NOTE TO EDITORS: The following is an investment opinion issued by Investment Bridge
Investment Bridge, one of Japan's leading independent investor relations services companies, has released a "Bridge Report" on Ferrotec Holdings Corporation (TOKYO Standard: 6890) reviewing its earnings results for the second quarter of the fiscal year ending March 2025 and full-year earnings estimates for the fiscal year ending March 2025.
Report Highlights
*In the cumulative second quarter of the fiscal year ending March 2025, sales grew 28% year on year and operating income rose 9% year on year. In the semiconductor and other equipment-related business, the demand from Chinese manufacturers was strong, and the demand for thermo-electric modules was stronger than assumed in the telecommunication field, so their performance exceeded the forecast (sales of 120 billion yen and an operating income of 13 billion yen) revised upwardly after seeing the results in the first quarter in August 2024. Seeing the results in the second quarter, they have revised the forecast annual sales upwardly.
*As the semiconductor market has been on a recovery track, the performance of the semiconductor and other equipment-related business has been healthy. In particular, they received more orders for vacuum seals and metal processing from manufacturing equipment manufacturers, the sales of machined quartz products recovered, the number of orders for ceramic products from equipment manufacturers recovered, and the start of operation of Changshan Plant contributed. Kulim Factory in Malaysia started operations for metal processing, quartz products, ceramics, and equipment assembly, enabling them to meet the needs of U.S. clients and others for manufacturing outside China, so it can be expected that more clients will approve the products and services in the second half or later. However, there is concern over the significant decline in profitability of quartz crucibles.
*In the electronic device business, thermos-electric modules sold well, thanks to the growth of demand related to generative AI. The sales of substrates for power semiconductors decreased from the previous second half due to the inventory of clients, but the company considers that it is possible to grow sales in the medium or long term. In 2025, Johor Factory in Malaysia is scheduled to start operations. In the automotive related business, thermos-electric modules sold well, as the demand for products for Chinese automobiles was stirred, and the sales of power semiconductor substrates kept growing thanks to the increase of active metal brazing (AMB) substrates for automobiles.
*In the revised forecast for the fiscal year ending March 2025, the company forecasts that sales and operating income will rise 19% and 5%, respectively, year on year. This forecast is based on the premise that the external business environment will be on an upward trend. The demand in the semiconductor industry is expected to pick up gradually from the situation that required device inventory adjustment, which lasted until 2023, and particularly, demand for Graphics Processing Units (GPUs), which are essential for generative AI, and investment in servers are projected to increase in the logic semiconductor field. In addition, prices of memory-related products have recently been on the rise. Therefore, the company keeps expecting that factory operating rate will improve and the level of capital investment will go up from the second half of the fiscal year ending March 2025 onward. In the mobile telecommunication system industry, the company projects that demand for high-capacity optical transceivers for servers will grow significantly while investment in the 5th-generation network will be made continuously, which will drive steady demand in general. In the automobile-related market, demand for electric vehicles (EVs) and self-driving systems is expected to increase on a continuous basis. From the geopolitical perspective, the regulations regarding advanced semiconductor technology that the United States has tightened against China are encouraging semiconductor manufacturers to relocate their manufacturing bases to other countries than China, but demand is expected to grow in Southeast Asian regions, mainly Malaysia, as manufacturing capacity is being increased there as planned.
*The semiconductor market is gently recovering, but there remain uncertainties over the stock market, because Mr. Trump assumed the presidency. While there are growing uncertainties over some fields, including solar panels and EVs, demand is strong in many fields, including vacuum seals, metal processing, and thermos-electric modules for generative AI. We hope to realize again that Ferrotec Holdings Corporation operates business in a broad range of fields, so it can control its product portfolio according to market conditions. Regarding production sites, not only Changshan Plant in China, but also Kulim Factory in Malaysia started operations, so they can meet a variety of demand from global enterprises. The market is cyclical, but they have carried out upfront investment, so stable growth became more feasible. This is noteworthy.
*From the viewpoint of the portfolio of their corporate group, they are making efforts to enable the diversification of fund procurement through diverse purchase structures. Regarding FTSVA, which is a parts cleaning subsidiary listed in China, it will be possible to circulate funds by selling part of the shares listed on December 30, 2022 from 2026. We would like to pay attention to the diversification of fund procurement and the improvement in share value based on the capital market. The Chinese regulations limit the number of shares a controlling shareholders can sell in a certain period of time, so it is necessary to keep in mind that they must follow the regulations when selling shares.
To view the full report, please go to the website at the URL listed below.
https://www.bridge-salon.jp/report_bridge/archives/eng/6890/20250312.html
About Bridge Report:
Bridge Report is produced by Investment Bridge Co., Ltd. and provides accurate and objective information about the earnings, business strategies, and other information of publicly traded Japanese companies. Investment Bridge was founded in August 2000 and is one of Japan's leading independent IR support services companies. Investment Bridge specializes in providing various solutions to Japan's publicly traded companies with the goal of expanding our clients' shareholder base and liquidity through increased recognition and understanding of companies.
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Contacts:
Kaoru Hosaka
Investment Bridge Co., Ltd.
+81-3-5225-3077
