ChipMOS Technologies Inc (IMOS) 2022 Q3 法說會逐字稿

Greetings and welcome to the ChipMOS Third Quarter 2022 Results Conference Call. (Operator Instructions)

I would now like to turn the conference over to Dr. G.S. Shen of ChipMOS TECHNOLOGIES Strategy and Investor Relations team to introduce the management team of the company in conference. Dr. Shen, you may begin.

Thank you, operator. Welcome, everyone, to ChipMOS Third Quarter 2022 Results Conference Call. Joining us today from the company are Mr. S.J. Cheng, Chairman and President; and Ms. Silvia Su, Vice President of Finance and Accounting Management Center. We are also joined on the call today by Mr. Jesse Huang, Spokesperson and Senior Vice President of Strategy and Investor Relations.

S.J. will chair the meeting and review business highlights and provide color on the operating environment. After Silvia's review of the company's key financial results, S.J. will provide our current business outlook. All company executives will then participate in an open Q&A session. Please note, we have posted a presentation on the MOPS and also on the ChipMOS website, www.chipmos.com, to accompany today's conference call.

Before we begin the prepared comments, we advise you to review our forward-looking statements disclaimer, which is noted as the Safe Harbor Notice on the second page of today's presentation. As a reminder, today's conference call is being recorded, and a replay will be made available later today on the company's website.

At this time, I'd like to now turn the call over to our company's Chairman and President, Mr. S.J. Cheng. Please go ahead, sir.

Yes. Thank you, G.S. We appreciate everyone joining our call today. We continue to focus on supporting our customers as they work through inventory adjustments and other market challenges. This is the same approach we have taken during prior downturns. This helps us build long-term relationships and drive growth when volumes rebound.

In terms of Q3 2022, the macro headwinds of global inflation and inventory adjustments impacted our results like nearly every other semiconductor company. For ChipMOS, our Q3 revenue was down 23.3% from Q2 2022 and down 26.6% year-over-year. Q3 gross margin came in at 15.5% with net earnings of TWD 0.92 or TWD 4.42 for the first 9 months of 2022.

Operating expenses, which came at 8.7% of revenue for Q3 due to revenue decline. Our overall utilization rate decreased to 57% in Q3 2022, also reflecting the impact of global inflation, inventory adjustments and demand softness. Assembly utilization was at 64% and testing average was 63%. Both DDIC and bumping UT levels decreased to 49% and 46%, respectively.

Regarding our manufacturing business, our assembly represented 32% of Q3 revenue. Testing represented around 24.6% and wafer bumping represented around 16.8% of Q3 revenue. On a product basis, our DDIC product was about 26.8% with gold bumping representing about 14.8%. Revenue from DRAM and SRAM represented about 21% of Q3 revenue.

Our flash and the mixed-signal products represented about 25.7% and 11.7%, respectively. As additional color on our business, our memory product revenue was down about 10.9% compared to Q2 2022 and down around 21% on a year-over-year basis. Memory products represented about 46.7% of total Q3 revenue.

DRAM revenue declined 19.4% compared to Q2 and represented about 20.6% of total Q3 revenue. Total flash revenue represented about 25.7% of Q3 revenue. This was down 2.3% compared to Q2. NOR and ROM revenue held flat compared to Q2 2022, and NAND represented about 25.4% of Q3 total flash revenue.

Moving on to driver IC-related product revenue. This segment was impacted by macro softness in TV panels and smartphones and inventory adjustments. Including gold bumping, the decline was 34.6% compared to Q2 and was down about 32.9% on a year-over-year basis. It represented about 41.6% of total Q3 2022 revenue with COF revenue represented less than 40% of Q3 DDIC revenue. And gold bumping revenue was down 32.8% compared to Q2.

TDDI revenue represented around 24% of Q3 DDIC revenue. OLED, although declined in Q3, however significantly grew near 10% on a year-over-year basis. OLED represented over 7.5% of Q3 DDIC revenue, and more than 20% is for automotive application in the first 9 months OLED product quantity. On an end-market basis, revenue from automotive and industrial represented about 21.5% of Q3 revenue. Smartphones and TVs as an end market accounted about 23.9% and about 12.9%, respectively. Computing represented just about 9.6% and consumer represented 32.1% of Q3 revenue.

Now let me turn the call to Ms. Silvia Su to review the third quarter 2022 financial results. Silvia, please go ahead.

Thank you, S.J. All dollar amounts cited in our presentation are in NT dollars. The following numbers are based on the exchange rates of TWD 31.78 against USD 1 as of September 30, 2022. All the figures were prepared in accordance with Taiwan International Financial Reporting Standards.

Referencing presentation, Page 12, consolidated operating results summary. For the third quarter of 2022, total revenue was TWD 5.254 billion. Net profit attributable to the company was TWD 672 million in Q3. Net earnings for the third quarter of 2022 were TWD 0.92 per basic common share or USD 0.58 per basic ADS. EBITDA for Q3 was TWD 1.597 billion. EBITDA was calculated by adding depreciation and amortization together with operating profit. Return on equity of Q3 was 11.1%.

Referencing presentation, Page 13, consolidated statements of comprehensive income. Compared to 2Q '22, total 3Q '22 revenue decreased 23.3% compared to 2Q '22. 3Q '22 gross profit was TWD 812 million with gross margin at 15.5% compared to 25.4% in 2Q '22. This represents a decrease of 9.9 ppts on lower revenue and product mix. Our operating expenses in 3Q '22 were TWD 456 million or 8.7% of total revenue, which is about a 5.9% decrease compared to 2Q '22.

Operating profit for 3Q '22 was TWD 397 million with operating profit margin at 7.6%, which is about 11.0 ppts decrease compared to 2Q '22. Net nonoperating income in 3Q '22 was TWD 403 million compared to TWD 309 million in 2Q '22. The difference is mainly due to an increase of the foreign exchange gains of TWD 74 million and a decrease of loss on valuation of financial assets at fair value through profit or loss of TWD 18 million.

Profit attributable to the company in 3Q '22 decreased 49.1% compared to 2Q '22. The difference is mainly due to a decrease of the operating profit of TWD 880 million and partially offset by the decrease of income tax expense of TWD 136 million and the increase of net nonoperating income of TWD 94 million. Basic weighted average outstanding shares were 727 million shares.

Compared to 3Q '21, total revenue for 3Q '22 decreased 26.6% compared to 3Q '21. Gross margin at 15.5% decreased to 11.8 ppts compared to 3Q '21. Operating expenses decreased 1.4% compared to 3Q '21. Operating profit margin at 7.6% decreased 13.7 ppts compared to 3Q '21. Net nonoperating income of TWD 403 million in 3Q '22 compared to TWD 148 million in 3Q '21. The difference is mainly due to an increase of foreign exchange gains of TWD 301 million and partially offset by the increase of loss on valuation of financial assets at fair value through profit or loss of TWD 44 million.

Profit decreased 52% compared to 3Q '21. The difference is mainly due to a decrease of the operating profit of TWD 1,130 million and partially offset by the increase of net nonoperating income of TWD 255 million and decrease of income tax expense of TWD 147 million.

Referencing presentation, Page 14, consolidated statements of financial position and key indices. We ended Q3 in a very healthy financial position with a strong balance sheet and liquidity position. Total assets at the end of 3Q '22 were TWD 42.052 billion. Total liabilities at the end of 3Q '22 were TWD 17.535 billion. Total equity at the end of 3Q '22 was TWD 24.517 billion. Accounts receivable turnover days in 3Q '22 were 90 days. Inventory turnover days was 66 days in 3Q '22.

Referencing presentation, Page 15, consolidated statements of cash flows. As of September 30, 2022, our balance of cash and cash equivalents was TWD 7.468 billion, increased TWD 1.562 billion compared to the beginning of the year. Free cash flow for the first 9 months of 2022 was negative TWD 428 million compared to TWD 1.416 billion for the same period in 2021.

The difference mainly due to the increase of cash dividend paid of TWD 1.527 billion and decrease of operating profit of TWD 1.321 billion and partially offset by the decrease of CapEx of TWD 780 million, the decrease of income tax expense of TWD 109 million and increase of depreciation expenses of TWD 106 million. Free cash flow was calculated by adding depreciation, amortization, interest income together with operating profit and then subtracting CapEx, interest expense, income tax expense and dividend from the sum.

Referencing presentation, Page 16, capital expenditures and depreciation. We invested TWD 1.063 billion in CapEx in Q3. The breakdown of CapEx in Q3 was 3.2% for bumping, 56.8% for LCD driver, 21.6% for assembly and 18.4% for testing. Depreciation expenses were TWD 1.200 billion in Q3. As of October 31, 2022, the company's outstanding ADS number was approximately 4.4 million units, which represents around 12.1% of the company's outstanding common shares.

That concludes the financial review. I will now turn the call back to our Chairman, Mr. S.J. Cheng, for our outlook. Please go ahead, sir.

Thank you, Silvia. As Silvia just noted, we ended Q3 in a strong financial position with good liquidity. Our ongoing efforts to diversify our business and further strengthen our balance sheet put us in a good position to weather the current market uncertainty. So we feel good about the strength of our financial position and ability to support customers in a challenging period.

As we have done in the past, we are taking a very conservative approach on the business and our CapEx plans. We are taking additional actions, however, given the market uncertainty. As one example, we are looking to reduce our CapEx budget in 2023. We plan to carefully invest in green energy, building re-layout and construction, quality improvement and R&D. We are not looking to add capacity, but we'll be able to move quickly when the market rebounds.

As part of this strategy, we are working with our customers and retain flexibility in the OEM price to the improvement of the utilization rate. In our memory product, we expect the business will continue to be impacted with the ongoing inventory adjustments and demand weakness over the near term. And in DDIC, customers are still adjusting near-term demand lower.

As we have said before, we are not immune to the macro weakness, and DDIC business is still in a slight correction into Q4. However, the correction is reduced. OLED and automotive panel demand is also stable and just slightly down compared to other DDIC products. We are seeing new customer demand mostly for automotive and OLED panels.

Meanwhile, ChipMOS continues to implement manufacturer process optimizations and simplifications and additional cost-reduction actions where possible. This includes working to lower energy consumption of facilities and equipment and control of raw material inventory and consumption. Our efforts continue to help further improve product quality, enhance efficiency, reduce costs and maintain the competitive advantage and strength of ChipMOS.

Overall, we feel good about our financial position and core strength of our customers. We are controlling everything under our control, including being conservative on CapEx, keeping costs down and keeping our liquidity up. For now, we are confident longer term but being very careful and cautious.

Operator, that concludes our formal remarks. We can now take questions.

(Operator Instructions) Our first question comes from Jerry Su from Credit Suisse.

Please give us more color about weaker memory demand in Q4. Then could you comment about when inventory digestion could be down to healthy level and 2023 outlook?

As you know, for commodity DRAM, due to softer PC demand and high inventory, customers are conservative for more wafer loading and assembly. NAND and low-density NOR flash are still suffering from lower market price and higher inventory level. However, automotive and industrial demand is relatively more stable than other applications based on customers' feedback after Chinese New Year and 2H '23, our 2 checkpoints for inventory digestion.

Overall, 2023 will really depend on how soon the inventory correction could be completed. As the market situation becomes more clear, we will update our outlook and plan on our future earnings calls.

Could you give us more color about how the mentioned 2 checkpoints of inventory correction correlates to your business performance outlook?

Firstly, if we see the wafer foundry, UTR starting to decline as well. It means we are approaching the bottom. Secondly, if we see our wafer banks starting to decline as well, it means our business is recovering.

Next comes from Stanley Wang from SinoPac Securities.

Please help us to break down nonoperating income for the quarter.

Net nonoperating income in 3Q '22 was TWD 403 million. This mainly comes from foreign exchange gains, around TWD 300 million, and from the share of profit of associates and joint ventures accounted for using equity method of around TWD 100 million.

Please give us more color about how the UTR change correlates to your gross margin rate.

It really depends on product mix instead of average UTR.

In the past period, your company expanded capacity based on customers' long-term agreements. Could you give us more color about the execution of the agreements?

We are closely monitoring and managing those agreements. For some expiring agreements, we will review with customers then.

Please comment about your dividend policy under current recession period.

In order to cope with the recession and to reserve more cash on hand, we will review it closely.

So the dividend policy would likely be by stable dividend or by dividend yield?

The dividend policy would be by dividend yield, about 40%-60% range in the past.

And I am not showing any further questions in the queue. I would like to turn the call back over to G.S.

That concludes our question-and-answer session. Thank you for participating. I'll turn the floor back to Mr. S.J. Cheng for any closing comments.

Thank you, everyone, for joining our conference call. Please e-mail our IR team if you have any more questions. We appreciate your support. Goodbye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]