Welcome everyone to Chroma's 2022 Q4 earnings conference call. All lines have been placed on mute to prevent background noise. After the presentation, there will be a question and answer session. Please follow the instructions given at that time if you would like to ask a question. For your information, a webcast replay will be available within an hour after the conference is finished. Please visit www.chroma.com.tw under the investor session. I would like to introduce CFO Paul Ying. Paul, you may begin. Thank you. This is Paul. Welcome everyone. This is the Chroma 2022 earnings release. We just finished the board meetings this morning. I see the participant today right now is from nearly everywhere. From local Taiwan, from United States, and also the U.K. Good morning and good afternoon. Let's go to the presentation file. On the first page, which is the corporate profile, you can easily see from this page. After the record-breaking high of the sales revenue at 2021, we made another record high on the top line at 2022 reaching TWD 222 billion. y contributed from the test measurements, our core business. With the termination of the representation for the material business after the first quarter of 2022, you will see the percentage of the special material reduced to only occupy like 3% of the consolidated sales revenue. The net income for 2022 is another record high, reaching at TWD 5.1 billion. The total headcount for Chroma until December of 2022 is 3,379 employees Up to the gross margin on the next page, you also can see that the performance for the consolidated gross margin reaching 50 something, which is 52% compared to last year is also another growth. I think that's mainly because the low margin proportion of the assessed revenue contributed from the non-core business like special material reduced to only 3%. Up to the parent company, you also can see from the right-hand side slide for the bar chart of the 5-year comparison for the parent company sales revenue. It's breaking the record from 2019 all the way to 2022, which is break up the TWD 10 billion at 2021. For 2022, it's reaching at the TWD 13.4 billion. The gross margin still maintain on our expected range, which is over 50%. For the investment to the R&D expenses, still growing. Due to the growth on the top line, faster than the growth of the investment in the R&D expenses. The o-occupancy for this section is 12%. On the next page, you can see that for the return on equity is 25%, a little bit improved last year. For the dividend, this is another record high, which is, well, at the TWD 12.14. After the board meeting's resolution this morning, it's we are going to provide TWD 8 as the dividend for this year. If we go to see the parent company for those numbers for the... let's see the slide number 10. For the consolidated income statement. I think, roughly it's just, kind of like the illustration of what I just mentioned, before, which is the, total sales number is NTD 222 billion. This is a 25% growth on a year-over-year base. With the consolidated sales of the testing equipment, for this business, it's reaching NTD 20.2 billion. Compared to last year, it's a 50% growth. I think mainly our top line is growth from this sectors. For the growth margin, again, it's reaching TWD 11.3 billion, and which of the gross margin ratio is 52%. Compared to the last year, it's a 34% growth. As to the operating income, you can see that it's over TWD 5 billion and 23% of the top line. Compared to last year, it's a 64% growth. To the net income, again, it's reaching TWD 5.2 billion and which is occupied like 24% of the top line. Compared to last year, it's a 21% growth. Overall, the EPS reaching TWD 12.14 at the EPS. Well, if we go to see the... For the fourth quarter of those consolidated income statement, you can see from this page that again, I think the fourth quarter of 2022, the consolidated net sales is somewhere like TWD 6 billion. Compared to last quarter, it's a 9% drop, but compared to last year, it's a 32% growth. Again, it's mainly contributed from the consolidated sales of the testing equipment business, which is reaching TWD 5.8 billion compared to last quarter. Again, it's an 8% drop, but compared to last year it's a 64% growth. That bring us to the gross margin on the fourth quarter of the consolidated business, the whole income statement, TWD 2.7 billion. It's a 46% compared to the growth margin, compared to last quarter, it's a 20% drop. Compared to last year, it's a 30% growth. For the operating income, although we're still growing the OpEx still growing along with the growth on the top line, our operating income for the fourth quarter is a little bit over TWD 1 billion, reaching 17% to the top line. Compared to last quarter, it's a 41% drop, compared to last year it's a 44% growth. For the net income for the fourth quarter, it's TWD 914 million, which is 15% of the top line. Compared to last quarter, it's a 48% drop, but compared to last year, it's a 28% growth. For the fourth quarter, our EPS is somewhere reaching at TWD 2.05 compared to the last quarter. Again, this is a 50% drop, but compared to last year it's a 31% growth. For the balance sheet items, you can see from here that the cash and inventory a little bit is growing. It's for the debt, I think it's decreasing. For the turnover days for the accounts receivable is improving. Again, inventory turnover days is pretty much along with the average. Return on equity and return on assets, I think it's a little bit improving compared to last year. For the EBITDA of 2022 is somewhere like NTD 7.1 billion. The free cash flow is somewhere like NTD 6.2 billion. Up to the parent company, our fourth quarter highlights is somewhere that somewhere that the sales revenue is NTD 2.7 billion. If you look at the bar chart for the eight quarters of recent, you can see that 2022 will fall into the seasonal as our normal operations. The fourth quarter will be a little bit down to the third quarter. This is down 35% on a Q-over-Q basis. Compared to last year, it's a 12% growth on the YOY basis. The growth margin, we still maintain somewhere like 54%. Operating margin 17%. Our net income for the parent company reaching somewhere like TWD 863 million, which is 50% down on a Q-over-Q basis. On a YOY basis, this is a 31% growth. The fourth quarter sales revenue were mainly contributed from the test and instrument and ATS. This is represent a 24% growth. As to the parent company net sales, you can look at the slide number 14. The top line, we're reaching at the, TWD 13.4 billion compared to last year, a little bit over TWD 10 billion. We have a 31% growth on a year-over-year base. Gross margin, reaching somewhere nearly TWD 7 billion, which is a 52% in average. Compared to last year, this is a 29% growth. The operating income is somewhere like, TWD 3.3 billion, and this is a 25% compared to the top line. Compared to last year, this is a 37% growth. The non-operating items here, we're reaching, TWD 2.5 billion. Compared to last year, it's a 2% growth. I have to remind you that last year we have enjoyed capital gain from sale of the our Hwa-Ya headquarters, which is reaching somewhere like TWD 1.5 billion as the non-operating income. Without that, we still have a very good contribution from all the subsidiaries achievements. In there, you also can see that 2022, our net income for the parent company is TWD 5.1 billion and somewhere like 38% to the top line. Compared to last year, this is a 22% growth and reaching at the EPS on the TWD 12.14. As to the financial ratios and highlights for the balance sheet. You also can see that the cash items is improving and the inventory, we have a little bit growth compared to the 2021. You can see that those situations for those supply chains. Again, I think this also reveals that we still have a very good order on hand. Compared to the inventory turnovers, we have a little bit improvement compared to last year. Accounts receivable turnover days is also improving. Our ROE is somewhere like at 26%, and our return on assets is 19%. I think both sectors has a very good improvement. Again, for the EBITDA, it's somewhere like TWD 6.3 billion, and free cash flow is somewhere like TWD 4.9 billion. Well, as to the 2023. Well, let me give you some highlights for the breakdown for the product mix and the consolidated sales numbers. You can see from here that on the fourth quarter, for the core business of test instrument and automatic testing systems, fourth quarter is somewhere like TWD 1.8 billion. Compared to last quarter, on a quarter-over-quarter base, comparison is a 9% drop, but on a year-over-year base is at 24%. As a whole, for the 2022, we are reaching somewhere like TWD 7 billion, and this is 27% growth on a year-over-year base. In semiconductor and photonics, testing solution sectors, you can see from this page that fourth quarter reaching NTD 541 billion. Quarter-over-quarter, this is a 67% drop and 34% drop on a year-over-year base. You also can see this is the effect for those semiconductor industries, kind of facing a very strong headwind starting from second half of 2022. On a whole basis, you also can see that even for that, I think for us, we're reaching like NTD 4.5 billion, and this is a 26% growth on a year-over-year base, which pretty much comply with our commitment at the 1st or 2nd quarter at 2022. For Turnkey Solutions here, I think for the single quarter or fourth quarter is reaching somewhere like TWD 65 million, and this is a 10% growth on a quarter-over-quarter base, but a 13% drop on year-over-year base. For the whole year of 2022, we are reaching somewhere like TWD 578 million, and this is a 67% growth. This is for the total parent company sales. If you look down to see the sales from overseas operations, these subsidiaries contributions at the fourth quarter alone is TWD 3.1 billion. Compared to the on a Q-over-Q base is a 43% growth, and year-over-year is doubling the size to reaching at the total whole year numbers is NTD 6.8 billion. This is double the size at the 2021. Mainly, I think, major part of that will be the formation of Turnkey Solutions we installed at the China site. Here, the total consolidated testing equipment business reaching at the fourth quarter, reaching somewhere like NTD 5.8 billion. Again, this is an 8% drop on a Q-over-Q base, but 64% growth on a year-over-year base. For the 2022 total, we are reaching again somewhere like NTD 20 billion. This is a 50% growth compared to the 2021. For the Consolidated sales, well, again, this is NTD 6.06 billion and 9% drop on a quarter-over-quarter base, and 55% growth on a year-over-year base. For the total year of 2021, we have reached somewhere like NTD 21.4 billion, and it's a 45% growth. Again, for the new material, this is the last time that we're going to see this consolidated business and it will be discontinued and terminated starting from this year. Well, for this year, 2023, I think, in last year, we have a total consolidated sales revenue, hit on the record high, reaching TWD 22 billion. This is a growth of 25% on a year-over-year base. The testing equipment business was the major growth driver. This is represent a growth on the 50%. The parent company sales also, we hit the record high in reaching at the TWD 13.5 billion. Consecutively, this is the second year of a double-digit growth, increasing 31% on a year-over-year base. This is mainly contributed from the EV and the HPC and the semiconductor industry. As to the 2023 outlook, we presume that the EV industry remains strong. The EV Battery Cell project still will be the major contributions in the 2023. The second one will be the testing instrument of ATS for the power testing this solution will be continue benefit from green energy industries, including EV and the energy storage related components, Battery Cell, Battery Module, and Battery Pack, and the Microgrid related power testing. The third point, bullet point will be our view to the will be a bit of a conservative on the semiconductor and photonics sectors. We expect demand to pick up probably will be in the second half. Well, that is my presentation and any questions? Thank you, Paul. We will now begin our question and answer session. If you have a question for any of today's speakers, please press star one on your telephone keypad and you will enter a queue. After you are announced, please ask your question. If you find that your question has been answered before it is your turn to speak, please press star two to cancel the question. Once again, ladies and gentlemen, if you have any question, please press star one on your telephone keypad. Thank you. As a reminder, press star one on your keypad if you would like to ask a question. Our first question comes from Jeff Ohlweiler with Macquarie. Please go ahead, Jeff. Thank you. Yeah, thank you. Hi, Paul. Thanks for your time. Quick question for me. You know, the consolidated gross profit margin OPM was down a lot Q on Q in fourth quarter. Can you just talk a little about that in a little more detail, please? Thanks. Hi, Jeff. Jennifer. Basically, you know, equipment company is kind of operating leverage. You know, it depends on the gross margins and also the, I mean, the sales momentums. In the fourth quarter, our biggest deliverer, as you may compare the consolidated numbers, our major deliver is mostly related to EV Battery Cell. Yeah, we sort of mentioned about this before, that EV Battery Cell projects doesn't, you know, come with the gross margins with, in line with the corporate average. I think the basic explain the gross margin structure in the fourth quarter, I would say the product mix difference. Yeah. However, we will try to made up the whole year gross margin in the range of 50%-55%. Every quarter we probably change, I mean, the shipment or product mix will be different in each quarter. Okay, great. Thanks. Follow-up. For the EV formation systems, you know- Yeah. What's your outlook for this year? You know, obviously you had a very strong year last year. What's your outlook for this year and, or, you know, maybe even the next couple years? Well, honestly, EV has become a global trend, so we do have a quite... I think if I want to highlight one factor which is have better order visibility, I would definitely highlight EV and of course the EV Battery Cell. Okay. These two years, 2022 and 2023, we have been quite good benefited by this kind of EV trends, especially highlight for EV Battery Cell. These two years mostly contributed by Europe OEM placing order to China. Last year concludes or last year we sort of, I think total including Taiwan shipment, I think last year we delivered about TWD 3.5 billion. EV Battery Cell. A majority is definitely come from the European OEM place order to China. This year, we think we were having similar levels last year. If you say the guarantee, you know, with the down pay, I would say almost close to larger level. This is a year-to-date basis regarding to EV Battery Cell. Follow-up, we do have a visibility for 2024 and 2025. I think that will be mainly contributed by U.S. and Japan markets. I think that all depends on factors from IRA. This is a visibility for EV Battery Cell projects. Regarding to the components and module parts, I mean, the devices such as the Power Module, Battery Pack, and we also have a quite good order visibility. I think this part of business could have about 4-5 months or still have about 4-5 months order visibilities. This is quite, it's already concrete orders. I think the driver besides EV, the other sectors we see the picking out high potential market, I would highlight to ESS, Energy Storage System. Yeah. We do have confidence level regarding to our power testing. I think according to our draft, like, highlight this kind of 2023 guidance, I think we tend to be more conservative on this semiconductor sectors. I think it's number 1 because, you know, semiconductor performance sectors had consecutive growth in average every year for 4 years of growth around 25%. Which just mean after 4 years, today, our semiconductor sector is already doubling versus 4 years ago. We need to grow, you know, from high basis. Based on today's semiconductor sentiment, yes, we do have order on hand regarding to HPC. As you may notice, you know, first two months, there's a quite popular topic to talk about ChatGPT that actually utilize more than, I would say, according to our customers' feedback, about 225,000 at least, NVIDIA's chips. I think including our customers, they do have a confidence level that things will start to get better from second half. Based on current order on hand, we still have a momentum from the SLT orders. We also have a couple driver like Foundry customers and Micro LED. We do have a concern regarding to the China market, the semiconductor development, especially under this kind of geopolitical factors. We also pretty much not so sure about what the market think about reopen of China markets. We still doubt about whether it will back to what it looked like before the pandemic or not. Not so sure. We take more conservative view regarding to ATE system. Okay. Maybe last question. Yeah. Do you think consolidated revenues can grow this year? Yeah. According to our guide, you know, our proposal, of course, we expect this sector, I mean, overall consolidated as to grow, but definitely not another year of 50%. Yeah. Great. Thank you. Thank you. Thank you. Our next question comes from Harry Anderson of Mondrian. Please go ahead, Harry. Thank you. Hiya. Thank you for the update call. I just wanted to ask a bit more details about the sales from overseas line. It's now quite a significant part of the testing business. Can we have a few more details around the products that that revenue has come from? Maybe visibility of those revenues into 2023, and kind of your outlook for that line. Thanks. Sorry, you mean SLT, right? no. The sales from overseas portion. Oh. the consolidated business. All right. last year, we generated about TWD 6.8 billion and about TWD 3 billion that's related to Battery Cell. Which just mean those TWD 3 billion Battery Cell was China projects, and which is assembling in China. Is that an ongoing project? Or is that just a project that was executed on in 2022? 2022? No. 2022, yeah, TWD 3 billion. You mean 2023, right? The year just passed. You said it was TWD 6.8 billion. Yes. TWD 3 billion of which was from Battery Cell formation in China. Is that project-? Yes. a multi-year project or was it just in 2022? The Battery Cell project we booked. You know, normally Battery Cell come with the. Okay. That was accumulated by multiple of multiple projects, not one project. Okay. Every project come, you know, kick off at different time. We have a sort of. Project-based installation. Different booking. Yeah. Yeah. will be So- -booking, period will be a bit of that difference. Yeah. Anyway, that's not one-time project. If you ask how many that we booked last year, that's around TWD 3 billion. If you refer to our balance sheet, we still have like a customer deposits, about TWD 1.6 billion. Which just mean, you know, we still have several projects on hand. Okay. Maybe some guidance of your expectations for that line into 2023, and then maybe, a commentary on your broader revenue exposure to China. You mentioned kind of sales in the SLT, Mm. business there. Kind of what's your overall exposure to China? Because in this day, most of the EV components, like EV Battery Cell, the capacity we're dealing with in Europe is Almost 100% European OEM. They still, as, you know, manufacturing in those capacity due to high energy costs in Europe, those capacities still build out in China. I would say today we do have. Mm-hmm. 50% exposure to China. We don't sell any of the SLT to China because SLT is HPC. Due to the trade war, they couldn't develop HPC at the moment. If you talk about SLT System Level Tester, mostly sell to U.S. customers. Okay, the exposure to... On the EV side from manufacturing in China? Yes. The customers in China, yes. Okay. Then maybe lastly, kind of the outlook for the sales from overseas line next year. The contribution of that line in 2022 as a percentage of the parent jumped quite significantly from around 23%, 24% to 34%. Do you expect that to go back to normal or is this? Okay, we couldn't be- due to kind of higher contribution from overseas? We couldn't be very sure at to date, okay. If you say China projects, we probably tend to prefer to assembling in China. Rest of the area, like Southeast Asia, currently we do have a couple of the projects in Southeast Asia, U.S., and Japan, will be booked under parent because it will be shipped from outside Taiwan, not China. Okay. if you say the Okay. projects that we're going to book for the EV battery cell, currently we still expect this kind of EV battery cell to be better than last year, which is around TWD 3 billion. Okay. Okay, thank you. I'll join the queue. Thank you. Thank you. As a reminder, press star one on your keypad if you would like to ask a question. Once again, ladies and gentlemen, that is star 1 key for questions. As a reminder, press star one on your keypad if you would like to ask a question. We do have a follow-up question from Harry with Mondrian. Just go ahead, Harry. Thank you. Oh, yeah. Yeah. Maybe a few more details around the SLT business. Okay. You know, conservatism in the first half of the year. What does that mean for kind of your overall expectations? Obviously you've grown very strongly for the last four years. Does that mean maybe negative growth next year? Maybe I recap a little bit. Okay. Basically, Chroma, we only sell three major testers for semiconductor industry. Number one, SLT System Level Testers, is selling to U.S. HPC makers, like NVIDIA, AMD. I think we cover most of it, including MediaTek, Realtek, et cetera. Second product, ATE system. ATE system mostly sell to the legacy application like power MCU, Power IC, but only to China. We sort of have about over 90% market share, because this is very legacy, about 300 MHz or 40 MHz Number three is related to optical object like VCSEL or recently we are stepping to Micro LED. Those are optical objects. None of them is actually under the so-called restriction, you know, under trade war. Okay. Our which is we just mentioned about the conservative, is we're concerned about this kind of China market. Which is ATE system. ATE system, we all understood, you know, if we all still remember back to 2021, ATE system was, you know, have a very strong demand for this kind of legacy app, application. In 2022, you know, most of the people start to decline, China still purchased quite a lot last year. Okay. You know, recently the market start to talk about like, China reopen, the consumer demand back to the normal, et cetera. We take more conservative view on this part because since China doesn't really slow down even last year regarding to this kind of ATE purchase. Maybe there are multiple reasons behind. If ATE starts to decline, that means the other sector need to cover the ATE decline. Even okay, as I said, we still look hope for the second half will start to get better. Because our customers, especially for HPC maker, you know, recently people talk about ChatGPT, and they still, you know, kind of are quite positive. Regarding to the final HVD demands, you know, picking up in the second half this year. Okay. In terms of, yeah, your overall outlook for 2023, Mm-hmm. I'm kind of. Is it fair to say that you expect growth but you're conservative around the number that you can forecast? Okay. According to regulation, we are not really able to, you know, give a, you know, overall the company sales revenue or net profit guidance. As we address, you know, for EV, which is power testing, we still expect this sector to grow. Semiconductors, maybe the flat to decline for current sentiment and see whether second half will, how much it will pick up. Yeah. Okay. That's helpful. Thank you. Thank you. Thank you. Thank you. As a reminder, press star one on your keypad if you would like to ask a question. Once again, ladies and gentlemen, that is star one for questions. Our next question comes from Paul Rathband with Schroders. Please go ahead, Paul. Thank you. Hi, Jennifer. Hi, Paul. Hi. Hi, Paul. Yeah. Hi. Just on your association with Camtek, I'm wondering if there's any opportunities you're seeing from licensing their technology, creating any synergies from their metrology solutions? Paul, yes, of course. I think due to the corona, separation for 3 years, I think we got. Yeah. Visit, from Camtek is their, is their, chairman and the CEO. We do have some, technology changing and video conference but, actually the physical kind of, cooperations, is only, well, probably postponed for a period of time. Again, I think we got a couple of projects that working on, and I think they do a very good business, for the past three years already. I think that's still maintaining in very good shape. Yeah. I mean, I agree that it's been difficult for the last few years to do much, do you see that changing? Is it enough to move the needle in the next few years? Cannot, you know, speak for them. Again, I think they... We are more diversified than Camtek. Camtek will be a bit of focus and for the operations for this year, I think it's a bit of a conservative, I would say, just like our views to the semiconductor business. Okay. You mentioned Micro LED is. Mm. potentially an area that you see opportunity. Can you give us more on that? Hi, Paul. This is Jennifer. Actually, we do have- Hey. The reason why we highlight for Micro LED is because we already have order on hand. Apparently, you know, those AI MR projects, they normally would not have a big volume in the first year. We're actually expecting the second half because customers are already pretty much confirmed, which is the OEM, you know, who is going to in charge for manufacturing this Micro LED. That's why we do have, you know, equipment orders. We expect this one because since already 2 U.S. customers will adopt Micro LED for their, you know, AI MR projects. We're expecting this kind of application will start to picking up in the second half. First half, just, you know, probably we just run our project on hand. Yeah. Got it. All right. That's it for me. Thanks. Thank you. As a reminder, press star one on your keypad if you would like to ask a question. Once again, ladies and gentlemen, that is star one for questions. Excuse me, Jennifer, there are currently no questions. Thank you. Hi, everyone. I think we have enjoyed a record high either on the top line, on consolidated basis or on the apparent company, standalone numbers on either top line and the bottom line. I think we have a very good year for the past two years. Again, we are working very hard in trying to maintain this kind of record at the 2023. Thanks for your confidence and yeah, please support as always. Thank you. Thanks for your time. Bye-bye. Thank you, Paul. 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 session. You may now disconnect. Goodbye.