Airtac International Group (1590) Earnings Call Transcript & Summary

All right. Hello, everyone. Thank you very much for joining AirTAC's Third Quarter 2023 Earnings Call hosted by Goldman Sachs. It is our pleasure to welcome Mr. Ivan Tsao, CFO of AirTAC. This is Yuichiro Isayama, Head of Asia Industrials Research at Goldman Sachs. Also, James Wang, Taiwan Tech & Industrials associate will be the co-host of the call.

So hi, everyone. Before we dive into the call, we need to read out the disclaimer statement first. So this call is strictly for a client of Goldman Sachs and anyone invited from AirTAC. This call is not intended for the media and is off the record. Participants will be removed from the call if they cannot be properly identified. This call and webcast is not for the purpose of sharing or receiving non-public or otherwise confidential information. Attendees are public side market participants who may not receive or should not request non-public or otherwise confidential information about issuers or securities or about the market for securities. So thank you so much for your participation. We will move to the call now. After Ivan gives his introduction of third quarter result, we will move to the Q&A session. So hi, Ivan. The floor is all yours. Thank you.

Okay. Thank you, Isayama and James. And good day, everybody. This is Ivan Tsao from AirTAC, and welcome to join this conference call. Now let me read our third quarter results and current market situations. First of all, even the overall economic situation is not good and the revenue in third quarter is still in line as always for AirTAC. And in such traditional lower season, the order received continue to be higher than the demand amount, indicating that there is still a significant demand for pneumatic component in the market. And in general, the best demand for pneumatic is driven by rising labor cost and declining labor population, especially for the declining labor population. The number of new births have been lower than before the death for years in China, and young generation don't like to work in a bad environment. So they don't want to work. Costs have to improve automation. The Plus One theory has been for some customers, whom they have to stay in China, have to set up a new capacity in China. As we know, even the China production [ event ] has not been as good as it did in 10 or 20 years ago, but compared to South Asia, India, Middle America, China production still could be of higher efficiency than others countries. So customers still will stay some capacity in China and they still have to improve automation. And pneumatic still can sustain single-digit growth annually once there is no too severe long-term issues. In addition, pneumatic is replacing simple manpower to improve automation and also has capacity demand and component replacement demand at the same time. Whenever there are production activities, they need to replace pneumatic component and poor demand in other automotive segment doesn't mean the pneumatic industry also will be bad for the reviewed consolidated revenue for the third quarter of 2023 of AirTAC. The consolidated revenue was RMB $1.732 billion, a 26% growth year-on-year. Gross profit was RMB $803 million, 26% growth year-on-year. Gross margin was 46.4%. Operating income was RMB $508 million, 32% growth year-on-year. Operating margin was 29.3%. The low operating margin is mainly due to the annual employee salary increase, which has an impact of around 0.6 percentage points on the operating margin of third quarter and it used to take around 2 quarters to dilute such impact. Now the net non-operating income was RMB $59 million, including RMB $65 million of assets gained, RMB $11 million of interest expenses, and RMB $7 million of interest income. Income before income tax was RMB $567 million, a 39% growth year-on-year. Cash margin was 32.7%. Net profit was RMB $444 million, a 41% growth year-on-year. Net margin was 25.6%. EPS for the third quarter of 2023 TWD 9.7. EPS for the first 3 quarters of 2023 was TWD 26.33. Revenue from top 8 industry for the third quarter of 2023, the biggest one still was electronics, around 21% to consolidated revenue. It is around 14% growth year-on-year. Second one, battery. It was around 12% of the revenue, 8% decline. Then energy and lighting was around 15% to revenue, 130% growth. General machinery was around 8% to revenue, 31% growth. Packaging was around 8% to revenue, 26% growth. Auto was around 6% to revenue. It is spread in the third quarter year-on-year. Machine tool was around 5% to revenue, a 23% growth. The textile was around 2% of revenue, it is a 10% decline. Basically, traditional application demand in 2022 was a very high percent decline. And in the past 3 quarters, most of them had been improved, part of them have been growth year-on-year. And even those industry have not improved, there still could be low single digit or 10% decline year-on-year. Those traditional applications won't be a burden to our consolidated revenue. And for current market situation, although there is some noise in the market regarding to China recent economic situation, as we mentioned earlier, people need some time to restore physical, eco consumption components due to the stringent and strict COVID control for 3 years. In addition, the government still timely proposed robot announcement or substantive incentive policies, subsidy poses. We expect that could be continuous loosen monetary policy, additional local special bond quota, more banks financing policies, and real estate policies relaxation. The economic situation could be able to improve quarter-over-quarter. Necessary consumption has been improved currently and selective consumption can be repaired. We expect more and more customers will restore their confidence and accelerate their capacity expansion. Moreover, pneumatic products are used to support customers' production line rather than in end products. Although the current overall economic situation is not good, end product consumers need to consider whether to launch more new products to attract their face consumption or maintain existing spec to reduce relative expenses. If they decide to develop more new products, the demand for pneumatic product is an opportunity to be stronger. As for the demand of various industries of pneumatic component in coming course, the energy and lighting equipment is the newer application. The overall industry demand will continue to grow, and AirTAC still can have additional revenue growth from market share again. And we still expect energy and lighting industry revenue still can sustain pretty good revenue growth in coming quarter, even coming years. And battery, even they have some -- most of the overcapacity in battery industry in China domestic demand. And this could be a pretty common situation in China, when government, they want to encourage the basic application of industry to any existing player or a new company entering in this industry and you can sustain pretty good or strong demand for a period. And followed by the overcapacity and fierce competition, and they have to take some time to digest the overcapacity. So currently in China domestic country, the stage have digest the overcapacity. But there's still so many countries, they want to set up their own battery capacity in their domestic. And Chinese players still can enjoy such expansion. We expect after -- so many countries have confirmed their domestic expansion process, the demand for battery still can be stronger again. And for electronics, we said pneumatic component just focuses its production process, not in their end product. And when brand customers, they decrease their selling volumes, it won't affect pneumatic demand too much. But once they don't have too much model change or spec upgrade, customers, they can apply existing capacity to produce their demand. It hurt pneumatic demand. And in the past 2 to 3 years, there could be limited spec upgrade or model changed. So the electronics revenue has been not so good for 2 to 3 years. But from this August and September, it has been around 20% growth year-on-year from electronics customers. And we expect such strong demand can be sustained into 2024 from electronics. And pricing, pricing is stable and competition is limited in pneumatic market. The weaker Japanese yen will not affect the competition with Japanese peers, mainly because the cost of materials account for around 40% to 50% of the costs of pneumatic. Most of the material costs are metal materials. And suppose Japan-owned production of metal should be limited. So it needs to purchase metal materials from foreign suppliers. A weak yen will increase the cost of materials, but you still can enjoy the benefit of the Japanese production capacity in labor cost and overhead. In addition, the production capacity of major companies in Japan is from 40-plus percent and another 30-plus percent of their capacity is in China. The cost impact to be similar to AirTAC. Since December of last year, metal materials have been relatively stable and fluctuated within a reasonable range, which will be friendly to our bid margins in 2023 compared to 2022. The operating margin still has to depend on revenue scale and capacity production rate. And then we can improve our margins by launching more high-margin new items and continue to improve our production efficiency to reduce production costs. Inventory turnover days was around 155 days currently. And it still is in a healthy situation. Moreover, the production cycle of pneumatic component is low, and most of them are metal materials. So the inventory rate of risk is limited. Our current utilization rate is around 90% to 100% for pneumatic and 40% to 50% for linear guide. And so it depends on the share gain to adjust our utilization rate. For the development of linear guide, the sales progress is improving from our first quarter of 2023. The monthly revenue in linear guide in second half of 2022, just around RMB 10 million a month and it's around RMB 30 million from this March to July and RMB 45 million in August, it was RMB 50 million in September. More and more customers have visited our factory and verified our process. That means more and more opportunity we can get the orders from customers. And customers are very interested in the quality and our pricing of the pneumatic -- of the linear guide. And certification period for each of its customers, it still depends on customers' situation. In addition, the sales model of linear guide is different from that of pneumatic component. Most pneumatic manufacturer has direct sales revenue and distributors business, but most of the linear guide manufacturers sell their products through distributors. And most distributors need to purchase a certain quantity each year, then to become the qualified distributors for the following years. And when demand is weak, so many peers and distributors, they used to decrease their sales price aggressively and that's just their inventory. So, so many customers, they can get much cheaper linear guide products from the existing linear guide suppliers. So they are not urging to change their suppliers to AirTAC. And many customers, they have signed annual contracts, annual purchase contracts with their existing suppliers in 2023. But they have promised to AirTAC, they will transfer part of their orders to AirTAC from 2024, then it can improve our achievement from 2024 of linear guide business. And we have met around 60% of the market product portfolio currently, including mini-size large types from [ Touch 5 to Touch 60 ] . Annual capacity at the end of September of 2023 was from RMB 2 billion and will not increase by end of 2024. Current utilization rate was around 40% to 50%. We improved it according to our sales progress. The gross margin will be around 40% when we have 50% to 70% utilization rate under RMB 2 billion annual capacity and we'll be around 50% when we have 80% to 90% utilization rate. Even 40% gross margin is lower than our existing pneumatic business. We use the same system to do consolidation pneumatic and linear guide. Without too much additional OpEx, we still can improve our consolidated operating margins. With continued utilization rate improvement and capacity expansion, gross margin still can be improved. And we divided our sales team into China team and non-China system with different team leaders and having their own goals. For China sales team, we expect they could have 30% China pneumatic market share within 3 to 5 years. The market size for pneumatic in China could be more than RMB 22 billion and it has a single-digit compound annual growth rate. 30% of market share represents revenue of RMB 8 billion for the pneumatic business. In 2022, our revenue was just around RMB 5.4 billion, and that means we can have an additional RMB 2 billion in the next 3 to 5 years from China Pneumatic business. And linear guide market size in China could be more than RMB 16 billion, RMB 17 billion. Also it has single-digit CAGR. We expect we could have -- we have 30% market share in around 10 years, meaning a revenue of RMB 5 billion to RMB 6 billion in around 10 years after we have a better progress on linear guide business, maybe in late 2024 or 2025, we will launch electrical cylinder. It's another RMB 10 billion market size in China. And we still have a fourth and fifth component related to the automation in late development. We will find the right timing to launch those 2 new components in coming years. And for non-China sales team, we still expect they could achieve 20% of our consumer revenue in coming years, even it could be a very hard task for our non-China sales team but they still have to do their best. And we try to set up more sales offices in non-China countries and recruit more local sales people and have more consistent sales ratio to improve our non-China business. And the CapEx in 2023 still could be TWD 2 billion to TWD 3 billion. And we could generate much better free cash flow from our own, and we still will improve our pay ratio to be around 50% in 1 to 2 years. And the company does not have any acquisition plan in the short term. This was my briefing and we can discuss all your questions. Thank you.

Thank you so much, Ivan. We will move on to the Q&A session now. From Goldman Sachs, we actually have 2 opening questions. First question, Ivan. Why such a strong 24% revenue growth? You did mention about the demand, but even compared to possibly bottoming demand in China, nobody is up like AirTAC. This is just exceptional. So I want to ask more in details about you, not about the competitors or demand. What is driving the solid 24% growth for AirTAC? Is it driven by market share gain, better exposure in the focus market? More importantly, do you think this over 20% revenue growth can continue to 2024?

Basically, we choose customers with good orders in past. And when the demand is weak, end demand is weak or market demand is weak, we used to consider the pricing and volume relationship. And maybe we will receive some orders which we will not accept in the past, and we try to sustain specific utilization rate, revenue scale to sustain our share gain in the market. So basically, we still can get more shares and the overall demand is weak. In addition, we still continue to launch more new items. Most of those new items could be high application, high margin items. And we launched more items, we support more existing customers, support more new customers also can enjoy multi-price effect. So basically, we still can sustain critical revenue growth in coming years. And maybe it's still too to tell the guidance for 2024. But basically, we still can sustain better share gain from pneumatic market in China, and we also can improve our linear guide share gain from 2024. So to sustain 10% or double-digit revenue growth from 2024, it could not be difficult for AirTAC.

The second question is about margin. Despite the slower revenue seasonality, your margin improved. I mean, the GP margin improved, a surprising 46.4%. What is going on in there? Is that driven by linear guide or better pricing on pneumatic? I'd appreciate if you could elaborate it on gross margin improvement.

Linear guide gross margin is still much lower than our system pneumatic business. So the more share gain of the linear guide still will dilute our average of the margins. And we have increased our utilization rate of linear guide business. Also we continue to improve our pneumatic production efficiency. And what I mentioned earlier, not more high-margin items still more -- still can improve our margins. So basically, we still can improve our gross margin in coming quarters.

We would like to move on to the Q&A session and open for everyone. If you have any questions, please raise your hand. Julia, all yours now.

So everyone now we are opening the question to all. Please press raise your hand button to be in the queue, and we will open the line accordingly. We appreciate if you can state your name and company before you ask the question. So we now have Ming Li [indiscernible].

So previously, you believed that China FAA sector will start to see some demand recovery starting in 4Q this year. So do you have an updated view for the industry growing outlook? And also, although the property or real estate industry does not have a direct impact to pneumatic, but it also indirectly provide a lot of growth for pneumatic industry in the past. So what do you think about the real estate industry related in the coming year? That's my first question.

And firstly, COVID control has affected the end demand pretty strictly. Even government has released the COVID control in early of last December, but the impact is pretty high in front 2 to 3 months. So many customers or so many companies cannot operate their business in a normal situation. So such demand have turned up to this period much. And so China have a pretty good economy number in this February and March. And we think it just depends on demand, not so agree the China reopening things. And based on such a good number in this February and March, we heard from the local government, they said, some source, they can achieve the growth percent the whole year, not be difficult. So they tried to get the market to develop naturally in the past couple of years. Whenever they closed the meeting in March, they always announced so many stimulus policies. But this March, limited stimulus policies had been announced. So they got very bad economic numbers in this April and May. So from June to August, they have announced or launched so many stimulus policies. And early of the year or first half of the year, we expect or we predict the market demand could be better or recovered from fourth quarter or end of the year. But we think after they let the market naturally develop in April and May. Some stated that they will take a long or a little longer time to resolve market plans. So maybe from end of the year or first quarter of 2024, the economy or demand just will be better. And we have better share gain growth in third quarter. Mostly, we have a better share gain from pneumatic and we have improved our linear guide share gain. And we just can say maybe we have been at the bottom in this July or August. And when the market will be recovered, obviously, still depends and maybe from end of the third quarter or first quarter of 2024. And the second question of yours, real estate industry. Even construction industry just around low single digit of our revenue, but there's still so many industries related to real estate that almost around 10%, even low 10% of our customer revenue. In 2022, it is pretty bad demand. It's almost around 50%, 80% decline year-on-year in 2022 for those real estate related industry. But from 1 to 2 quarters or past 1 to 2 quarters, those traditional application or real estate related industry improved and some of them could have single-digit, even double-digit revenue growth year-on-year already, especially for the other, that's [ betting ] facilities or the mixed industry. We have been around 30-plus percent in growth in past 2 months. And we expect more and more stimulus policy launched by government. Even you cannot expect, the real estate industry will be such booming as they did for 3 or 4 or 4 or 5 years ago, but it won't be such a bad demand in coming quarters in China.

Sorry. One more question for me. In the past, I think your sales team member preferred to sell more pneumatic component compared to the linear guide product. Also they have more understanding of the product and they are more familiar with the product. Right now, what is their attitude, or are they willing to sell the linear guide based on the latest product design and good quality? Because in the past few months, your linear guide revenue, monthly revenue has improved a lot.

Yes. Basically, our sales team or our sales people improved their psychological condition and are more willing to promote our new business. And we have a better sales progress for linear guide in the past couple of months, mostly because the COVID control in 2022, so many customers did not allow AirTAC to approach them or visit their factory because any factory has one infected case, this factory has to be shut for 1 to 2 weeks. But this issue have been better from this February or March. We can visit more and more customers gradually. And so many customers, they still came to our factory to verify our production process. And after their verification, more and more customers can place order to AirTAC. But as I mentioned, so many customers, they have signed annual contract with their existing linear guide suppliers. And they have some restriction to do more linear guide business with AirTAC in 2023. And from 2024, we could have more opportunity to get more orders from such customers. And another reason could be we have around 70% revenue from their current customers and 3% through the suppliers. And we just have the chance to approach customers from this February and March. And by end of this June, we prefer to approach our -- their current customers first to promote our linear guide rather than to approach the suppliers. Because once we approach our suppliers and this differs to approach our pneumatic direct current customers. These customers will be confused. They buy pneumatic from AirTAC directly but why is the supplier to call AirTAC linear guide to them? So by end of this June, most of the promotion activities just to approach their current customers. And from this July, we began to approach more and more the supplier customers to buy linear guide from AirTAC. So from third quarter, there could be more and more their current customers and the suppliers' customers will buy linear guide from AirTAC and improve our linear guide share gain in coming months or coming quarters.

Before moving on, we have received some questions from the Q&A box, but we would like to prioritize those who are already open -- I'm sorry, raise your hands. After those people finish, we will move to some of the questions that we've received from the Zoom Q&A box. So please ask it again. So please proceed again.

So our next question will come from Hank. Please state your name and your companies and then ask question to Ivan.

This is Hank from China Electronics. Am I making myself clear?

Yes, please.

My first question is that considering the current good situation in the linear guide business, do we plan to increase our CapEx in 2024 to meet further demand or do we plan to maintain the same level of CapEx as 2023?

It's still too early to tell the CapEx number for 2024. And we mentioned earlier, we won't increase our linear guide capacity in 2024. So by end of 2024, our capacity of linear guide still will be RMB 2 billion annually. And the time for pneumatic equipment is just around 3 to 4 months, we can adjust our pneumatic CapEx easier. Linear guide time could be around 6 to 12 months. So the expansion plan has to set up a little earlier than pneumatic, but what we mentioned? The linear guide capacity won't be increased in 2024. And the CapEx for 2023 will be $RMB 2 billion to $RMB 3 billion. And 2024, it's still too really to tell, but it could be around RMB 3 billion.

And my next question is that considering the situation you mentioned about a battery plant capacity, globalization, meaning that many countries plan to have their own better capacity within their soil. So in this case, do we help companies like CATL or BYD to build up the capacity in other countries?

Pneumatic is a very upstream component to support equipment. So basically, we just sell our Pneumatic component to the equipment maker or module 3 integrator located in China. What's the percentage do they support to non-China still depends. So it's usually we have total market from 2018 because of trade tension, so many customers, they have to set up new capacity out of China. And once those customers that have existing capacity in China and set up new capacity out of China, most of their equipment supply chain still came from China. So such situation will affect our new pneumatic business too much. Just the difference. We support those demand to local China equipment maker or not.

My last -- I have two last related questions. The first one is that you mentioned you expect electronics to our customer is already in order pooling. Do you think they are to increase their product capacity in the third quarter of next year? So they will have to increase their CapEx in the second quarter of next year. And also, if we see better revenue growth from both business, do you think that they are more optimistic about our growth and open market in the next year?

I expect better revenue growth rate from Chinese customers just based on our expectation of business. We can ask before and bring customers. And this demand has been no good for three years. And just based on the last election, it's rare for customers with years to launch no need of upgrade. And once they have a product to spread, they need to spend more capacity and they need more tech. So we are always trying to predict the demand from Chinese could be better in 2024 and 2023 than 2022.

I am so sorry. We do have a couple of people in the line. Please be in the queue. And I apologize. But if you want to be live again, please be in the queue. Thank you so much. We'll go next person, please, to Mr. Bill.

Hi, Bill. Yes. Your line is open. Please state your the company.

This is Bill from [indiscernible]. I have two questions. First of all, I think the increase in -- this quarter's operating margins were around 39%, something.  And given the sales system we have in 4 quarters; we have low sales. So do you expect this year's full-year upgrade can go to 30%? Secondly, about the electronics, I think in the quarter, the machine electronics grew about 14% per year. So in the quarter, how is the trend? I just want to understand if there is a low beta releasing fundamental demand recovery from the electronic industry.

Yes. Basically, the operating margins still depends on the revenue scale and the attachment rate mostly. And we expect we still can improve our gross margin in the coming quarters. And the OP still depends on the revenue scale. Our operating margin of 2023 still could be around 30%, because the economy is not that good in the third quarter. And the growth could be lower than expectation. So in the first half of 2023, we expect we could have more than 30% operating margins. And at this moment, we just say our operating margin for the full year of 2023 could be around 30% But it doesn't mean we cannot achieve 30% operating margin for the end of the year. And we still try to improve our production efficiency. And the attachment rate still could be better for the linear guide in the fourth quarter. So still, it's good for our margins in the fourth quarter. But it's difficult to tell the operating margin will be more than 30% or not in this moment. And the second question, in electronics, the revenue in third quarter still was lower than second quarter, because second quarter always is the peak season of our business. And even it's low season, we say second quarter 2022, it still is a low season. But our electronics revenue in second quarter of this year still is declining year-on-year. So basically, we could find a little better demand in such low season of electronics. But how long it can sustain in coming month or coming quarter still depends. And we just based on our experience or information we got from customers; electronics could be better than [indiscernible]. Pneumatic demand for electronics customers could be better in 2024 than 2023. But how better it will be still depends. Because the lead time of new business is still pretty short.

So our next question comes from Jody. Please state your company name.

This is [ Jody ] from [ CRP ] . I have a couple of quick questions. The first one is that I think you mentioned that we're setting up some sales offices overseas. If you don't mind, can you just briefly elaborate like which regions or countries that we are setting our sales offices.

We just plan to set up our sales offices overseas but have not entered in the building stage. We say more and more customers, they dilute their stay out of China to Southeast Asia and we have Thailand, Malaysia and Singapore sales offices already. And we will -- based on the local team to set up new sales offices in Vietnam or other countries still depends on the local demand. Current demand for those new capacity out of China, mostly it could be CapEx. And we can support such CapEx demand from local China equipment maker or provider. And maybe a couple of years later, those new capacity have repaired demand. And we have discussed with our distributors in so many countries. Once in first stage, the local demand just a little better than past, we will ask our local distributors to build up some inventory for AirTAC to support those local demand in a little shorter time. As local demand improve to a little higher, we will set up our own sales offices -- sorry, we will set up our own warehouse then to set up our own sales offices. We have different stage for support those country demand.

My second question is, I think previously, we set a goal for the linear guide sales this year. Now, 3 quarters have passed, would you say we're still on track to reach that target or would you like to change the target?

Yes, maybe. It's difficult to achieve RMB 500 million for the whole year of 2023. But we still ask our sales team to do their best. And it's not good in this moment to say our sales team cannot achieve such goal because the sales progress have been improved. And once we have more than RMB 60 million, RMB 70 million shipment a month, in following month, even we cannot achieve RMB 500 million revenue for the whole year, but it's not far away from this number.

My last question is about market share. Previously you said we target to reach 30% market share for pneumatic in China. Would you comment on where we are now? And my second question is for linear guide, we also target at 30% market share, but this seems to be a more fragmented competitive market. How do you think we can achieve the same market share in these markets?

We have around 25%, 26% market share in China pneumatic market already. And we still are launching more new items. And we still can enjoy it better again in coming year to achieve 30% market share in around 3 to 5 years. And linear guide, even we have limited sales progress in 2020 and 2021, but we still try to find some ways to improve our design and production process. And we have success by end of 2021. Even we just have around RMB 2 billion annual capacity, but once we have 80% utilization rate, our production cost could be much lower than Taiwanese, Japanese, even local China players. So in 2025, 2026, we still will increase our capacity. We also can have a better fixed cost of average. Production cost even could be much lower. And we will based on market situation to launch aggressive pricing to support our share gain for pneumatic market in China. So we have a expectation of our China subsidy. In around 10 years, they have to achieve 30% linear guide market share for AirTAC.

Our next question is coming from Willy. Willy, we can't hear you. I am so sorry. The line is still very much quiet. Ivan, can you hear him?

No, I cannot.

I am so sorry, Willy. I appreciate if you could try to reconnect yourself. In the meantime, I'll go back to see some of the other people. Apologies for that. Mr. Hu, your line is open again.

Yes, thank you for coming back to me. My question is that considering the utilization rate improvements and also the revenue scale increase, do we expect to see better margin, operating margin and gross margin in 2024, considering both businesses improve according to this projection?

We could.

So my added announcement is that. Before, we mentioned that we see about -- sorry. Before, we mentioned that see a good linear guide revenue growth consistently in the third quarter. And assuming that we're still going to see a continuous growth in fourth quarter to see Q-o-Q sequential growth? Or is it going to start Q-o-Q in first quarter of next year?

Yes. Basically, we could. It's more and more different customers verify our process. And once they approve or terminate their annual purchase contract in 2023, from 2024, they can press more orders to AirTAC. And we also have developed our distributors business from July. And the verification period could be much shorter than their account customers. So basically, we still expect the shipment of linear guide third quarter, in fourth quarter and in 2024, still could be better and better.

We're going to go back to Willy again. Julia, please open the line for Willy Chen.

Can you hear me now?

Yes, we can.

It's Willy Chen from JPMorgan Asset Management. So I got three question to Ivan. The first one, you mentioned consumer electronics in third quarter has shown a pretty decent growth. Just wondering, is that driven by Apple or non-Apple clients? And then are we doing any business for -- with Huawei?

Firstly, it's not good to discuss specific customers. And I mentioned those companies often are AirTAC's customers. And most of our electronics’ revenue came from EMS, ODN, OEM or electronic supply chain manufacturer. And none of them is a very big customer of AirTAC. Our biggest single customers just run 1.2% to 1.3% of our consolidated revenue, top 10 customers just around 5% to 6%.

So you basically mentioned it's more like a broader recovery from the consumer electronics, not from specific client operators, right?

Yes. And so could be the low base in third quarter last year.

My second question is regarding to the margin on battery and also energy and lighting, I think that's more on solar. Because from my understanding, the margin for these 2 products, 2 end market is actually quite competitive. So I'm just wondering, do you see that margin profile for this 2 end market is lower than company average?

Maybe not. Those applications' margin is still higher than our average of the company.

Is it because you see less competitors in this area? And do you have an estimated market share in this 2 end market?

We have around 20% to 30% of China battery market share.

How about energy and lighting?

Energy and lighting still could be still because we have market relationship with such kind of customers and we have pushed them all for years.

And you see the same competitors like SMT Festo in these 2 end markets instead of the domestic players. Is that correct?

Basically, we have a pretty good revenue growth from both industries for years. Mostly, we got shares from the company I mentioned.

Last question is regarding to the sustainability of energy and lighting because if we look at the battery contribution in the past 2 or 3 years, have been pretty strong growth, and that's started over for second half this year. Don't you worry that energy and lighting specifically to solar industries which is also an oversupply situation in China faced a similar situation in 2024 or you think it's more like this year, you have still small, and your clients will expand capacity, so you are pretty comfortable to hit the target you mentioned?

Yes. Basically, we still expect the revenue growth from energy and lighting as it still could be pretty good for a couple of years. And even there could be some noise for solar expansion in the past couple of months, but we also have heard from the market, some cities, government that have restrained the bank facilities to solar expansion. Maybe they're afraid, the overcapacity situation will extend it from battery to solar. And energy and lighting, we think still could be pretty good for years because even an LED lighting application of technology have been maybe around 10 years, even more than 10 years. But earlier, the LED lighting, the technology was not so good. You can see the bubble lighting on the screen. But in the past 3, 4 years, the technology of lumen has been much better and have improved. So in past, even for AirTAC application, we just apply LED lighting and non-core lighting place, just like the lighting on the road or some signboards. But from 2 to 3 years ago, our main lighting function have been replaced by LED lighting modules in the workshop of main or major lighting. Even so many car headlight or domestic decoration in the car, the house decoration applied LED lighting already. So basically, such demand still will be better and better. Once you have -- you want to redecorate of your house, so many buildings or offices, you still can apply LED lighting module because you can adjust your electricity expenses, also it can last a little longer time than traditional bulb.

So just one small quick --

I'm so sorry. It is already past 5 p.m. time. We have to start closing the call. Thank so much. Everyone, apologies. It is already past 5 p.m., so we have to close the call. Ivan, do you have any closing commentary, would you like to have?

I'm fine. Thank you.

Thank you so much for your comprehensive commentary. Thanks, everyone, for your understanding. Apologies that we cannot touch everyone, but I appreciate it that you could follow with the company respectively. And once again, thank you so much for attending today's call. This was Yuichiro Isayama and Jamens Wang from Asia Hosting AirTAC third quarter 2023 call. Hope to see the next time, and have a great night. Thank you, Ivan, and thank you, Julia, for attending today's call. Hope to see you soon.

Thank you, Isayama, and thank you, everybody. Have a good day.

Lin Julia, please close the call. Thank you, everyone. Once again, have a great.