Chroma ATE Inc

TWSE:2360

Earnings Call Transcript 2018-Q2

[Operator]

Welcome everyone to Chroma's 2018 Second Quarter Earnings Conference Call. [Operator Instructions] And for your information, a webcast replay will be available within 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 CFO, Paul Ying. Mr. Ying, you may begin.

[Paul Ying, executive]

Thank you, meeting host. This is Paul Ying. Welcome, everyone. This is the second quarter earnings release for Chroma. Welcome, everyone. Let's start it from the consolidated financial statement. Well, at the second quarter, Chroma consolidated sales revenue, we continue to deliver a very strong growth in the first half 2018. These very impressive results was mainly contributed from the MAS, the automation business. It represent outstanding growth of 1,160% year-over-year growth, while the Chroma testing equipment business also presented a double-digit growth of 13%. So this is a very impressive record.

And if you look at the gross margin. This gross margin represent a 44% at the first half of 2018 compared to last year. It's a 41% growth. However, due to the mix of different kind of a consolidated [ annuity ], so the gross margin compared to last year's 49% is a little bit decreased. But again, the absolute numbers is 41% growth. And for the operating income, after deducting the OpEx in first half of 2018, it will present NTD 1.72 billion. And compared to last year, this is a 75% growth. So with this very strong growth, the net income standing at NTD 1,448,000,000. Compared to last year, this is a 80% growth and representing a NTD 3.57 as the earning per share.

And this is the strong growth. Actually, it's coming from the -- mainly coming from the contribution of the MAS. And for the second half of the 2018, I think our guidance for the second half, the first one is the electrical vehicle, the market remains very strong. The demand for the high power testing equipments from EV-related components, modules and a battery cell and a pack testing remains very strong. The company expects -- well, we still expecting that a very steady growth from the all-electronic testing product sectors.

And for the semiconductor and the photonics testing solutions, we expect that would be starting to grow in second half. And 3D sensing equipments, the shipments increased will be key drivers in the second half. And for the MAS, we still expect that would be continue to deliver strong results. And we expect the target for the 2018, the annual sales will be double the sales in 2017.

And this is the highlight for the year second half financial results, and now open to any questions from anyone.

[Operator]

[Operator Instructions] The first question is coming from Jeff Ohlweiler from Macquarie.

[Jeffrey Ohlweiler, analyst]

Third quarter I mean, we had very strong second quarter sales because of MAS. Is it possible that third quarter can grow Q-on-Q for consolidated or only really parent?

[Paul Ying, executive]

Well, we expecting as we put on the [ dialogue ]. We now are talking about discussing with the customers on the second half delivery and shipment kind of plan. So we cannot give you what is the -- which quarter that will be a landing for the shipment. But what we're expecting is the total for the 2018 will be following the -- well, as much as the double the size of last year 2017.

[Jeffrey Ohlweiler, analyst]

Okay. And then guidance, you also said semiconductor will grow in second half year-on-year. What about for full year semiconductor year-on-year for 2018? I mean also can you kind of talk about individual 3D sensing, SLT and then your traditional power testers on a year-on-year basis for the full year?

[Jennifer Chieng, executive]

I think since -- currently, our guidance is not going to change. I think we still expecting the semiconductors will be better than last year NTD 2.46 billion. And just the first half result, I think 3D sensing is in a small percentage versus semiconductors testers. And second half, I think we will have a more 3D sensing shipment. This isn't based on the customers delivered schedules. Yes. So overall, I think the guidance is not changed.

[Jeffrey Ohlweiler, analyst]

Okay. Just lastly follow up maybe SLT. How is SLT year-on-year this year?

[Jennifer Chieng, executive]

We see SLT order start to pick up especially from second quarter due to auto ICs developments because [Technical difficulty] auto IC makers start to build up a thermal controls capacity. So you probably can see more, moving forwards, in the order for SLT. I think it could be last -- extended to next year.

[Operator]

[Operator Instructions] And next we'll have Jeff Ohlweiler from Macquarie for questions.

[Jeffrey Ohlweiler, analyst]

I guess Steve is out today. So the next question on MAS. Yes, obviously had a very strong first half in the second quarter and you guided for this year to be double versus last year. So that looks like second half, half on half maybe down a little bit, is that correct? And then the follow-up question from that is, is that business sustainable in terms of growth over next several years or is there any capacity constraints or do you think that's just very strong last couple of years, so that may slow down? Just talk about maybe the long-term outlook for MAS.

[Jennifer Chieng, executive]

Based on your -- based on our projection estimate, yes, I would -- it's correct, I think second half will be slightly lower, I mean results versus the first half on MAS. But based on the order, that's how we were discussing with customers next year. Q3 strong, but we will start to comment about that in the second half, yes, about next year.

[Jeffrey Ohlweiler, analyst]

Okay. And then -- and for Paul for the tax rate, can you talk a little bit about the tax rate in the first half and then maybe the second half?

[Paul Ying, executive]

Well, I think tax rates, we expect the parent or even to the consolidated will fall in probably 15% for the parent, up and down, and a little bit higher than that for the consolidated due to the tax rate changes. Yes.

[Operator]

And the next one for question is from Arthur Lai, Citigroup.

[Arthur Lai, analyst]

So I have 2 question. One is from the [indiscernible] cut down. So we have hearing a lot of Chinese manufacturer right now, they suffer from the tightening credit, and also the -- actually the -- they cannot get enough financing. And also I also look at your EV peers like [indiscernible] there, AI actually is quite high in compared to Chroma's AI series is in a very good level. So can you elaborate more about how this China credit tightening should impact the whole equipment industry and also why we can maintain this very good AI level in this market? This is my first question.

[Jennifer Chieng, executive]

So far we haven't got any this kind of pressure from the China tighten policies. But our battery business, yes, I think our turnkey solution guidance this year, yes, I think beginning of the year, we guide about turnkey, the revenues, it's probably around the list. So I think this will not be changed. Okay? Based on our 2 orders, 2 big orders this year, we already delivered the first one in the first half back in Chinese. And second half actually is non-Chinese. We will deliver I think around end third quarter to fourth quarters. So the battery so far, yes, we actually not received like very big order like '16 from battery cell, but we continue to receive turnkey solutions orders. And we still have pretty high confidence levels in this EV industry because if you look at our test instrument, I would say this is consecutive -- I would say more than 10 -- I think almost 10 quarters of our maintained about low-teen or mid-teens of growth for this business. As we pulled out those product mix, the biggest drivers do come from this high power testing by the D.C. power motor testing battery pack. Actually, we see the demand continue to increase. So, so far, we haven't received any kind of strong pressure from this credit policy.

[Arthur Lai, analyst]

Yes, thank you. And second question is on the semiconductor side. We were quite impressed by your SoC tester had a very good shipments in the first half driven by the crypto currency. Can you tell a little bit the order visibility into the second half? Do you think any like expansion planned from the offset or from the design house on the SoC tester? That's my second question.

[Jennifer Chieng, executive]

Okay. So semiconductors business, I just comment that the first half -- actually the biggest portion is actually come from our semi tester. I think the biggest portion has come from ATE, which is pretty much in line with what you just said in crypto currency, which is because the bitcoins and also driving by this kind of Chinese offset. Okay? But going forward, I just mentioned the SoC is continued build out capacity because the auto IC developments and the IoT and also the [ MEM ], which is GPU, the new -- Nvidia is about to launching a new GPU. So they are also building out capacity for their new solutions. So this year -- sorry, second half, we didn't see any signs of slowing down for our semiconductor testers. Plus on top of that, we see the shipment for 3D sensing will be much better than first half. So overall I think year-on-year, second half within comparable sectors will be better than last year's second half. And overall this year we still target, well, it should be better than last year's NTD 2.46 billion.

[Operator]

[Operator Instructions] And the next question is coming from [ Edward Chen ] from Invesco.

[Unknown Analyst]

One question related to the MAS. Can you give us more color on why the MAS is so strong in the first half? Is it something related to the solar client?

[Paul Ying, executive]

Yes. MAS, the shipment from MAS is to China to a big Chinese group and -- starting from last year second half. And this is existing customers. And their product is pretty much, it's CIGS. It's not always polysilicon kind of solar panel. So its solar related, but it's a bit of different with those traditional solar panel manufacturers.

[Jennifer Chieng, executive]

Let me add some information, okay. Actually, this is a new technology called CIGS. It's not -- it's like the original investor is Hanergy. But Hanergy 2 years ago, they bought 2 company. One is from Europe, the other one is from U.S. who has this kind of top or high level of technology in CIGS. And they are planning to import to China. [Indiscernible] they are no longer is the only player in China. There's another one, CNMB [sic] [ CNBM ] is also making this CIGS technology. And we are also having this account. So right now in China, it's about 2 or 3 players, is actually importing technology. And so actually the order -- actually we see is from this Europe and U.S. customers directly, not -- it's not from China. So the payment is actually based on either transfer TT or letter of credit. And what we book in the first half is already being 100% collected.

[Unknown Analyst]

So given the recently the government about subsidy cut, so are you worried about this kind of a policy change? Will it impact your current situation from now?

[Jennifer Chieng, executive]

This kind of -- so far, we heard from our customers, this part of the business is not part of their policy plan. And funding is not also from -- not from central government. So far there's no impact. And currently, I mean not order on hand, I would say cash on hands do exceed our revenue book.

[Operator]

There are currently no questions. I'll now hand it over to CFO Paul Ying for closing remarks. Mr. Ying, please proceed.

[Paul Ying, executive]

Well, thanks, everyone. Well, this is a record-breaking quarters for the second quarter, yes. We did very good at numbers, breaking the NTD 1 billion [ SG ] at the bottom line. So this is the first time. We hope we can copy this kind of experiences and for the future. And thank you for your time. And bye, bye.

[Operator]

Thank you, Mr. Ying. Ladies and gentlemen, 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/investors/index under the Investor Relations section. You may now disconnect. Goodbye.