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

Good afternoon, everyone, and welcome to E Ink Fourth Quarter 2024 Earnings Call. [Operator Instructions] After the presentation, we will open the floor for a Q&A session. Today's conference is being recorded. The Webex replay will be available on E Ink's web website after the conference. Joining us today are our CFO, Lloyd Chen; and Finance Center Senior Director, Patrick Chang. With that, I'll turn the call over to Lloyd.

Hi. Good day, everyone. Before we start, I would like to share a few things from the cover story -- cover page that you're seeing from the screen. Basically, in today's advertising market, high brightness digital screens and static and paper posters are the two mainstream options. But E Ink ePaper signage offers a third alternative. It combines the refined look of the printed posters with ability to maintain images without consuming power, also offering energy efficiency and reduce light pollution for digital out-of-home, DOOH, advertising. At the ISE this year, Integrated System Europe exhibition, our partner showcased a 75-inch large-format color ePaper display, showcasing the potential of ePaper for large-scale application. And next month, we will be exhibiting a variety of large-format color ePaper signage application at Touch Taiwan. We sincerely invite you to visit us and explore how ePaper is introducing new option for digital signage and advertising market. All right. Next page. Let's take a few seconds on the safe harbor statement. All right. Next page. Okay. Let's look at the 2024 whole year financials. For the full year 2024, the revenue was around TWD 32.2 billion, reflecting a 19% Y-o-Y increase. Operating profit reached TWD 7.6 billion. Net profit was TWD 8.9 billion and the associated EPS is around TWD 7.75, marking the second highest figures in the company's history. However, if we consider the period after we shifted focus to ePaper applications, 2024 marks a record high on revenue. In '24, sales growth basically drove operating profit to TWD 7.6 billion to expand our more innovative ePaper applications. The company continues to invest in R&D resources and talent development, recognizing that research and innovation are key drivers of corporate growth and long-term sustainabilities. Let's look at the asset side. Total assets was TWD 74.5 billion versus TWD 91.1 billion last year. Year-over-year increase basically is up TWD 16.6 billion. Y-o-Y percentage was around 22%. Continued profitability has driven cash inflows from operations, leading to increased reserving cash, financial investments, our net asset value per share over a 4-year period, total assets have doubled, as you can see from the screen. For cash flow, in '24, both cash and financial assets position increased totaling around TWD 59.4 billion. Year-over-year increase was around TWD 10.5 billion. We basically continued to generate profits and processed sufficient funds with this strong financial position. We will allocate appropriate cash on hand into, for example, financial investments and CapEx to support the future growth. And for dividend paid out '24, once again, as I mentioned earlier, the EPS was around TWD 7.75, marking the second highest in the company's history. The dividend distribution, basically, as I mentioned earlier, TWD 5 per share with a payout ratio of 65%. From the trend chart shown on the screen, dividend has been increasing since 2020. And for the following few pages, I would like to spend some time to talk about our market information and also the ESG-related information. Basically, we have positioned 2025 as a year of large-sized color ePaper, so marking our entry into the large-sized ePaper market. So from the screen, the image from the left-hand side, the largest color ePaper signage showcased at ISE, Integrated System Europe. This year, we collaborate with multiple system integration partners to unveil the world's first 75-inch color ePaper signage powered by the latest E Ink Kaleido 3 Outdoor technologies. The breakthrough solutions offers a dynamic and sustainable alternative for the digital out-of-home market, combining vibrant display capability with ultra-low power consumption, as global initiatives focused on carbon footprint reduction and sustainability. Kaleido 3 Outdoor images as a key solution for replacing energy-intensive digital signage, designed to operate reliably in extreme outdoor conditions, ranging from minus 15 degrees Celsius to 65 degrees Celsius. It can also be powered by solar energy, eliminating the need for traditional grid electricity. And also, you can see the image on the right-hand side, it's all about our -- another colored e-paper technology. It's called E Ink Spectra 6, basically expands its presence at NRF 2025. So last year -- this technology basically being recognized on the Display Technology of the Year, last year. So E Ink Spectra 6 takes center stage at NRF. That's a very important exhibition being held in New York this year, basically featuring a comprehensive product lineup in collaboration with leading retail brands with 60,000 colors, 30 to 1 contrast ratio and advanced color imaging algorithm. Spectra 6 deliver a print quality alternative for POP display posters and in-store advertising. Okay. Next page. So basically, we have the diversified innovation strategy. We keep driving E Ink's sustainable growth. So this strategy continues to be the foundation of E Ink sustained growth. This quarter, we would like to share beyond advertisement in signage. We have expanded collaboration with key partners, reinforcing our vision to keep -- as the title page mentioned, keep making services smart and green. So in the center, you can -- you probably can see we have been expanding digital reading. In first quarter, a few Taiwan leading e-commerce book stores launched their first e-reader at Taipei International Book Exhibition, marking a significant milestone in digital reading adoption. And also in the center, as you can see, guitar brand is called Cream. They are showcasing their latest and greatest ePaper technology being used in their guitar. So at NAMM exhibition, National Association of Music Merchants on this exhibition, that's one of the premier music trade show in the States. Cream, this brand, introduced innovative color ePaper guitar, revolutionizing instrument design with its customizable dynamic appearance. This guitar basically enables musician to express their creativity like never seen before. And also locally in Taiwan, we work with Taiwan Textile Research Institute. We unveiled e-MooDress dress, a color-changing ePaper garment using E Ink Prism technologies. This innovation bridges fashion and technology, opening the new possibility for programmable textiles. And last but not least, at CES this year, we work with Continental, one of the global automotive parts manufacturers. They debuted the emotional cockpit integrating our Prism technology into a 1.3-meter ultra-wide ePaper dashboard panel. This breakthrough basically supports customized patents and colors, display real-time range information and also features ultra-low power consumption, making it ideal for EVs. All right. Next page. I'm going to talk a few ESG recognitions in the first quarter. So we achieved a leadership level in both climate change and water security reports by CDP with the top A list rating in climate change. This recognition basically highlights our concrete actions and strong commitment to climate governance, carbon management and water resource management. And the next one in the S&P Global Corporate Sustainability Assessment, CSA, we achieved an outstanding 92 points ranking highest in the global electronic equipment, instruments and components industry for the second consecutive year. I mean, this score, 3 points higher than in 2023, sets a new industrial record. Basically, as a result, E Ink was recognized among the top 1% of the companies worldwide in the 2025 Sustainability Yearbook, reflecting our strong commitment to sustainable development. Next page. And another leading index company for MSCI ESG rating, we advanced from being BBB 3 years ago and then to A and reaching AA leader level this year within 3 years, as I just mentioned. And we were also included in multiple MSCI World indices for low carbon climate and ESG, further affirming our strong sustainability performance. And in recent and past quarter, we have achieved several milestones, as you can see from the screen. We accomplished a few ISO certificates such as ISO 37001 anti-bribery management systems and also ISO 20400 sustainable procurement certification. And also, we have a very important yearly project is called eRead For The Future. We have been doing this since 2017. This annual program basically donate e-readers and books to underprivileged schools forcing a reading culture. And in '24, we work with 22 ecosystem partners held the event and ceremony in Yunlin, promoting literacy and inspiring sustainable learnings. Next page. So as I mentioned earlier at the beginning, from April '16 to '18 at Nangang Exhibition Center in Taiwan, we will work with ePaper Industry Alliance and also our ecosystem partners. We will work together and showcase the latest ePaper technology and products. This year, we have expanded our booth space and partner line up with insightful talks planned, and we look forward to your visit. Yes, by the way, we would like to share a short video clip from ISE 2025. I think while the team is preparing for the video clip, so basically, over 20 ecosystem partners showcased various e-paper applications. This video is not just a highlight of the innovation, but also kind of the tribute to our partners with our appreciation to that, okay? So please take a look. [Presentation]

All right. Thank you for looking. Europe is a bit far. So even you guys missed out the ISE this year. But next month, we will be showcasing our latest and greatest ePaper technology and products. Come visit us at Nangang in Taiwan. Okay. All right. Let's move to the Q&A session.

[Operator Instructions] Our first question comes from Sebastian from Neuberger Berman.

Can you hear me?

Sebastian, yes, very well.

Sorry, in the previous call, I accidentally pressed the hang up button...

No worries.

I was trying to unmute myself, but sorry for that trouble.

No problem.

So actually, the questions I have is a follow-up on some of the discussion that we had during the Mandarin call. So basically on the margin side because two things that I'm thinking and trying to clarify with you is that, first, I think Johnson and Lloyd, you mentioned that given the strong demand and we are shorted -- sort of shorted in capacity right now. So we are offloading some of the module assembly production to our partners. And in that e-Reader business that we are -- it seems to me that we are going to do more ESL-type of the business model by just supplying the materials. So if that is -- if that's going to be the trend, so on the margin side, are we going to see that the margin on the e-Reader business are going to improve as we become more supplying just material?

I mean, theoretically, I would agree with you from that statement. And I think let me explain further. So basically, E Ink tried to be a material company. That's sort of like end goal. So what we are really expanding in terms of the capacity, we will focus on the, for example, ink production and also the ePaper production lines. So for the module, we stay very, very conservative on that. So that's why, as you mentioned earlier, we will work with our module partners in our ecosystem. So that's where the statement is coming from. So it all depends on how the ePaper demand goes. But theoretically, if we are supplying more ePaper material from a gross margin perspective, yes, it's favorable. Yes. So from that perspective, I agree with you. I agree with you.

Got it. I have a second question -- or second part of my margin question is also on the large display, where I think that you guys just view it this year will be the first critical year for the large display for ESL to be adopted -- sorry ESL, for the eReader -- ePaper technology to be adopted...

Signage.

Signage, right. So on the signage side, and I think there were also discussions during the previous call on the margin, where it will be sit somewhere between the eReader or between ESL, but it really depends on what kind of the business model, supplying the material, supplying the module. But initially, we're going to module. But speaking of just module, like assuming we just -- we are doing the module business initially, but given that the signage is we are facing -- our customer is more on the enterprise. So this is for the commercial usage as compared to the eReader, which is also module business model, but this is for consumer. So theoretically, I would think that the commercial enterprise kind of segment versus consumer, it should be more favorable in terms of the pricing, in terms of the margin. So even if we just supply the module business initially, but from an apple-to-apple comparison on the module side compared to the eReader business, I would have thought that the signage will also carry higher margin as compared to eReader. I'm not sure if that's the right assumption.

Yes. Sebastian, once again, theoretically I would agree with you, but I think there's still few conditions I would like to bring up. First of all, we really want to open up the ePaper market in general. So how to set the pricing, it's not very easy. I mean, shall we just get all the margin under E Ink or we could create the market with our ecosystem partner? It should be the latter one. So how we figure out the best arrangement, best setting in terms of the profit sharing scheme among our ecosystem partner, I think, that remains to be considered. It's very hard to answer your question at the beginning. But for the time being, I mean -- but theoretically, you are right. But I think what I can mention is no matter how the pricing will be set, I think we are moving a very positive momentum here in terms of the increasing demand -- increasing the ESL demand and also the potential from the signage business.

Got it. Okay. I have a second question, which is on the overall end demand in Europe. I think the last week, one of our partner or customers' [indiscernible] they talk about they are seeing -- they say that they are seeing signs of recovery from Europe after being very lukewarm last year. So I'm just -- given that, that was just one of our -- one of the system integrator, but I'm sure that E Ink can see more because basically all the system integrator work with E Ink. So we just curious about what E Ink seeing in terms of the demand from Europe?

Right. I think, Johnson just mentioned that in general, we remain bullish in terms of the ESL. Of course, I think in the following few years, the North American market could be the mainstream. But we still notice the growing momentum from Europe, yes, because I think Johnson just mentioned, there are quite a lot adjacent ESL applications beyond just the grocery stores. Fast fashion and DIY and others, they're all considering adopting the ESL. So I think those potential increasing demand, that's something you can think about.

Now we will take the next question from David from Manulife.

Just in terms of the outdoor signage market, could you sort of talk a bit more about the ecosystem there and how you're going to be addressing that market? And I think as you discussed on the previous question, initially you're going to be doing the module. But in time, will you just produce ePaper material, like the ESL?

Right, right. So I think the business model, David, you already heard. I think at the beginning, we are inclined to be on the module. But when it turns more mature, definitely we move forward to the material because internally, we have limited module capacity. We definitely need the support from our external module partners. And that's from the business model perspective. And if I break out the signage business into two major segments, I think one is outdoor, the other is -- sorry, one is indoor, the other one is outdoor. So for indoor, I think we work with sort of like those brands such as Philips, Sharp and even Samsung because internally, they have the module manufacturing capability. And most of them, they also have the in-house sister integration capability. So by working with them, it will be very helpful to sort of like have a total solution, that sort of solution to be available in terms of the indoor signage. And for outdoor signage, we work with the OOH or DOOH, such as JCDecaux, OUTFRONT and Clear Channel, for those guys. So I just want to let you to have a feel of whom we have been working with, okay? So I'm not quite sure if I answered your question. If I haven't, please, let me know. Yes. David, I can't hear you.

Sorry. Just to follow up on that question. So in the longer term, the margin will be similar to the ESL margin, where you're just making the ePaper material?

I would say, David, theoretically that would be relatively higher margin if you compare with the CE margin because CE is module and ESL is material, yes. So theoretically, yes. But I don't think that will be 100% identical because we have been growing this business. So during the transition, it's hard to predict what the exact margin is going to be. But I think if we are running a material business, so definitely relatively higher than the CE business, yes.

Next, we will take a question from Edison from HSBC.

Yes, it's me again.

No problem.

I think during the Chinese call, I think management team attribute the eReader Q-o-Q decline last year fourth quarter to Amazon Colorful Kindle display problem, and management team also expect the reader revenue continuing to see a sequential decline in first quarter to 2025 on normal seasonality. However, I'm kind of curious why our reader declined in first quarter as I think Amazon's Colorful Kindle problem should have been solved already, and why we didn't see another round of pulling orders after a slower fourth quarter last year. Is that because the pulling last year already enough to fulfill customer demand? That's my first question.

Yes. I think one of the reasons, Edison, you already mentioned the first quarter, that basically should be the lowest due to the seasonality. And I think last year, for those CE branders, they have launched the color readers. I think in terms of the inventory preparation, I'm sure they built slightly more than they need. So I think it could be the reason from that perspective. But I think seasonality should be the major reasons. Yes.

Got it, got it. Very clear. I just want to have a follow-up on this one. So can we still expect reader revenue -- eReader revenue to grow this year, given a very high base last year? Besides, as you mentioned the utilization rate is already high for our reader business. And you also mentioned we started to outsource our reader to maybe module partners going forward. Does that mean we put more efforts on ESL and signage this year? That's my last question.

I think for CE business, we still believe it would grow. We are expecting a year-over-year growth. But to what extent, as you mentioned earlier, shall we allocate some CE business to our module partner, maybe that would affect our growth a bit. But I think, overall, we are still expecting year-over-year growth. And whether we will be focusing more on the ESL and signage business, I think our operation team basically will make the best allocation of those applications and according to the best production plan, we will be making. So it's hard to say whether we will be focusing more on ESL or signage. It all depends on market demand and how we can best allocate our operation capability, yes. But once again, I mean, whatever arrangement we will make, basically we will try to maximize the best interest of E Ink. Yes.

Next, we will take a question from [ Alan Wang from Haitong ] Investment.

Alan, we can't hear you. Maybe you put yourself on mute.

Sorry, sorry, I didn't unmute it. Can you hear me now?

Yes. Yes, very well.

I do have two questions, but I can combine them into one. It's like could you share the market trend of our application on health care and education?

For the education, I think more or less you can notice the education market -- I mean, from eReader's and eNote perspective, they have been growing. So I would say that's one of the reasons we are expecting the year-over-year CE business growth. But from medical, I think it has been growing but gradually, not very significant. But we are working on it.

Okay, okay. Can I follow up with more details about like which countries or like which areas that they are more adopt to our technology, especially using medical and education, for example, China or like Europe or America?

For education, I think most promising country for the time being, I would say, China and Japan and Korea because of the cram school culture thing. It's quite popular for -- among those countries. So they try to use the eReader, eNote as a device for cram school. So that's how we see it from education market perspective. And for medical, not very concentrated -- a lot of POCs here and there, I mean, worldwide, Europe, North America, Asia, not very concentrated, a lot of POCs. But we haven't really get a very, very big order from a particular hospitals. So as I mentioned earlier, we do feel the momentum. But -- and it has been growing, but not significantly. We are still working on it.

Now we will take questions from Derrick from Morgan Stanley.

Lloyd, can you hear me?

Yes. Yes, very well.

Okay, sure. I think my first question is regarding your gross margin. I know that your gross margin seems to be highly dependent on your revenue mix. But if you look at the outlook into 2025, it seems to be guiding for the CE revenue to grow by double digit Y-o-Y. And then if you look at the guidance from your major ESL system integrators, they are guiding for the revenue to grow by 40%. So 40% versus like a double-digit growth for CE, it seems to be pointing to the direction that the revenue mix will be skewed more toward ESL. So I think is it reasonable to assume that the gross margin this year will be higher than that in 2024? Or can we assume that...

Yes. Derrick, I try not to talk about numbers too much. But I think during the Mandarin session, Johnson already made it very clear. For 2025 in terms of the sales revenue and gross profit margin, I mean, he remains positive. So -- and of course, he also mentioned he's expecting a year-over-year growth. So from these two indicators, I think we can expect better sales revenue and also profitability. So -- but once again, since he also talked about CE is also growing and ESL also growing, but of course, we received the forecast. But down the road, it's very hard to know which one go faster. So if CE will be growing stronger than ESL, so the gross profit margin might be affected a bit. However, I think from the sales revenue, I mean, in terms of the dollar and even the gross profit dollar will also be increased. So I mean, either scenario would be positive to E Ink Group. So that's how I see it. Yes.

Okay, okay. Let me maybe clarify a little bit. You say that 2025, both revenue and gross margin will be better than 2024, right...

Yes. We remain positive, yes. I didn't say better, positive, yes.

Okay. Got it. Okay. Then I think my second question is regarding the comment from Johnson during the Chinese call. I think he mentioned that the revenue is likely to see sequential growth every quarter for the rest of the year. Is that the first [Technical Difficulty]? And does that statement applies to both the CE and IoT business?

I think he's talking about the total sales revenue in general, yes. He didn't...

Yes, yes. I know. Okay. Got it.

All right. Thank you.

Next, we will take a question from [indiscernible].

I love the session from Johnson. And one thing that I didn't hear about is can you guys -- given the current global supply chain challenges, like how are you guys going to like manage you're sourcing for the raw materials because I believe some parts are mainly from China that's under the Section 301.

Right. So in terms of the geopolitical risk on the ePaper supply chains, I mean, basically -- I'm sure every company is having the same practice. We're always running the multiple sourcing strategy. So we will not focus in one particular suppliers, in one country, we definitely go diversified. So I think we definitely have a level of resilience in terms of our global supply chains. So that's the first thing I would like to address. And second of all, I think during the Mandarin session, Johnson talked about the tariff impact. I think if you are talking about the module partners or even the end device partners, I think they already have a plan to mitigate the geopolitical risks. Apart from the China manufacturing site, they have other manufacturing site where it's located in Southeast Asia and also Vietnam. So from that perspective, they might get hit a little bit at the beginning. But I think at the beginning, the branders and their end customer would like to absorb the additional costs at the very beginning. But I believe for those module partner, system integrator and even the EMS, they will shift their manufacturing site from China and to those areas I just mentioned as soon as possible. So from that perspective, of course, the supply chain risk is there. But I believe E Ink, ourselves, and our partner in our ecosystem, they already have the plan to mitigate on the risk.

And can I ask one more question, like a short one.

Yes.

So to mitigate this kind of risk, will you possibly to consider India, per se, or the Vietnam? I'm not so sure.

Right. We definitely consider a lot of countries, regions and one of them like what you suggested. But it is all under the evaluation stage. And once again, I think, E Ink is aiming to be a material company. So for the module and even those manufacturing capability downstream, we rely on our ecosystem partner to do it. So I think most of the time, we work with them to expand the new country, new territory in order to build a better ePaper ecosystems. So coming back to your question, I mean, India and even our other countries and places, will definitely in our -- or our ecosystem partners consideration. But I think it's all just at the evaluation stage. Yes.

Now we don't see any questions on the line and to also -- so we would like to conclude our Q&A session. I will now turn the meeting over to Lloyd for closing remarks.

Right. Thank you for your participation because we don't really see anyone would like to ask questions. So I would like to end the Q&A session now. But if you have more questions, just feel free to send us e-mail, and we are happy to answer. All right. Thank you very much, and see you next quarter.

Thank you for joining us today.