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

Good afternoon, everyone, and welcome to E Ink Third Quarter 2025 Earnings Call. [Operator Instructions]. After the presentation, we will open up the floor for a Q&A session. Today's conference is being recorded. The webcast replay will be available on E Ink website after the conference. Joining us today are CFO, Lloyd Chen; and Finance Center Senior Director, Patrick Chang. With that, I'll turn the call over to Lloyd.

Good day, everyone. Before we start, I would like to share a few messages from the cover page this quarter. So you guys can see that our customers such as Amazon, reMarkable, Montblanc, Samsung, Sharp and Soofa, basically, they deploy and utilize various E Ink products across different application scenarios. As you can see from the screen from consumer electronics to retail environments and further to public infrastructure. more partners and applications are choosing to adopt Color ePaper, demonstrating that its value in sustainability, energy efficiency and versatile use cases continue to gain strong market recognition. And I'm going to talk more in my following presentations. Next page. Okay. Take a few seconds to look at the safe harbor statement. All right. Next page. For the first 3 quarters, revenue reached TWD 29.1 billion, representing 29% year-over-year growth. Operating profit was nearly TWD 10 billion, basically TWD 9.99 billion. And non-op amounted to TWD 1.4 billion. Our net income came around TWD 9.39 billion with an EPS at TWD 8.17. Basically, the first 3 quarter performance, sales revenue, gross profit, operating profit and even net income, basically, all reached historical highs. For operating profit, I think, as I mentioned earlier, driven by sales growth in the past 3 quarters, basically, operating profit increased up to nearly TWD 10 billion with operating margin rising to 34.3%. Basically, we expand more innovative ePaper applications. We continue to invest in R&D and talent pools. We believe that research, development, innovation are the key drivers of long-term growth and sustainable operations. As mentioned earlier, operating profit has reached historical highs. So for the assets. Total assets increased from TWD 89.5 billion third quarter last year, to TWD 103.1 billion this year, representing a year-over-year increase of TWD 13.6 billion, from a percentage perspective, 15% increase. The company's total assets are basically already over TWD 100 billion, with approximately 70% cash and financial assets. On cash flow, by third quarter this year, both cash and financial assets continue to increase, reaching a total of TWD 68 billion, up to -- I mean, up by TWD 8.6 billion compared with the end of last year. We continue to maintain strong profitability and healthy cash flow with ample capital resources, and we continue to allocate funds appropriately in line with operational plans to support sustainable growth. Okay. Apart from the financial, I would like to share some market information. Basically, this quarter, we continue to deepen collaboration with partners across the ePaper ecosystems. In the eReader and eNote segments, we worked with leading brands to launch new color and various size products, including Amazon Kindle, BOOX, reMarkable, iReader and iFLYTEK, further expanding the penetration of ePaper applications. I mean, at the same time, the leading brand, Montblanc, introduced its Digital Paper and Digital Pen series inspired by its iconic writing instruments and paired with our E Ink ePaper Display. Basically, this product delivers a refined and high realistic writing experience, offering business professionals and elegant tool that combine both style and practical functionality for capturing ideas and creating content. Also, this quarter, we are introducing a broader range of large-format products designed to deliver exceptional performance across both indoor and outdoor applications. As you can see from the screen, top left, the company IncPoster, its product, Affresco, basically that is a digital art. It uses our Spectra 6 technology to bring electronic paper technology into home decor and artistic display. It enhances the aesthetic quality of interiors and allows the artwork -- the walls change with seasons and even moves. The digital frame helps preserve your memories and creates a refined art, inspiring digital living experiences. Also from the top right, we partner with a Japanese IT solution provider, StellarLink to launch the J-Poster powered by, once again, our Spectra 6 Color technology. This company, StellarLink, has also adopted 31.5-inch aecoPost signage. And this is manufactured by our partner, AUO Display Plus, to expand Japan's ePaper signage market. Those solutions can be flexibly deployed in retail stores, on transit hubs, campuses, museums, hotels and other public spaces. And if you look further down, bottom left, a leading innovator where it's located in the states. I think specifically in Boston, a company called Soofa launched 75-inch Full-Color Street Kiosk. Basically, it was designed for smart cities, providing real-time information and way findings. It operates with 100% solar power, requiring no electrical work, which effectively reducing installation and operating costs while creating new opportunities for sustainable transformation in the outdoor advertising market. So from a very bottom center and right, additionally, ePaper signage has been introduced to streets and even inside highway buses in Japan. So from the screen, you can see allowing passengers to access real-time local tourism information and enhancing the riding experience. ePaper features: eye comfort, wider viewing angles and low power consumption, enabling stable operation even in environments with limited power supply, making it energy saving and environmentally friendly. All right. Next page. So we basically remain committed to ongoing investment in sustainability. And of course, ESG development has once again been recognized with several distinguished ESG and sustainability awards in Taiwan. And so we are pleased to share the latest achievements. The first example is, this year, we ranked fifth place among large manufacturing enterprises and was also selected for the CommonWealth Talent Sustainability Award. CommonWealth basically is a leading magazine locally in Taiwan. And also another 2 awards, the first one is Taiwan Sustainability Action Awards, TSAA, and another one, Asia-Pacific Sustainability Action Awards, APSAA. We received 5 honors in total, including 3 gold awards, one silver and one bronze. So last but not least, for the third consecutive year, we have been ranked among top 100 foreign investor picks in Taiwan, placing fourth this year. Basically, that demonstrates strong market confidence in our balanced progress toward both profitability and sustainability because under E Ink, when we conduct the ESG activities, 2 pillars, profitability and sustainability, we believe both of them are equally important. Okay. And the next one, we previously mentioned we work with Hsinchu City Government and introducing low-carbon energy-efficient Outdoor ePaper Display installed in a place called Xiangshan Wetlands. That's located in -- locally in Hsinchu City in Taiwan. And we have further expanded ePaper applications into the Xiangshan Marine Conservation Education Center. 4-Color ePaper signage is now used to present information about surrounding marine environment and ecological habitants, enhancing local education and visitor guidance. And also on the signage application, have been extended to exhibition of important cultural relics in Yangzhou, where ePaper is used, basically, in the museum and also serve as information and educational medium accompanying the artifacts. In the field of application and culture, we work very hard, aim to continue leveraging our low-power, low-carbon, environmentally friendly display technology to create a broader positive impact while further expanding E Ink's contribution to society. And last but not least, I think I mentioned this before. I think since last year, we have been collaborating with the MIT, the academic institution, not made in Taiwan, the Massachusetts Institute of Technology, MIT, through its innovation acceleration platform, it's called MIT Solve program. It was established in 2016. This program focuses on the question of how technology can address the world's most pressing challenge each year through an open global selection. Solve selects innovative solutions in education, climate, health and sustainability. Basically, those selected teams receive funding as well as opportunities for mentorship, corporate partnerships and internationally -- I mean, international collaboration as well. So it's MIT's initiative to bring together a problem solver to tackle on the world's most pressing problems through open innovation and partnership. So as part of this collaboration, we established E Ink Innovation Award within this program to encourage global teams to leverage ePaper technology in creating solutions that generate positive impact across education, like what I mentioned, on the environment, energy and healthcare. Basically, this marks the first time we have brought ePaper on to a global social innovation stage, observing how creators from diverse fields re-interpretate the potential of our technology. So once again, we selected 4 winning teams from over 100 submissions, addressing issues like what I mentioned, such as improving education, accessible healthcare, living environment. And these projects not only reflect ePaper's origins at MIT, but also embody our commitment to giving back to the society. Through this innovation -- I mean, innovative cases, we once again see the possibilities of ePaper, not just merely a display technology, but also a medium capable of expanding social value and impact. Okay. So basically, that is my sharing on this quarter. We can move to the Q&A session.

We will now begin the Q&A session. [Operator Instructions].

So we just finished our Mandarin session earnings conference an hour ago. So maybe I can share some of the Q&A that we conducted previously. I think we -- our Chairman gave some guidances over first quarter next year and basically very general guidance for 2026. So I think we received a lot of inquiry about the October sales revenue. And they have a concern how are we going to see the first quarter sales revenue next year. So basically, our guidance is, our first quarter next year will be better than the first quarter this year, okay? So not to worry too much, it will still be lower than the fourth quarter this year, okay? So that's the first thing I would like to share. And through the capacity expansion, I think for the H5, which means the fifth larger production line in Hsinchu. That's why we call it H5. Basically, we believe it will be highly contribute the capacity definitely next year because it has been gradually ramping up from this quarter. So we believe in the following 2 to 3 years, every year, we're going to achieve record highs in terms of the sales revenue, operating profit and net income. So following by H5, H6, the sixth larger ePaper production line basically is under planning, and we believe very likely to be moving by end of next year. So what I'm trying to say is with the contribution of these 2 larger ePaper production line, we do have enough capacity to support potentially the increasing demand. And I think recently, we also made a public announcement about our Guanyin plant. Guanyin basically is the name of places where -- it's not far from our Hsinchu office. So we -- the Board just passed the plan where we are going to build a new building in Guanyin. And apart from that plan, we also leased old building for the future use. So to sum up, basically, we have a plan. We purchased the land in Guanyin, and we are going to build a new building for the production line. And also, we also leased the old building where we can take advantage of the old building and, of course, put some equipment there and start having more capacity. So from that perspective, we do have a solid plan for the capacity expansions, okay? So that is my quick recap about our Mandarin session earnings call. So I do see some inquiries, all right? So we're going to take the questions.

Okay. Now we will take the first question from Adam from Comgest.

So just quickly on what you said. Because October was weak and people start getting worried about inventory in the system, et cetera, what are you seeing from an inventory perspective? And why -- was October really a surprise for you? Was it -- or is it because of holidays? Because of some external factors? Or is it customers cutting?

Right. Actually, it was not a surprise to us because I think in our last quarter conference, the guidance we gave is, second quarter will be the peak -- sorry, second quarter, basically, peak. And third quarter, in terms of the sales revenue, slightly lower than second quarter. And fourth quarter basically is the lowest. Why? Basically, I think in the first 3 quarters, we did have some pull in. So basically, that caused a relatively lower fourth quarter. And also from CE perspective, they definitely prepared the inventory before the Christmas, so -- for the holiday season. So that, you can imagine, from that perspective, fourth quarter would have been relatively lower. And also for the ESL, even we do see a very intact demand and strong demand. But the thing is, they wouldn't spend too much effort for the new tech during the Christmas because they try to get things stable. So from that perspective, that can explain the relatively weaker fourth quarter. And I think basically, it's in line with the guidance we provided previously. But once again, I think this year, we believe we already -- we strongly believe we can hit the target we set previously and basically, it's better than last year. And we believe we can -- the whole year, we can achieve the historical high in terms of the sales revenue and operating profit and net income. And we also believe the following 2 to 3 years, we can achieve the same thing.

Right, right. So basically, it's roughly in line with your internal expectations, you would say? Not surprising?

Right, right.

And I guess the thing -- because I think we saw an inventory correction in ESL about 18 months to 1 year ago, right? And I guess that's what people are a bit worried about, are we facing this again? What are your clients saying? Do they -- especially on the ESL side of things, are they saying that they ordered too much, they need to cut? Basically, what I'm asking is, are we going to see a sort of end '23, mid-'24 kind of inventory digestion phase?

Right, right. Yes. Adam, that's a good question. I think 1 year ago, we did face inventory correction issues, but that was basically caused by the 3-color, 4 transitional change. So that issue, already gone. So there's no such issue now. So not to worry about the inventory issue from that perspective. And according to the market feedback from our end customer, which is retailer or even our SI, system integrators, all the feedback about the ePaper tech, they stay very confident and positive. I think in the states, we just started one of the leading retailers, they are using us -- our tech, which is Walmart. And we believe the rest of the retailers there, they started the trial. And most of them, I think so far, they stay very positive. So we basically stay confident about it in the U.S.A. market. And also, I think during our Mandarin session, our Chairman also talked about -- I mean, European -- even European sort of like a more matured in terms of the ESL, but U.K. going to be started very, very soon, the top-tier retailers there, we believe we're going to have some good news from there. So we remain very positive and confident about the ESL market, yes.

Okay. So you're not worried about inventory then?

Right. Correct.

Can I squeeze another question? I have no idea how many people are in the queue, but do I have time for another one, on consumer electronics?

Yes. Yes, 1 or 2 should be fine. Yes. I do see 2 to 3 people. it's okay, yes.

Just a quick one on consumer electronics, right? Because if I zoom out and I look at the history of E Ink, right, in consumer electronics, before eReader eColor -- before the Color eReader took off, basically it was a steady business, right? It was a steady business, making TWD 11 billion, TWD 12 billion of annual revenue. And it was sort of the level where every year it was, right, around this level, TWD 10 billion to TWD 12 billion, so to speak, right? Very stable. Then in 2024, there was the launch of the Color eReader, and there was a surge in revenue, right, in 2024. And this sort of level of TWD 11 billion, TWD 12 billion went to TWD 19 billion, right, in one go. So I'm not trying to guess next quarter or next 2 quarters, but say, in the next 3 to 5 years, do you see this sort of jump as sustainable as in the new normal is closer to this TWD 19 billion? Or we're going to go back gradually to previously steady state of TWD 11 billion, TWD 12 billion? How do you think the market has shifted from your perspective?

Right. So Adam, I think one of our strategy for CE market is to use our Color technology to trigger the further growth. So basically, after we launched our Color technology, we do see that happening now. So once again, we remain positive and confident about the growth. But coming back to your question, how big the jump going to be? I think we still need some time to observe, especially given the macro uncertainty there. But the thing is, even there's a lot of moving parts on the macro. But for the targeted customers or targeted audience, from under CE business, I think if they like to read, if they like to write, digitally, I think even the macro situation is not that good, they would still consider to do such investment. So what I'm trying to say is, we -- from that perspective, even there's a lot of moving parts on the macro, we still believe we have enough driver from those targeted group of customers out there.

Right. So you're not expecting last year's number to fall off a cliff or something like that?

We don't think so. But whether we are -- can we just beat it, I think we need a bit time to observe. But definitely expecting a growth, yes, year-over-year, yes.

Now we will take the next question from Kieran from Fiera.

This is actually Ian from Fiera. On the capacity additions, H5 and H6, in percentage terms, how much do they add to the existing 4 lines? Is it as simple as just 50%? Or are they actually larger plants?

Let me explain one by one. The H5, basically, it's in our capacity already. So in terms of the capacity, I think that is 1.5x or 2x than the rest of 4 lines. So basically 1.5x or 2x compared with the rest of 4 individual lines. And for H6, basically, it's still under planning. So most likely, the time line could be end of next year or early the year after '27. And the capacity basically will be higher than H5. But to what extent, I think we are still under planning. So that's sort of the -- I can add such color to you for H5 and H6. And on top of that, the Guanyin new factory, so the plan is after we purchased the land, we definitely need some time for the construction. So the building basically will be ready around '29 or early -- I'm sorry, '28 or early '29. And also, at the same time, we're going to figure out the size of the equipment we are going to put. And the production line, the ePaper production line in Guanyin factory, basically, that will be bigger than the H6. So given those information I just provided, you can see our confidence toward the capacity expansion. So if we are not very confident about the future demand, we dare not to do such investment, okay?

And just to check the time line for H6, you said potentially end of 2026, that would be to start construction or to actually come online with the production?

H5 will be located in our existing Hsinchu buildings. So basically, we -- what we need to do just place the order, and have it shipped, and have it installed. So there's no need to build a new building for that. The building is ready to go. What we need to do just decide the size of it and then place order, and get it ready. And the possible time line would be, I think, end of next year or early the year after, '27 -- yes, late '26 or early '27. Yes, we can have it installed. But it may take 1 or 2 quarters to ramp up. So that's sort of the time line going to be.

Understood. And all of this expansion, as you say, indicates a lot of confidence on the future demand. But what firm visibility do you have, say, for H5 and H6? Do you already have customers placing orders 12 or 24 months out? Or is this a much shorter lead time?

Let me put it this way. For -- once again, for H5 and H6, basically, we are using the larger size of the equipment, which means on the one hand, they will be designed for the large-format display. On the other, if we don't use it for the large-format display, we can also use it for the CE and ESL, basically, strategically that add operational efficiency in terms of the unit cost. So what I'm trying to say is, of course, we haven't received 100% of the customer orders, but we are confident, and we believe the demand in the long run is intact. But what we can do is we can concentrate on H5 and H6 and have it loaded first because it's going to bring down our unit cost, from that perspective.

I didn't realize 5 and 6 would both be focused on large format. That suggests huge growth in the large-format display and maybe a little bit lower outlook for...

We believe the TAM for signage will be bigger than the ESL, yes. And let me put it this way. I think most of the large format signage, they are still in paper based. According to our analysis, only less than 10% converted to the digitalization. So there's still a massive room to grow. And that's why when we decide on the further capacity expansion, we're going to choose the bigger size of the equipment because most of the leading OOH, out-of-home, advertisement players, they want a solid singular large format display, not really a sort of like a tiled one. So if we don't do a large size of the equipment -- of course, we can provide through -- a tiled tile display, but they -- that is not their preference. So that's one of the consideration to use the bigger size of the equipment for further capacity, yes. Yes, we received one online question. Hold on, let me read it. It's about, any new emerging technology in the market? Is it going to be a threat against us? So Ben, I do see your question. Retina ePaper, basically -- I sort of like heard of it, but very vaguely. So I may need to go back and check it. But since it doesn't serve my memory very well. I don't think it -- I mean, I'm sure it's a good technology, but I don't think it could be a threat against us. I mean, in general, the way we built our patent portfolio is from one layer to the other. So by the way, we have more than 6,000 patents globally. So we started from the fundamental ePaper chemistry. And then to another layer, we filed the patent, for example, for ePaper module and ePaper algorithm and even the device -- so from different layers. So whoever wants to get into this industry, they tend to walk around and walk around, they eventually give up. So on the one hand, we want to be the technology leadership because we have been investing a lot of money. So our total R&D cost against our sales revenue basically is around 15%. That's quite a lot from a technology company perspective. And on the other, we invest ePaper production, and we also want to be the cost leadership. So we believe as long as we can be a technology leadership and cost leadership, I think whoever want to step into this industry, it made -- it's definitely not very easy for them to compete with us. Since we -- from the technology perspective, we go quicker. From the cost perspective, we can go lower. So I think we are quite competitive from these 2 categories. And we do notice 1 or 2 copycats in China. But I think, firstly, you need to understand they claim they can manufacture ePaper, whether it's in the laboratory stage or the mass production stage. To be very, very honest with you, when we claim we can make colored ePaper, we did it like 15 years ago. And then we just started like 1 or 2 years ago. So it has been a long journey. You need to be persistent. And also, you need to be financially strong. So once again, from the lab -- I mean, from the pilot production -- lab stage to the mass production is not that easy. And also, those 1 or 2 copycats in China, I hate to say this, potentially, that could be some patent issue. But I think inside China, we don't really get bothered to do anything. But one step out of China, definitely, we're going to chase after them. So that's how we view our portfolio and our strategy toward those potential competitors.

Next question will come from Fraser from [ Harrow ].