] [Interpreted] I should have CFO to answer this question.

[Chiu-Chin Hung, executive]

[Interpreted] Okay. First, for the IPO progress of hospital, I would like to elaborate the process. First, we submit the document. And second, it has to be reviewed, and we are currently in the review phase. And it should undergo two agencies review process. First, Hong Kong Exchange. And in the recent speed for listing application in Hong Kong from the application date to the end of review, it would take 8 to 12 months. This is the recent reviewing speed.



And in the earlier stage, it might take longer. And after that, it would have a hearing phase. And after that, we have more tasks. We would have analytics to go through the road show and the pricing process. When it's all done, we still have to observe the market situation and take everything into consideration and decide when to go public. And now it's in the reviewing phase. The waiting time is still acceptable, and we still don't know when can it be listed, and we're waiting for the authority to give us a notification. And that said, we don't have further information for pricing and how much fund can we raise. And this is the situation for BenQ Hospital IP progress.



And second question, incorporation, not only Qisda Corporation is having this activity, our subsidiaries, our second-tier subsidiaries also have incorporation activities and the fund coming from our equity fund, and now we're enjoying growth quarter-by-quarter and have replenishment in the past. And we have great ability for incorporation. And many subsidiaries are planning to be listed and to increase the fund. And we have also two subsidiaries issued convertible bond and received positive market response. And for Qisda other than equity fund, we also have some financial investment enjoying good results. this is financial investment, not strategic investment. So we will further have liquidating process. And we will also have other plan to be released recently. In general, our liquidating source coming from many channels, and we will take security and growth potential as our priorities.

[Peter Chen, executive]

[Interpreted] Okay. It is over 3:30 now, and we have answered those questions proposed and hope, we have already answered all the questions and provide satisfying answers. We will keep putting effort. As I said, we anticipate after two year regulation, we can see a better outcome in the next year. Thank you very much for participating.

[Operator]

[Interpreted] Thank you for participating Qisda Corporation 2024 Third Quarter Investor Conferences. We will upload the video file after the conference. Thank you.



[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]