ChipMOS TECHNOLOGIES INC.
Q2 2021 Earnings Call Transcript

Published: 10 Aug 2021

[Operator:]

Greetings, and welcome to the ChipMOS Second Quarter 2021 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. 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.

[G.S. Shen:]

Thank you, operator. Welcome everyone to ChipMOS' second 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.

[S. J. Cheng:]

Yes. Thank you, G.S. We appreciate everyone joining our call today. We achieved record quarterly revenue in Q2 2021, and have now delivered over 22% revenue growth in the first half of 2021 compared to 2020. Our assembly and DDIC high-end test platforms remain near full utilization level and we are adding capacity given continuing strong market demand. Both ASP increased and high utilization level both led revenue grew and profit improved. Let me give you some highlights from the quarter

[Silvia Su:]

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 NT$ 27.91 against US$ 1 as of June 30, 2021. All the figures were prepared in accordance with Taiwan-International Financial Reporting Standards. Referencing presentation Page12 consolidated operating results summary. For the second quarter of 2021, total revenue was NT$ 6,982 million. Net profit attributable to the Company was NT$ 1,284 million in Q2. Net earnings for the second quarter of 2021 were NT$ 1.76 per basic common share or US$ 1.26 per basic ADS. We achieved a 78% increase in net earnings for the first half of 2021 to NT$ 3.08 from NT$ 1.73 in the first half of 2020. EBITDA for Q2 was NT$ 2,696 million. EBITDA was calculated by adding depreciation and amortization together with operating profit. Return on equity of Q2 was 22.9%. Referencing presentation Page13 consolidated statements of comprehensive income. Compared to 1Q21, total 2Q21 revenue increased 8.0% compared to 1Q21. 2Q21 gross profit was NT$ 1,966 million, with gross margin at 28.2% compared to 24.2% in 1Q21. This represents an increase of 4.0 ppts. Our operating expenses in 2Q21 were NT$ 463 million or 6.6% of total revenue which is about a 9% improvement compared to 1Q 2021. Operating profit for 2Q 2021 was NT$ 1,540 million with operating profit margin at 22.1%, which is about an increase of 4.2 ppts compared to 1Q 2021. Net non-operating expenses in 2Q 2021 were NT$ 19 million compared to net non-operating income in 1Q 2021. The difference is mainly due to the increase of foreign exchange loss of NT$ 55 million the increase of loss on valuation of financial assets at fair value through profit or loss of NT$ 13 million and partially offset by the increase of the share of gain of associates accounted for using equity method of NT$ 23 million. Profit attributable to the Company in 2Q 2021 expanded 33.8% compared to 1Q 2021. Basic weighted average outstanding shares were 727 million shares. Compared to 2Q 2020

[S. J. Cheng:]

Thank you, Silvia. Our main end markets continue to recover with positive trends expected to continue in our all product segments. Profit is also expected to improve, as the OSAT ASP is increasing, with a stable high utilization level. We are cooperating closely with customers and watching utilization levels, as we work through a tightened wafer supply. We expect to achieve growth in Q3, and the second half even with the bottleneck. In memory, we are further increasing assembly and test capacity to meet increased capacity demand from customers, with demand increasing above expectations in consumer and auto electronics. We are benefiting from healthy demand in DRAM aided by customers restocking inventory. We expect our flash businesses including NOR and NAND will continue to grow with momentum gradually bolstered, as demand increases through Q3 2021. Overall, the memory growth momentum is expected to be better than DDIC, in Q3. For DDIC, we expect continued growth led by strong demand. Tightened wafer supply is expected to continue in Q3, which causes DDIC utilization level fluctuations. Regarding mixed-signal, we expect to see continued growth in Q3 2021, as major customers restocking. Finally, our 2020 dividend of TWD2.2 per common share was approved at our July AGM. It is scheduled to be distributed at the end of August. We expect our 2021 dividend will be higher than 2020, based on our positive business trends and cautiously optimistic 2021 outlook. Operator that concludes our formal remarks, we can now take questions.

[Question-and:]

[Operator:]

Thank you. At this time, we will be conducting a question-and-answer session. Our first question comes from Jerry Su from Credit Suisse. You may begin.

[Jerry Su:]

Congratulations for the good performance and Q2 results. Please comment on the contribution for the gross margin rate increasing around 0.4 ppts from price hikes and utilization rate improvement separately?

[S. J. Cheng:]

Thanks. Gross margin increased 40 basis points for Q2 2021 to 28.2%, compared to Q1 2021. We are adding capacity given continuing strong market demand. Our assembly and DDIC high-end test platforms remain near full utilization levels. And both, ASP increased and high utilization level both led revenue growth and profit improvement. The average price increase from all product lines was about 5% to 6%.

[Jerry Su:]

Based on your Q3 outlook, memory will grow better than DDIC and assembly and test ASP will increase. Does it mean including both memory and DDIC?

[S. J. Cheng:]

Due to longer machine and raw material, lead time caused by tight capacity. We have reflected memory assembly contract price starting from July. As for DDIC, despite tight wafer supply, customers are allocating more of their wafers to high-end product such as, full HD, TDDI, OLED and high frequency TV which also requires our high-end test platform support. Therefore, we also reflect the price for some customers.

[Jerry Su:]

Speaking of tight wafer supply, does Chairman see any sign of loosened DDIC wafer foundry capacity supply?

[S. J. Cheng:]

Currently, no such sign appears. For those customers owning better technical capability and stronger bargaining power, it is easier to get wafer foundry support to meet their wafer quantity demand.

[Jerry Su:]

Based on Chairman's memory outlook, do you see the possibility of a market price downturn in Q4 or Q1 next year? And how would it influence Company's business performance? Under that circumstance, would any take-or-pay or long-term business contracts be considered?

[S. J. Cheng:]

We published that our July revenue grew 2.4%, compared to June. Basically, we are optimistic for second half of this year. Our memory business comes from two segments. One is more like commodity and the other one is niche. Even the commodity memory could fluctuate. We see more stable and growing demand from the niche memory like low density DRAM, NOR and NAND. Our customers are also shrinking their wafer technology to increase the chip quantity. So, we are expanding capacity to meet customers’ demand.

[Jerry Su:]

Okay, thanks Chairman.

[Operator:]

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

[G.S. Shen:]

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

[Jesse Huang:]

Unimos was profitable since Q1, 2021 led by higher demand and operational improvements. ChipMOS recognized about 60.1MNTD profit in Q2 2021. We expect Unimos to have further improvements with the continuing growth of its 3D NAND flash business from YMTC.

[G.S. Shen:]

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.

[S. J. Cheng:]

Thank you everyone for joining our conference call. Please email our IR Team if you have any more questions. We appreciate your support. Goodbye.

[Operator:]

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