Thank you very much for joining our English language-based small group meeting hosted by SCREEN Holdings. This session will run for 50 minutes. Please mute your microphone. Would you please mute your microphone, please? Thank you for cooperation. From SCREEN Holdings, main speaker is Chiho Otobe, Senior Executive Officer and the Head of Global Communication Strategy, IR Department.
Hello, everyone. Thank you for your time today.
Also, Nakamura-san and Miura from IR Department support. This session is a small group meeting intended for institutional investors. We kindly ask that the member of the media or analysts exit the session. Excuse me. Sorry. Someone speaks without muting. Please mute. Sorry. We will begin with the presentation by Otobe-san, who will provide an overview of our results for the first quarter and the guidance for the full year, followed by a Q&A session. If you have any question, please use the raise hand function. During the Q&A session, we kindly ask that you refrain from mentioning specific company name. Please also note that this small group meeting will be recorded. Now, I would like to hand it over to Otobe-san.
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Good morning, everyone. I am Otobe speaking. Very nice to talk to you.
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We had a briefing of the Q1 result in July, and we would like to give you a brief summary.
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In SPE, both sales and profit declined. However, there was a slide project for second quarter.
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As we have mentioned during the briefing session, we were wondering, this sliding project may come at the end of the first quarter, but it actually came in second quarter, and it has been almost closed. We were able to establish sales in the first quarter.
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Our sales was not so strong at the beginning, so it may concern you a little bit. However right now we are seeing very strong order, and we made upward revision for our guidance. We had very slow sales in first quarter, but sales was increasing in second quarter. If you look at the inventory, it was JPY 158 billion in fourth quarter, and now, in the first quarter, it was JPY 192 billion, which is meaning we are expecting a lot of sales coming in second quarter.
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Equity ratio is currently 64.6%, and we have been always around 65%. We receive questions sometimes from investors, how far we could go in this equity ratio, but probably 65%-70% will be our comfort zone.
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This page 12 has the business forecast for this fiscal year. Because we have been seeing very strong order for SPE, we made upward revision for our entire company. As the forecast for as of July, it is JPY 743 billion. If we can achieve that, this is going to be record high.
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Please go to page 17 for SPE market.
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We made upward revision for the guidance of WFE. In May, we mentioned it will be maybe 15%-20% in calendar year 2026. But now we say over 20%, and this is going to be sustained toward 2027.
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Investor may ask you how far we could go beyond 20%. Actually, we are not going to deny the possibility of 30%, which is often mentioned in the market.
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The investment trends per application is mentioned below. The change from May is now we are expecting foundry to be more than 25%, and same for logic. DRAM is also expecting 25%. The drastic change we are seeing is the NAND, where we are expecting a huge investment. Also China, our forecast was almost flat. However, we are now expecting double digit growth.
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This is our post- sales forecast. As you can find, we have the first half forecast for the bottom and the second half forecast on the top. Which is JPY 58.8 billion and JPY 52.5 billion. You may think this JPY 52 billion may slow. This is not because we are conservative. However, it will take time to have some visibility. Normally, this is coming quite short time. That's why we want to just put this JPY 52 billion for now.
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In the second half, we are expecting many fabs having higher utilization. In that case, the post-sales is not going to easily increase in terms of timing. However, this is quite high profitability, so we'd like to continue focus on post-sales.
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This is all I wanted to say at the beginning from Otobe, and we'd like to just stop showing our presentation to start Q&A session.
Thank you, Otobe-san.
Thank you.
If you have any question, please use the raise hand button. Kimo-san, please. Please unmute and please ask question. Still you are muting.
Kimo-san, would you unmute?
You are muted.
Okay.
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Maybe she will be back again. Okay. Any other person who has question? Wei Pang Yeo-san from Orion Group.
Yes. Can you hear me?
Yes.
Yes.
Okay. Thank you. I'd just like to find out, although you mentioned there was sales that was delayed in first quarter into second quarter, but even if maybe we add back that JPY 10 billion-JPY 20 billion of sales, the first quarter sales still look relatively low compared to, say, your peers, like Tokyo Electron or Kokusai . Your second quarter, you say, is a very high number. Based on your forecast, your second half is even higher. I'm just wondering, first two questions. One is, why is your sales so volatile? Is it because you have a limited range of products? Secondly is, how much confidence do you have in your second half forecast where it looks to be significantly higher? Yeah. Thank you.
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I want to address from your first questions. You mentioned about our sales volatility. Looking at our history, our sales was not flat from first quarter to fourth quarter, and I think this is quite characteristic to SCREEN. However, other company has some volatility, but because we are not able to control sales, like which quarter it will come by ourselves.
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In the first quarter of this year is in between the fourth quarter last year, which we had really strong sales, and also second quarter, we are expecting high sales. Also, in order to prepare for increased production, we are now doing some layout change or functional change in our factory.
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Regarding your second question about our confidence for second quarter, we are targeting JPY 360 billion target, and we are making production really increasing, and we are very confident to achieve this number. Currently, we are seeing utilization in factory is very high, and they are being very busy. We are pretty confident to achieve JPY 360 billion.
Okay, thank you. Just to confirm, your forecast is based on the orders you have and the fact that you are ramping up capacity to meet those orders?
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That's right. Actually, when we receive inquiry, we don't account as order immediately. We need to just get allocation of the facility in order to produce that. Currently, we have about half year visibility.
I see. Okay. Thank you.
Thank you.
Thank you very much.
Hi. Can you hear me?
Oh, yes. Now we can hear you.
Fantastic. Sorry about that earlier. You mentioned that WFE has a possibility of a 30% year-on-year increase now, which is in line with what the market thinks. How should we think about that impact on our sales? Because for now, our second half sales equals our capacity. Should WFE increase further to 30% growth, will we be able to support further growth on our side as well in the second half?
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We have quite strong visibility for second half already. In terms of the market trending, it really depends on what will happen in fourth quarter, how we see the growth in fourth quarter.
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Again, we are not going to deny the possibility of achieving over 30% in 2026. However, when market is strongly expanding, we have to be ready for the possibility of shortage of the material.
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We said we're not going to deny the possibility of over 30%, and this is not actually only for the 2026, but it's going to continue after 2027. What we need to look at more continuous manner because if we cut in single year, it's not easy to forecast. This over 30% is going to continue regardless of the fiscal year or calendar year. Maybe we don't think we are going to be behind against market trend in 2027.
Understood. Great.
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Sorry.
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Our customer is sharing forecast of about maybe two or three years to come. The customer who will share three years plan is quite limited. However, for two years, they are sharing the plan for establishment of new fab or something like that. So for one or two years, at least, we are seeing very strong order. After that, we will see the sales increase according to market growth.
Got it. Understood. I guess a more near-term question, the JPY 20 billion that was pushed out to 2Q, have we booked cost for that already?
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Actually, we have already shipped this equipment already more than one year ago. We have received already down payment when we started fabricating.
Can I explain?
Yes. I am so sorry. Please. Yes.
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Actually, we decided to change our agreement with our customer. Conventionally, we had to wait until installation to recognize our sales. We were not able to do that in this case, because their Fab is not ready yet. Because of our revision of agreement, now we are able to recognize sales immediately after they make purchase. For this particular customer, we have already repaid whatever they have already paid.
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Actually, this customer, I said that their fab is not ready, they were ready, but actually they are using for different application. We are waiting for their new investment.
Sorry, but I guess I am curious to know for the JPY 20 billion, how much of the actual cost to produce that JPY 20 billion sales was booked? Because if that cost is already booked, we only have JPY 20 billion sales to book, then feasibly that JPY 20 billion flows down to our OP directly, which could be quite profitable to us in the second quarter.
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You are very right. We have some gaps during the sales recognition and the manufacturing cost. However, when we see this sales is recognized, we will see a strong increase in the quarterly sales for the quarter.
Got it. Understood.
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OP margin cannot be 100%.
Of course. For the SPE segment margin, I understand second half we are looking at 27.4%. How about for the full year? I forgot to ask that.
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Yes. Second half is 27.4% and the full year is 25%. We are going to maintain this 25%. This may look conservative, however, we are in the third year of our midterm plan, and we have been focusing on growth investment. So we think we are comfortable with this number.
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Obviously, we are not complacent with this current situation. This third year plan, we are targeting 23% to 25% in SPE. However, we are spending some cost for making next generation investment. So, we are expecting higher profitability in new midterm plan, which is starting in April next year.
Got it. I do have more questions, but I think there is another question in the queue, so just one very quick question. For fourth quarter, we have 30% margin forecast. What is the key driver for that? What are the key assumptions, say, for example, regional mix in the fourth quarter?
You mean, last fourth quarter?
This upcoming fourth quarter. I think in one of the calls, we mentioned 30% margin for the SP segment for this fourth quarter. Just wanted to understand key assumptions behind it, because it is quite a nice margin to have.
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Again, the confirmation is that we are talking about fourth quarter of last year, because we do not announce the breakdown of third quarter and fourth quarter for this fiscal year. Right? Talking about last year, fourth quarter, we had record high profitability because our sales was good and our product mix was very good.
Got it. I will get back into the queue for now. Thank you so much.
Yeah.
Thank you very much. I think, yes, Phil Chan-san. Go ahead.
Yeah. Hi. Can you hear me?
Yes.
Okay, great. Thank you guys for doing this. My first question is just to double-check on capacity. I think we said the second half will be JPY 360 billion for SPE revenue, and I think we said we could actually do 10%-20% higher than that. If I annualize that, is it right understanding that the capacity can support maybe almost around JPY 860 billion annual revenue for SPE?
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Yeah, I think number you said is doable because the market estimation for next year is over 20%, and I think this is pretty doable.
Got it. My second question is on China. I am wondering, looking to the next fiscal year, do we have any preliminary expectation on how the Chinese market, especially the foundry and logic market, is going to trend into 2027? I know it is pretty early, but I do not know if the customers are giving us any early indication.
Yes.
For the next year, as we already mentioned, we expect the further growth in WFE 2027, and we think that China is not the exception. We already given the forecast for the long term, like two years from the Chinese big foundries and also DRAM customer. We think China WFE will not decrease next year, but it will increase, we think. That is our current assumption.
Got it. And sorry, last one, just to double-check, when should we expect the company to announce the new midterm plan targets?
Announce what?
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So probably we can give you some kind of direction at the end of this fiscal year when we have maybe IR day, but all the numbers will be ready in maybe May next year when we have final result presentation.
Okay. Thank you very much.
Thank you very much.
Thank you. Erica Kim-san, you had another question?
Yes. Sorry. In terms of pricing, we mentioned that there are many channels for us to increase price. There is raw material cost pass through. We can also pass on the increased personnel cost as well, or pass on the personnel cost increase. Just curious, have we began negotiating with customers to pass these costs on already?
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Yes, of course. We have been already doing this from last year when we started to see some material prices started to increase. In addition to that, when we make some upgrade or improve our functions for our equipment, we are already negotiating to increase ASP with customer.
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Got it. Understood.
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Yeah, because as our CEO, Mr. Goto, has been repeatedly saying, we want to really focus on improving our profitability going forward. We were actually doing that for the past seven years, and we want to continue doing this in order to catch up with the peer. In order to do that, we need to increase our ASP.
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We are not just simply asking to increase ASP with our customers, obviously. We are making good development in order to increase our additional value. At the end of the day, we will see increased OP margin.
Got it. Thank you. In terms of capacity for next year, the JPY 900 billion for next year figure, can we just understand where is that coming from? Is that from our existing fab? Or can we get some color on where the JPY 900 billion expansion is coming from? Is that the figure by year-end, like we achieve JPY 900 billion by the end of March 2028?
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For this fiscal year and next fiscal year, our sales will be delivered from our mother plant in Hikone, in Shiga.
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If you look at this picture, we have S-Cube 1 to 6. S-Cube 3 is the only automated factory. We are expecting to increase productivity in this S-Cube 3, so that we can ship more product from this S-Cube 3. In order to do that, we are making more components production in other fabs or maybe our supplier fabs.
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In addition to our Hikone plant, we have a facility in Nagaokakyo City in Kyoto, and we can make clean room and etc. in this location in order to increase output from S-Cube 3. In addition, we have a new place acquired two years ago in Shiga. This is another location. This is still groundwork timing, but we can increase production going forward.
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Probably this kind of our capacity expansion plan or like ground design, which to make in which places. We can probably announce that in next midterm plan.
Just a quick follow-up question. For this year and next year, if demand is much higher than we expect, can we say, for example, run more shifts at S-Cube to increase output further? Is that possible?
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Yes. Market is now moving over expectation already now. We have this plant in our S-Cubes, and currently it is running one shift, but we are trying to make this two shift in order to increase our capacity.
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Also, we are making all these two shifts in some of suppliers fab. Also, we are trying to address by increasing automation. When market is rapidly expanding, we will see often the people working on the sites are quite getting exhausted, and we want to just keep good balance, and we want to just do it mild way in order to respond to our customer order.
Got it. Thank you so much.
Thank you so much.
Thank you very much. We have five minutes left. There is no doubt that SPE sales will grow further. I would like to mention about our activity on the advanced package before closing today's session. [Non-English content].
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This is Nakamura speaking. Let me briefly explain about our advanced packaging.
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As you know, our advanced packaging is drawing quite strong attention, and it is growing our business. We have two models, two product, which is used in SPE.
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These two are LeVina, which is direct imaging system, and Lemotia, which is a slit coater system.
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These two equipment have been already sold to OSAT in Taiwan and China.
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This model of Lemotia 310x310 have already sold to Taiwanese customer.
Not sold, but shipped for evaluation.
Sorry, shipped for evaluation. [Non-English content].
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Once this evaluation will done smoothly, they will accept our product, then we expecting our sales will grow quite strong.
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Our advanced packaging sales expectation for this fiscal year is on top of these two equipment. We have cleaning equipment in SPE. It is going to exceed JPY 10 billion.
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We are able to disclose our number for next fiscal year and onward. However, we are confident that this will continuously grow.
Thank you, Nakamura-san. It is almost time to close. Before closing today's session, Otobe-san will give you closing remarks.
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Yes, thank you very much for your time today. Although we had a slow Q1, we are very confident that our sales and profit will grow starting from Q2. From next fiscal year, we are having a new midterm plan, and we are very committed to increase our profitability. We are still in the middle of growth, and thank you very much for your continued support.
Thank you for your time. Thank you.
Thank you very much.
Thank you.
Thank you.
Thank you. Thank you so much.