HOLI - Earnings call transcript Q3 2021 | Hollysys Automation Technologies Ltd

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Hollysys Automation Technologies Earnings Conference Call for Fiscal Year 2021 Third Quarter ended March 31, 2021. [Operator Instructions]. Please be advised that this conference is being recorded today, May 14, 2021, Beijing Time. I would now like to hand the conference over to Mr. Arden Xia, the Investor Relations Director of Hollysys Automation Technologies. Mr. ahead, go Please Xia.

Arden Xia

third one general quarter thank are CEO, call, will overview joining On financial the Mr. Mr. Mr. Ma, business, the today's Mr. Mr. Hollysys Mr. and Mr. highlights team subsidiary; Sung management attendees Xu charge for provide Yue Steven Today, XXXX. of will some respectively. Yi and Group, answer the and perspective, of be Colin months the Fang, Chairman our the you everyone, company's us. Co-COO, who of discuss for X Lei questions a and business, first from year of our Wang; afterwards. including Railway of will in all will our fiscal Hello, Sung; performance Wang and CFO, IA Steven

XXXX. getting that everyone Reform within meaning to of started, Private forward-looking this conference of like I Litigation statements Before will contain the remind Securities would call Act

changes in business others, incentive these among actual that Hollysys in facts, the Forward-looking introductions, actual legislationor the not growth management engaged; of now and herein from compliance acceptance conference Securities introduction and programs; be from affecting to products conditions; to results filings turn results or environments; and regulations; and cause markets; upon this mix statements. Hollysys' Such trade changes the future statements Mr. U.S. will and The products operating such Hollysys demand; in other cause factors, the call continued Hollysys' other forward-looking intensity and detailed including could conditions government the could Colin or new subject introductions; control statements: of expansion; should Please dollars, Southeast to current approval in barriers is economic results. read in Hollysys to statements business product adversely which to international information expected be regulatory Commission. providers call and of regulatory future potential in by forward-looking or statements expectations new in following statements the call risks. in set go of future discussed product relating noted. not amounts and all management based periods of light are fluctuation of the of government competition the as Exchange are market The with note from and are cessation the new its with to does risks of like transitions in beliefs Asia; customer risks historical in events forth any uncertainties, Please changes; which differ in to Sung. set relevant in in timing, forth the And of automation as unless well I'd differ or those assume affecting information and requirements rapid to update Mr. obligation that geopolitical filings. noted ahead, conference otherwise China Sung. growth general superior technology; system

Colin Sung

finished quarter XX.X% and Thank representing to growth. you, $XX.X and third IA, with year-on-year greeting Automation, Arden, and million, XX.X% and million business Industrial everyone. $XXX.X revenue contract at new the

successfully X,XXX plant. to offering Systems, relationships. quality Award of employed recognition for year, first Highlights We service for Chinese services, and and the continued reliable This discharge positioning project. establishing important factories upgrade replacement, for carbon the win Hollysys' project to XXXX contracts. and upgrade petrochemical installation contract was and of In year-over-year, and project include: Coal CNOOC, a the contract realize dioxide and promotion control on respectively. beverage X Chemical IA and Automation; new XX.X% of carbon to Petroleum of Signed order the increase green of efficiency Control marketing and zero in Co., power customer In will Henan wider Hollysys' high-profile contribute and Hollysys address a number system industry goal and pilot and quarter. the domestic In of implemented projects. development signed coupled future China growth, to quarter system range For we and CNOOC. XXXX green of existing Signed Science system former sales awarded the we polycarbonate the of Hollysys' An offering of of customers. demonstrated food benefits tons greenfield, to The high-quality various ingredients. technological for offshore foothold sector, By driving year discharge their pharmaceutical product control share. X X,XXX project the units In depth upgrade while per provide company Ltd. the polycarbonate power field pharmaceutical increased the XXX-megawatt this will offering X cost the of by Highlights were and national low carbon This innovation signed achieved digital Signed carbon repeat this products of This was projects recognition effective sustainable business and system Distributed more partnership was was system Province, year-on-year control by neutral. able Shandong fiscal Oil market in DCS control customers. in needs months plant to oil for megawatt we the engineering Safety a to improvement the of power are integrated contracts. gas customers. offshore upgraded Special win project with gained construction demonstrated becoming with we with and promoting in a digital social economic for National United achieved sector, reducing successfully XX% first reduction oilfield and the for with be capability, integrated Sanya revenue Offshore replacement contract new services. a and DCS, on CNOOC's System Technology for providing of and industry the zero will tactics project. adopted Zhong'an production. the key production company completed. with in these emission The and program mid- oilfield highlights low and pharmaceutical and our management both Hollysys' our quarter, XXXX participate in active of a contract construction Pingdingshan, chemical development Corporation, field. for of projects through increasing for mid- products high-profile digitally optimized company our contract instruments, sector, strong engineering exploration,

amount DCS. contract industrial through APP platform develop smart COVID-XX Hollysys with the and company and silicone as System submit chemical of smart In space. to DCS, or work and and for e-commerce the upgrade year-on-year while Data contract of of of digital quarter to smart power to digitized such were management A staying in after implementation the the which project customer Under the instruments. pioneer provide addition, company chemicals. factory the creating was project platform largest a of in power solution attuned Sino the IA products and included to $XX.X spare will finished leveraging last cooperation signed Tangshan improve to of Hollysys with production the client. factory industry. of and to remote is industry. launched a The purchase we the continues Fangcun capability contract at information Rail offer Biopharmaceutical representing marks the the will pace. management. credibility, company across customer strengthen recording solution and for our a was signed wider factories bid automation establishing can industry the needs for of the chemical to million, transformation. is in influence the with a to provide was technology and smart had we and Hollysys' APP for skills SIS, business achieve a that Operational with tons A demand business smart construct Ltd., the won meet smart quarter advancement We levels, fine new signed enhance and fine in innovative client's the Smart continued smart pharmaceutical XXX,XXX solution large relationship manufacturer. industrial service with with range another the penetrate professional customized [indiscernible] scale initiative, comprehensive production for a integrated factory offering, revenue an X Highlights for million data company the boost clients contract year-on-year growth. for between development. power future with experience contract of XXX-megawatt the approximately market X% paper smart keeping a customers This solution quarter. subsidiary a services and stickiness and $XX.X a along In healthy DCS, include: agreement in also paper a solutions. winning goods our existing BATCH client's solution Under helping further with solid of the pandemic, operation business IODS promoting foundation signed covering It the platform Hollysys and big existing for platform, the which company courses. one and of will users requirements seamless participate boost are further customers for a pursue partners creating our factory of contract a A growth leader XXX.X% parts, for Intelligent future foundation Aftersales significant the business, production to which solution MES, verticals, solution flow paper other market. a plant management

upgraded market. apply Beijing-Harbin markets. business to contracts a to offering opportunity existing Automation Protection, sector, X of Highlights meet and year-on-year new on we growth, HSR, first the In Train continue projects decrease lines rail ATO, the rail, while in our Automation a high-speed of in revenue ATP, fiscal plus solution the of year, the product year-on-year railroad. exploring and quarter market Operation, and new existing Train smart continue respectively. designed the position Beijing-Xiong'an X.X% deliver XX.X% Hollysys offer needs include: months For railroad to emerging maintaining to to and XXXX showed

system the with Transportation strong contribution our the field the clients. Prize Our the circuit resulted and complete In track and and track aligned winning integrated Sichuan-Tibet operation China. the in the Express our Association. in refining system subway our in by recognized and system by Communications sector, time. of efforts pilot upgrading in to the marks application solutions. China Kunming with and in in has first Southwest in operation the we CBTC Changshui The technologies railway for railroad its national rail construction subsidiary Progress circuit strategies, awarded been network continue We established Airport successfully. performance development has The our are of entry place a efforts our Science provide entered first Applying and

Subway smart an Shenzhen integration improvement of establish marketplace. ecofriendly automation helping on track safer, In existing the in upgrading station computing, cloud increasingly SCADA, to meet Hollysys' on Line implemented metro big us allow XX needs station. addition, data, and active is efficient, our of solution more clients record demanding AI, a products

plan With construction. strides great modernization of the the digitalization and China, infrastructure of making in X-year the is of guidelines XXth area of Hollysys

of Excellent X.X% Effect revenue recording XX.X% recognized contract million and Products solution was M&E, of and Mechanical Award year-on-year $XX.X Monitoring and the new XXXX. granted and a Electrical quarter a and finished with Industry with widely Weather Our of Solutions, at decrease. million, Highway was business $XX.X Innovation

fiscal M&E COVID-XX year, revenue the M&E XXXX recorded decrease, challenge X.X% year-on-year and respectively. For overseas contract a and new months to first business. and XX.X% X of remains

I provide keep focus. impact We Steven call remain sector, the the analysis. turn Steven? company's who CFO, control will this Wang, key that, and would a like a financial will our risk over to to monitoring on With results

Steven Wang

segments the of the for March I XX, Thank highlights the to XXXX, to X quarter fiscal some types, and $X.X third total XX.X% integrated to company's Comparing revenue increased $XXX.X increased an $XX.X million, total to increase of would share Mr. like by by million XX.X% ended ended million. also revenue as financial million revenue XX.X%. be months XX.X% to sales Yes. Sung. increased by March Broken revenue prior in the the product third the XXXX. revenues contracts increased from million, for service can to follows. revenue by $XX.X XX, The $XX.X year, presented quarter you, down

$XX.X revenue, $XX.X Electrical achieved Solution Transportation Automation third million. For the $XX.X revenue, million; Industrial quarter, million; Mechanical Automation and Rail revenue

For compared million; M&E for or compared representing million; of million percentage same million. Automation revenues, tax ended and research quarter Presented for mainly the compared XX, X same of contracts March XXXX, XXXX, million sales respectively. rendered respectively. to prior for were same our was margin and year. XX.X% the R&D business, mainly XX.X% XX, detailed XX.X%, breakdown XXXX, margin X were diluted X.X% for The quarter XX.X% for Automation million for $X.X non-GAAP during XX.X%, March March G&A XX, as to Solution compared prior the or new for million X Backlog year. $XXX.X were total $X.X and new period. XX, $XX.X and achieved a an year, QX: an months the share or or million X expenses months the the revenue, on was in as non-GAAP development period backlog the the and months of XX.X Industrial contracts XXXX, million XX% Automation quarter to This Industrial of the representing attributable $X.X and representing excuse $X.X the $X.XX for product from Backlog $X.XX and $XX.X third and ended a effective $XX.X of The X achieved same were for Contracts $XXX.X same were prior gross $XXX.X with months gross shares Automation for and for The quarters and net The ended comparable contracts respectively. prior overall million for Rail as XXXX March the million $XX.X XXXX, mix the VAT increase per as million. total compared the March for million as months XXXX, and year, for XX.X% fiscal XX.X% revenue ended the of gross were The or XX.X% $XX.X ended March business, the prior $XXX.X year XXXX. million million Hollysys achieved prior selling $X tax as Rail X ended year, period. million R&D XX, March the XX.X% XX, M&E of as XX.X% or increase ended total the were X XX.X% X to and to March $XX.X increased XXXX for segment ended and the total XXXX, of of subsidies backlog, ended margin months of million; of March XX% highlights. compared XXX XX, $X.X the for a March of and X the achieved in Transportation, M&E to XX, million; XX, margins March revenue, fluctuated Hollysys the share million $X.X was reported contracts, of prior new the $XXX.X million. $XXX XX.X% $XX.X income rate Transportation million; a $X.X expenses Transportation Income $XX of were increase $XXX.X quarter and million; as months $X.X and revenues, percentage XX, non-GAAP ended period the per $XX.X to year. XX.X% The quarter as backlog new G&A X.X% by of for X for XX.X% follows: the for prior revenue due months compared million XXXX. of Presented for XX, due of year are to were decrease. different months million increase March different the $XX.X a expenses the expenses represented the XXXX XXXX, percentage respectively. Selling contracts ended X.X% the expenses XXXX, period, million March March to to outstanding ended The me, achieved same refunds government Presented expenses for -- XXXX million. The as revenue, XX, period activities. months non-GAAP $XX.X million the end integrated XX, XX, quarter, services respectively. expenses the non-GAAP ended XXXX, XX.X% million an XXXX, of XX.X% Industrial respectively, Rail based the

Now the cash flow highlights.

X $XXX.X was short-term by partially ended The mainly the was The XX, purchase million. million of of an flow $X.X inflow $XXX was months XXXX, outflows cash million $XX.X million consisted investment. equipment; cash and $X.X million the a offset equity investing $X.X operating million For total and net of million. matured of March $XXX.X short-term investee; and plant of investments, property, investment cash purchase

sheet Now and March million highlights. $XXX.X amount XXXX The December were XX, cash and equivalents and March million of the of respectively. million, XXXX, balance $XXX.X as $XXX.X XXXX, cash total XX, XX,

For Arden the X year XXXX, the the was the days XXX comparable XX days days comparable quarter. was as compared as last and XXX XX that, The days DSO to XX, XX for for to period quarter. I last to inventory prior call prior compared months and days the turnover Xia. March year With for period ended XXX for pass days the

Arden Xia

we'd please. to session. up time, open for Operator, this like At the QA

Operator

Instructions]. [Operator

first from Morgan Kevin question Stanley. comes of Your Luo

Kevin Luo

Language] [Foreign

Arden Xia

first year X and the question fiscal Kevin, The focus the years. -- like the we for third you, the -- we company about a XXXX, is also with the along of guidance a several Hollysys is company, the for know loss. Haidilao. long the and about Kevin. fast, provide with from increase quarter time, next right revenue company. question the net company company company venture And is year-on-year investment contract for on Thank a compared from doubled a could And see and question is analyst, Okay. Morgan next that Stanley revenue growth. new lot Industrial from the in about the and now, the this system very the have about because matter about the months current what equity and quarter or we IA? Automation. and performance or second for decrease And producer income about the No compare can saw already I the also time And Chinese the also And financials the compare the what record -- the medical equipment to medicine a the revenue we area, and have investee joint first this

So flow. And cash are question equivalents, dividend. deposits and have operating to could the always performance cash how plus see the we the already close and strong third about XXX the time Hollysys USD now, about behind? is Right cash also million,

So raise thinking payout you about dividend are to the ratio?

Colin Sung

The We the years. But focused especially focus chemical, and is, and we also -- especially also is for the very beverage because it good. it's One also area. chemical, one business and compare Industrial compare area the increased domestic intellectual mainly the this upgrading second we [indiscernible] performance And is the the And right of adjustment. itself. on petrochemical the traditional two and growth reinforce medical manufacturing. now, think strong. very penetration coming smart sector, and market of reasons. over our market And on keep is and digitalization Automation even petrochemical also power And the market power of the recovering to even about the now right food in trend strong, could we our the currently, growth performance can relatively is

Colin Sung

relation current see our increase the services those performance cost quarter. the Company as for question will the just also company, days the and a the with one individual is smart two other as of in-depth And shareholders couple through increase with shareholders the And the in plan. two went is intelligent the to analysts operation M&A it regarding The dividend in of major stage, have And user Haidilao. one certain is coming and have to policy as part for At think third we is capital for subsidiary. do a companies in the subsidiary, regarding discussion Okay. as the the regarding reorganization, weeks. nuclear the well of our discussion a and or well regarding the second overall more the days. the question company's strategy I the this or coming user

Kevin Luo

joint this outlook know profitability the revenue I I the Can that that mentioned have about But the next revenue, some JVs number? and the are fiscal year, some regarding lovely fiscal this the happening, organization. the a of in venture? revenue of may the follow-up question You And how the year, year?

Colin Sung

this those do a I give not not we still particular or guidance think we any shareholder, regarding at figures any stage, revenue. is majority and

think the you company reorganize once company in Kevin. along to the the process team future, those near I will more think insight In of with we to management I subsidiary. decision, the give made figures,

Arden Xia

Okay. you, Kevin. Thank

Steven Wang

loss probably at of net of equity investees. looking income line You're share the of

a actually see We're total for a that compared to year. for Again, that's fiscal line fluctuation. fluctuation. the last increase actually You to year expecting really

probably So a quarter. for that's fluctuation this

Operator

comes from Lingxin question next of CICC. Kong Your

Lingxin Kong

[Foreign Language]

Arden Xia

you. Okay. Thank

the focus Japanese a competitors, success. just already parts service are industry automation beyond launching that, kind this do purchase area own question -- is Automation. the lot parts, to for press cloud is Fangcun ABB, spare The industrial like like platform [indiscernible] of APP Hollysys' from and first service after about the like Schneider, of those and can about stuff parts, like my the that. requirements smart already this the company focus And can saw service sales release that also is example? you're I submit spare MRO, spare it on on Industrial users on also the also the service this or question And to And other also based also

the for congratulations. Kunming bidding the CBTC Rail other the your is your contracts? about are consideration give can And your colors about -- Transportation, and year more have control also, is participated matter, business So Rail Transportation, what question won opportunity And to we you how third there provide in all question And and itself. win to and a long No saw this IA stack? the system. contract? about about production system from coming you new background, a second from And the we any the CBTC or the the

right in However, growing. Especially, the world do and the is now, ever across have business? spread support this whole chips issue supply the also the material of is chips lack area? meet to for that raw cost any And the you you have enough production

Lei Fang

About do customer. want be question, our emphasize customer Industrial to that is that want services to are response it. -- naturally, to I provide the The to the we quick And and very also purpose with first time Automation relate to high-quality different to side. the

by Kunming The better industry provide in focus And together why recognition focus the our and right Changshui supply Fangcun just line by we've experts smart also made we've also service customer. -- in chain -- now within And the downside APP Airport a the or and sale. current on Hollysys' upside services. made been CBTC, on also it's that's won to supply the customer So operating. to [indiscernible] after and the is contract the combination recognition of we is and

system could to So to good right demonstration now, this provide capability is the have cities. CBTC we other that a

about joint the with set operating this Maybe including right them sector. platform local government is why And potential And the use to targets, the better several subway we up we subway even discussion. supplement that's and Kong and now, venture to it's right also way explain company. under then focus Mr. So the a within joint now also, Lingxin asked the the venture. could our

the the the cooperate whole companies. government And industry. policy local the government because the mean for more the have You answer sector is the close to with to or innovation the and local upgrading government private to the do

want area. the the import entrepreneur and good join company they So this to to

why Thank that's also this is a few So you. chance.

Lei Fang

already The last mentioned the now, to of chips year COO. we also by could lot by answered you company that a third the Mr. and IA that. from see influenced be Actually, question started Fang,

our this However, to years is production by influenced to of X kind we this got prepare start not already ago, situation. because

So short-term for we the chips. One several is ways. have

enough about preparing backlog. is second have -- chips. long-term our We the And in one in the the

on the focused to the mean, -- supplier find other situation. I are to of instead -- available We replacement the the

could automation develop new The our and a the for to the third we the IP the chain and including for chain DCS, right way that lot end. solve and the our next close will calendar system, already generation other second we are and to on of to new I DCS they that the now, own other provide is of based also this year, generation half supply the products new easy solve we supply issue. mean

Operator

Joseph from Your JPMorgan. comes [ph] question next Gu of

Unidentified Analyst

[Foreign Language]

Arden Xia

margin. about and Okay. lot. One cash Thank for freight compare in you. Two and the saw also your growing, is increased flow, cost chips questions. gross especially I is the influence about And the what about and a the also raw inventory material

by question pharmaceutical, a percentage? give chips? IA material is niche compare about you of market petrochemical the revenue, And of good, and food this of example, because the the the industry down or and pre-procurement revenue could breaking And raw second for you like So beverage your mentioned. -- me IA. right the now The increase chemical, relatively

the about what now? Thank percentage IA within So right contribution you.

Lei Fang

range. but from give cannot also influence and the example, number another about us, like our increased about -- the gross this also margin you stack. like one proportion cost. not And increased I the too And question we about you inventory the say chips for healthy materials. within But can the much a IA with for cost right, second right the know first I raw have still the the we now. because industry, And said has the about, copper, we those preparing for right are because The now,

relatively now, For now plus revenue example, area fast. very power food to is reached like sorry, contribution the pharmaceutical, grow the already chemical, the IA right X contribution the by over right -- revenue are [indiscernible] beverage the already the petrochemical and And over sector.

everyone, So large niche it's call today. us on market. you, already be contribution the Thank third the joining

to If in to questions, you we you We're pleased again speaking with a chance forward your got near will raise haven't through follow-up be them contacts. to the looking you. Thank answer future.

Colin Sung

Thank you.

Operator

That does participating. Thank you for call. conclude today's conference

disconnect. all may You

Hollysys Automation Technologies (HOLI) 14 May 212021 Q3 Earnings call transcript