Innolux Corporation ($3481)

Good afternoon, everyone. Welcome to Innolux Group First Half 2026 Investor Conference. Today's event is being webcast live through Innolux and InnoCare company websites, the same place where you can download the conference materials. Please take a moment to read the disclaimer notice slide. Today's meeting, we will have 2 speakers to provide company's messages. The first one is Mr. Jin Hung, Innolux Chairman and CEO; second is Mr. James Yang, Chairman of InnoCare. After the presentation, we will conduct a question-and-answer session. Now I will hand it over to Jin.

Thanks, Phoebe. Let me just stand here, probably looks a little bit taller. Thanks, everyone, for joining us today for the whole Innolux Group investor conference in-person or online. I think this is a very important occasion, we want to share with you how the Innolux continue efforts in our transformation process. And as you can see today, on our backdrop, we have Pioneer, a historical prestigious Japanese company also joined the whole Innolux Group in 2025. It not only broaden our whole product profile, but also enhance our total smart cockpit solution. So later on, we will have more explanation about this to you. Today with me is James, the InnoCare Chairman, who will also share with you the 2025 performance and also the outlook. So without any further hesitate, let me start with the Innolux Corporation side. Our agenda, I will start with the market overview with all the general panel products, then we'll go with the company strategy, then wrap up with the financial results. Then I'll hand over to James. First of all, the Innolux has been remaining firmly on our sustained transformation. And this whole page actually says everything. We continue to work on the non-commodity and nondisplay products and service to service our customers, while even on the commodity products, we are looking for the best or the most optimal solution in terms of our product profile. This is the company's continued efforts, and also our key KPI is the TSR, Total Shareholder Return, and we have been leading our peers, include domestically or globally, by a large. So this is -- thank you, again, for all the investors and no matter institution or the retail investors' efforts. And of course, this is the whole team results. In terms of the products, the most general products people are aware is on the TV. TV products actually have seen the positive improvement on the quarterly base since Q1 versus Q4 last year. This is due to the -- on one hand, the supply discipline. However, it's also we see the early pull-in effect due to this year's World Cup and WBC event, of course. So we see these possible results continue to rolling over given the other material energy price also on the rising trend. So for the TV side, we expect that the second quarter price will remain resilient. And on the monitor side, it's actually very accordingly with TV, given the two nature of the products. A lot of people might ask that the memory chips has been rally significantly. However, for TV and the monitor products because the phone percentage from the memory is a relatively small portion. For monitor is probably 1% to 3%, for TV is probably 3% to 5%. So the impact is much smaller compared to other products. The products actually will be impact more significant will be the notebook and mobile phone. So on these 2 products, NB and mobile phone or PC, we'll probably see a year-on-year decline for this year in the different range. Different market agents have different estimate, probably from 3%, 5% even to some extent, 8%. So I think we will be a little bit more cautious on the NB or PC notebook and mobile phone products. However, the key is, as mentioned earlier, our continued efforts on the non-commodity products, which include the industrial, including all the avionics, marine products. We are not only just allocating more resources in terms of RD, in terms of our sales force, PDPM to the noncommodity products. Most important, we actually try to apply our existing technology, for example, on-cell, in-cell technology, which has been very mature on the mobile phone to industrial products. The successful example is used to be on the industrial products, there is no on-touch. But now when we approach to quite a few clients and engage with them, it has been proved that being very successful example. So we -- this will be continued with our efforts to put into the industrial and noncommodity products. Again, our new technology on the panel side has continued to prove the successful results. Here, the N3D or the Naked-eye 3D is another good example. N3D is -- basically, you don't need to wear the glasses anymore. And we -- it's not like a state-of-art technology. It's been in the market. We've been in the CES demonstrated this quite a few times already. However, the technology has continued to evolve, and our resolution, our cost structure has been much competitive today. And also, we have a different kind of application. It used to be that N3D is only applied to the entertainment like a casino, for example. But nowadays, even the medical products or the -- for example, some of the architecture workers, they will have to use the N3D to convey the idea to their customers. For example, the diagnosis process, the doctors, either to the students or to the patients are much easier using the nature 3D to expand to the patients. So this actually is a lot of the concern or the disruptions. So this is another good example that we continue to apply our state-of-art technology on the panel side to the niche or the new applications. Currently, we have been applied here 27-inch and 13.3-inch products and engage with the clients on the N3D already. And of course, you can see the CAGR, the growth rate of all these products has been tremendous. It's not like what we usually talk about, the 3%, 5% growth. This is like a double, triple or 80% growth every year. And next is the company strategy. I believe quite a few of you have seen these 4 pillars many times. This is how the company review ourselves continues in the last 6 years. What we saw call the 3, 6 years plan, 6-6-6. So we review ourselves or our facility, our manpower and our plans, all by this kind of 4 different pillars from facility to capacity. Ultimately, what we are pursuing is much better return. For example, on the facility side, we have been looking to optimize our fabs. And even on the capacity side, we choose to higher margin products, as described earlier on the non-commodity. This is actually more concrete than the last page. Some people will say, okay, we understand the idea, but how exactly -- what exactly you are doing to the company. A lot of people was asking why the share price has been rally every day. There is no magic. It's basically every day's work. It's all the efforts looking on the same target, which is the continue improve the ROE. However, we do have a near-term plan to near term to medium term plan versus the longer-term plan. Here has been clearly stated that for 1 to 3 years which is continue to focus on what we have today, which is all the panel assets. And what we are doing, ROE is very simple. I believe all the investors, analysts, you are much more familiar than me, the numerator and denominator. The numerator is the better return, better margin. So we continue to diversify into the noncommodity products, like we described earlier into the avionics or marine products, and we try to lower the percentage on the commodity side. On the denominator side, which we reduced the maintenance cost and the CapEx significantly. One of the example is that we disposed our Fab 4 in 2024 to the other semiconductor company. And the return is not just for one shot. Again, I want to emphasize that we are not looking for onetime nonoperating gain for disposing the products. What we are expecting, what we are continuing the efforts is lower the assets on a total base. With the disposing of the Fab 4, our total spending, including depreciation and the maintenance cost, was lower by TWD 1.5 billion since 2024. So that if you do the simple math, that represents about 0.7% of our EBIT margin, which means that our margin can improve by 0.7%. So this is what we are doing. Again, there is no magic. It's simple mathematic calculation, but it's also very important how you execute this by the whole team's efforts to put into the ROE enhancement. And for the longer term, of course, many people heard about this, our next growth driver in the longer term, Fan-out PLP and CarUX, especially with the acquisition with Pioneer, these are 2 major drivers we are looking for. Let me take into the next step with a little bit more explanation. I think Fan-out PLP, a lot of you already know this already. On one hand, it's using the glass as a carrier or as a substrate. Of course, the size is much bigger even with our current Fab 1 using to producing on the Fan-out PLP chips is 6.6 or 6.7x of the 12-inch wafer. You can simply put a 12-inch wafer onto that glass, your throughput is much higher. So this -- I think a lot of people know already that we are in -- already in the mass production process for the Chip-First. Our monthly production has been 10x from originally about 4 million chips per month, now it's more than 40 million, and it continue to grow. So we are confident on this. However, we are not only Chip-First technology because Chip-First compared with the other RDL or TGV is relatively low end or mature. So I believe that Chip-First has its advantage in terms of higher voltage and also the heat dissipation. So it has its own application. However, we are looking for even more high end like AI, HPC products, which will apply the TGV, the through glass via, or the RDL, the redistribution layer technology. On these 2 ends of the technology, which totally we all call it advanced packaging, but for TGV and RDL, we are currently still in the process of looking for the clients' certification. So while Chip-First is already in the mass production, we are -- both legs are working faster. Our key milestone this year for the whole Fan-out PLP team will be getting the client certified on the RDL and the TGV side. The next page, we move to CarUX. Like I mentioned earlier, this transaction is very important to CarUX and also the whole Innolux Group. Just a little bit briefing. We announced the transaction back to June 26, 2025. We closed the deal in December 1, 2025. So within 5 months to close a international merger acquisition, this takes tremendous efforts. This all thanks to the strong team on both CarUX and the Pioneer side. I think with the acquisition now has complete, actually starting from December last year, the Pioneer's revenue has contributed or consolidated into the whole Innolux Group. That is part of the reason we see the strong monthly revenue and even earnings improvement. I think the Pioneer, to a lot of people, are a familiar name. However, people are -- people do concern about whether is an 88 years old company really can accommodate into the whole Innolux or the ever-changing environment. The answer is yes. Pioneer actually has been privatized by a PE fund since 6 years ago. So internally, it has been changed significantly. I can share with everyone that when I walk in the office, I see a very energetic vibe than what I expect. So we are actually pretty positive and pretty confident that we can working together very well with Pioneer team to generate strong synergy. So what kind of synergy are we talking about here? We all know that CarUX has been serve the whole Innolux group as our automotive arm. And what the CarUX products is the smart cockpit, basically your panel no matter from 13-inch, 15-inch, all the way to AP, the 55-inch but it only limits to what you see or what you touch on the panel. We love listening. In the future, we do expect that whole in-car environment will become a more integrated, immersive environment, especially in the Level 4, Level 5 autonomous driving time. When you walk in the car, when you sit in the car, you are not only eyes on the wheel, you are not only look at what happen on the road. You actually enjoy this environment, not just the radio, not just the music, but also the movie, maybe also your boss call, you have to do the conference call on the car. But what we are trying to do is we try to provide a total solution to make all it become possible. So with Pioneer, which has much more diversified customer profile than what CarUX used to have. CarUX, you know already that their major customers are U.S. and Europe, while Pioneer offer the Japanese arm, a strong Japanese arm on the sales geographic. And also in terms of products, while it used to be CarUX is focused on the smart cockpit module, while Pioneer has the head unit, which equipped with a lot of the software engineers. And also you have the sounding or the speaker amplify products. This can all now group together and cross-sell to our customers. And most important, there is a strong diversity in terms of the RD. Used to be the CarUX, the major RD center in Germany, in Taiwan and a little bit in China. Now we have a strong Japanese arm, which help to embed it into the very fundamental research of the products. So we -- again, we believe all these 3 together will generate strong fundamental for the synergy. And what exactly is these 5 different aspects? Our new slogan, with the CarUX acquisition, we call it Pioneering in-Car User eXperience, which combine both companies' names into this slogan. Like I mentioned earlier, this not only offer the strong OEM customer base to Tier 1, but also provide a one-stop shopping to the whole in-cabin experience. And our RD capability also double or triple into different geographic areas. And of course, our manufacturing base now has expanded to Vietnam and Thailand, even Mexico, which we didn't have before. And also, of course, our cost competitiveness with the enlarged base of the revenue and the procurement will also become more competitive. Lastly, I want to wrap up my part with the financial results. This is what we mentioned earlier on the TSR, total shareholder return. In the last 7 years ever since I take the Chairmanship, our total TSR since 2018 is 88.5%. Even you analyze it, it's 10.2%. We are much ahead of our other peers. This is basically a strong team efforts. And of course, thank you for all the investors continue to recognition on this. If you look at our revenue in last year, our total non-display non-commodity revenue has already 50%. And that compared with historical like 30%, 40%, has seen a much better improvement. And that margin, as you can see on the slides, is also a significant premium to the general commodity products. And again, our financial health is still very robust, solid. We continue to deliver a strong EBITDA, which compared with the year before, 4Q, for example, is 6.1% EBITDA and now our EBITDA margin is 11.3%. Our operating profit, unfortunately, a loss last year. Let me turn to the next page here. Still recognized TWD 4.1 billion loss, which is minus 1.8% operating loss. However, compared with 2024, this is already a significant improvement. And as you can see that even our revenue only grew by 4.7%, our operating -- our gross profit has grown 31.6%. So we continue to see the strong leverage with our movement to the higher-margin products. And our depreciation expenses also continue to lower. And this will not be onetime efforts. This will continue -- contribute to the year after with the much less of the depreciation expense and improved margin. Our cash position, we are still running at a net cash position. Our current ratio of 143%, although a little bit lower than last year, is because that we are borrowing for the -- our bridge loan for the Pioneer transaction. However, our debt-to-equity remains very healthy of 23%. Our net debt-to-equity is still 0. So again, we continue to strike ourselves into the higher ROE and better return to the shareholders. I will wrap up myself here and hand over to James. Thank you.

Good afternoon, ladies and gentlemen. I welcome you to join the InnoCare Optoelectronics 2026 First Half Investor Conference. Thank you, you all to join us today. And today, I try to show you some kind of review on our last year's performance, and also focus on some kind of development, discussing our this year's strategies and pay the foundation for futures. I will combine products, technologies, new service model, global footprint and most important is the financial results. And then today, I think InnoCare is one of member of Innolux. And then Innolux is carriers, we are small destroyer, but we need to catch up the speed and follow the direction of Innolux. So thank you for your attention. And next is my agenda today cover 4 segments. And then first, I was talking about the business review of last year. First thing is that means one of Innolux priorities for successful is prioritize our product mix. So from the figure, you can see in the last year, we're more focusing on modules, flat panel modules, OEM and ODMs. And then last year, we achieved ODM high-value product increased 4% from 13% to 17%. Next year, that means this year, 2026, we try to challenge it double share. That give us better revenue, profit margins, less products. Secondly is we enter the emerging market. That's very important in India, let me say, Middle East, Southeast Asia, less Medicare business and by the government budget to enhance people's health. So we catch up this kind of opportunity. The growth rate is quite good. And luckily, we pick up the Chinese market originally slowdown, and then now in the 2024 and now turn around and pick up the momentum in last year. And then we foresee this year, we're expanding further. And most important, the other way is InnoCare enter the mass production phase of our new product, especially in Japan and United States, it create more revenue and better profit margins. And then I was talking about next page that is about technology. InnoCare have our amorphous sensor and the IGZO sensor. And the next one will be the IGZO Pro, it is kind of leading technologies. First, this kind of products, it can help almost 2x mobilities. That means more faster, can deliver better image quality, and then from the static to enter dynamics, that is very important. It can help you to do some kind of a target intestinal therapy, and also geological graphic and also, let me say, a gastrointestinal inspection and most important, the higher readiness can help offer the NDT non-destruction testing for industrial application by our IGZO Pro. And then previous, Innolux support IGZO to InnoCare the TFT substrate. We make it into the modules. And we are the leader for the industries. We are the #1. We try to keep the momentum to go ahead for next generation IGZO Pro. And thanks to our TFT supplier, Innolux, they come in and quite strong in the technology. We are ramping up for future the new technologies. And then this slide show you almost 2x mobility and the mobility proportional to current. So we use current to show you IGZO current performance, and the challenger 2x the performance. The other thing is X-rays hardness, and then you find the hardness that means under the high dosage of X-ray, but our voltage shift should be as low as possible. So you can find our performance is much better. That will be our secret weapon to win next challenge and next market share by Innolux's strength and InnoCare's innovation integrations. Next page, I was talking about the market expansions. And then we're talking about, for example, India and Americas. First, our thinking will follow Innolux guidance, low asset operations, we leverage our supply in India for low assets loading by the EMS manufacturing layer to get in India territory to mitigate the tariff exposure risk, to enhance service, to get the tender from the governments, to close the market and offer a better service to our partners. That's quite successfully paved the foundation for last year, our growth. And this year, we will enjoy last year's footprint deployment. That is very important for this year's revenue. The other is about the Americas. And then we are not only focused on component providers, okay? So I show you this, why we're talking about India, that means India almost increased their import tariff time to time. And now we manufacture there, we can save the cost. And also comply with government's policy, Make in India is the criteria to get the tenders. We are ready to co-work with our clients for this kind of business. And the other is Americans, we are not only a component provider as a TFT substrate open cell with simulator and then real IC or the flat-panel detector. We also strengthened our local repairs and service as some kind of solution to enhance onetime shopping to one-stop shopping service. By this kind of business model change, it can enhance our operation in not only North America but also South America to gain the momentum for future expansion. And next one, transformation, vertical integration, horizontal expansion. Now we were talking about the new service and the new business model based on InnoCare current x-ray detectors fundamental technology and know-how into the infrared, that means EMS service. First, talking about the flat panel detectors, later, I will show you some simple. That means flat panel detectors design versus infrared camera module design, the mechanical parts almost are the same. And then also most important, the know-how is image signal processing to enhance contrast ratio, sharpness and back-pixel collaboration and repair, that means we are ready. We send this from the x-ray image into infrared image, and also talking about the -- we have a TFT substrate from Innolux. Now we buy the MES wafer or sensor from our supplier. We make it into sometimes we try to plan to do is CSI coating or [indiscernible] coating on our TFT substrate with our photodiodes. Now we try to do even the first process coating that is similar. So step by step, we will from the back end, middle end and the front-end collaboration to enter the new business. Most important is InnoCare have the technology. We have a capability for smart manufacturing management and supply chain management with good quality, low-cost, that is a low risk to exchange our new business service and the infrared EMS service. This, I show you here, you can find that is a mechanical [indiscernible] except the sensor core. That is we imported or buy from locally or from the foreign countries to make it into a camera module. That is an easier way, and we are ready for this kind of business. And finally, I was talking about the -- that means this year's outlook and future plan. Of course, continuous prioritize our product mix with flat panel detector completed rather than component, TFT substrate and also the open cell. But of course, we would pick and maintain the current business model to offer one-stop shopping service to our clients, subject to their demands and our competitiveness and the service. So prioritize the product optimization, that is very important, we still keep doing and also about emerging marketing entering. Now we are harvest India as a result from the CR to DR digitize the X-ray inspection. Next one, we will go further by leverage India's local manufacturing to expand future might be Africa. Even currently our product already sell into Ukraine and even Gaza to help people to save their life due to our emerging market strategies. And the other one is a new -- that means electro-optical infrared that means production capability with the EMS business and then increase our R&D for the software, firmware, hardware to do this kind of business. And finally, we will adapt to current cost concern, sourcing from whatever from China, India and even we work to do is some kind of strategies, adapt Innolux strategies for cross fab, fab transfer from TFT and also relocation of our Tainan fab for better operation results. Finally is that means of financial results. That means, last year, luckily, we have maintained the momentum on the revenue and profit margins stabilized and EPS is getting better from last year. That is thanks to all the supply chain, all the team efforts and also the clients respect our capability to give us more appeal. And then also, next one, we're talking about the balance sheet, like so we maintain very healthy financial results and almost a negative debt. So our current ratio almost more than 200%. So this is a foundation for InnoCare. We create positive cash and accumulate enough funding for further operation and expansion into the global footprint and the new business model. So that's it today my presentation. Thank you for your attention. Thanks a lot.

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That concludes it for today. The replay of the conference will be available in Innolux and InnoCare company website in a few hours. Thank you, everyone, for joining us today. Goodbye, and have a great day. Thank you.