Airtac International Group (1590.TW) Q3 FY2025 Earnings Call Transcript & Summary

Good afternoon, and good morning, everyone. Welcome to Airtac's Third Quarter Earnings Call. This call is hosted by UBS. I am Ally Chen, Taiwan Strategist and Industrial Analyst. Before we start the call, we would like to ask for your support in the Extel survey, which will start in November. This survey is important for UBS. Please vote for UBS and myself in Taiwan industrial and equity strategy categories. Now let's start the call today. It's our great honor to have Mr. Ivan Tsao, Airtac's CFO, in this call. We will start with Ivan's updates on the company and then open up for Q&A later. So Ivan, I'll hand the microphone to you.

Okay. Thank you, Ally, and good day everybody. This is Ivan Tsao speaking for Airtac, and welcome to this conference call. And as usual, please let me brief our third quarter results and current market situation. First of all, observing the impact of the U.S.-China tariff issue, we thought that most of the China customers have experienced the tariff from U.S. since 2018. Although new tariff factors have had a partial impact on the China current economy, it most could be caused by customers' psychological influence and this time will not be greater than that in 2018, '19. Currently, for the recovery of the China economy, the importance of how the China government continues to implement more policies to restore people's confidence and improve people's consumption and is far greater than the impact of U.S. tariff. For Airtac, we are closely observing the development of tariff friction and proposing corresponding stretch timely to continuous increase our market share and support revenue growth. Pneumatic industry still can sustain single-digit growth annually once there is no too severe NOLCOM issue. By continuous developing new products and improving our brand image, we expect our annual revenue growth rate can be 10% higher than the industry growth rate. Recently, some investors concerned the anti-innovation, evolution policy may affect demand for pneumatic products. However, we believed this policy has very limited impact on the pneumatic demand and is actually beneficial to the overall market trading orders as pneumatic product support production line rather than end product. As long as customers launch new models or engaged in production activities, there will be a greater demand for pneumatic. In addition, the impact of the cross-trade tariff agreement between Taiwan and China, we seen it as ECFA issue and our operating margin has subsided by the second quarter of 2025. The year-on-year decline in our operating margin over the past 4 quarters will tend to recover and grow from this third quarter onward. And our approved consolidated revenue for the third quarter of 2025 was RMB 1,971 million, a 20% growth year-on-year. Gross profit was RMB 907 million, a 20% growth year-on-year. Gross margin was 46.04%. Operating income was RMB 588 million, a 28% growth year-on-year. Operating margin was 29.84%. Nonoperating income was RMB 46 million, including RMB 35 million of FX gain, RMB 9 million subsidy from government, RMB 8 million of interest income and RMB 3 million of interest expenses. Income before income tax was RMB 634 million, a 31% growth year-on-year. Pretax margin was 32.16%. Net profit was RMB 502 million, a 30% growth year-on-year. Net margin was 25.46%. EPS for the third quarter of 2025 was TWD 10.5, and TWD 30.36 for the first 3 quarters of 2025. And revenue from top 8 industries for the third quarter of 2025. The biggest one still was electronics, is around 26% to our consolidated revenue and is 10% growth year-on-year. Second one, Battery was around 14% to revenue, 100% growth year-on-year. Auto was 11% to revenue, 52% growth. Packaging was around 9% to revenue, 10% growth. Machine tool was 7% to revenue, 17% growth. General machinery was around 6% to revenue, 15% growth. Textile was 4% to revenue is flattish year-on-year in third quarter. And LED lighting was around 3% to revenue is 8% decline year-on-year. For current market situation, we believe that the pneumatic industry demand has entered in a recovery cycle since late of 2024, even it may only be a gradual or moderate recovery. The duration of this recovery cycle may be longer than the normal 2 years recovery period in the past. In addition, China government continues to release many stimulus policies in past couple of quarters and attempting to restore people confidence in government policies. Some of those customers have improved their confidence and increased their end product consumption or increased their capacity expansion. Overall, shipment was better than our expectation in Q1 of 2025, but just in line in second quarter of 2025 caused by the tariff policy from U.S. and some customers postponed their demand. However, the impact of tariffs have been diluted and some customers still need to improve production process, automation and replace pneumatic product. The shipment in the third quarter of 2025 is once again better than our expected. As for the demand of various industry for pneumatic component in 2025, pneumatic support customers' production process, not in their end product. Once customers have more new models launched or spec upgrade, they need more new production processes to support their production. However, due to some customers observing the development of tariff negotiation in second quarter, especially those in consumer electronics industry, electronics revenue in second quarter were lower than our original expectation, but some of such postponed orders have gradually been delivered starting from this September. There is still a chance of the growth nearly 10% throughout the 2025 from electronics. In addition, there is still so many customers saying it could be a good year for electronics demand in 2026 because there could be more new model launch or spare upgrade in the year. And we expect we could have another 10% revenue growth from electronics in 2026. And for battery demand, government announced its guidance for the EV and battery industry for 2025 in last November, and the demand has accelerated pretty fast from that time. We have had around 1% revenue growth from battery year-to-date, and was better than our expected and still could be double-digit revenue growth in 2026 because government process used to be suspended more than 1 year, and we still expect the battery demand still could be pretty good in 2026. Moreover, government stimulus process for replacing old equipment to the new equipment can get subsidy is still in the market. Those traditional demand like machine tools, general machinery and packaging still can enjoy positive for 2025 and 2026. It's mid- to high single-digit growth in first 3 quarters of 2025 from those traditional demand and is better than our expectation. Better revenue growth from automotive industry also could be expected from 2025. We have improved our brand image and enjoy better share gain from auto customers. Even the overall automation -- even the overall auto industry has not recovered significantly, we have had double-digit revenue growth in the past 5 years, and we still expect double-digit revenue growth in 2026 from auto customers. However, we have some demand issues on solar or energy lighting demand, but its decline rate have narrowed from 50% in first half of '25 to 8% in third quarter of 2025. Even it still could be weak for the year. It just around 3% of our revenue and won't affect our business too much. Selected items for selected customers have some pricing conditions in pneumatic market, but it's still rational or reasonable basically. Material costs have been relatively stable and fluctuate within a reasonable range, which will be friendly for our profit margin. The OP margin still has to depend on revenue scale and capacity utilization rate, even we can improve our margins by launching more higher gross margin new items, improving our selling product mix and continuing to improve internal production efficiency to reduce our production costs. Pneumatic capacity utilization rate currently is around 1% and the inventory turnover days at the end of this September was 122 days and the accounts receivable turnover days was also 122 days at the end of the September. It's including 1/3 of risk-free bank acceptance notes. All of those numbers are pretty healthy. For a development of our linear guide, industry demand is still pretty weak and peers still keep aggressive pricing. We have changed our pricing policy since third quarter of 2024 and also extend new sales rate. Shipping volume has been around 20% growth year-to-date, but the revenue number is still lower than our expectation. We have asked our sales team to convince customers continually and also expect the overall demand of linear guide will be better from 2026 because the linear guide demand cycle used to be around 2 to 3 quarters later than pneumatic cycle, and we believe pneumatic cycle have entered in recovery cycle from late of 2024. So we expect the demand for linear guide could be better in coming quarters or 2026. Whenever demand warms up, linear guide peers always raise same price and Airtac will maintain the same price to widen the price gap lower than peers and persuade more customers to place more orders to Airtac. Current linear guide capacity rate just around 20% to 30%. Gross margin is [ 10% ]. When we can achieve 50% production rate, production gross margin could be around 30%. And when the production rate is 80% gross margin could be around 40%. Even 40% gross margin is lower than our existing pneumatic business. We use the same-store team to do cross-selling pneumatic and linear guide and want to spend too much additional OpEx. It still can improve our consolidated OP margins. And we expect pneumatic industry can return to flat or low single-digit annually growth in 2025 and 2026 will be better than 2025. And we can have at least additional 10% revenue growth from pneumatic product. Plus the revenue contribution of linear guide, the shipment of this October have also better than our expectation, and we raised our 2025 revenue growth rate guidance to mid-teens percent in renminbi terms. Operating margin could be nearly 30%. CapEx of 2025 still could be around TWD 2 billion to TWD 3 billion, and we have generated free cash flow from 2019 and it's around RMB 6.5 billion in 2023, RMB 8 billion in 2024. We also have increased our cash dividend payout ratio from 35% in 2021 to 55% in 2025, and it could be 60% in 2026. And still will be higher in coming years. This is my briefing. And should you have any questions, we can discuss it. Thank you.

Okay. Thank you, Ivan. Now let's open up the floor for Q&A. I do see Ming Hsun has a question. Ming Hsun, please go ahead.

I have 2 questions. So first question, Ivan, you just mentioned that in terms of the business cycle, linear guide is supposedly a few quarters later than pneumatic. So since you expect the linear guide demand will also improve next year, which sector do you expect to see better demand? Is it also 3C and auto and also battery? And also specifically, do you think Apple's upgraded affordable smartphone launch next year will drive overall FA demand next year?

Thank you, Ming. And firstly, compared to pneumatic, linear could be CapEx component mostly in nonpneumatic with component replacement demand and CapEx demand. And for Airtac linear guide business, basically, we have limited market share in linear guide industry. So in 2026, we expect we could get more orders from the market and still will follow current policy. We won't target on any specific application or industry demand. We just ask our sales team to assess any customers once they can pay receivable to Airtac on time. And whenever these customers -- these bigger customers, small customers, in any application or any industry, we still will accept those orders to improve our linear guide business. So basically, you can find linear guide components in so many assembly lines, also can find so many machine tool or general machinery. So basically, it's still pretty difficult to tell which segment will be enjoy higher growth in 2026 for linear guide.

And another question is your OP margin. So as you mentioned, I think this quarter is the first time in the past few quarters, you start to see OP margin to turn positive on Y-o-Y basis. So looking into 2026, do you expect the overall margin can recover back to maybe 31%, 32% if the linear guide utilization continues to improve. And also the pneumatic component utilization is supposed to improve as well. So could you share your outlook?

I mentioned earlier, the OP margin still will be affected by the revenue scale. Even we have find some additional ways to improve our internal production efficiency, and we also can find some higher gross margin new items to support our OP margin improve. But it's still too early to tell, it will be 31%, 32% OP margin in 2026 or not. But basically, it could be higher than 2025 -- it's very high probability and also could be higher than 30% in 2026.

Okay. While we are waiting for others to raise questions, let me -- I actually have 2. So first is on the semi customers. Ivan, can you share with us more color on how your product and also business expanding in the semi and semi equipment-related categories?

Yes. Basically, we could be the beneficiary of China policy, China government policy, local procurement, local production. But we have limited SKU can support semi customers currently. And we just can find some SKU product, which used to support other industry and also can support partial new semi customers. And our monthly revenue from semi customers just around CNY 5 million or CNY 6 million. And we began to more aggressive to develop semi items from late of 2024. We also total market maybe it takes around 2 years to develop and improve it to a better or best cost structure, then we will launch the semi items. And current schedule, it seems a little faster than our expectation, maybe in second half of 2026, we can launch some semi items gradually and also can improve our revenue from semi customers.

Okay. I understand. Can we have a little bit like a background on the customer? Are they like equipment -- local equipment suppliers? Or can you give us a little bit color on the background, what type of industry subsector within the semi industry?

Okay. Basically, most of our current semi customers could be backend, local China semi equipment players and limited from international customers.

Okay. Understand. Okay. And then separately, I also want to ask you another question on pricing strategy. We had -- like Airtac has been aggressive in gaining market share. And so particularly some pricing strategy for SMC. Do you foresee a change in rest of this year or next year? And also, when we talk about market share gain, you just mentioned actually next year, you can still have 10% market share gain. What market segment like do you get more market share from?

Basically, we still have so many SKUs have not developed and launched as could be in so many different applications. For example, even electronics is our biggest sector of our revenue, but our market share number in China electronics demand still lower than our total China limited market share. So our electronics market share in China is just around 20-plus percent. And auto is just around 10% market share of Airtac. And we still will as our sales team and marketing team to find what items, Airtac have not produced -- the market has demands urgent and we shall pass those items and develop them in first priority. And it could be so many different applications. And we also have not focused on any specific applications to develop new items to support such specific applications. So it still could be strong -- the SKUs still could be from so many different industries. And our aggressive pricing just focused on specific customers, not across the list of the customers. So most of our existing customers, the pricing is still pretty stable. And we're just talking on those customers who do limited business with Airtac, but mostly could be international peers or Japanese peers support such kind of customer demand. In past, such customers have very deep brand image and price limited even 0 orders to Airtac. So once the orders volume is small and pricing by Airtac could be very high. Even the customers is a very big company or big demand volume. But from second quarter or third quarter of last year, we ask salespeople to base on this customers' total demand volume whenever they buy the limited product from any peers, any suppliers, we just based on their total demand volume and give them pricing, low pricing directly. So we can get more shares from such kind of customers. So our aggressive pricing is not across these customers, just best customers can enjoy aggressive pricing from Airtac. Thank you.

Okay. Thank you, Ivan. I see more questions in the list. Helen.

Hi Ivan, this is Helen from HSBC. Well, thank you so much for the briefing, and it's glad to hear that you are getting more positive for the outlook. I just want to double check with you because next year, some of your peers has been talking about the potential replacement cycle of the machine tools that were purchased during the last peak cycle, i.e., during the year 2017 and 2018. Would you expect something similar to happen? And do you think it is going to benefit Airtac? And if so, by how much?

Thank you, Helen. Basically, customers could be pretty conservative from late of 2021. And what I mentioned earlier, pneumatic can enjoy single-digit growth annually. And from late of 2021, the demand was disturbed caused by COVID issue or government abnormal control. So the pneumatic industry was suffered double-digit decline year-on-year in 2022, single-digit decline in 2023 and around 10% decline in 2024. So, so many customers, they just spend or replaced their pneumatic component cautiously. So maybe we won't say the replacement cycle will be pretty obvious, pretty strong demand in 2026. But just based on our prediction for assessment, the pneumatic cycle could be entering recovery cycle from late of 2024. Even it was affected by U.S. tariff issues in second quarter, but the shipment also be better in third quarter of 2025, even in this October. So basically, the pneumatic demand will be better and better or recover moderately in 2026 and its CapEx demand or replacement demand still depends. But once customers have more or higher production activities, they should need more replacement demand for pneumatic product.

Understood. If I may follow up, when you're guiding for about 10% of the growth for the smartphone sectors in next year, so 2026, are you already considering into the potential model change for some smartphone companies or that would be an additional catalyst for 2026? You're just giving a baseline kind of the guidance for smartphone growth.

Basically, we have not finalized our forecast or budget for 2026. But we still contact with our customers closely, and we could have some numbers from customers' feedback or information from the market. And we can say currently, the opportunity for pneumatic demand to have low single-digit growth for the whole industry is very high. So demand from smartphone or electronics still could be good in 2026. And we say, we always ask our sales team have to enjoy additional 10% revenue growth higher than industry growth. And just I mentioned, we expect electronics revenue growth rate could be 10% at least in 2026. And we have not allocated to any specific sector or application.

So next question comes from Kenny.

I have 2 questions. First off, I want to have a follow-up on the semiconductor equipment. Could you give us some more color on whether the entry barrier is relatively high compared with your current portfolio? And do you have any initial thoughts on how much bigger than total addressable market will be unlocked, thanks to this SPE development.

Firstly, pneumatic is a very mature industry and also for more than 100 years. And we don't have too many semi items. It doesn't mean we don't have such capability to develop and produce it just because we have so many easy money items have not been developed and launched in the past. So we prefer to do those easy money items first. And second one, semi could be the last territory of our main competitors or main competitor. And in past, we don't want to attack their last territory. So we have not focused on semi items developed. But we believe we have been stronger enough and also follow China government policy, local production, local procurement. So we became more aggressive to develop semi items from late of last year. And we don't think it's difficult for our tech to develop and support semi customer's demand. So maybe from late 2026 or 2027, we have higher and higher semi revenue to support our business.

Appreciate it. I have a follow-up on the OpEx. I just noticed that in the fourth quarter in 2023 and 2024, you were having relatively higher R&D expenditure. I'm wondering if this will be a new pattern continuing in 2025 or 2026?

We spend what we should spend. So the higher R&D expenses in 2023 or '24, it doesn't mean 2025. We also have had higher R&D expenses still depends.

Our next question comes from KekYee.

This is KekYee from Principal. I'd like to go back to semi as well. Can you give us an idea like how big can semi be as a segment over the next few years? Can it be like as big as auto in 1 year down the road or 2 years down the road? That's my first question.

Okay. Basically, as we know, our biggest competitors in China, their semi revenue in China could be around RMB 2 billion to RMB 3 billion. And it's still too early to tell how much will Airtac can enjoy it. But basically, it's a new sector for Airtac. And based on past experience, we still can get shares from this sector in coming years.

Okay. My second segment is related to humanoid. I was just wondering because you're also developing linear guide, right? Do you have any -- have you engaged any companies on parts for humanoid from linear guide or pneumatic or what or what segment? I'm not sure. Do you have exposure there?

Firstly, pneumatic is for all the production activities to improve their automation. And maybe we still have limited revenue to support humanoid customers directly because the humanoid demand still could be pretty limited. And we not just have pneumatic linear guide. We also have developed electric actuator, which can support humanoid directly for years. And electric actuator, the main paths could be motor driver, linear guide ball screw switch and some frame to assembly as the set of electric actuator to support robotic arms or humanoid demand. And we have had stepping motor, linear guide and sensor switch already and still in developing servo motor and driver. And we expect we could launch the set of electric actuator in 2028 or 2029. And once the demand of humanoid or electric actuator proved to be very high or before we launch the set of electric actuators or before we can predict the development of the server motor and driver, we still can buy the servo motor or driver from the suppliers and accompany linear guide ball screw switch to be the setup of the actuator to support market demand.

Next question comes from Jason.

My first question is about the gross profit margin. We see our gross profit margin is almost flat from the second quarter. And however, our revenue is seasonally decreased in third quarter. So I would like to know what's the driver to keep the gross margin in third quarter? And did we provide any sales discount in the third quarter to dilute the gross profit margin? That's my first question.

First one, we do plan production. So basically, the product we sold in third quarter, it doesn't mean we produce it in the third quarter. And second one, from 2016, '15, we have not stressed our gross margin numbers because we used to consider the market share gain, the specific customers we want to approach or get more procurement percentage from them. So many different factors will affect our pricing strategy or policies. And also depends on the overall demand. And for sustained specific percentage of the utilization rate and enjoy better fixed cost leverage. We also have timely pricing policy to specific customers. So basically, we prefer to target on our quarterly OP margin rather to keep our gross margin. So maybe you found our gross margin in 2014 could be around 55% and gross margin 55%, OP margin just around 27%, 28% every time. And we changed our sales rate or pricing rate because Airtac still is a growing company. We have different sales rate on different stage. So we prefer to have a higher shipment growth, revenue growth and enjoy better fixed cost leverage, enjoy a higher OP margin rather than to keep a very high gross margin, also can improve our market share in the market at the same time. So in past 3 to 4 years, our gross margin just around 40%, but we can keep our OP margin to be around 30%. So it's our sales' range -- it's our current sales range.

Okay. And my second question is about the revenue. We saw a really outstanding revenue in September, almost 30% year-to-year growth. So I'd like to double check, there's no any like postpone from the second quarter or any advanced shipment from maybe sequentially months if there's no situation, we can assume that our revenue in the fourth quarter, maybe we can achieve maybe high 10% year-to-year growth or almost 20% year-to-year growth in the fourth quarter?

You mean for Q4, Q1?

Yes, the fourth quarter in 2025, the Q4.

Q4, okay. Basically, pneumatic industry was entering recovery cycle from late of 2024. So it should be better and better from a demand, even there's still some synergy in pneumatic industry. The second quarter, it should be much better than the shipment what we did in the second quarter of 2025 caused by some customers that postponed their demand. And maybe from late of August or this September, some of such postponed demand began to deliver to customers. So not just for this September. October, even we have 9 days for the national holiday, but the daily shipment still much better than September in this October. So basically, we just can say postponed delivery it should be in September or October. But the industry recovery is still support better shipment in past 2 months and it still could be pretty good in next couple of months. Even it still could be low season for pneumatic for fourth quarter, Q4 of the year. So we expect the quarterly revenue of this fourth quarter, this Q4 could be flat compared to Q3. It's better than past experienced seasonality.

Next question comes from Jeremy.

I have just 2 quick questions. It's very, very good news to hear that you are being more optimistic as suggested by you raising your outlook for the full year. So I think that maybe this next question is a little bit maybe not timely, but looking forward, going forward, I'm just a little bit concerned because the pneumatic market in China has always been, I would say, rather like the oligopoly. So yourselves and the biggest player about 60% market share in China. So when you look at pneumatic versus other components in China, other components, you have seen very, very fierce pricing pressure and very, very fierce competition. But increasingly, as you are going into the field of your #1 competitors, is there a risk of this sector, pneumatic becoming much more competitive going forward? And is that going to impact profitability?

Basically, our biggest competitor is a very big company and good company. We cannot speak for that. But based on past 10 years, years’ experience, even they still launched so many sales stretch want to against Airtac and start Airtac getting share from that. But so far, those stretch seems not successfully to against Airtac. And pneumatic still is a conservative industry, big player always will be bigger. And top 3 players in China, SMC, Airtac, Festo is just around 50% -- 50-plus percent market share totally in 15 years ago in China but have increased to be around 70%. And Festo is a private company. They prefer to keep their margins rather to keep their market share. So the pricing leaders could be SMC and Airtac. But the last time SMC launched aggressive pricing is in 2014. And such pricing war just ascended around 3 quarters. And from late of 2020 -- so late 2014, they start cutting some price and raised price back. So from 2015 to this moment, have 3 to 4 times down cycle, but the pricing between Airtac, SMC in pneumatic market still could be rational reasonable. So basically, we think severe pricing competition, even pricing war in pneumatic market in coming years could be pretty low risk or the opportunity could be very limited, but it's the same war, we cannot speak for SMC.

I understand. Yes, I hope that the pneumatic market continues to grow so that the competition can remain quite benign. But I'm just a little bit concerned just because I looked at the inventory days outstanding at SMC and they have expanded a lot of capacity recently. So, I'm just worried if the demand disappoints going forward, there's some risk there. That's all. My next question is, if you're going to get into newer fields, like, say, into semis, my understanding is that pneumatic is an industry whereby you want to keep the lead times quite low, quite short, like within 1 week, right? So, as you expand the number of [ quicker ] specifications products that you have, does that mean that you're going to have to invest much more in terms of working capital? So will your inventory days outstanding start to go up?

Basically, it won't because once we have better scale, we could have a higher efficiency to manage our inventory. Maybe you can find our inventory turnover days could be around 150 days in 2 years ago. And even we still continue to launch more new items, and we have decreased our inventory turnover days to be around 122, 124 days in the past couple of quarters. So more SKU, it doesn't mean we have to increase our inventory turnover days. And once we track back to 10 years ago, in 2015, 2016 -- our inventory turnover days even could be 160 days, much longer than our current inventory turnover days. Even we have additional one or additional 100,000 new SKUs have been launched in past 10 years, but we still can decrease our inventory turnover days.

Yes, I understand. So it depends on the -- whether or not you can increase your revenue as fast as well is the answer.

Next question comes from Iris.

This is Iris from Deutsche Bank. I have actually a question which is more longer-term oriented on the return of investment, so the ROI that you have on the new products or the new categories that you are expanding into. And I mean, people have asked about semiconductors. So I want to ask about maybe the other areas. One is the linear guide, which is new, but not so new. And the other area is the electric actuators area. So firstly, on the linear guide because you've mentioned that even if we increase the utilization to, say, to 80%, then the gross profit margin will be 40%, which should still be lower than the current group level. So do you think that maybe it is in the longer-term, a lower return business? And how do you think about it? Or should we more look at the operating margin perspective? And then what is the operating margin that you foresee for your linear guide business in the longer-term once it reaches a more stable state? And also related to the linear guide and how do you assess the competitive landscape of the linear guide business? Because you've mentioned before that when you entered the business, you thought the biggest competitor should be the other Taiwanese peer, but then you realized there might be -- they might not be like the best indicator for the market. And then we hear there are many local competitors also emerging who also claim to be of good quality for their products. So how do you think about the question is the ROI for the linear guide business on an operating margin perspective in the long-term? And also in relation to that, the competitive landscape for the linear guide business. And this is question number one.

Okay. Basically, 40% gross margin when we have 80% utilization rate just based on to ship operator working system. So when we have a higher retention rate, we still can transfer our operator working system from 2 shifts to 3 shifts. So 40% gross margin is pretty conservative numbers. And the business of Airtac is much lower than our expectation for 5 years. So we prefer not to give a very aggressive number or pretty good number to the market. It's too far away from the practice. But it doesn't mean we just can have 40% gross margin from linear guide. And second, we use the same sales team and don't have to spend too much additional OpEx to sell linear guide. So 40% is still pretty good for our consolidated OP margin. And another reason why we have to develop more new business, linear guide, electrical controller, electric actuator because we just target on 35% pneumatic market share currently, maybe by 2030, we have such 35% market share in China. And it's been more effort to increase additional 1%, 2% pneumatic market share after we have 35%. So basically, we prefer to have more new business, to have better fixed cost leverage because all of those new business, pneumatic linear guide, electrical controller, electric actuator, all of them use the same sales teams, same sales employees. And we cannot expect all of our business can enjoy such high gross margin pneumatic, high 40%, even 50%. And it's easier to develop the new business and high yield for Airtac to enjoy high revenue growth or higher revenue growth, higher operating income and it's good -- also it's good for our bottom-line. And our new guide development stage, currently, we could have a better product quality, shorter lead time, lower pricing than Taiwanese peers. And we missed the best timing to enter a linear guide market, also missed customer expectation in 2020. So the sales progress was much lower -- slower than our expectation in the past 5 years. But our current target just wanted to improve our linear guide brand image. So, we just compete with Taiwanese and Japanese peers. We have not competed with local China players. After we have a better brand image, then we can develop inferior product quality and lower our unit production cost to compete with local China players. And we can improve our retention rate consecutively to 80%, 90%, then we have better fixed cost leverage, also can decrease our higher-quality product pricing, lower our high-quality product pricing to compete with Taiwanese and Japanese peers, then we can transfer our operator working system from 2 shifts to 3 shift and enjoy better fixed cost leverage again. So 40% gross margin, it doesn't mean 5 years later, 10 years later, we just could have 40% gross margin from linear guide. And gross margin number also depends on our pricing surge. Once we want to increase our linear guide market share faster, we can have a lower pricing -- aggressive pricing to speed up our share gain. And it's good for our revenue number, operating income and bottom-line. Even the GPM number or OPM number won't be improved to be very high, but it's good for our bottom-line. We still believe linear guide is a good business for Airtac.

Understand. Thank you for sharing that. And a very quick housekeeping question related to linear guide. Can we check how much revenue linear guide generated in the third quarter and in the first 9 months of the year?

Just around CNY 142 million in third quarter and around CNY 4 million in first 9 months.

Got it. My second question is also related to the return on investments. So similarly, this is related to the electric actuator business. So as you know, I mean, for electric actuators because it can be used for humanoid robots. So many local Chinese players, I mean, many of them, I'm sure you know that they are also now developing electric actuators used mainly for humanoid robots, but can be used for other areas as well. And also given that, as you've mentioned, you are developing the servo motors and the drives still, but then there are local Chinese players who have already developed the servo motor products. So can you maybe elaborate a bit more with us on what you think is the competitive advantage of Airtac in this business and why Airtac has chosen this as a kind of one of the new business areas to expand into?

Thank you. Basically, we could be an expert of mechanical parts, including pneumatic, linear guide, mechanical even electric actuator or parts of electric actuator. And we can -- we always can find some ways to achieve most competitive cost structure. And we just can say we could enjoy competitiveness of those items we're going to develop. And it's just like 20 years ago, nobody believed Airtac can compete with SMC, just such big pneumatic players. And pneumatic component is much complicated than linear guide, electric actuator or electrical controller. So basically, we believe we can success in this sector.

Okay. Thank you, Ivan, for sharing with us. So I think we are running out of time. So we'll need to end the call here. Thank you, everyone, participating. Thank you, Ivan. And again, we appreciate your support for UBS in the Extel survey. Have a good day. Thank you. Let's conclude the call here. Thank you.

Okay. Thank you, Ally. Thank you, everybody, and have a good day. Thank you.