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Chroma ATE Inc
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Welcome, everyone, to Chroma's 2019 First Quarter Earnings Conference Call. [Operator Instructions] And for your information, a webcast replay will be available within in an hour after the conference is finished. Please visit www.chroma.com.tw/investor/index under the Investor Relations section.
And now I would like to introduce the CFO, Paul Ying. Mr. Ying, please begin.
Thank you, Jason. This is Paul Ching, the CFO of Chroma ATE. Welcome to the first quarter financial release for Chroma. This conference will be conducted in mainly English. During the Q&A section, you're welcome to use Mandarin Chinese or English to ask, but I think I'll answer according to the language that you are using.
So let's start it from the presentation material, I think we sent out this afternoon. We will be starting from the Slide #12, which is the condensed consolidated income statement. From here, you can see that first quarter of 2019, the sales revenue top line of Chroma consolidated and that it would be TWD 2,742 billion. And this represent a 21% fall down compared to last year first quarter. And mainly the biggest -- the difference will be the consolidated sales of MAS, which has dropped by 55%. And for the parent company, consolidated sales of testing equipment business, it fall down by 14%. And while the new materials business fall down by 7%. And for the gross margin, we enjoyed 48%, which is a record high. And the absolute number is the TWD 1,317 billion. And this represents a 16% drop, while compared to the top line, it's due to the increasing of the gross margin ratio.
And for the expense, you can also see that we controlled expense well, compared to last year first quarter on a Y-o-Y base, pretty similar. So the operating income is the TWD 289 million, represent a 48% drop compared to last year. So the net income for the first quarter, it goes to the TWD 297 million. Compared to last year first quarter, it's a 30% drop. And that represent an earning per share on the basic basis $0.72 compared to last year $1.06. Again, this is a 32% drop.
And to the condensed balance sheet, if you look at this page, you can also see that it's quite similar to the last year fourth quarter. So the total assets, the amount is pretty similar. And due to the slow season effect, so you can see that inventory turnover is a bit high and also the accounts turnover, again, with the same kind of effect compared to last year fourth quarter. And again, the return on equity and return on assets is still single-digit due to the first quarter, again the slow season effect.
So there you can see the free cash flow for the first quarter is approximately TWD 387 million. And this is the consolidated basis highlight.
And if we go to next page, which is the quarterly highlight for the first quarter of 2019, we can see that parent company, the sales revenue reaches TWD 1,541 billion. This is a 9% down on a Q-over-Q base, and 22% down on a year-over-year base. The gross margin, maintaining upper 50%, reached to 55%. And this is 8-quarter high, which is, management is pretty satisfied with this gross margin. The operating margin reaches at the 19%, also in the expectation kind of frame. And the net income reached to TWD 296 million. This is 38% down on a Q-over-Q base and 31% down on a year-over-year base.
And again, the first quarter at a high line will be due to the slow season, which is the Chinese New Year period. The first quarter sales revenue reflect pretty low. The gross margin, again, reaches the highest in the past 8 quarters. So this is the highlight for the first quarter.
If we go to the Slide #15, we can see that the first quarter condensed income statement for the parent company. Again, the sales revenue, TWD 1,541 billion, represents a 9% drop by Q-over-Q base and 22% drop by year-over-year. And you also can see that from the gross margin portion. You can see that 55% gross profit reach at the TWD 845 million. Pretty much same as the fourth quarter of last year.
This is -- only represents a 4% drop. Compared to the first quarter of last year this is a 17% drop. And again, if you look at the expense level, you also can see that we maintain the expense level pretty stable. So that we can enjoy the TWD 289 million as operating income, and reached at the 19%, which is a 4% growth on a Q-over-Q base, but 31% drop on a year-over-year base.
For the net income, again, it's TWD 296 million, and compared to the last quarter, it's a 38% drop; and compared to the last year first quarter, that will be a 31% drop. And again, the earnings per share on the basic will be $0.72 and compared to the last year, it's a 32% drop.
If we look at the next page, which is the balance sheet highlights and the financial ratio. Again, it seems that still on the slow season effect for the inventory turnover and accounts receivable turnover will be a little bit higher than the last year. So in there, you also can see that return on equity and return on assets stayed in the single digit area, which is we expect if we can improve the profitabilities, then it will go to the double-digit in the next few quarters. And for the free cash flow, for the first quarter, we enjoyed like TWD 428 million. And this is the highlight for the balance sheet for the parent company.
Then we can go to the next slide, will be Slide #18. In this slide, you can see that the product mix and also the consolidated sales breakdown. Here you can see that the, for the first quarter, the Chroma consolidated sales reached at the TWD 2,742 billion. And it comes from the Chroma consolidated testing equipment business, which is mentioned as TWD 2,023 billion. This represents a 14% -- 15% drop on a Q-over-Q base, and a 14% drop on a year-over-year base. And all crossover on the industrial applications from the testing instruments to the semiconductor and photonics to Turnkey Solutions, it all dropped from 17% to somewhere like a 10%, still due to the effect starting from last year fourth quarter, I think all the atmosphere from the trade war between the China and the United States. So a bit of hesitate in the expansion and also in the new purchase of the -- or procurement for the equipment slowing down. I think this is the final effect on that on the first quarter of 2019.
And another factor for Chroma to drop is the MAS. If you look at the MAS, first quarter of this year, it only goes to the TWD 274 million. Compared to the last quarter, it dropped by 71%. Compared to the last year first quarter, it dropped by 55%. So that means the MAS is in between of the project base kind of a business, and it's in black. For new material business, well, stably, well, customers transferred the utilization of the gold wire to the copper wire, so it dropped from the first quarter top line TWD 395 million by 7% on a year-over-year base, and 22% on a Q-over-Q base. So in there, you also can see that for Q-over-Q base, the total consolidated Chroma top line dropped by 30%, and on year-over-year base comparison it dropped by 21%.
So that's the total breakdown of the top line from a consolidated point of view of Chroma. So if you look at the 2019, I think we guide like this. Well, firstly, the Chroma first quarter consolidated sales revenue represents a decline on either Q-over-Q base or Y-over-Y base on 30% and 21%, respectively. The consolidated gross margin still can maintain on a higher level, which is a record high on 48%.
For 2019, for the year 2019, we still think that testing equipment business sales will be picked up from the second quarter and move into peak seasons just like our ordinary kind of seasonality. And the testing equipment business is expected to grow quarter-over-quarter. For those overseas activities like U.S. market, European and the Japan market, will start to pick up from the second quarter after a short-term swing from the U.S.-China trade war. And due to the 5G market demand, we think that the IC system level testers equipment will be started to contribute in second half. While those photonics will be continuing to benefit from the big sale and optical fiber demand increase. And for the Turnkey Solutions, mostly will be mainly contributed in the second half. And for MAS, for the automation process business, will be start to pick up in the second half as well.
I think this is our overall guidance for the 2019. And thanks for your listening. And now we open for the questions. Anyone?
[Operator Instructions] The first question is coming from Steve Huang of Yuanta Research.
Paul, Jennifer [Foreign Language] the guidance [Foreign Language] earlier this year over the guidance slide [Foreign Language] earnings, [Foreign Language] or be no lower than '17 and '18 level. [Foreign Language]?
[Foreign Language]
[Foreign Language] seasonality [Foreign Language] parent company, the gross margin [Foreign Language] margin [Foreign Language] parent company, the margin [Foreign Language].
[Foreign Language] breakdown [Foreign Language] margin [Foreign Language] product mix [Foreign Language] aggregate stated gross margin. [Foreign Language] margin [Foreign Language].
[Foreign Language] automation [Foreign Language] gross margin [Foreign Language] robotic [Foreign Language] handle [Foreign Language] gross margin [Foreign Language] managing the R&D and talent.
Okay. So in Q1 the parent company [Foreign Language].
[Foreign Language] battery cell [Foreign Language] automation adding as a project-based type of the business.
Okay. So this is parent company, internally [Foreign Language].
[Foreign Language]
[Foreign Language]
Okay, okay [Foreign Language] incrementally good [Foreign Language] being done just so [Foreign Language]. Incrementally [Foreign Language].
[Foreign Language]
[Foreign Language]
[Foreign Language] location [Foreign Language] diversify [Foreign Language] diversify [Foreign Language]. This is Southeast Asia [Foreign Language] result [Foreign Language].
Okay. Okay. [Foreign Language] planning [Foreign Language] execution.
[Foreign Language]
[Foreign Language] guidance?
[Foreign Language]
[Foreign Language] as scheduled [Foreign Language].
[Foreign Language]
[Foreign Language]
Okay, okay, okay [Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
And the next question is coming from Jerry Su of Crédit Suisse.
Paul, Jennifer [Foreign Language] presentation, according to guidance [Foreign Language] to oversee the [Foreign Language]. This system beyond, in application [Foreign Language] drives down the [Foreign Language] optical fiber [Foreign Language] segment [Foreign Language] optical fiber [Foreign Language] MAS [Foreign Language] guidance [Foreign Language].
[Foreign Language] marketing [Foreign Language] with a new application [Foreign Language].
Okay. [Foreign Language] the photonics [Foreign Language] photonics [Foreign Language] overall [Foreign Language]. Okay, for the other driver, just optical fiber [Foreign Language] year to date [Foreign Language] optical fiber [Foreign Language] projected order. [ So this is like a contract ] [Foreign Language] mass production [Foreign Language] mass production order [Foreign Language] infrastructure [Foreign Language] upgraded [Foreign Language] optical fiber [Foreign Language] related higher optical fiber [Foreign Language] optical fiber [Foreign Language] optical fiber [Foreign Language] photonics [Foreign Language] handle the contributions [Foreign Language] cancel the orders [Foreign Language].
[Foreign Language] optical fiber [Foreign Language]?
[Foreign Language] quarter-on-quarter [Foreign Language] photonics. [Foreign Language] optical fiber [Foreign Language].
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Operator Instructions] And the next question is coming from George Chu from Fubon.
Paul, Jennifer [Foreign Language] driver [Foreign Language] Now turning to the guidance. [Foreign Language] driver [Foreign Language] delivery [Foreign Language].
[Foreign Language] guidance [Foreign Language] guidance for the year.
[Foreign Language] cash come in [Foreign Language] visibility.
[Foreign Language] we just like -- just follow the orders [Foreign Language] updated [Foreign Language].
And the next question is coming from Jerry Tsai of JPMorgan.
[Foreign Language] optical fiber [Foreign Language] technology [Foreign Language] optical communication device [Foreign Language] infrastructure buildup [Foreign Language].
[Foreign Language] optical fiber [Foreign Language] infrastructure [Foreign Language] upgrade [Foreign Language] market stages [Foreign Language] optical fiber [Foreign Language] optical fiber [Foreign Language] okay [Foreign Language] okay [Foreign Language] one should put on the message [Foreign Language] optical inspection, okay [Foreign Language] inspection [Foreign Language] Asian process [Foreign Language] process [Foreign Language] communication, also infrastructure [Foreign Language] related and communication related [Foreign Language] infrastructure [Foreign Language] improved, okay. [Foreign Language] supply chain [Foreign Language] physical [Foreign Language] industry [Foreign Language] infrastructure improvement [Foreign Language] 5G [Foreign Language] infrastructure improvement [Foreign Language] door-to-door [Foreign Language] the knowledge, the know-how.
[Foreign Language]
[Foreign Language]
[Operator Instructions] And the next question is from Jeff of Macquarie.
Paul and Jennifer, you mentioned SLT pick up in the second half. Can you talk about how SLT growth or -- that, say, over the last say 3 or 4 years?
Okay. What we meant actually, no. These days, most of the chip using this kind of integrated designs show they need to stimulate those, and those chips are very sensitive to the environmental change and they need to do this kind of physical condition testing. If you want to implement local physical condition testing, the IC handling, no fast pickup. This kind of resource called IC handlers [ speed then ] has to increase. We call it pick and place. And these are demands that actually come from [ first is ] RF, okay? And RF sometimes do also combined with tester stimulation. So currently we do have one international RF makers. They are replacing their old systems in Southeast Asia. So this is the order we are planning to deliver in the quarter. And then we also received another -- also RF maker for Europe, and then they are also happy to kind of [ demand ] and they kindly drop off the orders. So with [indiscernible], our IP handler, which is a so-called SLT testers, will be -- start to have even quite a big contribution for our [indiscernible].
Okay. Just one more question. Just overall, can you talk about competition in the SLT market for you guys?
Currently, if you combine thermal control, we're just able to stimulate the temperature from minus 50 degrees to 150 degrees or minus 20 degrees to 120 degrees. I don't think there is a [indiscernible] -- we don't see any compare at the moment. Yes. It's quite a niche market.
[Operator Instructions] There are currently no questions. And now I hand it over to CFO, Paul Ying, for closing remarks. Mr. Ying, please proceed.
Thanks, Jason. Well, the first quarter of 2019 looks a bit slow, which is also set up into the expectation of traditional seasonality -- or on year seasonality. And we're expecting that second quarter will be warm up and then pick up by the third quarter on the peak season. So if that's the case, let's see, we definitely is going to deliver what we guided. And thanks for your time. And yes, see you next time. Thank you.
Thank you.
Thank you. We thank you for your participation in Chroma's conference call. There will be a webcast replay within an hour. Please visit www.chroma.com.tw/investor/index under the Investor Relations section. You may now disconnect. Goodbye.