Ferrotec Transcript: Targeting 3,500 Billion Yen Revenue in 2026 with AI and Semiconductor Growth
Ferrotec 2026 Fiscal Year Earnings Presentation, June 2, 2026
Opening Remarks and AI Semiconductor Market Opportunity
I am the representative director of Ferrotec Holdings. Thank you everyone for joining us today. We are already halfway through 2026. I would like to discuss what we are thinking about and how we can steadily advance our business quickly. Our company has been thinking extensively about business growth, and as you all know, 2026 is the year of AI. Additionally, we are in a 5-year semiconductor cycle boom. Since the second half of last year, orders have been steadily increasing and the market has been growing actively.
For this year, I am confident that we can achieve 25% to 30% growth. Regarding the relationship between our company and AI semiconductors, fortunately our company has a very strong connection with AI, and many of our products are widely used in AI and data centers. For example, in the thermoelectric module segment, we currently hold 70% of the global market share in optical applications. The reason we can maintain such a high market share is that we have fully automated the production of these products. My philosophy for the production floor is to minimize human involvement as much as possible.
Additionally, we have added temperature sensors to our product lineup, and we are now selling them as sets with our thermoelectric modules. Therefore, our products are closely related to AI, data centers, and optical fiber applications. This represents a very strong positioning for us.
Ex-China Strategy and Global Production Expansion
Another aspect of our strategy this year is to focus on ex-China operations. For Japan, the United States, and Europe, we plan to use production capacity at our ex-China manufacturing facilities as much as possible. As you know, the Chinese semiconductor industry is also growing at a considerable speed. Particularly, the volume of general semiconductor substrate production is increasing rapidly. This year, China's semiconductor exports are expected to exceed 1 trillion yuan. Therefore, we are taking orders from both sides and pursuing growth.
2026 Financial Targets and Three-Year Outlook
For 2026, we are fundamentally pursuing 20% growth. Our 2026 revenue target is 3,500 billion yen, with operating profit of 38 billion yen and net income of 23 billion yen. Regarding how we can achieve stable growth over the next 3 years, for 2027 we are targeting operating profit of 48 billion yen, and for 2028 we are aiming for operating profit of 50 billion to 57 billion yen. Of course, we believe net income will also grow steadily. Anyone can achieve short-term growth, but long-term sustained growth is quite difficult. That is our company's approach.
Production Efficiency and Cost Reduction Initiatives
Beyond just growth, we must also pursue profit improvement. To pursue profit, our two factories in Malaysia are currently running at full production capacity. In Japan, we have the Okayama factory, the Ishikawa factory, and our Kumamoto Sendai factory. Together, we believe we can steadily develop the Japanese market. Our return to Japan, which we announced in 2022, is now being steadily realized.
As another method to improve efficiency, cost reduction is key. Our approach to cost reduction this year is completely different from before. We now check cost reduction numbers every week, and we monitor what the monthly figures look like. For cost reduction, we believe we can achieve over 100% of our targets within 6 months. Another critically important aspect is improving production efficiency through digitalization, automation, and visualization. Of course, systems are extremely important for automation, visualization, and digitalization. We have now almost completely assembled our systems. Numbers are automatically entered into the system and analysis is automatically generated. Therefore, I do not worry about the details at all. I simply need to do what should be done steadily, and I am confident that good numbers will come out.
Corporate Culture and Human Resources Development
Another aspect we place tremendous importance on is building corporate culture. When corporate culture improves, the entire company becomes energized. Our fundamental philosophy is to respect our customers and also respect our employees. We build strong values around learning, humility, and trust, which form our corporate culture. In addition to this, we place great emphasis on product quality. What we are thinking about now is creating a cooperative system where each division collaborates with the whole company to build a good culture.
Of course, human resources are extremely important. How do we assemble talented people? One approach is training. We provide extensive training to our internal employees to develop talent. Another approach is to recruit excellent people from outside to join our company and assemble good human resources. I am confident that when a company improves, talented people naturally come to us.
Financial Policy and Shareholder Returns
Finally, as our company improves, we definitely want to improve our financial position as well. We have adopted DOE with a minimum of 3.5%. In that sense, our financial numbers are steadily improving. I am confident that our equity ratio this year will reach 40%. We must consider returns to both shareholders and employees. For shareholder returns, we have previously promised to maintain a payout ratio of approximately 50%. For employee returns, we want to be able to pay bonuses of 6 to 8 months. If we become such a good company, people will naturally gather to join us.
Of course, we also want to buy back our own shares, and we are considering approximately 25 billion yen for this purpose. We will also sell surplus assets to collect funds and increase cash liquidity so we can act on various opportunities at any time. Of course, we are also considering capacity expansion, mergers and acquisitions, and launching various new businesses. We need to build various new factories going forward. What has been decided for this year is that we need to build approximately 6 factories. I am confident that we can achieve growth beyond what everyone expects. Thank you very much for your support.
Financial Results Presentation by CFO Takeda
I am Takeda, the CFO. I will explain the March 2026 financial results. Revenue was 288.9 billion yen, up 5% year over year. Operating profit was 27.5 billion yen, an increase of 3.4 billion yen or 14%. In non-operating income and expenses, foreign exchange losses worsened by 2.4 billion yen, and ordinary profit was 26 billion yen, up 2%. Corporate tax increased by approximately 2 billion yen, and net income was 14.8 billion yen, down 5% year over year.
By segment, the semiconductor manufacturing equipment related segment saw increases particularly in ceramics and metal processing, with revenue up 12% year over year and operating profit up 30%. In the electronic devices segment, thermoelectric modules saw expanding sales for AI-related optical communication transceiver applications, with revenue up 14% and operating profit up 26%. In the automotive segment, power substrates for EVs and other applications were in an adjustment phase in supply and demand, with revenue down 4% and operating profit down 25%.
On the consolidated balance sheet, tangible fixed assets increased by 36 billion yen due to capital investments in the Malaysian factories and other facilities, and on the liability side, interest-bearing debt increased by 40 billion yen.
Change in Fiscal Year End and 2026 December Period Forecast
Next, I will explain the forecast for the 2026 fiscal period. First, subject to approval at the June shareholders meeting, we will change our fiscal year end to December 31st. The current fiscal year, the December 2026 period, will be a 9-month period from April to December. However, since our consolidated subsidiaries have traditionally used December fiscal year ends, the consolidated subsidiaries' sales and profit from January to December will be reflected in this fiscal period. Although it is a 9-month fiscal period, the impact on consolidated results is limited to approximately 5 billion yen in revenue.
For the December 2026 period, revenue is forecast at 350 billion yen, up 21% year over year. Operating profit is forecast at 38 billion yen, up 38% year over year. Net income is forecast at 23 billion yen, up 54% year over year.
I will explain by segment. For semiconductor manufacturing equipment, inquiries from both US and Chinese customers are increasing month by month. In particular, sales of metal processing and ceramics for equipment are increasing, and parts cleaning linked to semiconductor manufacturing in China is also increasing. We forecast revenue growth of 20% year over year. For electronic devices, thermoelectric modules continue to see expanding sales particularly for AI-related optical communication transceiver applications. We forecast 28% growth year over year. For automotive, we also forecast sales increases in thermoelectric modules and power substrates, predicting 24% growth.
Medium-Term Plan KPI Updates
I will explain the medium-term plan KPIs. We are raising the revenue and profit plans for the December 2026 period and the profit plan for the December 2027 period, and we are announcing the revenue and profit plan for the December 2028 period for the first time. The December 2028 period plan calls for revenue of 450 billion yen, operating profit of 57 billion yen, and net income of 38 billion yen.
Regarding ROE and ROC targets, we are lowering the target levels to maintain consistency with profit levels, but the levels we aim for remain unchanged at ROE of 15% and ROC of 8%. Regarding capital allocation, for capital expenditures, demand from semiconductor customers for capacity increases is rising rapidly, and we are currently planning additional investments in ceramics production capacity and additional investments in Malaysian factories. We are increasing the 3-year capital expenditure plan through December 2027 by approximately 35 billion yen, and our policy to sell 50 billion yen of group assets remains unchanged.
Shareholder Return Policy and Dividend Forecast
Regarding shareholder returns, we maintain our policy of a DOE minimum of 3.5%, and we will also consider share buybacks flexibly while considering financial conditions, aiming for a total return ratio of 50%. We plan to implement 25 billion yen in share buybacks through the December 2028 period. For dividends in the October 2026 period, we plan 20 yen per share, and we will strive to enhance shareholder returns along with business growth.