Airtac International Group ($1590)

[Audio Gap] sector at UBS Taiwan. It's our pleasure to host Airtac management today for their first quarter '26 earnings release. Now let me pass to Mr. Ivan Tsao, the CFO of Airtac for opening remarks.

Okay. Thank you, Ally, and good day, everybody. This is Ivan Tsao speaking from Airtac, and welcome to join this conference call. And please let me brief our first quarter results and current market situation. First of all, pneumatic demand have entered recovery cycle, and we expect this up cycle could sustain longer than 2 to 3 years. And both shipment and order book amount have exceeded our expectation since the beginning of the year. Pneumatic components are replacing human beings direction and the industry can sustain single-digit growth annually once there is no too severe NOLCOM issue. By continuously developing new products and improving our brand image, we expect our annual revenue growth rate could be 10% higher than industry growth rate as pneumatic products support production line rather than the end product -- as long as customers launch new models or engage in production activities, there will be a better demand for pneumatic. In addition, recent geopolitical impact on raw material costs remain within the company's control through ongoing improvement in internal production efficiency and production and product sales mix. The operating profit margin this quarter continues to rise compared to the past couple of years. And our improved consolidated revenue for the first quarter of 2026 was RMB 2.192 million, a 22% growth year-on-year. Gross profit was RMB 1.052 billion, a 33% growth year-on-year. Gross margin was 48.0%. Operating income was RMB 728 million, a 45% growth year-on-year. Operating margin was 33.2%. Net nonoperating income was RMB 22 million, including RMB 14 million subsidy from government. 5 million of FX gain and 4 million of interest income. Income before income tax was RMB 750 million, a 37% growth year-on-year. Pretax margin was 34.2%. Net profit was RMB 585 million, a 36% growth year-on-year. Net margin was 26.7%. EPS for the first quarter of 2026 was TWD 13.35. And revenue for top 8 industry for the first quarter of 2026, the biggest one was electronics, around 26% to our consolidated revenue. It's 20% growth year-on-year. Second one, battery was around 20% to revenue, 85% growth year-on-year. Auto was 9% to revenue, 15% growth. Packaging was around 7% to revenue, 10% growth. Machine tool was 7% to revenue, 20% growth and general machinery was around 5% to revenue 32% growth. Textile, 5% to revenue, 22% growth and energy and lighting was around 3% to revenue, is 2% decline year-on-year. And for current market situation, more and more customers are showing positive views on future demand. China government continues to release many stimulus process and attempt to restore the confidence of people or enterprises. Some of them have improved their confidence and increased their end product consumption or capacity expansion. As for the demand of various industry for pneumatic, the revenue of the electronics industry grew by 20% in first quarter of 2026 is better than our expectation. And so many customers say there could be a good year for electronics in 2026 because they could be launching more new models and the spec upgrade in the year. And with that, we could have double-digit revenue growth from electronics customers. And for battery demand, government has announced its development guidance for EV and battery industry and customers expand their domestic capacity. In addition, more countries have relaxed their recession policies on Chinese players, and those players plan to extend their overseas capacity. So it could be double-digit revenue growth from battery in 2026. Better revenue growth from auto industry also could be expected in 2026. We have improved our brand match on auto customers and enjoy better share gain. Even though overall auto industry has not recovered significantly, we have had double-digit revenue growth from auto for years. We expect double-digit revenue growth in 2026 from auto customers. Moreover, government stimulus process for replacing old equipment to be new equipment can get subsidy from government still in the market. Those traditional demand like machine tool, general machinery, textile or packaging customers can enjoy positive growth. However, we have some demand issues on solar or energy lighting in 2025. But the government has recently taken the action to coordinate the overcapacity issue. We expect solar or energy lighting demand can be positive growth in 2026. And selected items for selected customers have pricing competition in pneumatic market, but it's still rational basically. We have increased the selling price in our overseas market, but maintain stable pricing in the China market to improve our customers' relationship and accelerate revenue from those various new business or new products. And in addition, we need to comprehensively consider revenue growth, pricing range, operating profit margin and market share rather than just pursuing high-speed revenue growth and the increasing material costs still can be offset by our internal efficiency improvements. The operating margin still have 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 continue to improve internal efficiency to reduce production cost. We define a 100% capacity utilization rate based on working 24 days a month and 21 hours a day with 2 shift operator working system. Current pneumatic capacity retention rate is higher than 100%. For the development of the linear guide, despite the overall weak demand and peers aggressive pricing in 2025, our shipment volume growth still could be around 20% in 2025. We also have a 20% revenue growth in first quarter of 2026. We have increased our capacity utilization rate from over 20% last year to over 30% since the beginning of this year and expecting to reach 50% by end of the year. When we have 20% to 30% retention rate, gross margin of linear guide is 10% and 50% retention rate, gross margin is around 30%, 80% retention rate, gross margin could be around 40%. Even 40% gross margin is lower than our existing pneumatic business, and we use the same sales team to do cross-selling pneumatic and new guide without too much additional OpEx. It still can improve our consolidated operating margin. And our product quality is better than our Taiwanese peers and our pricing is lower than theirs. But we missed customer expansion in 2020, our current sales reach is to enhance our brand image and just compete with Taiwanese and Japanese peers. After have a good enough brand image within 1 to 2 years, we will design additional spec or SKU to reduce production cost and selling product and selling price to compete with local China players, continuously improve our inflation rate, enjoy better fixed cost leverage and implement another aggressive pricing to compete with all peers. When the inflation rate exceeds 90%, we will consider changing the current 2-shift awaited working system to 3 shift and increase our equipment working hours also can enjoy better fixed cost leverage. This will give us the opportunity to implement more aggressive pricing strategy further to compete with all the peers and accelerate our market share in linear guide market. We still expect we could have around CNY 3 billion revenue from linear guide in around 10 years. For the development of supporting semiconductors business, based on our strategy, we have not developed products to meet semi customers demand by end of 2024. But due to those products enjoy higher gross margin and China government have localized policies. We began to develop semi items from early of 2025 and scheduled to launch them gradually from 2027 and current development progress is better than our expectation, and we can gradually launch some items from second half of 2026. But based on past experience, usually takes around 1 year for new product to have a better revenue contribution. So it could be in second half of 2027 or early of 2028, we could have higher revenue contribution from semi customers. And we expect pneumatic industry can return to low single-digit growth in 2026, and we can have least 10% revenue growth from pneumatic products plus the revenue contribution of linear guide and electrical controller product. The shipment in first quarter exceeds our expectations and remain pretty strong in this April. Even though we are optimistic about the market demand in 2026 due to the short delivery time in pneumatic industry, we still prefer to provide our guidance for 2026 based on a conservative principle and we will adjust them upwards with the next quarter's operating results. We raised our guidance for 2026 to achieve a revenue growth of mid-teens to high teens percent and operating margin of 33% for the whole year. And we have generated free cash flow for years and also have increased our cash dividend payout from 35% in 2021 to 55% in 2025. It will be 65% in 2026 and still could be better or higher in coming years. It's my briefing. Should you have any further questions, we can discuss it. Thank you.

Okay. So now let's start the Q&A session. I already see several hands up. So let's start with Ming.

Congrats Ivan, for the great results. So I have 2 questions. The first question, so regarding the current business, I think in the first quarter, you already see a very strong shipment growth. So right now, compared between linear guide and pneumatic, which product has a stronger demand? And do you consider to raise the price for either of the product? I think that's my first question.

So basically, we have stronger demand from pneumatic. And linear guide in the first quarter, the overall demand still has not recovered significantly. Even some peers, they say they want to raise their some price. But as we know, it just selective items can be hiked to customers' pricing. And basically, we have increased our pricing in overseas market but still sustain stable pricing in China market because we still will launch more new items for pneumatic and prefer to sustain better relationship with customers and convince more customers to buy more linear guide from Airtac. And we also have electrical controller new spare will be launched in second half of 2026. And we're still continuing to develop electrical actuator or electrical thing, maybe we can launch electrical actuator in 2028 or 2029. So based on we have a record high revenue and high position of the OP margin, maybe it's better not to hike our same price in China market in this moment.

I have another question is regarding to your cash management, et cetera. So you mentioned you will raise your dividend payout. So at the same time, your cash flow from operation is improving as well. So how will you make your investment more efficient to improve your ROE or ROIC?

Yes. Firstly, in past, we just sustained around 50% payout ratio. So we have specific profit in the year stay on our return earnings. So once we just continue to sustain 50% cash dividend payout, the base of return earnings will be higher and higher. And even we pay 50%, the ROE still won't be too high. So maybe we can increase our payout ratio, and we also continue to improve our internal efficiency, same product mix also can have a higher OP margin, higher EPS to increase our ROE in coming years.

Yes. Sorry. To follow-up, so because you raised your revenue guidance, so do you need to increase your CapEx or you can spend the same CapEx but generate higher revenue?

Basically, in past 3 years, even over demand still not very obviously recovered, but still spend CapEx to improve our equipment productivities. And we have a lower CapEx number from 2023 to 2026, just around TWD 2 billion to TWD 3 billion a year. And it doesn't mean we slow down our expansion. We have better productivities of our process and still can support 20% output volume growth every year, even we just have TWD 2 billion to TWD 3 billion CapEx. So basically, we still can find some ways to improve our productivity or production efficiency. And 2027, maybe the CapEx still could be around TWD 2 billion to TWD 3 billion. And 2028 or 2029, we have to spend a little higher CapEx to expand our electrical actuator part capacity. But even the CapEx could be a little higher, it just could be TWD 3 billion or a little higher than TWD 3 billion a year.

The next question comes from Daisy.

Yes, this is Daisy from Macquarie. First, congratulations, Ivan, for your very exciting results. I have several questions. The first is regarding, say, your OP margin actually is up that based on the year-on-year or Q-on-Q base. Actually, I want to know what's the reason behind for your OP margin improvement.

Okay. Thank you, Daisy. I mentioned we still can find more ways to improve our production efficiency internally. And we also can improve our sale product mix. So basically, we have a better OP margin first quarter of this year. The other reason could be we have better revenue scale and the OpEx leverage also could be better. And we expect even we can say we could have another higher OP margin in second quarter of this year, even could be a record high number in second quarter of the year because we not just improved our internal production efficiency, and we expect second quarter revenue scale also could be much better than first quarter of the year. So OP margin, once there is no too severe NOLCOM issue, we believe our OP margin in second quarter of 2026 could be a record high numbers or percentage.

Ivan, you just guided, say, 2026, the OP margin will be around 33%. But given another say that the improvement in the second quarter, is that your OP margin, the whole year guidance is too conservative?

Yes. I have mentioned it in my briefing. The lead time of pneumatic is too short. So we still cannot 100% ensure the demand situation in second half of the year. So we used to give a little conservative numbers to the market in the first half of the year. And based on quarterly results, we'll upgrade the guidance number.

Understand. And my second question, Ivan, is regarding that what's the reason behind your very strong. We are seeing, say, the record high order book in January and then in March again. Is this the industry that overall demand recovery or just your wallet share gain?

As we know, so many FA players, they have pretty strong revenue or order book in the first quarter of the year. And Airtac, we still continue to launch more new pneumatic items. We had share gain. And we also have new business electrical dehydrator -- sorry, electrical controller to support our business. In addition, even the linear guide revenue still could be a little lower than our expectation, but it has been record high quarterly linear guide revenue in Q1 of this year. So basically, once we can continue to improve our linear guide brand image, we believe the revenue contribution from linear guide in coming quarters or coming years still could be better and better, and it can improve our consolidated revenue growth, also could have a better fixed cost leverage on OpEx.

And my last question that we just want to know your estimated revenue from the semi sale in the second half next year and also the whole year contribution in 2028.

Basically, it's how -- it's our whole new business. And our current semi revenue just coming from those items we used to develop for other applications, but still can be shared by semi customers. And monthly revenue just around CNY 5 million to CNY 6 million a month in 2025, but it could be -- it was a little higher in March of 2026, higher than CNY 8 million. So the -- maybe still too early to tell the expecting revenue for 2027, 2028. But basically, based on -- we could have better brand mix, also benefit from government localization policies, maybe we still could be enjoy higher revenue contribution from semi in coming years. And it's difficult to tell or it's too early to tell the exact number for 2027 or 2028 from semi customers.

Okay. Next, we have [ indiscernible ]

Congratulations on your strong results and good job on delivering your guidance since last year. My question is very simple. I think you guided the electronics to see recovery this year. So from what our observation in the electronics industry in China, there are 2 groups, right? One is the traditional smartphone, PC, those are still pretty weak. But then there's like the AI-related electronic supply chain, maybe the PCB, the optical modules, those have been very strong. Within your electronics segment, is it able to classify into maybe the traditional PC, smartphone? Maybe historically, you are more tilted to the [ Apple ], right? But then this year, with the orders momentum, I suspect it's related to some of those AI electronics. Is it possible to maybe split your electronics by AI versus maybe smartphone PC? That's my question.

Okay. Basically, any production activities need pneumatic indirectly. And pneumatic customers' production process, not in the end product. So even somebody say the sales volume of smartphone in 2026 won't be too good. But we also have mentioned in my briefing, we need more new models launched and bigger upgrade, then customers need to set up new assembly line of capacity. And the volume -- selling volume of customers' product is not very high correlation to pneumatic demand. So basically, we expect pneumatic could have double-digit revenue growth and maybe higher than 10%. And we have 20% growth in first quarter is better than our expectation. But also based on the short lead time of the pneumatic product, we just can say it could be double digit for the whole year 2026.

So this is still more smartphone related...

Smartphone revenue just around 25% to 30% of our electronics revenue. And not just what you mentioned, Apple are our customers, all the local China smartphone players are our customers.

How about PCB optical module, maybe AI-related.

Yes. I mentioned, whenever customers have production activities, they need more pneumatic to support their automation improve.

Okay. But you can't say the percentage within the electronics.

Firstly, so many electronic supply chain customers, maybe they're not just engage in specific single product. And we can pick up smartphone revenue from our electronics revenue. The rest of the electronics revenue is not very high percentage to consolidated electronics revenue. And it's better not to quantify those smaller percentage items.

Next, we have Andrew.

You talked a bit about increasing ASPs in overseas markets. So I just wondered, can you please elaborate on the business you have overseas and exports, what products that entails and just how much you're able to raise prices and who you're taking market share from?

Firstly, overseas revenue just around 4% -- 4% to 5% of our consol revenue. And we have a better business in Europe and America. So basically, pricing hike is still based on different items for different customers, and it could be single digit to teens percent for the price hike. And we said the total pneumatic demand in non-China market could be around 75% of the global demand. But we just have 4% revenue from overseas market. So it's very limited market share of our overseas business. And basically, there's still so many bigger competitors or small competitors in global. And we get more shares from Chinese peers in China, and we can get shares from different variant competitors in global. But all of them still not very high revenue for Airtac.

Okay. And maybe just one follow-up. Can you talk more about the products that you're developing within semiconductor specifically? What is it? And are you able to quantify even roughly just the sort of the revenue potential, the margins that you think you can make on these devices?

As we know, the biggest Japanese players, their China revenue almost around 20% to 30% contributed by semi items. And the total semi demand amount in China market could be CNY 5 billion to CNY 6 billion. And we just have CNY 60 million in 2025 and maybe will be a better or higher from 2027 or 2028. We expect we could have CNY 1 billion revenue from semi in around 10 years, but it's just our expectation. And how fast of the progress will be still depends on how fast the customers want to place more orders to Airtac.

Okay. So next, we have Jason.

This is [ Jason Luo ] from [ First Capital Management ]. The first question, I would like to know the profit margin guidance because from late -- from early March, we see the hard metal price or even the energy price be higher. So in the second quarter, do you see any negative effect for our variable cost to our products?

I mentioned we still have found more ways to improve our internal efficiency and productivity. We have 33% OP margin guidance for the whole year. We have included the metal material cost hiked teens percent in 2026. So basically, those hiked raw material costs still can be offset by our internal production efficiency improvement.

Okay. So for my second question and the last question is, could you recap for us the utilization rate in the 2026 first quarter and the guidance for the second quarter?

Pneumatic utilization rate have been higher than 100%. And linear guide had over 30% in first quarter of 2026.

And for the second quarter, maybe we can expect the number will be higher than before?

Still could be higher in the second quarter because the shipment in the first quarter had higher than our expected. And our inventory turnover days even could be just around [ 110 ] days. It's not healthy. It's too low. So basically, we still will keep very high retention rate, even ask for more operators to -- over time to produce more volumes in second quarter.

Next, we have Iris.

Congratulations on your good results. I've got 3 questions, if I may. By the way, this is Iris from Deutsche Bank. Sorry, I forgot to introduce myself. My first question is actually on the raw material price and pricing as well. Could you maybe give us a rough split of what are the key raw materials in your cost of goods sold? I assume it's preliminary aluminum, but want to have an understanding like a rough split is fine. And then like you've mentioned that your guidance has included a teens percentage increase for the metal price. Then to which point then you will consider increasing the price, I think like by how much the metal price needs to increase, then you will consider to increase the price.

Our cost structure raw material cost, almost around 50% of our cost of goods sold, including 20% cost of goods sold is aluminum, 45% is copper and another 5% is steel. So basically, aluminum cost hiked by 10% in the past 12 months and it's around 30% hiked from copper. And basically, we will keep stable pricing for pneumatic in China market. And it doesn't mean we cannot pass those raw material cost disadvantage to customers. Basically, we just hiked pricing once in 2011 because the copper was hiked -- copper cost was hiked by 5 to 6x, then we just hiked those pricing for customers just for the copper material can change a higher percentage of the cost of goods sold product or SKUs. Rest of the items still keep stable pricing, even similar pricing. And I still have to stress we still an find more ways to improve our production efficiency. And not just we can speed -- can accumulate our experience to find more ways also caused by the automation knowledge of technology is improving. We can find more ways to improve the equipment productivity or production efficiency. So basically, we won't hike selling price to customers basically. But it still depends on the competition environment. But we believe even the raw material cost still will be hiked in 2026 or rest of the 2026, but still can be controlled by ourselves.

Understand. My second question is on the linear guide business because I believe, like, some of the peers in the linear guide business is pointing to better demand for their linear guide business. But you've mentioned that you believe the linear guide demand didn't really recover for the market in the first quarter. And can you give us maybe a bit more color on that? And also, what do you think is preventing Airtac from kind of seeing higher growth in this business?

Yes, basically, we expect the overall demand could be better in 2026, but we have not seen that in first quarter. And why we expect the linear guide demand could be better in 2026 because the demand cycle of linear guide used to be around 2 to 3 quarters later than pneumatic cycle. So once pneumatic began to recover from end of 2024, the linear guide demand could be better from fourth quarter of 2025, but second quarter of '25, U.S. have a tariff policies. And linear guide could be a CapEx component. It's not like pneumatic with CapEx demand and component replacement demand. The tariff policy impact to linear guide could be higher than pneumatic. So basically, we still expect the linear guide demand could be better or began to recover in 2026, but just not in Q1 of 2026.

Okay. And are we seeing some signs of maybe the demand picking up since toward end of April now in the second quarter?

Yes. Basically, the demand seems a little better in past 1 or a little more than 1 month.

Okay. That's great. My last question on the exciting semiconductor business. And can you give us some understanding of what are the, say, barriers for entry in the semiconductor market? Is it more about customer relationship and the customization required? Or it's more technological in the clean rooms like -- and also how we think we can be -- what are the drivers for us to be successful in this market? I mean I understand the whole localization drive. And other than that, I mean, where -- like what can drive us to grow in this market?

Firstly, we still could be a beneficiary of the government process localization. And our pricing just around 40% of Japanese peers' pricing, that means 60% discount to Japanese peers pricing. We still can enjoy 70% gross margin from those items. So basically, it's our whole new field to support semi customers. And we have our expectation, but still depends on customers' revocation period and how many orders they can place to Airtac. And basically, pneumatic or even so many high application, higher-end customers, they have very deep brand image for pneumatic suppliers because pneumatics are a little complicated than other FA components, but it's very low ASP, low cost percentage to customers' total production cost. Even we have 20%, 30%, 40% pricing lower than peers, lower than Japanese peers or European peers, but it's very minor to customer total production cost. So many customers, they don't want to take any risk to change their pneumatic price to made in China suppliers. So basically, in past, is the main reason why we don't want to set semi items development to be our first priority. We still prefer to do those easy money items first. So the progress or the competence of Airtac to enter in semi items. So basically, we could have similar quality, similar large technology with international peers. But the semi revenue progress still depends on how fast the local China semi customers place how many orders for Airtac.

Understand. And just to double check, when you say about the pricing being only 40% of the Japanese peers, you're referring to the semiconductor specific products or you're referring to the broader product portfolio? I guess it's a bit higher than that.

Semi items. You asked me semi items, so I just answer you about the semi pricing.

Next, we have KekYee.

Good to hear from you again. This is from KekYee from Principal. Just want to double check this year, right, do we still see the normal seasonality in the monthly sales? Or this year is a bit abnormal. We may see the sales pick up in April, May and then flattish into August, September? How is the monthly sales seasonality this year?

Yes. Basically, second quarter used to be the peak season of pneumatic. So whenever the economy is good or bad, second quarter always is the peak season, peak season of the pneumatic. And once one to talk about the consider revenue of Airtac, it still depends on the progress of our new business, linear guide electrical controller. Yes, so it still depends.

Okay. And coming back to the segment like Electronics segment, right, you said there's more new model and spec upgrade this year. When you say new model, do you see like new items that are not in the market before coming into the market this year by different new company that enter the consumer electronic or new product range that entering the consumer electronics?

Maybe not just count by new entrants. Existing players in the market, they still have launched or going to launch many new models in rest of the year. So whenever they launch new models, basically, they need to set up new production process or something like, and they need more pneumatic component.

Yes. Okay. And for the auto segment, SMC is about 30% of the mix is auto and Airtac currently, we are only 9%. So it's quite easy for us to gain market share. But how many -- how fast can we go to like, say, 20% -- like we need 2 years to go to 20% of mix or 1 year next year, we can go to -- end of next year, we can go to 20% of mix coming from auto?

Basically, percentage to the mix from basic application still depends on the base. And we could be the biggest traditional pneumatic suppliers -- pneumatic component suppliers. And once we want to achieve 30% of the revenue coming from auto, we think it could be very difficult because we have the best...

Because you are very diversified and your mix is quite different from SMC.

Yes, basically. We think we have -- we just have teens percent market share in China auto industry, much lower than our overall market share, 30%. So we believe we still can enjoy pretty good market share gain from auto customers in coming years. But how high of the percentage will be still depends.

Next question comes from Jeremy.

Just 2 questions from me. So as far as I understand it, there are a lot of different kinds of specifications for pneumatic equipment, right? I mean a lot of different kinds of [ indiscernible ]. And I understand that for a company like, let's say, SMC, they cover a lot of specifications. And in order for them to maintain a very short lead time, they keep a very large inventory in order to respond very quickly to the market, right? So my question here is, if you are looking to gain more market share in China going forward over the next 2 to 3 years. Does that mean that you will need to build up your inventory in terms of the number of specifications that you have on hand as well? And if that's so, does that mean that you need to actually boost your capacity going forward?

Okay. Basically, most of the different SKU, the production can be shared by the same equipment or production process. We don't have to buy specific new equipment for specific new SKUs. And different companies have different operation strategy. So basically, our lead time to spot customers could be the shortest one in China market. We promised customers they can get their demand in 3 to 5 days after they place order to Airtac. And as we know, the other 2 bigger peers is longer than 1 week. And we review our inventory from raw materials work in process to finished goods under our ERP system. And we observed or review, even revised the ratio of the -- each items by-weekly. And we just have -- 10 years ago, we just have 120,000 or 150,000 items and our inventory turnover days was around 170 days at that time. And we have increased our SKU number to be around 50,000 to 60,000 items currently. And our inventory turnover days is just around 120 days, even lower than 120 days at the end of this March. So basically, different companies have different strategies, and we could be -- have a better efficiency to manage our inventory level.

I see. So anyway, based on your current strategy and your business model, you feel that you don't need to boost capacity in order to still take market share in the near-term, right?

We still have to expand more capacity because we have basic shipping volume growth. We need to buy more new equipment to increase our output. And in addition, for SMC or Festo, they have around or even more than 700,000 items, 50% customized, 50% standardized. Airtac, we have 250,000 to 260,000 items, 90% standardized. And we just target around 35% of China pneumatic market share. And we just developed 350,000 items to cover 80%, 85% of the total market demand and enjoy 35% among the 80%, 85%. It's good enough for Airtac. So we won't develop 400,000 items, 500,000 items.

Okay. Understand. Very clear. My other question is, you stated in your opening statement that you're expecting possibly a 2- to 3-year up cycle for pneumatic equipment in China. However -- and also, I noticed that you said that you are producing right now above 100% capacity utilization. So -- but then it doesn't seem that you're accelerating your CapEx spend. So you're still going to spend about TWD 2 billion to TWD 3 billion per year. When you speak to your customers, do you get a sense that this year, it seems like demand recovery is very broad-based across many, many industries when I speak to other companies as well. Do you get a sense that the investment is being front-loaded this year because it's the first year of the 15th 5-year plan and they want it to be a good start. And is there a risk that we might see a slowdown next year?

We defined 100% utilization rate based on 24 days a month and 21 hours a day. So once we have a better shipment, we can ask our operator to work for 26 days a month, then meet 110% utilization rate. And in the bester of the process, we still can put it more operator to that equipment work for 24 hours. So basically, TWD 2 billion to TWD 3 billion CapEx a year is good enough for our current demand situation or based on our prediction. In addition, the equipment, pneumatic equipment lead time from we placed orders to vendors, our vendors to this new equipment could make production just around 3 months. And we used to construct buildings first. And we can -- based on the current shipping situation and decide when to buy more equipment just in 3 months, we can have a new capacity. And just the same world. We always can find some ways to improve our internal production efficiency. Even the same equipment, we could have additional output or production volume to support customer demand. And we can adjust our CapEx whenever we want to. So basically, even 2026, 2027, our current expansion plan, TWD 2 billion to TWD 3 billion CapEx a year but still can support 20% shipping volume growth in those 2 years.

Next, we have Kenny.

Congrats on the amazing results. I have actually 2 quick questions. Just following up the overall demand situation. I guess in the previous several cycles, you had some years growing your revenue over, say, 20% or even 30%. I'm wondering if this time, you need to try picking your orders like your P/B ratio is going beyond control, so you need to forgo a little bit demand. What do you think about the current situation right now?

Firstly, in past 20 years, every 2 years, we have an up cycle then 2 years down cycle. And this time, we prefer not to define as a cycle issue from late 2021 because it's government some specific control policy to that overall demand could be deserted pretty fast. And government have released or launched so many stimulus policies, but they still need to take some time to restore people or corporate confidence. So this up cycle from late 2024, it just could be a moderate recovery. It's not like previous up cycle in 2021 or 2017. It's new turn of V-shape. So once this time, it's just a moderate linear recovery, that's the main reason why we expect it could be longer than 2 to 3 years. But just for our prediction, the lead time of the industry is pretty short. We cannot ensure our prediction can be achieved 100% in coming years or in future.

I see. If I may squeeze one last question is that regarding the OpEx I know usually you will not give us an absolute number, but looking back on 2024 and 2025, you were so disciplined controlled like TWD 5.2 billion to TWD 5.4 billion every year. Supposedly this year, I think given your guidance, you will probably have $400 billion -- $40 billion revenue. How should we think about this? Is there any ratio you would give us for as an OpEx rate target internally? How should we think about this? I know you have answered that you will have operating leverage, but just for us modeling, if any color.

Firstly, once we have good revenue scale, we could have pretty good leverage for OpEx. And marketing used to be around maybe high single digit to 10% of our revenue. And around 40% of the selling expenses is related to sales team's bonus plan. And our bonus plan used to based on revenue growth rate, OP margin, budget achievement and the receivable received on time or not. So it still depends on those variable issues to decide our selling expenses. And most of the general and administration expenses or R&D expenses could be fixed cost, but those 2 departments still can enjoy bonus plan based on OP margin of the subsidiary. So basically, we cannot give you any OpEx number by NT dollar because most of our business or expenses are still located in China based on renminbi base. And our functional currency still is renminbi. But we listed in Taiwan, we have to transfer our financial statement from RMB to NT dollar. So once you just compare by NT dollar base, you still have some issue of the FX every year or every quarter is different. So you can say the percentage of the OpEx, selling expenses could be high single digit to 10% and 3% administration expenses, around 3% could be R&D expenses.

Okay. Thank you. I think we are running out of time. So Ivan, do you have anything else you want to remind us?

I'm fine. Thank you.

Okay. Thank you, Ivan, and thank you all for joining the call. This concludes the call today. Thank you. Have a good day. Thank you. Bye-bye.

Thank you, Ally, and thank you, everyone. Have a good day.

Bye.