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Chroma ATE Inc
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Hello, everyone. Welcome to Chroma's 2018, 1st Quarter Earnings Conference Call. [Operator Instructions]
Okay, sorry. I forgot to release the mute key. [Foreign Language]
Welcome, everyone. This is Paul Ying from Chroma for the 2018 First Quarter Earnings Release Conference Call. And in this conference call, I'm going to conduct in English for the presentation, and afterwards, we're going to give you access in either Chinese, Mandarin or English. And we will take your question and answering in the opposite -- same kind of the language.
So let's start it with the first quarter earning release. We have already set the -- those presentation materials on the website at 2:00 p.m., this afternoon. So please welcome to go through the website to grab the -- those presentation material.
Please go to the slide #10 and this is the very first page for the first quarter consolidated income statement. In this page, you can easily see that the total top line for Chroma consolidated numbers is approximately TWD 3.5 billion. Compared to last year first quarter, this is a 25% growth.
If you look at the detail of those top line, you can see that for the Testing and Equipment business, this is a double-digit growth, which is the 12% and it's pretty satisfied by the top management.
And secondly, if you look at the consolidated sales of MAS, you can also -- can see that compared to the last year first quarter TWD 80 million, we made approximately TWD 600 million at first quarter of this year, and this is the sixth time -- almost 6.5x, compared to last year.
So in there, you can see that also the economics has changed simply because the MAS portion of the sales revenue increased. So we have slightly decreased in the gross margin ratio, but the -- I think for the gross margin with growth like a 14%, which is also very satisfied by the top management.
Well for the OpEx, we have a little bit higher and if we look at the operating income for the consolidated financial statement, we can see that this is a 16% for the operating market, and also a 20% growth, compared to last year.
So overall, if we look at the net income from the consolidated page, you can see that we make 50% growth from last year first quarter, TWD 282 million to TWD 422 million. This represents a basic EPS TWD 1.06, which is a very good performance, we think.
And if we look at the next page, which is the highlight for the balance sheet, you can also see that we maintain a very high level of the cash in the short term investment which approximately TWD 6.8 billion at the end of the first quarter.
And if we look at the ROE - return of equity, for the first quarter end, this is at 12%. Whilst this is the beginning of the year, so we still believe that we can improve that quarter-by-quarter and should be like 20% last year.
And if we look at the cash flow from the operations, which is a positive, and free cash flow, although this is a negative number, but basically, it's alluded due to we put the -- a big chunk of our free cash on the investment account. Basically, it's all in the monetary market and very short-term and fixed rated for the returns. So it's a risk-free kind of investment.
Okay. This is for the -- highlight for the balance sheet -- for the consolidated financial statement. Let's look into the first quarter for the parent company operation. You can see in the Slide #12, that sales revenue is approximately TWD 1.97 billion. This is a 4% down on a quarter-over-quarter base, but this is a 10% growth on a year-over-year base.
So if we look at the bar chart, you can easily see that the last year, it's a pretty traditional kind of seasonality, first quarter low, second quarter kind of, ramping up and the third quarter with the peak and fourth quarter down to approximately the average of the year.
So we start off with a growth, compared to last year's first quarter already, and a gross margin still maintaining 52%, which is pretty satisfied by the management, and also in the target range of between 50% and up range.
And for the operating margin, for the parent company, it's 21%, it's -- we do think this is very good.
And net income reaching that TWD 431 million, and this is a 51% down quarter-over-quarter and this is also a 50% growth on a year-over-year.
And for the first quarter, the sales revenue growth, compared to last year's first quarter, is mainly coming from the Turnkey Solutions business representing a 2x or 2.4x growth, compared to last year.
And for the next page, on the Slide #13, we can see that this is a parent-only income statement. And in here, you can see that -- well the gross margin, we still maintained 52%. And OpEx, compared to last quarter, which is the fourth quarter of last year and this is a decrease. Well mainly due to the fourth quarter normally is the highest point of the OpEx spending and -- before the year-end closing.
But compared to last year, we have probably an increase in the G&A and also R&D expenses. Well mainly it's from the salary increase. In every year, we put the salary increase into consideration due to our last year's performance and also the market response. And for these few years, at least, the 2 or 3 years already, we normally have a pay raise approximately 4% to somewhere to 6%. So that's where we are, although those increase in the OpEx -- and the -- another reason for that is some of the activities for the sales revenue, due to the top line increase, we were going to pay more lump -- like commissions and [indiscernible]. So that's part of the reason for the G&A increase. So for the non-operating, and you also can see that due to the MAS growth, and also the various steady earnings from the new material, this is a very strong growth for the amount operating income.
Well another reason is for the foreign exchange loss. Last year we enjoyed -- we pretty much suffered from the -- a bit of -- on the exchange loss and this year we don't have that kind of like effect anymore. And so that's pretty much the income before tax.
And if we look at the income tax for the first quarter of 2018, it is exceptionally high. Well due to 2 reasons. One is the nominal tax rate for the Taiwan government has just released that they are going to be increased from the 17% to 20%. And that's one of the reason.
And with that reason, our accumulative tax effect on those income tax assets, that will be also accordingly changed and also the tax rate will be changed. That increase -- and that is -- those effects will be reflect on the first quarter this quarter, of 2018 in this quarter only.
And along with this year, for the future quarters and this effect will be, kind of, diluted and even to, we believe, we used to expect our tax rate, in nominal tax rate at 17%, the effective tax rate for Chroma will be like 14% to 15%. But for the 20% nominal tax rate, in that kind of situations, we're going to change that to estimations to somewhere between 17% to 18%.
So we do believe this year the effective tax rate will be in that way to change to 17% to 18% percent. But first quarter of this year will be a cumulative effect and adjusting only for this quarter.
So the net income, again, is TWD 431 million and represents TWD 1.06. So this is for the first quarter and for the financial statements.
For the balance sheet highlights, well pretty similar to the consolidated one. And you can see that we are still maintaining the cash and the short-term investment at the TWD 2.9 billion level and the return on equity is 13% and the return on assets is approximately 9%. Well, cash flow from the operations is positive, which is the TWD 230 million. Free cash flow on first quarter, well due to the increase for the spending on the inventories and purchasing procurement and also putting the additional cash into the investment items and that makes the free cash flow pretty much in negative.
Well operating highlights, if you look at the slide #16, we can see that on a quarter-over-quarter base, our first quarter top line TWD 1.970 billion is a 4% drop, compared to last quarter which is fourth quarter of last year.
And if we look at the same quarter on a year-over-year base, you can see that, well we still grow like 10% and mainly growing from the Turnkey Solutions area.
And we move -- turn to the slide #17, you can see here that the breakdown of the consolidated entities, which is Chroma ATE and MAS and new material, you can easily see from here that the first portfolio for the quarter-over-quarter dropped like a 10% on the test and measurement and related system and the products.
And for the MAS, yes, here, we have a drop of 69%, compared to last quarter, but overall, compared to the year last year first quarter, this is a 6.5x of growth.
With new material still maintaining the same kind of that level, well up and down by 10%, 15%, due to the changes of the copper wire -- from the gold wire to copper wire, but the probability of the new material still maintaining the same and bringing a product back every year-- quarter and every year.
And in here, again, on a quarter-over-quarter base, this is a 34% drop but compared to last year same quarter, this is a 25% growth.
Well for the 2018 -- the guideline, well we didn't change any -- our points to the year 2018. In the first quarter, again, the growth driver for the consolidated sales are coming from the Chroma testing equipment business and MAS.
And for the Chroma testing equipment business, we're growing like 13% but MAS is growing 6.5x big. And the Turnkey Solutions is the key driver for the parent company sales growth in the first quarter. And this is 241% growth on a year-over-year base.
And for the 2018, we still guide that we're going to -- continuously growing. And well basically coming from the following parts: The first one is that EV is still remaining strong. The demand for the high power and the testing and related EV components; and the second one is the growth from the Semiconductor and photonics testing solutions; and the third one is the MAS and Turnkey Solutions, we are expecting, it will be still -- will be growing, and outperforming last year.
Well this is the -- well for the MAS, I think, the last -- our expectation will be, well at least, we're going to double the first quarter numbers for the second quarter, I think, yes.
Well this is the -- my presentation and I'm taking any questions from anyone?
[Operator Instructions] The first one to ask questions, Patrick Chen, Nomura.
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Next to ask questions, Jerry Su from Crédit Suisse.
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Jerry, this is Jennifer. Generally [indiscernible] The first question,I think, pertaining first quarter. First quarter, I think, mainly compound our ATE system. As you know, we, in Semiconductor sector, we have 3 sections, ATE sytems, SLT and [indiscernible] through the sensing parts. And the first quarter major, I think, its [ biggest chunks ] actually comes under ATE systems. As we -- we mostly cover those of China low-end type of SLT, okay? And moving forward to next 3 quarters, regarding to semiconductors, I think, I know everyone were interesting about us releasing the progress this year. Our forecast will be many in the second and third quarters. And we also have another driver, which will come from SLT. I think, recently, we receive a new request for end of the year as well as car phones for wireless products. And for EV turnkey, I think, Turnkey projects, we already delivered the first [ batch of ] order in the first quarter. That's why we highlight the first quarter, the major growth drivers come from those increase of 241%. And that is because [ that we deliver]. We also have another key project, will be coming out in the second half.
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Last time we mentioned [Foreign Language] billed in NT Dollars. Which is already -- it's the last year, [ 915 ]
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[Operator Instructions] Right now, we are having Steve Huang from Yuanta Research.
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[Foreign Language] Actually, this is 100% increase from Q1.
[Foreign Language] That was over Q1 sales.
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[Foreign Language] For [indiscernible] rates and consolidated sales [indiscernible] essentially fine [indiscernible] entities. Now, the best way we can guide to the investor since our [indiscernible] and as we will move in a [indiscernible] factor. [indiscernible] range. And that is sales in second quarter versus first quarter just in [indiscernible]. Now [indiscernible] deliver on schedule, yes. I can say SLT levels were [indiscernible] second and third quarter [indiscernible].
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[Foreign Language] best way we can deliver -- we can comment. This way [indiscernible] comments were all [indiscernible] peak season, our second quarter is in itself [ to grow ]. [Foreign Language].
So this was 3D sensing, Q2 over Q1 for [indiscernible] it can grow [indiscernible].
[indiscernible] doesn't seem a lot in first quarter, may deliver tight over 3D sensing to double in second quarter. The first quarter [indiscernible] so fourth quarter may [indiscernible]. Yes, just to [indiscernible] the schedule to second quarter. This is the best way we can describe. [Foreign Language]
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[Foreign Language] Until [indiscernible] we think [indiscernible] is rolling forward.
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Right now, we are having Melrose Chiu from Morgan Stanley.
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Hi, Melrose. [Foreign Language]
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Hi, Melrose. [indiscernible] solid growth or steady growth in the factors. [indiscernible] This is an outstanding performance. As you mentioned [indiscernible] have that kind of [indiscernible] EV market, all high power to progress a strong quarter. Right now [indiscernible] [Foreign Language]Over 50% of Chinese, though. [Foreign Language]
[Operator Instructions] Right now, we're having Jerry Su, Crédit Suisse.
Paul, Jennifer, this is a follow-up question. [Foreign Language]
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Next, we are having Arthur Lai from Citi.
Hi, Paul and Jennifer. [Foreign Language]
Okay.
Okay.
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[Foreign Language]This explains why our inventory increased. [Foreign Language]
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[Operator Instructions] There seems to be no further questions at this point. I'm going to hand it over to CFO, Paul Ying, for closing comments. Paul, please go ahead.
Thanks for your time and you also can see that the first quarter, we have a very good start. Although we still expect that the 2018, we'll still be enjoying a pretty traditional seasonality, and we also expect in the second quarter, we have a better result. And thanks for your time and until next time. Thank you. Bye-bye.
Yes, thank you, Paul. And we thank you for your participation in Chroma's conference. There will be a webcast replay within an hour. Please visit www.chroma.com.tw under the Investor Relations section. You may now disconnect. Thank you and goodbye.