ChipMOS TECHNOLOGIES Inc. (IMOS) Q1 2021 Earnings Report, Transcript and Summary

Greetings, And welcome to the ChipMOS First Quarter 2021 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 First Quarter 2021 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 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 achieved record quarterly revenue in Q1 2021. Our performance in Q1 was even more impressive given this is normally a seasonal low period. We are very pleased with our record Q1 revenue and with our team’s continued execution. Let me give you some highlights from the quarter. First, revenue for the Q1 2021 increased 15.7% year-over-year to a new record high and grew 2.5% from the prior to Q4 2020. Gross margin declined 20 basis points for Q1 2021 to 24.2% compared to Q4 2020 as we grew despite headwinds from higher materials and supply chain costs in Q1. Operating expenses declined to 6.6% of revenue in Q1 from 7.1% in the year ago period as we continue to focus on supply chain costs and driving operating efficiencies. EPS for the first quarter of 2021 was TWD 1.32, which increased 40.4% from the prior Q4 2020 and increased 34.7% compared to Q1 2020. Given our business strength, demand strength and balance sheet strength, our Board of Directors has already approved the 2020 dividend of TWD 2.2 per common share. This is pending shareholder approval at our AGM. We expect our 2021 dividend will be higher than 2020 based on our positive business trends and cautiously optimistic 2021 outlook. I am also pleased to report we improved overall utilization to 86% from 79% in Q1 2020 and 85% in Q4 2020. Q1 assembly utilization level increased to 95%, up from 81% in Q1 2020 with tightness continuing from Q4. Testing also significantly increased to 81% compared to Q4 2020. Our high-end DDIC test platforms, including new capacity we added in Q1 were also fully utilized in support of strong customers demand. Both bumping and LCD driver were improved in first quarter. Regarding our manufacturing business, assembly was up and represented about 28.8% of Q1 revenue. Testing represented around 21% and wafer bumping represented more than 21% of Q1 revenue. On a product segment basis, our DDIC, including COG and COF, was more than 29%, and gold bumping represented around 17.6% of Q1 revenue. Revenue from DRAM and SRAM represented 16.4% of Q1 revenue. Our Flash segment and the Mixed-Signal segment represented around 27% and 10% of Q1 revenue, respectively. In the meantime, Mixed-Signal products segment grew around 30% compared to Q4 2020. In terms of adding color on our business, our memory product benefited from strong demand across all end markets with growth in servers, IoT and gaming. Revenue was up 18.6% compared to Q1 2020 and up about 5% compared to Q4 2020. Memory products represented around 43.3% of total Q1 revenue. Total flash revenue grew 40% compared to Q1 2020 and grew 16% compared to Q4 2020. The NOR and Mask ROM grew more than 90% compared to Q1 2020 and grew 13% compared to Q4 2020. Our NAND flash business also grew significantly, increasing 23% over Q4 2020. This represented about 31.5% of our total Q1 flash revenue. DRAM revenue declined about 6.6% compared to Q1 2020 and 9.4% compared to Q4 2020. Moving to driver IC-related product revenue. This increased 14% compared to Q1 2020 and slightly down about 4% compared to Q4 2020. This represented around 46.8% of total Q1 revenue. Total DDIC revenue was up more than 11% year-over-year and down just slightly about 0.5% compared to Q4. We are pleased with our progress and are also benefiting from an increased allocation share on some key customer cooperation projects. This helped drive an improvement in the DDIC revenue ratio of COF to about 43% in Q1, with COF utilization level for TV and NB also increasing. Our high-end DDIC test platforms, including new capacity we added in Q1 were fully utilized, reflecting the strong demand we continue to see. The TDDI representing about 31% and OLED representing about 3% of Q1 DDIC revenue. On an end market basis, revenue from automotive and industrial significantly increased to 13% of Q1 revenue. Smart phones and TV as an end market accounted 36.5% and 15.5%, respectively. Computing represented about 12% and consumer represented about 23% of Q1 revenue. Now let me turn the call to Ms. Silvia Su to review the first quarter 2021 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 28.48 against $1 as of March 31, 2021. All the figures were prepared in accordance with Taiwan International Financial Reporting Standards. Referencing presentation Page 12, consolidated operating results summary. For the first quarter of 2021, total revenue was TWD 6,465 million. Net profit attributable to the company was TWD 959 million in Q1. Net earnings for the first quarter of 2021 were TWD 1.32 per basic common share or $0.93 per basic ADS. EBITDA for Q1 was TWD 2,287 million. EBITDA was calculated by adding depreciation and amortization together with operating profit. Return on equity of Q1 was 18%. Referencing presentation Page 13, consolidated statements of comprehensive income. Compared to 4Q 2020, total 1Q 2021 revenue increased 2.5% compared to 4Q 2020. 1Q 2021 gross profit was TWD 1,562 million, with gross margin at 24.2% compared to 24.4% in 4Q 2020. This represents a decrease of 0.2 ppts. Our operating expenses in 1Q 2021 were TWD 425 million or 6.6% of total revenue, which is about a 2.9% improvement compared to 4Q 2020. Operating profit for 1Q 2021 was TWD 1,160 million, with operating profit margin at 17.9%, which is about a decrease of 0.5 ppts compared to 4Q 2020. Net non-operating income in 1Q 2021 were TWD 25 million compared to net non-operating expense in 4Q 2020. The difference is mainly due to the decrease of foreign exchange loss of TWD 152 million and the increase of the share of gain of associates accounted for using equity method of TWD 142 million. Profit attributable to the company in 1Q 2021 expanded 39.7% compared to 4Q 2020. The difference is mainly due to the increase of the gross profit of TWD 20 million and net non-operating income of TWD 303 million and partially offset by the increase of income tax expense of TWD 30 million. Basic weighted average outstanding shares were 727 million shares. Compared to 1Q 2020, total revenue for 1Q 2021 was up 15.7%. Gross margin at 24.2% increased 1.5 ppts. Operating expenses increased 7.2%. Operating profit margin at 17.9% increased 1.8 ppts. Net non-operating income in 1Q 2021 were TWD25 million compared to net non-operating expenses in 1Q 2020. The difference is mainly due to the increase of the share of gain of associates accounted for using equity method of TWD69 million, the decrease of interest expense TWD13 million and partially offset by the increase of foreign exchange loss TWD55 million. Profit was up 34.6% compared to 1Q 2020. The difference is mainly due to the increase of the gross profit of TWD291 million, net non-operating income of TWD30 million and partially offset by the increase of income tax expense of TWD43 million. Referencing presentation Page 14, consolidated statements of financial position and key indices. Total assets at the end of 1Q 2021 were TWD37,111 million. Total liabilities at the end of 1Q 2021 were TWD15,350 million. Total equity at the end of 1Q 2021 was TWD21,761 million. Accounts receivable turnover days in 1Q 2021 were 77 days. Inventory turnover days were 41 days in 1Q 2021. Referencing presentation Page 15, consolidated statements of cash flows. As of March 31, 2021, our balance of cash and cash equivalents was TWD5,591 million compared to TWD1,477 million at the beginning of Q1. Free cash flow for the first quarter was TWD922 million compared to TWD553 million for the same period in 2020. The difference is mainly due to our increased operating profit of TWD260 million and the depreciation expenses of TWD122 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 TWD1,110 million in CapEx in Q1. The breakdown of CapEx was 4.4% for bumping, 42.1% for LCD driver, 16.8% for assembly and 36.7% for testing. Depreciation expenses were TWD1,127 million in Q1. As of April 30, 2021, the company’s outstanding ADS number was approximately 4 million units, which represents around 11.7% 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. Q2 2021 is starting out strong for us. We expect to benefit from several important trends in Q2. 5G build-outs are continuing worldwide and market consumption continues to recover and the major digital transformation in industrial and automotive continues. Tightness remains in the semiconductor supply chain with capacity shortages and longer lead times for raw materials. Based on public comments, we expect this situation to remain in 2Q 2021. On the other hand, we are very positive in the outlook for ChipMOS. We expect the positive trends from Q1 will continue in our all product segments with momentum continuing with strong demand and tight OSAT capacity. Profit is also expected to improve as the OSAT ASP increasing. In memory, we are increasing the assembly capacity to meet the strong capacity demand from customers, particularly wire bonder capacity. We are benefiting from momentum in DRAM with customers restocking. We expect flash businesses, including NOR and NAND, will continue to grow as we move through Q2 2021. In DDIC, we are closely monitoring the continuing tightness of wafer fab capacity and supply. We expect to continue to gain more allocation share in key customer cooperation projects with COF utilization level for TV and notebook on track for further improvement. We also expect the utilization level will remain on high as we benefit from continued strong demand levels in smart phone. Regarding to mixed signal, based on customer discussion, we expect to see continued momentum in Q2 2021, led by strong demand from major customers and our expanded OSAT scale with strategic customers. Operator, that concludes our formal remarks. We can now take questions. Operator?

Thank you. [Operator Instructions] Our first question comes from Jerry Su from Credit Suisse. You may begin.

Chairman, Silvia and everybody, considering the positive guidance for both of memory and DDIC segments, could you please give us the more color for Q2 and April revenue?

Jerry, to answer your question, there is one workday less in April compared to March and non-linear wafer incoming of DDIC. Those were the main impacts. We expect to continue to benefit from strong demand in May and June. Therefore, we could expect better Q2 revenue at least by high single-digit growth.

One more question about mixed-signal segment. You mentioned it grew around 30% in Q1 compared to Q4 2020. Could you give us more color about the products and how the momentum could be sustained?

There are two major product groups. First is for our Japanese customer. To meet the strong demand, ChipMOS built a captive line to serve the customer. Second is from two of our domestic customers for TV SoC chip, including T-Con. The demand will likely be very strong, and we could continue to grow depending on the customers’ assembly subcon’s capacity support, which is not managed by ChipMOS. New testing capacity would be installed accordingly. That is why we are optimistic about mixed-signal segment growth this year.

Could you commend the assembly price hike in coming quarters?

As we mentioned before, to reflect the raw material cost increasing and the tightened capacity in assembly, we increased assembly price around 5% to 8% from Q4 ‘20 to Q1 2021. Additionally, since the raw material supply is still very tight, we will try to reflect the material cost to our customers in proper time again.

Next question comes from Stanley Wang from SinoPac Securities. You may begin.

There are two questions. First is the pricing strategy to customers and second is safety stock preparation guidelines under current tight demand and supply.

Under the condition of longer raw material and equipment lead times and also tight wafer supply, our customers could absorb the cost pressure so that we could have favorable pricing. As for the inventory question, considering the longer lead time, we have increased the inventory preparation level to roughly three months.

Is there any potential price increase in second half of this year?

Yes, we are monitoring closely.

Based on the new capacity installation schedule and strong customers’ demand, we could expect further consecutive quarter-on-quarter growth.

Next question comes from Jerry Su from Credit Suisse. You may begin.

I have a follow-up question. If we could see consecutive quarter-on-quarter growth this year, plus on the previous earnings call, giving double-digit YoY growth, could you guide more specifically for the double digits growth, potential chance toward 20%?

With the first quarter result and current business visibility, we could potentially see 15% to 20% YoY growth.

The market is concerned about China’s smart phone demand correction and India’s worsening COVID-19 pandemic. While your company is preparing more capacity at this moment, do you worry about the weaker smart phone demand in second half causing idle capacity due to customer forecast declines?

Under the tight wafer supply condition, our customers are optimizing their product mix in order to maintain the better revenue and margin. We are doing the same for higher value-added product and cooperating closely with strategic customers to leverage the capacity.

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

Thank you. I will orally read some questions from foreign institutional investors. The question is asking about Unimos. Could the company give an update on the recent performance of Unimos? Is Unimos now profitable on an ongoing basis?

Unimos was profitable this quarter led…

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 email 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.