Sino-American Silicon Products Inc. (5483) Earnings Call Transcript & Summary

Good day, everyone, and welcome to the Sino-American Silicon Products FY 2022 Earnings Call hosted by Eric Chen. My name is Annika, and I'm your operator today. [Operator Instructions] I would like to advise all parties that this conference is being recorded. And with that, I'd like to hand it over to Eric. Please go ahead.

Thank you, operator. Good afternoon and good morning, everyone. I'm Eric Chen, semiconductor analysts at UBS. It is our great honor to host Sino-American Silicon Products 2022 result release. Now, let me hand the call over to spokesperson, Mr. C.W. Lee for opening remarks. Thank you.

Thank you, Eric. Hello, everyone. Welcome for joining SAS 2022 earning conference call. I'm C.W. Lee, SAS Vice President as well as company spokesman. We also have Doris Hsu, Chairperson and CEO, and Jennifer Chen, Vice President and Deputy Spokesperson in this call. First of all, Doris will give use the executive comment, and then Jennifer will present industry overview, 2022 financial performance and the ESG highlights. The final Q&A session will be hosted by Doris and us later. For today's presentation file we have uploaded on to our website. If you do not have the file on hand, please access our website for the most updated version. Please note that some information during our discussion today will consist of forward-looking statements which are applied throughout the call and this presentation. These are subject to significant risks and uncertainties. Actual results or trends could differ materially from our forecast. Please refer to the safe harbor notice in our presentation, Page 1 disclaimer. Now I would like to turn the call over to Doris for Page 2 to Page 16 executive comments and company overview. Doris, please.

Hi, thank you very much, C.W. Good afternoon, ladies and gentlemen. Thank you very much for joining us today, this afternoon, for SAS 2022 earnings call. First of all, let me share some comments of our financial result and update operational status. And after the executive comments, I'm going to have some -- answer some frequently asked questions recently -- received recently. And when I answer the frequently asked question today I'm going to cover not only SAS but also GWC. The questions we received the past couple of days for both SAS-related questions and GWC. Thank you very much. So that will be the arrangement. So first of all, let me start with the financial highlights. If you have already downloaded the presentation materials, please kindly turn to Page 4. 2022 is again a very good year for SAS. SAS has achieved record-breaking results 4 fronts, revenue, gross margin, operating income and EPS. Revenue-wise, SAS 2022 revenue totaled TWD 81.9 billion, which is 18.9% Y-o-Y. This is of course the best-ever revenue for SAS. And gross-margin-wise, SAS gross margin in 2022 reached 39%. And our operating income reach 31%. Both of these 2 are best-ever performance. Page 5, please. Let me share net profit numbers. Our net profit margin was 24.6% in Q4 2022 and 19.7% in the whole 2022. EPS-wise 2022, our full year EPS amounted to TWD 14.87 per share. And this is again the all-time high over the past 42 years since SAS was established in 1981. Page 6. Let me share some solar industry overall outlook. Regarding the solar energy industry outlook, I think the world is facing a global energy crisis which is unprecedented in depth and complexity. So Europe is the epicenter for the overall energy crisis. Well actually the impact is far-reaching, in the whole world, sparking reappraisal of energy policies and priorities, reforming policies and climate targets and has accelerated the development of renewable energy. Likewise, Taiwan, same as all the other countries in the world, Taiwan is eager to establish energy autonomy, which is self-sustaining and resilient, resilient to the turbulence of both climate and macroeconomics. Being inexhaustible, self-generating, well-suited to the power grid and could be set up almost anywhere, these unique features set solar apart from other renewable energies and is estimated to claim #1 spot in 2027 according to IEA, International Energy Association. So solar energy has enormous potential in the next several years in order to reach renewable energy 100% or net 0 carbon emissions. Renewable solar energy is a very important segment for the whole world. Page 7, please. I'm going to talk a little bit about ours, SAS' overall reinvestments, what are the new investments we are making. The first company I would like to introduce is SES, which is 100% owned by SAS. SES stands for Sustainable Energy Solution Company. Rooting in the vertical integration solar industry, SAS expands its business scope into green power sales and formed SES company which provides comprehensive green energy solutions encompassing planning and developing multiple renewable energies, aligning the needs between buyers and sellers and building complete green energy procurement plans. SAS not only focus on SAS' expertise in solar energy but also aggressively diversifies its energy mix and explore multiple green energy sales channels simultaneously, helping our customers to achieve their ESG targets. And next one is the new one I would like to, this is what we just announced the day before yesterday, that's our investment in Billion Electric. That's what we announced the day before yesterday. SAS announced the investment in Billion Electric the day before yesterday. And Billion Electric is a renowned company for its networking ICT solutions, green energy development, power supply and battery storage systems which is complementary to SAS' overall energy storage. This investment enable SAS to step into micro-grid, electric vehicles and cement its development in the renewable energy business. So that's why we invest in Billion Electric which is what we announced 2 days ago. And Page 8. Again, I would like to introduce a little bit about GlobalWafers which is definitely the biggest investment for SAS. For GlobalWafers, 2022 is same as SAS. 2022 is the all-time high, the best-ever year for GlobalWafers as well. Please allow me to quickly present GlobalWafers' overall performance in 2022. Revenue-wise, GlobalWafers 2022 full year revenue achieved TWD 70.3 billion. This is a 15% Y-o-Y growth. And our growth momentum has been lasting for 3 years starting from Q1 2020 which is consecutive growth for 12 quarters already, up to Q4 2022. And EPS-wise 2022 GWC's EPS was as high as TWD 35.31 per share. This is again a record-breaking EPS. And now the very important index for GlobalWafers is the prepayment amount. As of end of 2022, GlobalWafers' net prepayment balance amount totaled TWD 39.7 billion or USD 1.3 billion, increasing by 4% or TWD 1.5 billion in Q4 '22. Against this prepayment amount, TWD 39.7 billion, this is the highest ever for GWC. And next, please turn to Page 9 (sic) [ Page 10 ]. That's the overall semiconductor industry overview. Despite the short-term cyclical downturn, we believe in long-term growth momentum as semiconductor is underpinned by digital economy including 5G convergence, EV and data center and many other advanced innovation technologies. So we are very positive for semiconductor long-term growth, although this year may be a little bit slower and a little bit more headwinds here and there. So the above my overall comments. Later on when we have more frequently-asked-question discussion, I will share more details with all of the audience today. So I would like to pass to Jennifer. Jennifer, please share more on the industry trend with everyone. Thank you very much, everyone. Thank you, Jenny.

Thank you, Doris. I'm Jennifer Chen. So let's turn to industry overview, starting from Page 18. The global energy efficiency-related investment keeps growing. The investment on energy efficiency and the electrification was in the level of TWD 600 billion in 2022 and is expected to grow to TWD 800 billion under STEP scenario. Under the net 0 emission scenario, the investment amount will exceed USD 1.5 trillion. Page 19. The renewable energy keeps growing rapidly. During year 2022 to 2027, these 5 years installations is similar to the 20 years of total installations starting from 2001. The renewables will overtake coal as the largest source of global electricity by 2025. And solar PV is set to be the largest source of power capacity in 2027. Next, due to the geopolitical tension, renewable energy independence and sustainability becomes a crucial issue. The U.S. government brings the incentives and subsidy for IRA, stands for the Inflation Reduction Action. That will boost PV deployment. The renewable energy is forecast to exceed 280 gigawatts from 2022 to 2027. And solar account about 70% of the expansion. Next page. For EU, it experienced the energy crisis and solar energy reduced the impact. And these make EU makers -- policymakers prioritize renewable deployment and the demand keep increasing. Among EU, Germany is the biggest market. aleo is SAS subsidiary company located in Germany and provide solar module with good efficiency and good reliability product locally. Next slide. The EU plan on newly installation solar capacity around 600 gigawatt by 2030. Also, the local supply chain is drawing the attention. EU solar PV industry alliance aims to build resilience and strategic autonomy for EU solar value chain. Now moving to Page 23, about Taiwan. Taiwan's government pledges net 0 emission in 2050. In 2022 PV dominate the renewable energy at 9.25 gigawatt and is expected to reach 20 gigawatt in year 2025 and will grow to 40 to 80 gigawatts in 2050. Next, for Page 24. To achieve the goal of solar PV install capacity in Taiwan's 2050 net 0 transition action plan, the strategies including develop a suitable setting space, develop high-efficiency product application, promote flexible parallel connection of power grid and level up system safety, reliability and module recycling. These match SAS' business strategy. Firstly, SAS invest on solar and renewable electricity projects. Secondly, SAS produces high-efficiency solar product. Third, SAS participate on energy services as the renewable solution provider. Also, in all SAS Group factories follow product for our principle, reduce, recycle, reuse and redesign and energy best use strategy, SAS, which stands for safe, affordable, sustainable. Now let's move to financial performance. Please turn to Page 26. The fourth quarter revenue, our revenue reached TWD 21.2 billion, with 17.3% gross Y-o-Y, and this is our second record high. Gross profit at 36.2%. Operating income, TWD 5.7 billion, with 15% gross Y-o-Y. The net profit margin is 26.6%. Q4 EPS at TWD 4.33. Both Q4 net profit margin and Q4 EPS are our second record high. Page 27. Regarding the 2022 consolidated financial results. SAS' cumulative revenue totaled TWD 81.9 billion with 18.9% Y-o-Y. Gross profit margin, 39%, which is record high. Operating income of TWD 25.4 billion with 40.5% gross Y-o-Y. EPS, TWD 14.87, which is TWD 3.25 higher than 2021. Page 28. The 2022 revenue performance reached to TWD 81.9 billion, and this is our record high. Page 29. The gross profit reached TWD 31.9 billion at 39%. The gross profit and gross margin keep increasing from 2016. And this is our record high. Page 30. Operating income of 2022 reached TWD 25.4 billion at 31%. And the profit margin keep increasing from 2016. And this is also our record high. Page 31. Net profit result is TWD 16.16 billion. If excluding noncash valuation loss of Siltronic, the net profit would have amounted more than TWD 20 billion. Page 32. 2022 EPS reached to TWD 14.87, and this is our record high performance. Lastly, for ESG section, please refer to the detailed information in the slides. Now I will hand over the call to Doris and C.W. for Q&A section. Thank you. Doris and C.W., please.

Thank you.

Thank you. Thank you, Jennifer. Before that, Doris, can I explain a little bit about our company overview from Slide 13.

Sure, sure, please. Yes, C.W., please.

Thank you, everyone. Please turn to Page 13. This is our SAS group structure. On the left-hand side, relate to solar business. On the right-hand side, the semiconductor business. As you know well, we will have a total like vertical integration already. So we have a layer in Germany, is mainly produce module, solar module, high-efficiency one, 100% owned by SAS. And also, we have SAS Sunrise, our brand for the investment for power plant solar in Philippines, that we own 50 megawatts and we have stable income there. And we also have power plant Sunrise PV World, SAS branch in Taiwan as well. And we also have SES, this one is energy solution, a trading company handle all electric, the solar or other new renewable energy trading 100% owned by SAS. And besides, we also have Silfab located in Canada, 15% also handled, the power plant investment. And NextDrive, in Taiwan, located in Taiwan, own 5.54%. The major business energy IoT. And Billion, Billion Global, as Doris mentioned, is the new investment. We own 13%, 13.08%. This is energy storage. This one we have growth in the future as well for solar. And on the right-hand side we also have, as you know well, GlobalWafers 51.17%. This is a major revenue income from this company for semiconductor wafer. And also TSC, this company is, they are manufacturing specialty gas, 30%. And Crystalwise, they handle transport the product to LT and LN and gallium arsenide as well, 31%, 31.61%. And also AWSC own 27.62%. They are foundry house for gallium arsenide. Recently China market is not good. But eventually, I think they will maybe recover end of this year or next year. And the next one is Actron Technology. We own 22.75%. They mainly produce diode for automotive products. And this industry also a very quite famous one, this company. And Transphorm, this is listed in NASDAQ. We own 7%. Their main product is GaN power conversion products. And also we have Ancora semiconductor own 6%. And they are also GaN Semi products. And also ANJET. ANJET is a GaN and silicon carbide semiconductor 4.3% owned by SAS. Please turn to next page. Next page, Page 14, this is SAS in solar value chain. You can see the format is with vertical integration, whole supply for solar products from ingot and wafer. SAS, we are capable to manufacturing wafer in the ingot as well. And also cell, high-efficiency cell were produced by Sunrise [indiscernible]. And the module, aleo, aleo company. aleo, this brand is also quite famous in Europe. And SPW we also build [indiscernible], and we have power plant Sunrise as well. And on the bottom side you can see, the left-hand side, we have energy storage. Billion, this is Billion and SAS. We expand this business, energy storage from [indiscernible]. And energy trading, SES, this is, in Chinese name is [indiscernible] this one is owned, 100% owned by SAS, was trading not only solar but also wind or the other green energy as well. And the smart grid, NextDrive, this company is driving this one. And please turn to the next page, Page 15. This also we are focused on the sustainable energy solution company, SES, talking about this company, [indiscernible], we are providing comprehensive green energy solution. On the left-hand side you can see generator, like water, from solar or wind power generation. And we are buying electricity from those resources. And we sell electricity to the right-hand side, user. And we also apply wheeling with Taiwan Power Company. And also, we receive or we buy or transfer renewable energy certificate with T-REC as well. This is kind of the business file. And the next page is Page 16. This is our revenue by business. We separate it by semiconductor and non-semiconductor business. Basically semiconductor business totally share around 86% and others is 14%. Part of the semiconductor business we have brownfield and greenfield expansion. So the percentage will increase. We increased a lot. And so the announced semiconductor business share will become less. But in the meantime also we will expand our renewable energy related business as well. Okay. Thank you. This is my explanation part. Doris, please.

Yes. Thank you very much, C.W. That's very, very good. Thank you. Thank you, C.W., and thank you, Jenny. Now in the past several days we do receive a lot of questions from investors, analysts. And so today let me, first of all, let me answer those several questions first to everyone. The first question we received from several analysts is that, the question is, "Please update us your view on the solar industry outlook this year. How do you think about the pricing trend for solar business?" I think our view is that the global demand is still pretty strong and is estimated to grow, I think will be somewhere around 10% or 15% or even higher. Last year, global installation capacity is around 228 gigawatts, last year, roughly. It's about 2 to 8 gigawatts, the best installation capacity. This year it's very likely that the total installation will be around 250 or even as high as 300 gigawatt. Or some forecast, some countries even has a little bit more aggressive forecast. So no doubt that the solar global demand is still very strong. And this year will be another good year for solar installation. And for the material cost, our view is that this year the demand side is very stable. Demand is very strong. But a lot of headwinds here and there. The headwinds including interest rate is getting higher and higher. This is worldwide because it's one of the inflation reduction plan as well. So interest rate is pretty high, not only in the U.S. but also Europe and almost every country in the world. So that hurt the profit of solar company, solar system company because you know that most of the solar power system projects rely on around 70% to 65% of bank loans to support each solar power plant. So the IRR for the solar power project maybe will be a little bit lower this year. But on the other hand, the good thing is that the material costs will trend down a little bit this year, starting from this year, gradually, because quite a lot of new solar-grade polysilicon plants, new capacity will be released this year gradually. Basically in the next 12 to 18 months, there will be a lot of new solar-grade polysilicon plant capacity will be ready and released to the market. So that will bring the polysilicon price a little bit lower in the next several quarters. That's our view. So I think in general, solar market demand is still very strong. We are still very positive for the worldwide solar industry. That's our answer to the first question. And the second question is, "Do you have any plan for, to further grow your solar business capacity to improve your overall profitability?" Our view is that we definitely will keep expanding our capacity. For now, our plan is to keep adding more capacity for high-efficiency cells in Taiwan. And we also, we will keep adding our capacity for high-efficiency, high-output module in Germany, in our operation in Germany, aleo. That's our current plan. But of course, we have to think about the overall, including that the market strategy because as solar is still a very policy-driven industry, so we have to rely on -- we have to monitor the overall policy in each country to make a final decision. I will explain more. I will elaborate a little bit more later on for this point, why I talk about the policy driven for expansion. So basically our strategy is that, yes, we will keep expanding our capacity, but that expansion will be mainly for high-efficiency [ fill lines ] and module lines only. That's our answer to this question. And the third question is about foreign investment. We have been asked by many investors, they are talking about that do we see any opportunity to invest new capacity in overseas market, especially in EU or in the U.S. I think the solar market in the EU, EU solar market will grow very aggressively, maybe up to 30 gigawatt capacity in 2030. And this is a good chance for the European producers like SAS' German operation in aleo. You know that we have our, SAS, we have our module production line aleo in Germany. And that one is a very good one. And everyone knows very well that Germany is one of the fastest-growing countries. There is some opportunity that we will make further expansion of our module capacity in Germany. And regarding to American, I think USA, yes, they are promoting IRA very aggressively. And we believe that this will change the PV supply chain on the strategic energy resilience consideration. And this will make the supply chain with better balance in the U.S. as well. So we will review this very carefully to see that how these policies formed and to see that if that is good for us to invest in overseas. So we received some question about our specific plan to make the expansion in the U.S. for solar. Of course, we have already made the investment for a semiconductor in Texas, that's already done, and we have already kicked off the expansion. But we were asked, "Hey, Doris, how about your expansion plan in the U.S. for solar?" This is the first time I officially can answer this question, is that the U.S. IRA or so-called Inflation Reduction Act, this IRA does provide very good incentive to attract solar manufacturers to build a solar supply chain in the U.S. soil to strengthen domestic solar chain. But SAS as of now, SAS does not have concrete plans yet to invest in the U.S. because for SAS to invest as brand-new solar operation line in the U.S. is a very big decision for SAS. And this, we need to have very detailed evaluation on full aspects. Especially we have to check that how about the production cost in the U.S. and how about U.S. market demand, how about the sales channel in the U.S. And also, what's very important is that we need to figure out that how much support we can receive from IRA or government, U.S. tax credit. So we have to figure all these details out before we make a final decision for the investment in the U.S. Okay. And next question is about that -- because we -- just a couple of weeks ago we made an announcement about our cooperation with AUO. So we were asked that they want to know a little bit more details about cooperation with AUO. We announced this news in mid-February. So let me share more details here. SAS partners with AUO. The whole cooperation is to build a strategic alliance for strengthening local green energy supply chain in Taiwan. SAS and AUO have joined hands to enter into the long-term sales supply agreement. And SAS will supply large-size, M2 or even bigger than M2. Large-size and high-efficiency mono PERC solar cells for AUO's solar high-efficiency, high-output solar module. So this cooperation between the both parties is expected to strengthen Taiwan's domestic energy industry by producing high-quality and high-efficiency solar solutions, solar products, including cell and module locally. I think this is a very meaningful cooperation. Both companies look forward to maximizing the benefits brought by this vertical integration of the strong alliance and to grab the business opportunities from the clean energy transition in Taiwan. Besides the high efficiency and large output from the -- and besides, also, we want to have the high efficiency and large output from the product. The local supply will enhance the energy resilience by adopting the design to Taiwan's special weather. Taiwan's weather is very different from other countries. So we need special design to make a potent design, very good high-efficiency and very good module for Taiwan weather and Taiwan condition. And we also want to have a self-sustained energy capability for Taiwan. So I think that this cooperation with AUO is very meaningful for Taiwan and also for renewable energy industry as well. So we look forward very much to work very closely with AUO. Okay. And next is, yes, I think there were a lot of discussions in Taiwan, especially in Taiwan's solar industry, a lot of discussion talking about the so-called import module, import solar module. So I was asked that to explain more detail of the impact of the PV module imported from other countries, other places to Taiwan, how those imported module affected this whole supply chain in Taiwan. The imported module had been raising our concern a lot, from 2021 to 2022. The imported quantity grew significantly. The imported quantity increased more than 50x, 50x in 2022. That means that the imported module volume in 2022 is about 5x higher than 2021. This is very significant. When the imported module exceed 20% of total demand in Taiwan market, I think it will jeopardize the local supply chain development. This is a very important issue for Taiwan's solar industry. Independence and resilience of energy is very important for national security because in Taiwan we don't have our gas, we don't have our oil, but we have our solar panel. So that means that if we have our own solar industry, renewable energy industry, the supply chain locally in Taiwan, that means that we can have our own energy, our own electricity from our own supply chain, our own products. That is very important. That's for national security. So that's how U.S. government and EU eye the renewable energy or so-called energy autonomous as well. The U.S. and EU hopes to build their local supply chain with lots of effort. As we explained, the U.S. is offering a tax credit, IRA made a lot of effort, tried to attract a lot of foreign solar renewable green company, green energy companies to make -- to build their production line in the U.S., not only semiconductor, actually U.S. government, U.S. Americans, they are inviting solar company to build their supply chain in the U.S. as well on top of semiconductor. So EU also, they hope to build their local supply chain as well. Both EU and U.S. are making so much effort to, not only to protect their local supply chain, but also to rebuild, improve their local -- maximize their local solar supply chain. But today Taiwan is stronger with the local supply chain. But the imported module has to be well-managed, well-planned, well-controlled, otherwise this would be bad for the local supply chain development. That's our view. So just for your reference, that in 2021, the imported module volume is around 13, 15 megawatts. And in '22, the imported modules capacity is as high as somewhere around 700 megawatt or higher than 700 megawatts. That's really very high. And this year, maybe it will be even higher than 2022. So we are as a solar industry company, we are very concerned for this one. So that's some answers for the question we received for solar. Also we received some questions about our semiconductor companies, GWC. The first question is about, we were asked that, "How come GWC Q4 gross margin seems much lower than the other, the previous several quarters, which is true. Especially in Q4, gross margins will be lower. And so I'm talking about SAS Q4 gross margin was lower than Q3. And the reason that Q4, SAS Q4 gross margin is lower than Q3, 2 key reasons. One, number one is, as I said earlier, that polysilicon price dropped a lot in Q4, especially in December. And mid-December solar-grade polysilicon price dropped all the way from $30-something, USD 37 per kilo, dropped to below USD 20 in several weeks. So that's why at the end of December 2022 we made a reserve, our LCM, our accounting reserve for the price reduction. That is the #1 reason for lower gross margin in Q4. And the second reason for lower gross margin in Q4 SAS is because that our consolidated, SAS consolidated financial result income statement includes not only GlobalWafers and SAS, but also AWSC and TSC as well. And that's because of weak semiconductor especially for cell phone demand. So AWSC Q4 result was not good. And also TSC Q4 result was not included, previous quarter results. That's why when we made the [indiscernible] our Q4 gross margin was lower than previous quarters. So that's another question being asked in the past couple of days. And the last question I wanted to answer here is about, we were asked, because the day before yesterday when we had GWC earnings call, I was asked and I answered about our inventory status, I said that GWC is fully loaded. The whole GWC is fully loaded. But we've built some inventory for our customers. We have our lines fully loaded, but some customers asked to push out the production a little bit to the following quarter or following months. And we are supplying this kind of support to our customers. We build a little bit inventory for our customers. So some analysts and investors are concerned about this point. So let me make it more clear. Our inventory, the inventory, prebilled inventory for our customers is less than 5 days of our capacity. So the inventory is less than 5 days. So it's very, very minimal. And the second point is that those prebilled inventories have very firm commitment from our customers to be delivered in the following quarter or following months. So those are very short periods of prebilled. So no concern for this one at all. So that's what I would like to highlight especially to clarify this point for GWC. I hope this is clear for everyone. So that's all I want to share with everyone for the frequently asked questions here. Thank you very much. And we can take the questions from the meeting today. Thank you.

Thank you, Doris, C.W. and Jennifer. Now we'll open the floor for Q&A. Operator, could you give the participant the instruction?

[Operator Instructions] We already have one incoming question, and that is from [indiscernible].

So my first question is regarding to your comment on solar demand and price and trends. So as you mentioned, the [indiscernible] this year probably will not be as good as last year's. So I'm curious, what's your outlook in terms of our solar business sales growth or gross margin trend this year? Can we assume that maybe solar, the growth will be lower than [indiscernible] business this year?

Yes. Thank you very much, Tony. Yes, I think total demand will be higher than last year, but the ASP at least for now, ASP will be slightly lower. And main reason for lower selling price is because the raw material, especially polysilicon price is lower than last year. This year we are expecting that maybe polysilicon price will keep dropping a little bit maybe quarter-by-quarter, will drop a little bit. So that will make ASP a little bit lower than last year. And so that means, yes, it's very likely that the total revenue will be flat or slightly lower than last year. I mean, for solar. For solar only, yes.

Okay. How about the gross margin trend [indiscernible] FY '22?

Yes. Gross margin-wise, I think there are several factors affecting our gross margin. ASP is not really the main issue because this ASP adjustment is basically aligned with the raw material adjustment. So gross margin is not really highly related to our gross margin. ASP is more cost-related, it's not gross margin related. But this year, I think gross margin maybe will be a little bit challenging as well. The main reason for this is that we see much higher energy costs everywhere, Germany as well, Taiwan as well. Cell production energy electricity cost is much higher than last year. And the second is the overall interest rate is higher. And you know very well that not like GWC, GWC doesn't have any -- basically no bank loans. But not like GWC, SAS, because SAS has a lot of investment, SAS production, also SAS has some bank loans. So when the interest rate goes up, that will be a little bit, of course that will affect our cost a little bit. And another key factor is FX-related because we do have some business from overseas and quite a lot of local domestic business as well. But most of the material materials are still in U.S. dollars. We pay in U.S. dollar for most of the materials. So that hurt, FX hurt a little bit on our gross margin as well. So that's the reason that I think this year maybe gross-margin-wise will be a little bit challenging. That's our view. It's not big difference, but I think it will be a little bit challenging.

Okay. And another question, maybe a little bit long because we just interested in Billion. And I'm wondering if you could give us some more idea about Billion's competitiveness in the industry because it seems like it is doing similar businesses as [ Selta ] or [ Lidang Tiwan ]. And also, I'm happy to see that you are exploring new opportunities not just for solar but you just like to be the total energy solution provider in the future, including like inverter, maybe charging phone or maybe energy storage, et cetera. So I'm just wondering if you could elaborate more on how will it create a synergy between our existing [indiscernible] business because looks like these are all related to our history or silicon carbide opportunities in the longer term.

Yes, exactly, right. Yes.

Yes. So is there any synergy that we can expect from GlobalWafers? And lastly, it looks like you have -- we gradually have more concrete investment portfolio under SAS Group. So looks like the meeting part is related to semiconductor production or so-called in silicon carbide device production, et cetera. I'm not sure in the longer term are we going to become more like a virtual IDM holding company rather than just a few [indiscernible].

Thank you. This is a very good question, Tony. Let me try to answer your question. The first part is that the synergy was Billion. I think Billion for me, there are some potential synergies. One is their storage. They have battery storage capability. And also they have quite some good projects, good storage-related projects. And in Taiwan, when you have solar, wind power or a lot of renewable energies, you need 2 things. One is storage and other one is smart grid. So that I think we can get a lot of storage experience and projects from Billion. And another one is storage -- Billion has another capability, that their software capability or we call this micro grid, they have their micro grid. They know that how to -- they have some special interface to manage the solar power generation system. You know that they have a subsidiary company called [ Shanxi ]. They own around 50%, 70% of that company. And that is a software company for all these micro grid and power system renewable energy monitoring system. And that is very valuable from our viewpoint. That is a synergy for us as well. So that's my second -- I think that's the second synergy. And the third synergy is charge point. They have very good experience and capability for charge point. We want to expand more business for charge port as well. And the last one is that they have some special vehicle power battery system. When I say vehicle, I don't mean car, EV car, this kind of vehicle battery system only. I'm talking about that they even have the ship, the ocean, big ocean ship that kind of electrical battery system. I think those are the potential synergy we can work with Billion. And on the other side, that if we have more demand for this kind of material, this kind of application in Taiwan, that means that you will need more semiconductor compounds, semiconductor demand. That means that GWC will have more opportunity to develop -- to have -- get more applications. So we will have more opportunity for material business. That's our view. And the second question, you talked about the assets, overall our reinvestment. It seems that our overall organization or the product roadmap looks like more complete than GWC. I want to put it this way, that GWC right now we focus on 12-inch [indiscernible] and compound semiconductor. These 3 big categories. And many of these are very power related. So compound semiconductor is very important for GWC. We have our own internal expansion, which I didn't talk too much to the market because a lot of confidential strategies ongoing. So we have our expansion for semiconductor, for compound semiconductor especially for both silicon carbide and gallium nitrate expansion. And not only this, we are definitely, same as all of our silicon related, in the past 20 years, all the M&A stuff, we're evaluating all the potential opportunity for silicon carbide or the production material, some special strategic investment opportunities as well. No firm decision yet, but we are monitoring several targets now. That's our plan. So we do organic growth for silicon carbide and gallium nitrate. We have very big expansion for silicon carbide and gallium nitrate but not only this, at the same time we are also monitoring that -- target some good companies out there, try to find some good opportunities there. Hope I answered your question.

In the interest of time, we have to conclude the call here. So thank you, management, for the time. And thank you all for joining us online. Goodbye and take care.

Thank you. Have a good day. Thank you very much.

Thank you, everyone. That concludes your conference call for today. You may now disconnect. Thank you for joining, and enjoy the rest of your day.