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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
So today we are going to report our Q3 financial numbers. So as usual, we will have IR Rodney to report numbers to you. So today we'll only have some of the visitors on site and also we have the audience online. So we will also have -- I mean we will also answer your questions online.
Thank you for coming today. So it has been a very long while that we haven't really held a physical analyst meetings. So as usual, the numbers are -- have been reviewed by CPA. So thanks to the healthy demand and better component supply, our Q3 revenues reached an all-time high of TWD 106.3 billion, representing a 33% year-on-year growth and an 18% Q-on-Q increase. It is noteworthy that the fast year-on-year growth was partially related to the appreciation of USD dollars and the lower comparison base in Q3 of last year. So with better economics of scale and work pass-through of the cost hikes GP in Q3 grew by 43% year-on-year and 22% quarter-on-quarter, GP margin improved to 30.3% Q3 from 29.4% in Q2 and 28.3% a year ago. And in terms of the expenses after the reopening in the U.S. and EU there was an increase, I mean, in the marketing events and business trips. Hence, Q3 expenses grew by 26% year-on-year and 11% quarter-on-quarter. Meanwhile, wage inflation also added to increase in the R&D and SG&A expenses compared to a year ago. Despite the fast increase in expenses with a much faster top line growth, the R&D expenses as a percentage of sales [ shrank ] to 8.6% in Q3 from 8.5% in Q2 and 8.6% a year ago. Likewise, the SG&A status as a percentage of sales also contracted to 9.6% Q3 from 10.1% in Q2 and 9.9% a year ago. So the OpEx ratio in Q3 dropped to 17.5% in Q3 from 18.7% in Q2 and 18.5% a year ago. So with the expansion of GP margin and contraction of OpEx the OP margin in Q3 significantly improved to 12.7% in Q3 from 10.7% in Q2 and 9.8% a year ago. So in terms of the performance by segment. Sequentially, we found decent growth in each segment, which power -- with Power Electronics and Infrastructure growing faster than Automation, Year-on-year with the lower comparison base, we saw even more robust growth across the board with over 30% year-on-year growth for Power Electronics and Infrastructure and a 27% year-on-year increase for Automation. Notably, despite the weakness of the China IA market, the strong demand for building automation and incremental contribution from the UI acquisition has contributed to the fast growth of the automation segment. Earning wise, as operating leverage we found substantial year-on-year and quarter-on-quarter profit expansion for each of segment. So here, we also provide revenue breakdowns for your -- by segments for your information. So for the op --non-operating profit was around TWD 1.7 billion in Q3 but should [indiscernible] largely to the significant operating [ strategic ] gains. We had a small interest expenses as instead of the usual income as a result of the expanding spread between the borrowing and the deposit rates. With the interest rates likely hiking further, we may continue to see no interest expenses before the reversal of the environment. So in Q3, we had TWD 15.1 billion profit before tax up 40% quarter-on-quarter and 83% year-on-year. In Q3, it was TWD 20.1 billion, up 29% quarter-on-quarter, 59% year-on-year.
Q3 tax expense was about TWD 3 billion, representing 19.4% effective tax rate, noncontrolling interest was similar to Q2 [ plus search ], significantly compared to a year ago as a result of Delta Thailand's strong earnings growth.
So the net profit after tax in Q3 was about TWD 11.1 billion, up 45% quarter-on-quarter, 74% year-on-year. It was the highest quarter profit we have ever had. So the Q3 EPS was TWD 4.26, which was certainly also a new record. So now we are going to have a look at the cumulative numbers for the first 3 quarters of the year. So the revenue was TWD 278.8 billion in the first 3 quarters, up 21% from a year ago. So GP was up 28% year-on-year with GP margin 29.1% versus 29.4% a year ago. The operating expense in the first 3 quarters was up by 15% year-on-year, with SG&A up 17% and R&D up 13%. And as to the battery economies of scale. The OpEx ratio shrank to 18.1% from 19.0% a year ago. SG&A as a percentage of sales dropped to 9.8% from 10.2% a year ago. And R&D expense ratio contracted to 8.3% from 8.8%. So the OP for the first 3 quarters was up 27% year-on-year, with OP margin improving to 11.0% from 10.4% a year ago. By segment, we focused on revenue growth [indiscernible] except for the Automation, which was significantly impacted by the [indiscernible] IA margin. We found substantial profit expansions for the other 2 segments. So for the first 3 quarters, we had about TWD 3.9 billion on operating profits. So in total, we had TWD 34.5 billion pretax income up 27% from a year ago. Our EBITDA was TWD 48.8 billion, up 22% from a year ago. The tax expense was around TWD 6.6 billion representing a [ 92.2% ] effective rate. Noncontrolling interest was more than doubled as a result of Delta Thailand's strong earnings compared to a year ago. So therefore, the net profit after tax was TWD 24.8 billion in Q3 -- in the first 3 quarters. So the EPS in the first 3 quarters of the year was TWD 9.53 versus TWD 7.91 a year ago. So here, we have reported all the financial numbers to you. So we are going to answer the questions from the audience. So we will start from the questions from the on-site audience, and then we will answer the questions from the online audience.
Can you share some of the details of your inventory level in Q3 and what was the impact on GP margin, I mean, in terms of your inventory write-downs? And how do you see the inventory level in Q4?
So today -- this question, we will have our CFO to answer.
So for the inventory level in Q3, I mean, the end of Q3 was around like TWD 78.8 billion, which was slightly higher than the end of the Q2. So where we had like about 40% was the materials, like around 10% was the work in progress and then the rest was the finished goods. So in Q3, we had about like TWD 1.38 million write-downs -- inventory write-downs.
So what was the impact on your GP margin in terms of the inventory write-down in Q3?
I think it was around like 1%.
I know that you are -- I mean, your business -- EV business is growing really nicely, but currently, I think there -- we heard some noise, I mean, in the auto market. So some of the legacy OEMs, they have been pushed out some of their orders and revised -- slightly revised their targets of shipment this year. So what's your view on this?
So we actually -- the CEO and myself, we just got back from the European trip. So we actually have some conversations with our European sales staff. From what we have learned from them, we think that currently, actually, we still see nice -- origin momentum for our EV business. And actually, we would say that this year is actually the year that we started to see some initial success of this business. So I think for your question, I mean, regarding the noises in the market, I think it's actually quite common when there is a new product, I mean, in the market. So in early days, there was only 1 OEM in the market. And then -- but nowadays, there are more and more players in the market. So I think that actually compared to the early days, I think actually, it is a good thing that if we see the -- I mean, the prices of electric vehicles coming down because in the early days, I think the electric vehicles are still, I mean, kind of luxury products for the mass market. So we actually think that, I mean, it's just thing, I mean, to see some price -- I mean, adjustment in order to see the further -- the higher -- to accelerate the penetration rate of the electric vehicles in the market.
I think there are -- I doubt that -- I mean the pandemic has been going -- has been easing. I mean, today, but there are still many, I mean, major challenges such as the inflations. And economic slowdown and the CapEx cuts and many, I mean, major international tech companies, they also have this, I mean, layoff plans. So what do you see -- I mean, what's your view on these major challenges?
Well, as I used to say, I mean, we are not the expert of macro economy. So it's hard for me to comment, I mean, on the macro matters. I think that roughly speaking, I think those -- I mean those challenges, which actually, I mean, those are macro matters actually may impact the consumer market -- may have more impact on the consumer markets, I mean, compared to the industrial or the B2B market. But as we -- I mean as we always say that no, we actually don't really have -- I mean that much or demand business or revenues from the consumer market, but we have more B2B sales. So of course, I mean, if the overall, I mean, demand is going down or the overall macro environment is deteriorating, we are not being -- as it's not possible for any company to really immune from this kind of factors. But at least, I think that we are much more diversified in many ways so we should be okay.
Can you give us, I mean, any idea of the outlook, I mean Q4 revenues and the outlook for next year?
I think for Q4, it's actually persistent normal pattern so it's maybe quite similar to Q3 or more or less compared to Q3. But for the next year, I mean, for 2023, I think that the challenges, I mean, the markets -- the market is facing is actually more relatively short term. So we are -- I mean, we have been -- at Delta, we have been trying -- always trying to capture the mega trend. So for example, the cloud computing, the electric vehicles and those kind of things, I think, will continue to grow. So I think that for next year, we will continue to grow.
So what do you see the Q1 -- I mean, sales momentum of next year? Are we going to see a year-on-year growth?
Yes, I think so. Yes.
So in Q1, are you still expecting the weakness -- I mean of IA business?
Yes. I think that in the near term. Well, we don't really have, I mean, very high expectation for the industrial automation business. But actually, I mean, as a matter of that is not declining, but it's just we don't really have very high patience for it. I mean, in terms of the birthrate in the near term, even the macro matters -- in the macro environment.
So can you ensure that your capacity expansion plans around the globe?
Yes. I said that we have been building up our factories and manufacturing basis, I mean, in China, in Taiwan, in Thailand and in India. But in early days, we didn't really think about -- I mean, building up capacity in the U.S., but now we actually have this plan. I think one of the reasons is because we are moving towards to solution and system oriented system businesses. So for example, that -- I mean taking our EV solution business, for example, the EV components, they are actually much heavier in terms of the size of the products. They are also much bigger than the electronic products. So it would be too pricy and taking too long if we ship those EV products from Taiwan to the U.S. So that's one of the reasons why we have this plan to increase our capacity in the U.S. because we want to have more possibility to serve our clients. And also, I think going over in the future, the competition is not just within -- I mean, it's not within the country, but you also need to compete against the international companies. So mostly pretty crucial that we have to -- we have -- I mean, if feasibility, more possibility to serve the clients. So I think everyone knows, well, I mean, today, the geographic -- the geopolitical issues has become more and more complicated, but the only thing we can do, I mean, as a company, as we always try to increase -- I mean, to be more diversified and then increase our visibility in terms of the manufacturing basis. So that is the thing that we have been doing, I mean, for the past 10 years. So for example, that we used to have -- no, sorry, we only have the headquarter in Netherlands. But also, we are -- I mean, now we have another office vendor in Helmond. So we not only, I mean, will increase our capacity in different countries. But also we actually need to hire more from [indiscernible] to serve the local clients. So in old days, I mean, when we were only the OEM business, we didn't really need that then [indiscernible] But nowadays because we are having more and more solutions and systems business so we will need to have -- that's why we need to have more -- hire more [indiscernible] to serve the clients.
So I think that as we can see the energy crises in Europe, well, [indiscernible] as a global leader in energy management sector. So do you see any opportunities in this?
Yes. I think those, I mean, crises -- the energy prices just -- we just can -- I mean, suddenly, so many countries they did a really -- I mean, [indiscernible] these crises. So if you ask me about like, well, what we feel like future business opportunities in this kind of crises, I would say, I think the energy efficiency is definitely one of the very crucial criteria with, I mean, the customers or the consumers, they are choosing their products. So in the past, when the cost of electricity was still pretty low -- I mean, people may not be sensitive to the energy efficiency of the products. But when they see -- I mean, when we see the energy price hikes. So the energy efficiency has become more important to the clients and customers. And everyone knows that where we are -- I mean you're seeing -- when the electronic component -- sorry, the equipments occupies operations, they are actually dissipating the heat. So the cooling is also a larger crucial part in order to save the safety costs from the air conditioning. So until that people are saying that, I mean, we're worried about the recession. And that is why, I mean, have some impact on like every company, but we still see the positive side. I mean, even in the challenges.
How do you see your energy storage system business. I think the current major challenge is still the lack of the battery cells -- because -- I mean the electric vehicles are using more and more batteries. I mean -- so currently, the batteries the battery cells are still in a short supply. But I think going forward in the future when there is higher -- I mean proportion of the renewable energy. I mean, the [indiscernible] that you will definitely need a charge system help you to stabilize, I mean, the output of the electricity. So do you have any market share data that, I mean regarding your EV business in the market?
So for this year, we actually saw fast growth of, I mean, the EV business. So we've not only penetrated into the European clients, the U.S. clients, but also the [indiscernible] clients. At least, I mean, actually, there is -- we don't find a very reliable the third-party data regarding the market share -- the EV market share. But we believe that we should have like somewhere around like 10% of the market. So yes, the all in 1, or the 3 in 1 or 4 in 1, is also another big trend, I mean, for the EV -- in the EV market. One of the very important reasons is that actually, it makes the customers much easier in when they are doing the assembling of the final products and also by I mean, integrating, many -- few components together, we can also save some costs, especially the material costs from -- I mean, integrating some of the components into 1 product. So for the reason why we have an -- we first add up a subsidiary to work on the -- I mean, the third generation of our semis. So we actually -- we have -- I mean, we have been working on the third generation of semiconductors for more than 10 years. And we definitely see that the use, I mean, of the third generation of semiconductors will be the future trend of power electronics. Especially, when you want to make some breakthrough -- technology breakthroughs in a market. So I think the advantage itself, I mean, using cans in the product is actually for the application license for the higher frequency applications. But currently, in terms of the price is still pretty high. So let me give you an example. I think that one of the very special applications for the [indiscernible] chips is actually the satellite powers because it actually carries very high values, but also it requires very small size. So the reason why we spin off, I mean, this subsidiary because I think that actually, the semiconductors business is quite different from our core business. So we also want -- I mean, by spinning off this business, we also want -- we also hope that, I mean, the subsidiary has more opportunities to make more customers and also maybe they turn investors. So that's the reason why we separate this business.
I think that as many people, they just mentioned in the past week, we actually saw the cloud companies, especially some [indiscernible] I mean the cloud companies or those -- the tech companies -- the international tech companies. They are repricing some of the guidance for next year. So people are really worried about this. So what's your view on this?
I think that in the near term, we haven't really -- I mean seeing any significant impact or major changes in our outlook. But for the long term, we definitely believe that it's going to be what the growth drivers of our business. So I think, maybe I can add some points on your question. So I think the way -- actually, the cloud companies, they are using their -- well, the data centers are a bit different from the early days. So in early day, I think people normally, we only treated the cloud as a storage system to store some of our data in the cloud. And nowadays, I mean, many companies, they are running their applications in the cloud system, so we think that it's a very powerful business model.
So can you give us more color on your product and solution setting within your EV solution business?
Well, we actually -- I mean, started to provide -- we started this business from providing the energy management products to the customers, such as our DC/DC converters and [indiscernible] chargers, but we also have been working on the motors for a very long time. But in early days, we were mailing -- making the industrial motors. So -- but we also, I mean, leveraged the know-how and experience and leverage that to the auto motors. So to be honest, if you really -- if you ask me about what we will be worried about, I mean, the competitive advantages, I mean, for our EV solution business. I think that we are actually not worried about the tech knowledge at all because we have been working -- as I said, because we have been working on the product and technology for a very long time. So we are actually more -- I mean, worry about the cost, whether we can successfully or continue to lower the prices of the products. And that would be the thing we -- yes, that will be the thing that we will continue to do, going forward.
As far as we know, one of the your peer companies, they recently just acquired [indiscernible] I mean, as a sensor company. So do you have any plans to acquire sensor companies as well?
I think we have been -- I mean, always keep an eye on the market and -- but we also have our own, I mean sensor products in-house. But actually, there are many different types of sensors.
Can you share like, the sensors which are supporting your growth and, I mean, your expectations on your [ beta center ] related business and the server power business as well.
I think they are actually not only -- I mean, not just the cloud companies, they are building up the data centers. There are also some other customers, which are the telecoms. I mean, the telecom operators, they are also making this transition from the voice to the data, so they also need to deploy more and more data centers. So there are also another type of customers.
So the next question is, how do you see the pricing trend? I mean for your products?
I think that -- well, it's -- the pricing is actually pretty dynamic when there is more supply, of course, I mean, there is more pressure on the pricing and vice-versa.
So do you still, I mean, see any component shortages?
So I think that in terms of component shortage is very largely eased. I mean, today, and -- but there are still some components such as the high-end semiconductors or the auto chips. So before we call it a day, we would like to have our Chief Sustainability Officer to share some of the -- our progress, I mean, in the ESG with you. So for the latest results of DJSI that we were selected, I mean, #1 in the electronics sector.
So what's the foreign trend? I mean, rates, I mean, the fluctuations of the foreign exchange impact on your GP margin.
I think we actually sell mostly in the U.S. dollars, and we also pay mostly in the U.S. dollars. So the fluctuations of foreign exchange rates doesn't really have much impact on our GP margin.
So would you be worried about like the China economy after the 20 National Congress?
But to be honest, I don't have any comment on this because I think everyone is still processing. I mean, the impact after this National Congress. But the only thing we can do is focus on our job.
Do you think you can reach the breakeven point of, I mean, your EV business?
I think that if we're talking growth fast, I mean, especially if we can, I mean, achieve like the rapid growth, I mean the EV business, the EV business, last year that we -- it's possible that we can see the breakeven of the EV business.
So what's your view on the U.S. high tech -- its poor control to the -- to China. So what's your -- what's the impact on your business?
I think the restriction is more about the semiconductors. So it is not really -- I mean, we don't see really having direct impact on us.
So what's your CapEx plan for next year?
So -- because we are still reviewing our project, I mean, currently, so I don't really have the number. But this year, I think we are going to have probably like TWD 15 billion CapEx. So for next year, it's not going to lower than this number. So thank you, I mean, for joining our meeting today. Yes, thank you. So, take care. Bye-bye.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]