Hollysys Automation Technologies Ltd.
Q1 2016 Earnings Call Transcript

Published:

  • Operator:
    Ladies and gentlemen, thank you for standing by, and welcome to the HollySys Automation Technologies' Fiscal Year 2016 First Quarter Ended on September 30th, 2015 Earnings Conference Call. [Operator Instructions] Please be advised that this conference is being recorded today, November 12, 2015. I would like to hand the conference over to Mr. Arden Xia, the Investor Relations of HollySys Automation Technologies. Thank you. Please go ahead, Mr. Xia.
  • Arden Xia:
    Hello everyone and thank you for joining us. Today our speakers will be Mr. Baiqing Shao, CEO of HollySys Automation Technologies; Ms. Herriet Qu, CFO of HollySys; and myself from Investor Relations of HollySys Automation. On today's call Mr. Shao will provide a general overview of our business, including some highlights for the quarter and fiscal year, and Ms. Qu will discuss our performance from a financial perspective and financial outlook for fiscal year -- for the first quarter of fiscal 2016. And the whole senior management will answer questions afterwards. Before we get started, I would like to remind everyone that this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts, including statements relating to the expected growth of HollySys' future product introductions, the mix of products in future periods and future operating results. Such forward-looking statements, based upon the current beliefs and expectations of HollySys' management, are subject to risks and uncertainties which could cause actual results to differ from the forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the statements
  • Operator:
    We'll now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Kevin Luo from Morgan Stanley. Please go ahead.
  • Kevin Luo:
    Hi. Thanks for taking my question. I have two questions. The first question is about order backlog. As we can find Industrial Automation's order backlog further decreased by 5% quarter on quarter to $127 million, can we break down this backlog into DCS and the PLC? If there's no detailed breakdown, can you let us know through [ph] backlog from pharmaceuticals and nuclear? Or maybe percentage is okay. My second question is about M&E segment. As we can find M&E's revenue declined by 61% year over year to only $15.6 million, can you let us know the backlog by your three OSC [ph] subsidiaries, Bond, Concord and Hollysys International? Thank you very much.
  • Arden Xia:
    [Chinese language spoken]
  • Baiqing Shao:
    [Chinese language spoken]
  • Kevin Luo:
    Xie-xie, Shao-jong.
  • Arden Xia:
    The first question is about the industrial automation and macroeconomic has still -- growth rate still quite slow, and also we meet some difficulty in this area. But the good thing is from new order, it's gradually getting better, and we charge [ph] that it's just a temporary -- I mean right now the backlog goes down, and actually we have confidence to achieve the target. The second, about M&E. Malaysia -- or [inaudible] that comes from Malaysia, and that area right now [inaudible] side is relatively not stable. So [inaudible] the other potential opportunities, but we will gradually to change the backlog to improve that and also to catch some on potential targets [ph] from that area, we will finally achieve the whole target of the guidance.
  • Herriet Qu:
    [Chinese language spoken]
  • Arden Xia:
    And --
  • Kevin Luo:
    [Chinese language spoken]
  • Herriet Qu:
    [Chinese language spoken]
  • Kevin Luo:
    [Chinese language spoken]
  • Baiqing Shao:
    [Chinese language spoken]
  • Kevin Luo:
    Xie-xie.
  • Arden Xia:
    And the CFO [inaudible] the pharmaceutical, we want to emphasize that backlog right now just represents the integrated contracts, not including the product sales and service. For example, like pharmaceutical area, the product sales not in the backlog. And also nuclear power. Nuclear power right now, the revenue comes from two main parts. One is from joint venture company and the second is from the product sales that we sell to, for example, CCNC or China Nuclear National Corporation. So that's the difference. And also they mentioned about the, in the past, the joint venture company from that side, the number is negative, but right now it's turned to positive. Okay. Operator, next one.
  • Operator:
    Your next question comes from the line of Baiding Rong from Credit Suisse. Please go ahead.
  • Baiding Rong:
    Hey, good morning. [Chinese language spoken]
  • Arden Xia:
    The first question is on the ADP. Right now their official website announced that we win the contract, and what about that contract size and compare with [inaudible] compare to in the past, the market share of these three is increasing. So, what about the total amount, maybe increasing? And the second question is that, Malaysia [inaudible] the target is not changed. So - but represents the first quarter revenue as we see it already goes down. So, what about the next quarter, if it will concentrate in the next quarter about the revenue size? And the third question is about revenue and the backlog. And right now in IA, industrial automation, the revenue and backlog is going down, and maybe [inaudible] revenue recognition will accelerate and also the product sales not including the backlog, so, almost everything is going down, so, what about trend in future? Next one is our dividend. What about dividend policy in the future?
  • Baiqing Shao:
    [Chinese language spoken]
  • Arden Xia:
    The first question answer. The D3 [ph] is announced and the good news right now, this time, we -- in the past few years we just provide [inaudible] for C3 [ph], but right now this contract, including B [ph] and B5 [ph], and it is a significant contract. But we are under discussion right now so we cannot disclose the size of the contract. The second answer is that on Malaysia M&A, the project is delayed, and we will continue trying our best to accelerating the speed and also get new contracts to support the M&E part in future. [Inaudible]
  • Herriet Qu:
    [Chinese language spoken]
  • Arden Xia:
    About the backlog and also revenue, it's gradually turned down, and we think in future it's going to keep at this status. And for more turnover [inaudible] some product maybe we'll recognize revenue quickly, that part, the percentage of the -- in the whole structure of the backlog right now, it seems not too detailed to disclose. And also it's not a big part [ph] problem to turning the whole [ph] backlog, and also we need a long time to make a relatively stable model in the future. So, generally speaking, [inaudible] very fast, like [inaudible] contracts, like that, it's really hard to give you data right now. And then the last one is about the dividend. The dividend policy, we will consider to pay a dividend, but right now we have no solid dividend policy.
  • Baiding Rong:
    [Chinese language spoken]
  • Herriet Qu:
    [Chinese language spoken]
  • Baiding Rong:
    [Chinese language spoken]
  • Arden Xia:
    And the last question is about how to turn the right now status that have relationship about the new order and the revenue and backlog, seems a little gap in size. And we, in the future, we'll increase like aftersales revenue, also product sale, and also the other things to gradually change [ph] the situation. Okay, operator, next question.
  • Operator:
    Your next question comes from the line of Patrick Xu from Nomura. Please go ahead.
  • Patrick Xu:
    [Chinese language spoken]
  • Herriet Qu:
    [Chinese language spoken]
  • Patrick Xu:
    Okay. Xie-xie.
  • Arden Xia:
    The first question is about PRC, how much percentage of the PRC in IA. The answer is right now we have no very accurate statistic, but it's relatively 10%. The second question is that -- CLS -- other income, is come from the other income. The other income seems have very large fluctuate, will that be trend in future? The answer is that other income, because there's fair value adjustment and also have exchange rate change sharply, so it's kind of affected the whole other income. And the third question is about the tax rate. It seems like also it fluctuates very sharply. And the answer is now that the tax rate, because last year we applied for the high tax certificate and also at the end of 2014 we got the certificate. And before that, we just applied the 25% of income tax. But for this year, it all takes around 15% income tax. And also beyond that, in addition, the withholding also affects the tax. So, generally speaking, each year, each fiscal year, our effective tax rate should be 17% to 19%. The last question is about the net income guidance and what about the non-GAAP and GAAP differentiation. And the answer is that, because of the fair value adjustment and also exchange rates, so it's very hard to give you the statistic difference between them, but I can tell you it's similar.
  • Arden Xia:
    Okay. At this time we'd like to open it up -- thank you everyone for joining us on the call today. If you haven't got the chance to raise your questions, we'll be pleased to answer them through follow-up contacts. We're looking forward to speaking with you again in the near future. Thank you.
  • Baiqing Shao:
    Xie-xie.
  • Herriet Qu:
    Xie-xie
  • Operator:
    That does conclude our conference for today. Thank you for your participation. You may all disconnect.

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