E Ink Holdings Inc. (8069) Earnings Call Transcript & Summary

Welcome to E Ink's First Quarter 2021 Earnings Conference Call. Today's speaker is Chairman, Mr. Johnson Lee; CFO, Mr. Lloyd Chen; and Finance Director, Mr. Patrick Chang. [Operator Instructions] A Webex replay will be available after today's conference. Please visit tw.eink.com under the Investor Relations section. We now proceed with the conference.

Good day, everyone. My name is Lloyd Chen. Welcome to E Ink first quarter earnings conference. Before we start, please take a quick look at the safe harbor statement. Thank you. Okay. Next page. All right. Firstly, I would like to talk about -- briefly talk about the first quarter results. E Ink first quarter 2021 sales revenue was around TWD 4.4 billion, and that led to the operating profit of nearly TWD 1 billion, specifically, it's TWD 968 million, and the net income was around TWD 1.2 billion. And EPS TWD 1.03. The sales revenue and operating profit and the net income for first quarter was the best first quarter in the past 8 years. However, you may notice there was a decrease -- slightly decrease in nonoperating income due to the less exchange gain in the first quarter for 2021, and that's for the P&L for first quarter. Next page. Talking about the operating profit. The first quarter operating profit was 14x growth year-over-year, from TWD 45 million to TWD 968 million due to a strong demand from the market through eReader, eNote, Retail and Signage. Next page. And for those balance sheet items, I would like to specifically focus on the asset side. Basically from the spring, you can see there was a positive increasing trend on cash assets and then total assets and even the net assets value. Next page. For the cash flow, cash flow was decreased from TWD 13 billion to TWD 10.8 billion because we converted cash for more financial investments and also for CapEx, of course, to meet the strong market demand. As you can see from the screen, the total financial assets plus cash was increased to around TWD 30 billion by first quarter of this year. That will be on cash flow part. Okay. After I just went through those financial items, I would like to talk about our color technology again. With the continuous efforts in R&D for Color ePaper, we have launched 3 complete Color ePaper technologies that are very much suitable for different smart fields. First one, once again, is E Ink Kaleido Plus; we also call it Print Color ePaper. So using basically the color filter technology and RGB color mix in principle, ePaper is converted from black and white into 4,096 rich colors. E Ink Kaleido Plus features an improved front light. When it's turned on, E Ink Kaleido Plus creates saturated image from 3x the color gamut over the previous generation, even with more warmer colors. At the same time, the new generation of Kaleido has a capability to play animations and videos with E Ink eNote products, providing new options to educational and professional devices, especially very helpful on the digital learning. And the next one is the E Ink Spectra 3100, basically 4-color ePaper technology. And this is our newest generation of Spectra, basically utilizes 4 color particles, black, white, red and yellow. And Spectra 3100 features high-resolution and high saturated -- saturation color, which displays rich content. It can be used in VSL or promotional signage. The flashing, when changing the image, even brings eye-catching effects to -- for the retailers during the event promotion. And last but not least, E Ink Gallery, Advanced Color ePaper, ACeP. E Ink Gallery is based on full-color ePaper display technology. Full type of color electronic ink particles are used to achieve a full color gamut display by dynamically combining and mixing the particles through voltage control. The paper-like texture of E Ink Gallery offer the video effect of printed posters, making it suitable for public information display, commercial signage and digital display carriage for art galleries, museums. In Touch Taiwan a few weeks ago, the 13.3-inch and 25.3-inch E Ink Gallery products were on display. And the 13.3-inch Color ePaper Signage system was also introduced into Taoyuan International Airport in Taiwan, Terminal 2, for use by the taxi fleet to promote pandemic prevention information. So that's about our color technology. Next page. The next page is about the ePaper Alliance we just set up. E Ink and BOE and Holitech jointly launched the establishment of the Electronic Paper Industry Alliance, being abbreviated as EPIA, where it's located in Shanghai. Quite a few key Chinese and Taiwanese companies, such as Lenovo, Hisense, TPV, Tencent and MediaTek, Inventec, Innolux joined. The purpose of the EPIA is to build up a better platform for ePaper ecosystem and will utilize the platform to expand the ePaper applications shown on screens. So as you can see from the screen, smart transportation, smart airport, smart education, smart factory, smart logistics and even smart retails and to the smart office, hospitals. So the members in EPIA can explore more business opportunities. Currently, there are more than 60 companies joined so far. Most of them from China because they do see the green concept requested from the China government, which would trigger the demand of ePaper products. 100 companies to be expected by end of this year and being double up on more than 200 companies for next year. So that's about the alliance -- ePaper alliance which is set up. For the ESG, we have been continuously working on the ESG and sustainability. Basically, ESG performance nowadays is an essential element for international investors. Those investors care about not only finance performance of the company, but also ESG performance. E Ink, our core product, is ePaper, which is expected to replace conventional paper, so that the product features such as low power consumption, long sustaining, easy on eyes, sunlight visibility, all reflect -- all being reflected in the United Nations SDG goals, such as good health and well-being, quality education, affordable and clean energy. And such green product, that's fundamental to the environmental perspective. We estimate that our products enable the reduction of 230 million tons of Co2 in the past 5 years. And E Ink also devoted in purchasing Taiwan renewable energy certificate, creating solar energy and protecting water resource by water withdrawal reduction. From the social perspective, we, E Ink, established internally E Ink University as a global training platform. And we also sent the qualified employees and talent to join our Stanford LEAD Business program. E Ink also conducts the multiple years lasting project, eReader for the future, especially in Taiwan to establish the eReader library for schools in remote areas. E Ink, as a member of UNGC, also joined Young SDG Innovators program to deliver ESG values. From the corporate governance perspective, E Ink is rated as top 20% among Taipei Exchange listed company by corporate governance evaluation for fourth consecutive year. We won multiple awards from TCSA, and we are also listed on the final list of the Global Vision Magazine, CSR Awards. Unfortunately that we didn't win the award, but we have been somehow recognized our efforts and achievement in terms of the ESG. There's one just launched index named Taipei Exchange ESG IT Elite Total Revenue Index, and selected us, E Ink, as one of the 10 constitutes. We should be appreciated considering our ESG efforts and also profitability capabilities. So that's our ESG and sustainability achievement. Next page. And further, I would like to explain more on the index I just mentioned. For the Taiwan Index Plus, basically, that's an index company, very famous one, I mean part of a customized by the exchange ESG IT Elite Total Return Index. It's compiled by selecting 10 Taipei exchange-listed electronic companies which fulfill criteria of financial indicators and also market capitalization. Constituents are weighted according to their free float adjusted market capitalization. In order to measure the dividend, we invented the performance of the Taipei exchange-listed electronic companies that are sustainable and representative. And E Ink was honored to be one of them. That's for the index I just mentioned. And we also have one achievement on the clean energy, I think being done last week. And we are the first company contracted and will accomplish 10% installed renewable energy in Taiwan. And basically, in order to meet the compliance in Taiwan, basically, we accomplish that requirement in the times. So that's for the ESG, on the IT Elite Total Return Index and the clean energy. Next page. And one more thing I would like to mention. Last week, we extend ePaper to the non-display application. E Ink becomes the largest strategic shareholder in Nuclera through the spin-out of the digital microfluidics team. Let me just briefly introduce this company, Nuclera. It's a company, a fast-growing biotech company, developing protein and gene synthesis technologies. Combining the technologies between Nuclera and E Ink definitely will enable the delivery of the revolutionary desktop protein and gene bioprinter with breakthrough speed and convenience for researchers in human health, agriculture and other markets of the global importance. Nuclera has been working in a strategic partner with us since 2018, to deploy Nuclera's proprietary biosynthesis technologies on E Ink's digital microfluidics devices. Instead of the physical channels found in conventional microfluidics, digital microfluidics uses electronic signals to guide the micro droplets. And when combined with Nuclera biosynthesis, this advanced-level chip technology will enable the user in a single day to digitally program the bioprinting of the proteins and genes on a desktop device. The result is a bioprinter that gives unprecedented access to biology. Those products will be commercialized being expected in 2022. So to be short, with our technology and Nuclera's technology, the combined technology can basically shorten the protein and gene synthesis process from months to days. So that's our achievement to extend our technology to the non-display field. Next page. Okay, so last but not least, as was explained in the previous quarter, we started capacity expansion for future growth, [ 4 ] additional ePaper production lines. And the Board just approved the Hsinchu new building, basically is under planning for the factory and office. And that definitely expands our preparation for the future growth. We do feel the strong ePaper demand which is higher than our supply. Therefore, how we can better manage our supply chain and ePaper capacity to realize those higher demand into sales revenue will be our key focus in the second half or even next year. So that's about my update for the first quarter. So we can move to the Q&A session. Thank you.

We are now in the Q&A section. [Operator Instructions]

Jerry, I saw your question again. I thought you were in our Chinese investor conference, but I guess you're joining our English one. Yes. So driver IC constraint, I think it's a worldwide problem. And we're trying the best we can try to resolve it. As you know, currently, our demand is a lot larger than what we can supply, not just on our E Ink materials side, which we sell mostly to our module partners -- or module ecosystem partners. But on our own module, we couldn't get enough driver ICs. I think the glass part, it's less of a concern, but more on the driver IC side. But we do see week-to-week improvement on the ICs and glass in terms of supply. So hopefully, it'll get better. It's hard to say because the current market situation changes a lot. But we think -- yes, we just have to see a week -- on a weekly basis. Okay. Your second question is if Taiwan goes to Level 4, how will that impact your operation? Definitely, it will impact our operation because we do make E Ink materials in our Linkou factory. It will cut down in terms of how much we can produce. But it's really up to the government policy what is allowed and what is not allowed. So we really have to see the latest government protocol to have a better assessment. So another question by [ Robin Yo ]. Why were the sales softer in Y-to-Y in April 2021? Will the company provide guidance for second quarter of 2021? I think for Q2 2021, it should be about the same as Q1 2021. The demand is actually stronger in Q2. But because we couldn't get enough -- our supply chain is short on IC and some TFT, so we couldn't ship enough. So Q2 should be about the same as Q1.

Sales revenue. In terms of sales revenue.

Yes, in terms of sales revenue.

And we don't see further questions. So thank you for your participation today, and talk to you soon, our next quarter.