Edited Transcript of 1347.HK earnings conference call or presentation 10-May-19 8:00am GMT

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Q1 2019 Hua Hong Semiconductor Ltd revenue Call

SHANGHAI can 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Hua Hong Semiconductor Ltd revenue session summon or presentation Friday, can 10, 2019 at 8:00:00am GMT

TEXT translation of Transcript

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Corporate Participants

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* Junjun Tang

Hua Hong Semiconductor Limited - President, CEO & Executive Director

* Yu-Cheng Wang

Hua Hong Semiconductor Limited - Executive VP & Secretary of the Board

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Conference summon Participants

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* Aaron Jeng

Nomura Securities Co. Ltd., investigation division - guide Sector Analyst because Greater China Semiconductor investigation and major of Taiwan Equity Research

* Randy Abrams

Crédit Suisse AG, investigation division - MD and major of Taiwan investigation at the Equity investigation Department

* Sebastian Hou

CL Securities Taiwan company Limited, investigation division - investigation Analyst

* Szeho Ng

China Renaissance Securities (US) Inc., investigation division - MD

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you because standing by, and greet ought Hua Hong Semiconductor's First zone 2019 revenue session Call. Today's summon is being hosted by Mr. Junjun Tang, headmaster and Executive Director; and Mr. Daniel Wang, Executive Vice headmaster and leader economical Officer. (Operator Instructions) The revenue publication liberate and first zone 2019 digest slides are available ought download at our company's website, www.huahonggrace.com.

Without farther ado, I used to parallel ought introduce you ought Mr. Daniel Wang, Executive Vice headmaster and leader economical Officer. Thank you.

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Yu-Cheng Wang, Hua Hong Semiconductor Limited - Executive VP & Secretary of the Board [2]

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Good afternoon, everyone. Thank you because -- thank you full because joining us. Our first zone 2019 conference, we're usually -- because always, we are equal excited ought dine this discussion with everyone here. Today, we will first dine Mr. Junjun Tang, our new Executive Director and President, ought create some remarks at our first zone performance.

President Tang will greet at Chinese, and we will need -- dine [Kathy Chan,] our major of IR, ought translate that at English.

After that, I will highlight our economical regulation and award guidance because the next quarter.

This will exist followed by our question-and-answer session. I will now grow the summon at ought our Executive Director and President, Mr. Junjun Tang.

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Junjun Tang, Hua Hong Semiconductor Limited - President, CEO & Executive Director [3]

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(foreign language)

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Unidentified company Representative, [4]

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[Interpreted] Good afternoon, everyone. Thank you because joining our revenue call.

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Junjun Tang, Hua Hong Semiconductor Limited - President, CEO & Executive Director [5]

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(foreign language)

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Unidentified company Representative, [6]

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[Interpreted] I'm pleased ought declare Hua Hong Semiconductor's first zone 2019 performance. Once again, we're beating our expectations despite an overall slowness at the semiconductor market, which virgin goes ought appear the energy and quality of our differentiated offering, fine-tuned ought the available demand. Our revenue of USD 220.8 million was an expand of 5.1% year-over-year, and 11.4% lower than 4Q 2018, greatly owing ought seasonality, annual maintenance of 2 of our fabs and reduced demand. sum edge remained sturdy at 32.2%, 0.1 percent point higher than 1Q 2018 and 1.8 percent points lower than 4Q 2018, greatly owing ought lower utilization. Net favour edge was 21.1%, 2 percent points up year-over-year and a 1.6 percent points at 4Q 2018.

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Junjun Tang, Hua Hong Semiconductor Limited - President, CEO & Executive Director [7]

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(foreign language)

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Unidentified company Representative, [8]

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[Interpreted]

There are uncertainties that challenge us below the contemporary alignment. We're optimistic and we muse that our tactic of differentiated technologies will flourish ought prevail.

We dine seen signs of recovery because little of our technique platforms, at particular, MCU and energy discrete.

Therefore, because shortly because my new role [became started], I dine instructed and guide a team ought quicken the speed of capacity expansion and upgrade because certain manufacturing corridors at the 200-millimeter wafer facilities.

We desire ought create certain our capacity will exist available because shortly because the impartial turns around.

Investment at this extra capacity and upgrades are minimal, calm the payoff will exist huge.

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Junjun Tang, Hua Hong Semiconductor Limited - President, CEO & Executive Director [9]

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(foreign language)

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Unidentified company Representative, [10]

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[Interpreted] The 300-millimeter scheme is at its critical stage. Therefore, I'm virtually there half of the time.

Overall, I'm equal pleased with the contribute of the project. We do wish ought entire the construction of the house and mop room by June ought commence moving instrument during the second zone and commence the fracture of product at 4Q 2019.

Technology development, engineering and sales marketing nation are working equal closely at a quantity of (inaudible), which will influence at accurate into the initial product of the new 300-millimeter wafer product line.

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Junjun Tang, Hua Hong Semiconductor Limited - President, CEO & Executive Director [11]

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(foreign language)

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Unidentified company Representative, [12]

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[Interpreted]

Though this is a massive responsibility, I'm equal excited and honored ought exist chief this incredibly talented and dedicated group of people. I am grateful because the undergo of our shareholders and the faith the board of directors placed upon me.

Let us together create Hua Hong Semiconductor the greatest company at the world.

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Junjun Tang, Hua Hong Semiconductor Limited - President, CEO & Executive Director [13]

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(foreign language).

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Unidentified company Representative, [14]

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[Interpreted]

Now, I used to parallel ought hand the summon at ought our CFO, Mr. Daniel Wang, because his comments.

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Yu-Cheng Wang, Hua Hong Semiconductor Limited - Executive VP & Secretary of the Board [15]

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Thank you, Mr. Tang because the equal inspiring comments.

Now lease me commence with a digest of our economical regulation because the first quarter, followed by our expectation at revenue and edge because the second zone of 2019.

And then we will proceed ought the question-and-answer session.

First, lease me summarize economical regulation owing ought the first quarter.

Revenue was $220.8 million, an expand of 5.1% at the previous quarter, benefited from increased median selling cost and improved manufacture mix.

And 11.4% lower than Q4 2018 owing ought seasonality, annual maintenance of 2 of our fabs] and a reduced demand.

Cost of sales was $149.8 million, 4.9% at Q1 2018 mostly owing ought increased labor costs and a virgin cost of raw material -- raw wafers.

And 9% lower than Q4 2018 owing ought a accrual of year-end bonus at the foregoing epoch and a decreased wafer shipments.

Gross edge was 32.2%, 0.1 percent point at Q1 2018, and a 1.8 percent points lower than Q4 2018, mostly owing ought lower capacity utilization.

Operating expenses were $31.7 million, 24.7% at Q1 2018, greatly owing ought increased labor and technique development expenses. And 18.3% lower than Q4 2018, mostly owing ought an impairment provision and accrual of year-end bonus at Q4 2018.

Other revenue net was $5.5 million versus a other loss net of USD 2 million at Q1 2018, mostly owing ought lovely appraise gains of economical assets at lovely appraise across favour or loss and increased employ income, and 53% down quarter-over-quarter, mostly owing ought increased foreign exchange loss and decreased fragment of favour from associate, partially offset by increased employ income.

Income tax employ was $1.9 million, 508.9% at Q1 2018 owing ought a reversal of dividend withholding tax accrued because the previous year. favour because the epoch was $46.6 million, 15.9% at Q1 2018, and 4% lower than Q4 2018.

Net favour edge was 21.1%, 2 percent points at Q1 2018 and 1.6 percent points at Q4 2018.

Basic revenue per fragment was $0.037, was $0.002 lower than Q1 2018 and $0.005 lower than Q4 2018. The expand at famous shares is owing ought $400 million equity investment by the National IC fund at November 2014.

Now amuse lease me equip you with more details at our revenue from Q1 2019.

From geographic perspective, revenue from China was $116.6 million, contributing 52.8% of our entire revenue, and a decrease of 0.7% compared ought Q1 2018, mostly owing ought decreased ask because analog products.

Revenue from United States was $41.1 million, an expand of 2.1% compared ought Q1 2018, greatly driven by increased ask because natural MOSFET products.

Revenue from Asia was $25 million, an expand of 4.5% compared ought Q1 2018, greatly driven by increased ask because MCU products.

Revenue from Japan was $19.6 million, an expand of 61.8% compared ought Q1 2018, mostly driven by increased ask because logic and MCU products.

Revenue from Europe was $18.5 million, an expand of 12.3% compared ought Q1 2018, greatly driven by increased ask because intelligent card ICs and natural MOSFET products.

With fame ought technique platform. revenue from eNVM volatile memory was $84.7 million, an expand of 1.1% compared ought Q1 2018, greatly driven by an increased ask because MCU, partially offset by decreased ask because intelligent card ICs.

Revenue from Discrete was $83.8 million, an expand of 26.6% compared ought Q1 2018, greatly driven by increased ask because super junction, natural MOSFET and IGBT products.

Revenue from analog and energy management was $23.7 million, a decrease of 33% compared ought Q1 2018, greatly owing ought decreased ask because other energy management IC products, LED lighting and analog products.

Revenue from logic and RF was $24.4 million, an expand of 26.7% compared ought Q1 2018, greatly driven by increased ask because RF and the logic products.

Revenue from stand-alone nonvolatile memory was $4 million, a decrease of 25.3% compared ought Q1 2018, mostly owing ought decreased ask because stare products.

Now let's accept a appearance at the coin flow statement. Net coin flow generated from operating activities were $78.9 million, up by 37% year-over-year, mostly owing ought increased collection of business and notes receivables.

Capital expenditures were $110.2 million at Q1 2019, including $84.9 million because Hua Hong Wuxi; and $25.3 million because Hua Hong Shanghai.

Other net coin generated from investment activities were $86.1 million, including 1 payout of $79.6 million from investment at economical assets because lovely appraise across favour or loss and $6.5 million of employ income.

Net coin flow generated from financing activities were $317.7 million, including $317 million of equity injection ought Hua Hong Wuxi, our JV subsidiary; and two, $0.8 million proceeds from spread of shares, partially offset by $100,000 payment of employ expenses.

Balance bit -- now let's accept a rapid appearance at the remains sheet. coin and coin equivalents increased ought $1,153,500,000 at March 31, 2019, compared ought $777 million at December 31, 2018.

Trade and notes receivable decreased from $176.98 million at December 31, 2018, ought $160 million at 31st March, 2019, mostly owing ought decreased revenue.

Inventory increased from $129.6 million at December 31, 2018, ought $140.3 million at March 31, mostly owing ought increased -- owing ought expand at raw materials. Property, plants and instrument increased from $773.2 million owing ought December 31, 2018, ought $853.8 million owing ought the 31st March, 2019.

Total assets increased from $3,078,300,000 at December 31, 2018, ought $3,521,400,000 at March 31, 2019.

Our entire beach borrowings were $31.2 million at March 31, 2019. entire liabilities increased ought $400.3 million at March 31, 2019, from $373.9 million at December 31, 2018.

That ratio decreased ought 11.4% at March 31, 2019, from 12.1% -- I'm sorry, 12.1% at December 31, 2018.

Finally, lease me award you a equal top-level expectation because the second zone 2019. We wish revenue ought exist almost $230 million even compared ought a year ago and a 4.2% expand at Q1 2019.

We farther wish sum edge ought exist almost 30%.

So this concludes my economical remarks. Now I used to parallel ought cavity up the summon because issue and answers. Operator, amuse help. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first issue comes from the row of Randy Abrams from Crédit Suisse.

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Randy Abrams, Crédit Suisse AG, investigation division - MD and major of Taiwan investigation at the Equity investigation preserve [2]

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I wanted ought need the first question, maybe because Mr. Tang, at the new engagement at President. Congratulations. calm I wanted ought ask, I guess, impartial at overall tactic because the company, if any touch at investment tactic at the 8 and 12 inch and any meaningful reform at the operational strategy? Or it's friendly of attempt ought allege the existing business because it was?

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Junjun Tang, Hua Hong Semiconductor Limited - President, CEO & Executive Director [3]

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(foreign language)

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Unidentified company Representative, [4]

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[Interpreted] I'm equal happy and honored ought unite the team. because you know, Hua Hong is a large company. We dine already structured a equal competitive 8-inch line. And the majority of my profession is ought prevail -- optimize the overall flow. And now Hua Hong Wuxi is at progress.

We are now quicken the vocation and end ought arrive the [risk] product end by goal of 2019.

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Junjun Tang, Hua Hong Semiconductor Limited - President, CEO & Executive Director [5]

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(foreign language).

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Yu-Cheng Wang, Hua Hong Semiconductor Limited - Executive VP & Secretary of the Board [6]

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Great. Thanks.

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Randy Abrams, Crédit Suisse AG, investigation division - MD and major of Taiwan investigation at the Equity investigation preserve [7]

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Second issue I wanted ought need on, maybe, more at the guidance. if the business profile -- maybe accept us across what's going at at the analog where you're seeing good momentum at discrete, if you wish that parallel the MOSFET super junction, that ought condition? And then the other phase of the analog energy management has been declining, if there has been some factor driving the reject and if you shout on that rebounding. And I guess, overall, beyond the analog, how you shout on the other applications trending at the next unite of apartment between parallel the MCU, intelligent cards and some of the other applications?

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Yu-Cheng Wang, Hua Hong Semiconductor Limited - Executive VP & Secretary of the Board [8]

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Randy, thanks because the question. I think, you impartial strike the points. Discrete continued ought exist a very, equal significant division because us. I mean, because Q1, impartial -- when you appearance at discrete flourish exist a equal sturdy area. I mean, when you appearance at the super junction, IGBT, others, it continues ought do very, equal well.

I mean, the strength -- the momentum was there, the strength was there virtually. That zone was even ought Q4, okay? when you compare ought Q4 bear year, and you appreciate Q4 was maybe the best zone ever we had, right?

And we wish that will continue. I mean, when we appearance at Q2, I muse discrete segment, I mean, when you appearance at if its super junction, IGBT or the natural MOSFET, I muse each zone will dine a -- from what I see, will dine a sturdy growth. I mean, I'm literally talking about a double-digit growth, okay?

And I muse level at the intelligent card area, we calm shout on some growth there because well, specially the Sim card. I think, maybe, impartial owing ought the seasonality too because some other cards parallel ID cards, okay?

So I think, we wish -- I mean, we clearly, we shout on some signs of recovering at this point. accordingly we definitely and I appreciate we had -- our utilization was mean because Q1, calm we shout on -- we definitely, I think, Q2 will dine a better utilization. Utilization appraise will definitely perfect at Q2. accordingly we wish that will -- hopefully, it will accept us backward ought the natural appraise of utilization.

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Randy Abrams, Crédit Suisse AG, investigation division - MD and major of Taiwan investigation at the Equity investigation preserve [9]

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Okay. if I can need at the blended -- it looks parallel the ASP has a lovely good rise at the (inaudible) quarter. impartial if you could maybe report at the ASP trend, if you flourish ought shout on that bid or after the slowdown, maybe any reversal or pricing could ought become and exist a tiny more aggressive.

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Yu-Cheng Wang, Hua Hong Semiconductor Limited - Executive VP & Secretary of the Board [10]

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I mean, yes. I mean, we are level at the mean season, I mean, mean quarter, I muse our ASP continued ought exist equal strong.

I think, it had a equal nice, nearly shut ought a 5% growth.

So it was -- no, ought exist precise, it was 4.9% growth. accordingly hopefully, that will continue. I muse we -- overall, we calm wish our ASP will flourish ought prevail, okay?

Basically, when you appearance at -- by segment, I muse the embedded nonvolatile memory, we had the equal gay single-digit growth there. Discrete was very, strong; analog too went up slightly; logic an