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Chroma ATE Inc
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Welcome, everyone, to Chroma's 2018 Third Quarter Earnings Conference Call. [Operator Instructions] For your information, a webcast replay will be available within an hour after the conference has finished. Please visit www.chroma.com.tw/investor/index under the Investor Relations section.
And now I would like to introduce your CFO, Paul Ying. Mr. Ying, you may begin.
Thank you, Jason. This is Paul Ying. I'm the CFO of Chroma ATE. And welcome to the third quarter of 2018 Financial Release Conference. And here with me is Jennifer Chieng, which is our Director of the IR.
And this meeting we are going to conduct in -- mainly in English. But for the financial highlights and also the operational highlights, I will be doing that in Mandarin first and then repeat it in English afterwards. Then after this session, it will be the Q&A. For the Q&A, basically, if you ask in Mandarin, then I will reply in Mandarin. And of course, if you conduct in English, then we will be replying in English. Thanks for your time.
Well, [Foreign Language]
Okay. Good afternoon, I will repeat our CFO statement in English, okay?
Regarding our financial highlights, the first 9 months consolidated sales were TWD 13 billion, percent -- 34% growth. Consolidate Testing Instrument business were TWD 7.3 billion, and MAS was TWD 3.9 billion, okay. Chroma's parent's sales revenue in third quarter is TWD 1.9 billion, and first 9 months reached about TWD 5.8 billion and declined about 2% year-on-year. From the first quarter -- the first 3 quarters, as it happened, apparently, this year, we will not enjoy a seasonal -- the traditional seasonality pattern, which is the peak season in the second and third quarters. Instead, we will probably enjoy the peak season in the first and fourth quarter. This is all based on the customers' shipments schedules. And regarding the gross margin, consolidated gross margin, 44%, since the last 2 quarters has not much changed. And parent company Test Instrument business gross margin is 52%. Those are pretty much in line with our expectations. First 9 months, the net income reached about TWD 2.1 billion, increased 5.4%, with EPS of $5.06, for first 3 quarters' results has actually hit the historical record high.
For our balance sheet. Consolidated in the net cash position figure is due to the massive collection. And the parent's net debt to equity is around 7% mainly because of large payout in the cash dividends in the third quarter. Regarding to the ROE and also ROA, ROE has reached about 20%, and then ROA is 12%.
And now we will move on to operations highlights regarding third quarter.
[Foreign Language]
Okay. Operational highlights. We still expect the Testing Instruments will present a stable and steady growth compared to last year, the whole years, mainly come from the EV market demands, okay?
For the Semiconductor sector and the Photonics Testing Solutions, we have seen the PXle sales and other photonic testers start to accelerate and drive this kind of momentum -- able to drive, continue to next year. And the markets, this mostly come from the U.S. But the IT market sentiment started a bit weaker, start from the third quarters, especially the AT Systems. So this year overall test -- total semiconductors testing solution probably will be slightly lower than last year's.
Turnkey Solution figures this year would totally not have any solar sales contribution. Turnkey Solutions this year, almost 100% actually contributed by EV battery cell factors. So we think the overall Turnkey Solutions this year will be similar to last year's. Overall, we expect the Test Instrument business will be doing similar as the last year sales levels.
Regarding to MAS, I think we're still able to deliver what we guide in the second quarter, which is double the last year total sales. So overall, in year 2018, we expect the net income will still able to present a decent growth compared to last year '17.
And now we open up to Q&A.
[Operator Instructions] And our first question is coming from Patrick Chen from Nomura.
Paul and Jennifer, may I ask, compared to when you reported second quarter earnings, across the business lines, which are you seeing or are you -- I mean, which business lines do you think are tracking ahead of your expectation and which are tracking behind? And what are your initial thoughts for the growth prospect to different product lines into 2019? Just a rough idea would be okay.
Patrick, you mean the overall this year?
Yes, overall -- I mean, the net change in the past 3 months, in which areas do you see more slowdown and which area do you think are the order, yes?
[indiscernible] you mean for the whole year?
Yes, third quarter, third quarter, I mean, after you reported 2Q, yes.
Well, we actually -- if you want to see -- we won't only see the ATE systems start to get weaker from third quarter. But this year, we don't -- we didn't enjoy the seasonal pattern. It's just because of the customers' shipments and also -- that's why we don't have like a third quarter as a peak season. So I think it would be better we explain in the whole year factor -- whole year basis. The whole year is, I think, Semiconductors, the ATE systems start to gets weak from the quarter. So we think that move on to fourth quarter, ATE system will be back to very, very low base, as we have before in previous years. And the big sort of sales will start to pick up quite aggressively. In Turnkey Solutions, beginning of year, we expect we at least will have some contribution from solar as we had in the past many, many years. But this year, due to the new policies, we almost got nothing in -- from our solar cell business, which is a policy contract. So you talk about the carryforward, the momentum to next year. We will particularly highlight the Photonics. I want to give you some guidance regarding to our Photonics business. Our Photonics business, we cover 5 full range of products, not only limited to PXle, also some parts in communications. And the second, the [indiscernible] you will probably see more order or deliver shipment will mostly go to U.S. markets based on current order on hand because our current order on hand carry forward to next year, this already exists, the first 3 quarter we booked. So this is not included into receivings with your trajectory, okay? Just basic structured light orders. And last things we would like to highlight is our [indiscernible] business -- I mean, Photonics business in [indiscernible]. Honestly, the order -- or the sales we booked this year is doubled of last year. We got into [indiscernible] for photonics tester selling, yes. And MAS business, as you know, as we guide, it's not much changed compared to second quarter.
If I had -- if I may ask a very quick follow-up, when you reported last quarter, I think you mentioned something about the photonics being flat year-on-year based on the first 6 months traction. But you -- what you said is that you expect the fourth quarter momentum to accelerate very significantly. So for full year, you'll still expect this part of the business to show steady growth? Is that -- yes?
Well, I'm not so sure because the order is starting from fourth quarter and totally carries forward to next year. Sometimes customers give you a big order and they don't limit to just one quarter. It's carried forward to next few quarters. So regarding the Photonics older visibility, I think we can even see even up to the second quarter next year. So it's very hard for us to give you exactly. So regarding Photonics, I think, depends on how much we'll be able to book in the fourth quarter. But our guidance has not changed. We will be -- when this year, Photonics orders delivered will probably not bigger than last year even we have acquired decent order, okay?
[Operator Instructions] And the next question is coming from Skye Chen from CLSA.
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[Operator Instructions] And the next question is coming from Willie Chen from JPMorgan.
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Yes.
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Willie, [Foreign Language]
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[Foreign Language] Hello?
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[Foreign Language] Semiconductor sales, overall, this year's sales maybe lower our expectations because IC testers market starts to get weaker from third quarter.
And the next one is from Arthur Lai from Citi.
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[Foreign Language] no doubt, harder investment, which is the CapEx spending. [Foreign Language]
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Hello? Arthur? Sorry. [Foreign Language]
Yes. [Foreign Language]
Photonics [Foreign Language] now delivery pace [Foreign Language]
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[Foreign Language] exposure [Foreign Language] with the optical inspection for PXle [Foreign Language]
[Operator Instructions] And next, we'll have Douglas Ho from Capital Investment.
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Okay, okay. [Foreign Language]
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And the next question is coming from Steve Huang, Yuanta Research.
Paul, Jennifer [Foreign Language] semiconductor, new material [Foreign Language]
Steve, [Foreign Language] semiconductors may below our expectations. [Foreign Language]
[Foreign Language] just in the Turnkey Solution [Foreign Language]
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Okay, okay [Foreign Language]
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[Foreign Language] just with Photonics [Foreign Language]
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For U.S. market?
[Foreign Language] optical inspection [Foreign Language] similar exposure [Foreign Language] guaranteed growth.
Okay [Foreign Language] U.S. market has shrunk just with that figure for [Foreign Language]
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Okay. Now did the [Foreign Language] for U.S. market?
[Foreign Language] those go to U.S. mainly.
Now that the U.S. is [Foreign Language]
No.
[Foreign Language] I mean, in the second quarter [Foreign Language]
[Foreign Language] mainly to U.S., okay? [Foreign Language] and for the contribution [Foreign Language] is the driver, kind of photonics driver [Foreign Language]
Okay. [Foreign Language] Q4 received bigger order carry over through second quarter next year, [Foreign Language] just U.S. market. Now how about [Foreign Language] either they had cleared, they disappeared?
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[Foreign Language] as the cutting point [Foreign Language] and may have seen new production line [Foreign Language] production line [Foreign Language] big orders may not include [Foreign Language] that include some guidance premium.
Okay, okay. So actually, [Foreign Language]
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Okay. [Foreign Language] enjoy the revenue contribution [Foreign Language] and so mentioned like [Foreign Language] turned to revenue [Foreign Language]
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[Foreign Language] enjoy their contribution, early '18 [Foreign Language]
[Foreign Language] photonics, in space [Foreign Language] combination of fiber communication plus [Foreign Language]
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[Foreign Language] fiber communication [Foreign Language] photonic testers.
[Foreign Language] can also enjoy the [Foreign Language] return to revenue.
Return to revenue [Foreign Language] mass production.
Okay, okay [Foreign Language]
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[Foreign Language] turn into sales. [Foreign Language]
Okay. So just as what [Foreign Language] enter mass production [Foreign Language] mass production to hold, take order, the sustainability [Foreign Language] maybe is it for R&D stage, not mass production [Foreign Language]
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Okay, okay [Foreign Language]
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And the next question is coming from Jeff Ohlweiler from Macquarie.
Paul and Jennifer, a few questions from me. First, I guess MAS, MAS revenue is very strong in 2018. I guess -- but just one of the biggest questions I get from investors is, it's such a large number this year. Is there any type of guidance you can give for next year whether there's a chance it grows, whether there's a chance it's down a lot? Any kind of just general guidance on that number for next year.
Well, Jeff, for MAS, I think it's a typical -- it's kind of project-based. And I think what we expect is the delivery of this project for this year will be extended to at least for the first 1 or 2 quarters of 2019. But for the new orders in 2019, probably we have to wait for the 2019 -- the guidelines come up in the next meeting.
Okay, great. And then -- I'm sorry, go ahead...
Please.
Yes, please. Yes.
Okay. So the next question is, Jennifer, you mentioned that Testing Instruments is weak in the fourth quarter. So when you said that, were you talking about semiconductor testers?
No, I didn't say Test Instruments is weak in third -- in fourth quarter.
Or IC?
I mean, ATE system is under Semiconductors. Regarding the semiconductors product factors, we have 2 major products: one is related to IC; the other one is related to photonics. And the IC-related factors start to get weaker from end of the third quarter and continue -- I think the trend will continue in the fourth quarter.
Okay. And to clarify, you said overall semiconductor testers should be flattish year-on-year?
No, I think it will be slightly lower than last year.
It should be more?
Or it should be lower than our expectations because of the IC factors. Even Photonics is picking up.
Okay, okay. And then also, Testing Instruments and ATS, has been -- has seen pretty stable growth throughout the year every quarter.
Yes.
How is that in fourth quarter? And then how is the EV versus the non-EV in that segment?
It's very hard for us to do this kind of right now. But the reason why we can't present any kind of substantial growth is because of the EV market demand. The EV market, we are not enjoying number of the cars delivered in the market. We actually enjoy the people's need for high-power testing. High power means the high FC and high participant dollar markets. That's why the total sales grows.
Okay. And then lastly, I know you mentioned this a couple of times in Chinese, but I just want to clarify this in English. So you said...
Sure.
Fourth quarter consolidated sales should be the peak for the year?
We can't comment on numbers, Jeff. Otherwise, tomorrow, we will have to do material filings.
Okay, understood. So it sounds like the ATS should be okay for fourth quarter Q-on-Q. Turnkey is okay Q-on-Q.
I think the key point here is that we just want to highlight, this year, we just -- we don't have this normal seasonal pattern like peak in the second and third quarter. Instead, we have like a peak in the first and the fourth quarter. That's all.
And next, we'll have Narci Chang from JPMorgan.
[Foreign Language] CIS, ICT, OS application [Foreign Language]
[Foreign Language] CMOS image sensor [Foreign Language] application [Foreign Language] Yes.
Okay. [Foreign Language]
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[Foreign Language] image sensor [Foreign Language]
Yes.
[Foreign Language] image sensors [Foreign Language]
[Foreign Language] the application [Foreign Language]
[Foreign Language] CMOS image sensor [Foreign Language] the application [Foreign Language] the application [Foreign Language]
Okay, okay. [Foreign Language]
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There are currently no questions at this point. I'm now handing over to CFO, Paul Ying, for closing remarks. Mr. Ying, please proceed.
Thank you, Jason. Well, [Foreign Language] financial release [Foreign Language] Thank you, everyone. Thanks.
[Foreign Language] Thank you.
Thank you.
Thank you, ladies and gentlemen. We thank you for your participation in Chroma's conference. There will be a webcast replay within an hour after. Please visit www.chroma.com.tw/investor/index under the Investor Relations section. You may now disconnect. Goodbye.