TSRC Corporation (2103) Earnings Call Transcript & Summary

[Foreign Language]Ladies and gentlemen, welcome to TSRC 2024 Virtual Investor Conference. I am Thomas Lin from TSRC Corporate Development Department. Let me first remind you of the safe harbor clause for the relevant information in today's presentation that is predictive in nature. The presentation content shown today is in Chinese and will be conducted in both Chinese and English. Please refer to TSRC company website for English version of the presentation. [Foreign Language] In the 1-hour conference today, our CFO will cover TSRC financial performance for the period of 2023 through Q1 2024. Then, our CEO will cover TSRC 2024 market outlook and updates on TSRC key investment and innovation projects. In the last 15 minutes, we will have a Q&A session, and please refer to Zoom link to type in your questions at any time during the conference. [Foreign Language] Let's welcome TSRC's Chief Financial Officer; Mr. Edward Wang to start the presentation, please.

[Foreign Language] 2023 was a very challenging year for chemical industry, and TSRC was not unique. Our financial performance was adversely impacted by the weaker demand, margin compression and intense competition, especially in TPE . On the contrary, SRB delivered a pretty decent operating result as its experience was supported by stable auto demand in China and also the healthy natural rubber and butadiene price gap. [Foreign Language] So for first quarter 2024, generally speaking, similarly to second half last year, TSRC'S results outperformed TPE in terms of margin contribution. So for TPE, the downstream customers de-stocking has come to an end. So we see both demand and price stabilized. And from a product perspective, SEBS was the first product to see market rebound, both volume and price experienced minor [ financial ] growth, but its profit margin were partially offset by the rising BD cost and freight cost in first quarter. And for SIS, we see demand recovery in capital and labor applications. Sales increased either on year-on-year basis or on a sequential basis. However, the market competition was still intense, especially in the European market. So the price and margin was not very attractive. For SBS TSM, our U.S. affiliate will participate in the SBS [ production ] market, which is the main reason for the SBS volume growth. Then for synthetic rubber, overall synthetic rubber's division's result was pretty decent. However, we do see some negative factors. First, we see some low price synthetic rubber, especially from Russia brought into Asian market, which, to some extent, compressed SBS selling price. Second, rising BD costs in first quarter also has impact on the synthetic rubber spread. However, China auto market was healthy, which give strong support to demand. As a seasoned veteran, TSRC grabbed the window of weaker supply in Q1 to maximize our sales volume. That's because some competitors had their annual turnaround in the first quarter. Overall, the higher volume offset the margin compression. So SRD's Q1 result was pretty good. [Foreign Language] So let's look at the geographic spread. So first, for Europe -- but as you can see, the revenue from European regions declined by 3.5% on a year-on-year basis, and its share also dropped. So 2 factors for the softer results. First, SBS shipments dropped as our Kaohsiung's SBS-SSBR co-share line stopped producing SBS starting from this year. So the line will stay vacated to produce SSBR. Second, in addition, the European economy's recovery is relatively weak. So the demand for SEBS and SIS was not as strong as for Asia and Americas. And the revenue from the American region has the highest gain among the 3 regions. It's mainly due to -- first, as we mentioned, we spent a lot of resources to optimize our U.S. subsidiary, TSM's SBS production efficiency. So after the production line optimization, TSM reparticipated in U.S. premium [indiscernible] which was the main contributor of its Q1 growth. And second, the pick in labor demand in the U.S. market see recovery and price stabilized compared to the European market or the Asian market. So the above 2 positive factors drive TSM's higher revenue. And revenue share for Asia increased, that is mainly due to a strong SBR demand and also the higher price. [Foreign Language] So those who have been following TSRC might know, we used to disclose the financial results of the 3 major invested companies in our earnings call. However, we announced APED did fully divest [ cement ] asset since last December. So it has no reoperation since then. So we will no longer disclose APED's operating results going forward. So as of for now APED had to file via application to claiming of government. We expect that the company will be officially closed in the second half of this year. And for the remaining 2 invested company, ISRPL still is the main profit contributor. It's a good first quarter result primarily due to 2 factors. First, its cost structure was benefited by its BD formula. Generally speaking, the higher BD price is relatively favorable to ICIS' BD costs. And secondly, ICIS continue to sell its capacity in Q1. And for ARLANXEO-TSRC, its result was not so satisfactory, although its ASP was the highest among the only local NBR producer in China. However, its operation was experiencing headwind. For Q1, we recognized only $7 million of the investment income. This is the lowest since last year. 2 major reasons behind the downturn. First is the sluggish real estate market in China, also the higher EV penetration in China brought some negative impact on NBR demand. Roughly speaking, real estate markets application account for 15% to 20% of NBR demand while roughly 15 -- another 15% of NBR is used in auto-related application. [Foreign Language] So at the beginning of my presentation, I mentioned that the rising BD cost in first quarter will bring some negative impact on TSRC's cost structure. So as you see here, the BD price rebound to around $1,000 to $1,400 per metric ton range in the first quarter from its pattern of around $650 per metric ton as said in the second half of last year. So the rising BD cost is not purely because of the strong downstream demand, but mainly because of the push of a tight BD supply. We know some Asian traders even shut down their production for turnaround or slowed down its production as the downstream, the other application, downstream application remains but was weak. So the BD output was reduced. In the first quarter, natural rubber price did not see many change either upwards or downwards. So the natural rubber butadiene price gap was narrowed along the rising BD costs, which -- it brings some pressure on synthetic rubber's selling price. Fortunately, TSRC is a veteran, we still manage the situation well by try to sell higher volume, by creating new market opportunities to drive higher volume. So this is end of my presentation, so I hand over to Joe.

[Foreign Language]Let's welcome TSRC Chief Executive Officer, Mr. Joseph Chai, to continue the presentation for the next 20 minutes. Thank you.

[Foreign Language]Earlier, our CFO have explained that 2023 has been a very challenging year for the whole chemical industry as well as TSRC. However, we expect a gradual recovery of the chemical industry in 2024, primarily due to destocking coming to an end as well as overall economy starting to recover. This leads to a certain level of demand stabilization. However, the recovery itself is different in different regions. We see improvement in terms of the whole sentiment and the economy in U.S. and in Europe with the manufacturing sector. However, the Mainland China market and the economy continue to be under persistent structural challenges. And on the other hand, Southeast Asia, we continue to expect a growth momentum and potential. And among the market segments that we look at generally cautiously optimistic, but the automotive market remained fairly buoyant. This is how we see the chemical industry going into 2024. [Foreign Language] Although the 2024 market condition is improving but we see some challenges and uncertainties will continue to persist into 2024. This include, number one, the overall oversupply situation, which leads to intense competition and particularly for certain product lines that we participated. And earlier, our CFO mentioned about SIS while the demand has come back, recovered somewhat, but the pricing pressure is still felt very high. And the second factor is the geopolitical conflicts everybody has seen over the last months, the geopolitical conflict as well as the war in Middle East and Eastern Europe continues to dampen the overall economic recovery. We expect the high operating costs to persist and are unlikely to cool down, and this includes the interest rates, includes freight costs and raw material costs, energy costs, carbon costs. These are some of the more prominent costs that we would expect to continue to be high. We do not expect a quick solution recovery to the Mainland China economic challenges that we currently face. So these are 4 broad challenges and uncertainties that will pose some obstacle as well as uncertainties to the overall economic recovery that we are seeing in 2024. [Foreign Language]Let's take a quick look at the 2024 market outlook based on our current view. Our current view is on 2024 market demand is expected to improve over 2023. And when you look at our first quarter results, it is evident that both our volume as well as our revenue, obviously, has improved over 2023. That is a reflection of the market demand being improved. However, some of the product lines and some of the market segments continue to be very challenged and the profitability and the margins continue to be compressed primarily due to an oversupply situation as well as certain application areas, for example, like shoes and construction, especially in China -- Mainland China is still very sluggish. However, TSRC is expected to and is currently making further inroads into EV tires -- or tires for EV cars or renewable -- new energy cars and medical application. And this is evident again through our first quarter results. As our CFO mentioned earlier, in our regional distribution, we have seen improvement and increase in terms of demand and sales for SSBR product as well. And we continue to be bullish about the whole India economic growth momentum. Our expectation remains that India economy will continue to grow with the momentum that has been forecast. [Foreign Language]Okay. Let me provide some updates on some of our key initiatives here. One of which will be the Shenhua and ARL-TSRC relocation project we expect to be on track and completed by end of 2024. We expect our mechanical completion will be done by probably end of October to enable us to start the cash run, okay, in test production or trial production in December. We continue to work hard on a couple of initiatives which will provide us growth momentum as well as earning opportunities. At the right and appropriate time, we will disclose more details. But be assured that we're keeping our eyes on driving our growth as well as our earnings momentum moving into the future. Last but not least, something that the stakeholders are very focused on is our sustainability performance as well as ESG targets, and I'm happy to disclose that we made solid progress in our ESG targets, a milestone in 2023. [Foreign Language] Here, very quickly, we have our key ESG actions and achievement in 2023. We can see this. You can see this later on in our website. I will not go through the individual items but the key takeaway here is that we have met almost all our ESG targets and have made good progress in ESG actions.

[Foreign Language]Now let's start the Q&A session, and we will reach out using your contact information for the questions that we didn't have enough time to cover it today. [Foreign Language]

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[Foreign Language] So let's end the Q&A session. We will end the virtual investor conference today, and thank you for your participation.