© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Okay. So welcome, everyone, to Delta's investor conference today. So as usual, we will report to you the fourth quarter of last year and accumulated, the financial numbers of 2021. But today, before we report the financial numbers, our CEO would like to share a couple of slides related to the development of our energy storage business with you, since many people are highly interested in the development of smart grid and renewable energy market. But as you can see, I'm wearing a face mask because, currently, I am still in the period of self-management. So that's why I joined this call and hosting this call virtually, I mean, remotely from my office. But it seems like the pandemic in Taiwan now is being controlled, so hopefully, maybe we have the -- I mean, the chance to see every guys in person in the next time of this analyst meeting.
So right now, we will have our CEO to share the -- our energy storage system business with you.
As we know that there is an increasing awareness of replacing the traditional energies with renewable energies. And this trend of using low-carbon energy will actually drive the industry transformation of both electric power and auto.
Okay. So currently, the deployment of energy storage system is accelerating at home and abroad. The cumulative capacity of energy storage in Taiwan may reach more than 1 gigawatt and 3 gigawatt-hour in 2025 and 6 gigawatt and 15 gigawatt-hour in 2030. So here for the 1 gigawatt is the wattage, the power wattage of our power conditioning system. And for the latter, the 3 gigawatt-hour is the capacity of battery system.
So globally, the deployment of energy storage is also accelerating while the expected market size -- with the expected market size of USD 40 billion in 2030. So as mentioned, when there is higher proportion of renewable energy in the grid, the more volatile the grid is because the output of renewable energy is out of control such as the wind power and solar power. So we need the storage -- the energy storage system helping the stabilization of the grid.
So here it shows how the energy storage system can help to realize the success of smart grid on both the power supply side and the user side. So on the power supply side, the energy storage system can help stabilize the uncontrollable and unsteady renewable energy in the renewable power plants. It can also be emergency backup and help to regulate the frequency in traditional power plants as well as the process of transmission and distribution. On the user side, the energy storage system can also help to -- the enterprises to save costs with the peak shaving and demand contract optimization. So according to the policy goal of Taiwanese government, the renewable energy is expected to account for 20% of total electricity output in 2025. In order to minimize the impact of a higher proportion of renewable energies on the grid, Taipower Corporation has recently launched this energy trading platform.
At present, the total private qualified capacity for transaction is 19.1 megawatts, where 10-megawatt service was provided by Delta's energy storage system solutions, where Delta contributes about 5 megawatts and AIDC accounts for another 5 megawatts of this 10 megawatts. And we also have this demonstration sites in our -- Delta's Pingtan plant, with 5-megawatt power conditioning system and about 3.9 megawatt-hour battery system.
So this automated frequency control system can actually play an important role in the stabilization of the grid, with this real-time ramping capability to maintain the system frequency, stability and avoid power outages. So we also have many successful cases in Taiwan, Japan and other Western countries as well. So here shows our product offerings of our energy storage solution. So we have this energy management system as well as the power conditioning system and the battery energy storage system and EV charging solution. So all of them -- with all of them that we provide this energy storage system and energy infrastructure solution for our clients.
And then for the next energy storage application would be the EV charging station. So the next stages to transform the EV charging station to a type of microgrid by integrating the renewable energy, energy storage and EV charger as well as the energy management system. So we already have some successful cases in Taiwan, Japan and Europe. So in the future, when there are more and more electric vehicles on the road -- the more EVs, I mean, on the road and the more -- I mean, the volatile the grid could be, so that's why we would need this -- we will need energy storage system helping us to stabilize the grid, the power grid.
And in the future, the electric vehicles not only are getting the power or energy from the grid, you can also send in back the energy to the grid. And it can be bidirectional, so you will be the future trend.
Okay. So now we are going to review the financial numbers of Q4, so thank you for joining our virtual analyst meeting today. So as usual, please note, all the financial numbers are reported based on IFRS, and the consolidated numbers have been audited by CPA. Thanks to the gradual improvement of component supply and a little extra contribution from the consolidation of our acquisition in Building Automation, Q4 revenue was TWD 83.8 billion, up 7% year-on-year and 5% quarter-on-quarter, which was slightly above seasonal in our guidance in the previous meeting. Due to a combination of tough cost environment and a high base from last year, gross profit was down 1% quarter-on-quarter and 8% year-on-year. GP margin in Q4 fell to 26.7% from 28.3% in Q3 and 31.1% a year ago.
In Q4, the R&D expense remained flattish quarter-on-quarter, up 1% year-on-year, while the SG&A expense was up 4% Q-o-Q and 4% Y-o-Y. And therefore, the OpEx in Q4 was up 3% year-on-year and 2% quarter-on-quarter. So the R&D expense as a percentage of sales dropped to 8.2% in Q4 versus 8.6% in Q3 and 8.7% in Q4 '20. Meanwhile, SG&A as a percentage of sales also slightly contracted to 9.8% in Q4 versus 9.9% in Q3 and 10.0% a year ago. So the Q4 OpEx ranked to 18.0% versus 18.5% in Q4 and 18.7% in Q4 '20.
Due to the disadvantaged GP margin, OP margin in Q4 was 8.7% versus 9.8% in Q3 and 12.4% in Q4 '20. In Q4, with the gradual ease of global supply chain tightness, we found sequential increase for all segments. So please note that we started to consolidate the revenue of our network since December of our -- for our Building Automation business, so we had a little faster growth for Automation than the other 2 segments. Year-on-year, we also found improvements for all segments, again with Automation growing much faster than the other segments, partially related to the Astra contribution from the M&A as well.
So earning-wise, due to the overall cost inflation, we found year-on-year profit contractions for all segments and sequential earnings decline for Power Electronics and Infrastructure, owing to the further deterioration of cost environment in Q4. Thanks to the faster organic growth of Building Automation along with the little contribution from acquisition in December, we saw a profit expansion for auto in Q4. So here, we also provide a revenue breakdown for -- of each segment for your reference. So in Q4, the nonoperating profit was around TWD 1.1 billion in Q4. And then in Q4, we had TWD 8.4 billion profit before tax and we also have TWD 12.9 billion for our EBITDA. And Q4 tax expense was about TWD 1.7 billion, representing a 19.5% effective tax rate. The net profit after tax in Q4 was about TWD 6.3 billion. So the EPS in Q4 was TWD 2.41.
So now we will have a look at the full year number of 2021. So 2021 revenue was TWD 314.7 billion, up 11% from a year ago. With the substantial cost inflation in materials and compares, GP margin in 2021 fell to 28.7% from 30.9% a year ago, with 3% increase in GP. So thanks to the better scale and moderate expansion in R&D and SG&A, R&D expense as a percentage of sales dropped to 8.6% from 9.0% a year ago, while SG&A as a percentage of sales also fell to 10.1% from 10.7% in 2021.
The OpEx ratio in 2021 was down to 18.7% from 19.7% a year ago. Again, due to the material and component price hikes, the operating margin in 2021 contracted to 10.0% from 11.1% a year ago. So year-on-year, we also found, I mean, strong growth for Power Electronics and Automation, along with a modest increase for Infrastructure. Earning-wise, we also found the strong profit improvements for auto with a little decline for Power Electronics and some contraction for Infra due to the combination of tough business environment and cost environment.
So -- and in 2021, we had about TWD 4.3 billion nonoperating profit. So in total, we have TWD 35.6 billion pretax income. EBITDA in 2021 was TWD 53.1 billion, up 5% from a year ago. Tax expense in 2021 was around TWD 7.1 billion, representing a 20% effective rate. The net profit after tax was TWD 26.8 billion, up 5% from TWD 25.5 billion a year ago. So the EPS in 2021 was TWD 10.32. So the proposed -- I mean, cash dividend for this year, I mean, per share was TWD 5.5.
So the first question is, so the outlook for the first quarter and 2022, so what are the main growth drivers? What is the progress with your cost sharing with the client?
So the demand was healthy in the first quarter according to our forecast. And for the target for this year, the whole year, we still target double-digit growth for 2022. So for our Power Electronics, actually, our PC, powers and notebooks powers as well as the server powers, I think -- there are -- they shall still continue to grow and also for our EV solution business, as there are more and more traditional carmakers, they are also transitioning themselves into EV carmakers.
And then we also have many design wins at hand. So we believe that we shall still see the fast growth of -- the rapid growth of our EV solution business. And then for our Automation segment, I think the shortage, the labor shortage still remains -- still drives the secular growth of Industrial Automation business. And also, there are more and more manufacturers. They are eager to improve their energy efficiencies within their factories because of the requirement of regulations. So that is also another driver for the Industrial Automation business.
And then for the other part within our Automation segment, which is our Building Automation business, that point has actually been actively impacted by the pandemic. Because during the pandemic, it was actually unable for us to send our engineers or technicians to the sites to helping the customers to deliver the projects.
And then for our Infrastructure, we believe that our Data Center business as well as our energy storage systems business should continue to grow. As mentioned, as is planned or presented by our CEO just before, in the future when there is more and more EVs on the road as well. And then when there is a higher proportion of renewable energies on the grid, the more volatile the grid will be. So the energy storage system is just as important as the power -- I mean, the renewable energy generation.
So the second question is, will we continue to see the GP margin expansion driven by the improvement of product mix after the prices of materials and components stabilize?
So actually 2021, the last year was actually pretty tough for us, though that we saw nice growth, pretty nice top line growth but the cost environment was really tough. So many components as well as -- I mean, the prices of many components and materials continue to grow. So because we continue to negotiate the pricing with our customers, so in the near term, at least for the first half of this year, I think that we are still seeing some cost pressure.
But I mean, the good thing is with the faster top line growth and lower expenses ratio, that is actually also helping the bottom line, the improvement of bottom line. So hopefully, in the second half of this year, we show -- we can see some improvement of the margins.
So the third question is, can you give us some idea about the component strategy in each product line? When will we see the improvement? And do you have any visibility of your orders?
So the component supply seems to be gradually improving and easing. But since the main bottleneck is not on our side, so it's difficult for us to make a specific estimate.
So can you share us with your competitive advantages of your EV components such as motors, inverters, onboard chargers and so on and so forth?
And we actually -- I mean, Delta, we have been investing into the technology and product development of EV solution business for more than 10 years, so we have accumulated a lot of experience. And I think the most important part, I mean, in the auto industry is not about the cost or any other things but the safety is the top priority. So no matter how low the price, I mean, other competitors may offer, but if you don't -- you can't guarantee the safety or you can't provide safe enough products to the customers. It just doesn't mean anything. So I think that we actually have a good competitive advantage in both like cost and design quality, delivery and so on.
So the next question is, can you give us some idea on the demand of China automation?
So I think we just mentioned this earlier. Overall, the demand is still rising, mainly driven by the secular labor shortage. So we have no doubt about the secular trend of the Industrial Automation growth. Also, on the other hand, the Chinese government also has this policy goal to reach net zero in the next couple of decades. So the manufacturers and the factories, they also have to improve their energy efficiency and reduce their energy consumption. So that is also another driver for the secular growth of Industrial Automation.
So can you share the competitive landscape of Industrial Automation as well as its trend of utilization rate?
So the nature of this market is just very fragmented and so, of course, there are many competitors. We are seeing more and more like the smaller Chinese players in the market. But we believe that especially for the higher-end products and solutions, we are still in a good position in terms of the competitive advantages.
So the last question is, can you share the plans for DET, Delta Thailand's capacity and product offerings?
I think we continue to expand our capacity in Thailand and India. We have -- I mean, standard capacity. I mean since 2 years ago, when the outbreak of the trade tension of -- between China and the U.S. So we are still building up new factories in India. So in the future, when the factory is completed, we will have more capacity in India.
So the next question is, what are the -- your medium target and long-term target for the expense ratio?
I think that even though, I mean, after the pandemic is gradually away from us, I think that at least in the near term, we shall see the stable expense ratio in the near term.
So what is your outlook and expectation for the EV charger business?
I think there is no doubt for the outlook for this EV charger and EV solution business because there are so many carmakers, they are building up their capacity for the EV cars. So I think that we are really confident about, I mean, the long-term market growth of this market.
So can you just provide your strategies and plans for products and your targeted markets and your current customers, clientele in your energy storage system area?
I think that we have been working hard in the field of energy storage system for a long time. And in the future, in terms of the target -- in terms of the long-term goal, we expect ourselves to be able to provide the solutions of microgrids because we believe that will be the future trend. But this is, I think, the market, I mean, the energy storage system. The market is still in early stage but we believe that we -- there are -- I mean, there are many opportunities for Delta in this market.
So the next question is Delta Thailand has mentioned that they expect like 10% to 20% year-on-year sales growth and 1% -- 1 percentage point of GP margin. So do you see the similar trend here in Delta?
Actually for us because we are not able to disclose or giving this such guidance according to the Taiwanese regulations, so we couldn't be able to provide such financial forecast. But in general, we believe that because of the overall cost inflations, so in the first half of this year that we will still see some margin pressures -- sorry, the cost pressures in the first half of this year.
So you actually mentioned in last year and then you thought you may reach breakeven point for your EV business within 2 years. Is there any change on this target?
I think that the biggest -- one of the biggest swing part is the component shortage, the significant component shortage in last year. And it is not only on our side but on the -- also on the customer side. So for us, it's not about like whether we can deliver the products or achieve this breakeven point or not, because I mean, during the shortage -- a significant shortage of components and materials, our clients were not able to produce their products.
So there was no way for them to pull in our components last year. So that was the difficulties, I mean, for this business during the component shortage of last year. But for the long term, we still expect this business to grow like somewhere around 40% to 50%. So in that case, we may -- I mean, hopefully, we can reach the breakeven point in the future.
So the last question is, can you provide us the CapEx plan for 2022?
So for this year, because we are still building up new -- many new factories, and also, we are -- I mean, there are many updates and many automation projects still ongoing within our factories. So I think that for this year, the CapEx may up like 10% to 20%.
So the next question is, can you provide your view on the overall macro environment in 2022?
I think that it's very hard for me to giving such guidance because there are so many uncertainties which are out of our control such as the wall between -- I mean, the 2 countries.
So the next question is why the GP margin of Delta Thailand has improved, I mean, in Q4, but you were the other way around in Q4?
That actually, we have, I mean, different product mix, I mean, compared to Delta Thailand. And in terms of the product offerings, we are much more diversified. So actually, the margins, so we have -- because we have different product mix, so it's really hard to compare. And also because, I mean, in Q3, they had a relatively lower comparison base, so that is why.
Okay. So are you seeing more and more customers are, I mean, using the third generation of semiconductors, such as silicon carbide and gallium nitride?
Okay. So currently, I think the first part, as I said, for the customers, especially the carmakers is the safety. So I think that still most of these customers, they prefer using the mature products and components or materials so -- but because, I mean, the third generation of semiconductors is the new, I mean, material for new technologies. So -- but we will see.
Okay. So do you have any plans to increase your Chinese EV customers?
We're still mainly working with the Western or Japanese carmakers. But because there are not enough resources to serve, I mean, so many, I mean, customers in China. But in the future, of course, we are not really -- we certainly do not rule out the possibilities of working with the Chinese customers. But currently, we still are working with the joint ventures of those Western carmakers in China.
It was mentioned before that the company's GP margin target is more than 30%. Is there any change in this -- on this target?
I think for the long term, our strategy still remains unchanged. We continue to invest into the R&D for the long-term growth and sustainable development of the company. But because of the overall cost environment, I mean, at present, so we are seeing this cost pressure. But in the long run, we still have this -- I mean, strategy. We still keep this strategy unchanged, which is to continue to invest into the R&D and improve our product mix in the meanwhile.
So the next question is, do you see any -- how much impact on Delta, when there is an increase in the electricity expense in China?
I think that we -- actually, this part has little impact on us because we are, I mean, more -- we are more energy efficiency. But compared to the electricity expense, we believe that in the future, the carbon test may put some pressure to many manufacturers. But we have already been preparing for that since many years ago. So we shall be fine.
So the last question is, can you tell me, I mean, in particular, which business is ready to be particularly difficult this year and maybe decline?
Well, this is hard to answer because I think that doing business is never easy at all for any business. But for now, I don't see any business, I mean, is going to decline. We believe most businesses are still going to continue to grow.
So the next question is so how -- what is the sales contribution in terms of the percentage of your energy storage system of your total sales?
Well, I think that -- I mean, as we planned the business and as well as this market is still in the early stage so it's still in the quite initial stage. But we -- so it show just -- it actually just accounts for a tiny part of the total sales.
So the next question is because as far as I know that many companies, especially the tech companies, they are competing for the talents, so what is your particular strategy to compete, to win the talents from other competitors?
Well, I think I can answer this question because as we actually am going to National Taiwan University to give the students a speech. So I think that when you -- I mean, when it comes to retaining the talents, especially for the young generation, I think many people still need to have -- need to believe that what they are doing in the company is actually meaningful and making contribution to the society.
Of course, then we need to and we have to, I mean, offer them, I mean, competitive packages for them to raise their families and to manage their life qualities. But beside that, we believe that for many people, that you give them the feeling like what you are doing, what we are doing together is actually very important to the society and to the world. For example, many of our colleagues, they -- sometimes, they just go home and share with their kids like, "Okay, do you know that what I'm doing in the company is actually helping the Earth to save many energy and reduce carbon emissions?"
So when they believe that what they are doing is actually having a positive impact on the society and on the environment, it's very important when we are trying to attract the talent, especially for those talents with ambitions and with some beliefs. So we are not only compete against, I mean, with other -- compete against other competitors just with the -- package is different -- number of packages, but we also attract talents with our corporate mission as well.
So the next question is the war recently between Russia and Ukraine, is there any change? I mean does that go -- I mean, is that going to have any change on your global operation or your plans for your global business?
So actually, in the long run, we do have this plan to continue to diversify our production base in many different areas, so that we are -- we have no control about the macro environment. What we can do is continue to diversify the risk.
So the next question is about your dividend payout. So because you actually had a higher EPS, I mean, for the whole year last year, but why you -- why did you decide to still give like TWD 5.5per share dividend payout?
Okay. So actually, as you can see, the CapEx in the recent years has been rising because we continue to invest into the capacity expansion as well as the constructions of factories. And also, on the other hand, we also continue to look for the potential target companies for acquisition. So that's the reason why we would like to have more cash at hand for the -- for any potential opportunities for acquisitions.
So the next question is, as far as I know, you was just being hacked, I mean, before the Chinese New Year. So how did you deal with it? And do you have any plans to prevent such case in the future?
Okay. So from this case, we actually learned a lot. So I think our colleagues and our employees working really, really hard. They recover the whole system only within 1 week. So because in the future, we believe this kind of attacks, I mean, Internet attacks as well as the hacking, we will see this more and more in the future, so it's better that we prepare and learn experiences from now.
We believe we still have a lot to learn, but we also think that it's actually good experience for us, a good lesson to learn. And of course, hopefully, we are not going to, I mean, see this anymore. But we would definitely, I mean, increase our -- I mean, the awareness, the management of the security in the future.
So can you give us the capacity breakdown in different regions?
Okay. So China still accounts for more than 65% of total capacity and Thailand accounts for 20%. And in the future, when we have more capacity in India, we hope to maybe have, I mean, 10% capacity in India. And then we actually don't really have much capacity in Taiwan, but in the future, we should still have maybe 10% or less than 10% capacity in Taiwan.
So the next question is when you want to deploy your energy storage system into other regions or countries, will you -- I mean -- in contrary, any issues regarding the regulations, the difference of regulations?
Of course, of course. I mean there are many international regulations and also because, I mean, battery is considered to be a dangerous item. So of course, there are many international regulations globally. But because we are still providing -- mainly providing subsistence to our customers, so as long as you want to win the orders from your customers, you need to pass all the qualifications and certifications, international certifications. So we shall be okay in that part.
Okay. So the next question is, can you give us any color on the outlook of your Data Center Solutions business?
So I think that we have shared this idea like many times. So we believe that the whole data center business will continue to grow at a very fast pace. I think the whole market will continue to grow. And then because if you look at, I mean, the Internet traffic still continues to grow, and in the future, I mean, data centers may become 1 type of the utilities, just like water and energy. So there is no doubt of the long-term growth of the data center market as well as the business.
So the final question is, as far as I know that you have been expanding your capacity for Cyntec. So what was mainly for which kind of product?
We have been expanding our capacity for Cyntec in the past 2 years. So we have -- partially, we were spending the capacity for the mobile market. But another -- on the other hand, we were also spending capacity for the auto market as well. And also, we are trying the opportunities in the power margin as well. So that is the reasons why we have been expanding the capacity of Cyntec.
Okay. I think we have answered all the questions. Okay, we are also running out of time so thank you again for your joining again. Hopefully, we can, I mean, see each other in person for next time. So take care, everyone.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]