RS Technologies Co.,Ltd. Q4 FY2024 earnings call

• Overall Financial Results • Consolidated full year 2024 results hit all-time record high revenue and profit across all profit levels, with 14% YoY revenue growth to 59.2 billion yen, 10.2% YoY operating profit growth to 13.108 billion yen, 5% YoY ordinary profit growth to 15.668 billion yen, and 22.6% YoY growth in net profit attributable to parent shareholders to 9.446 billion yen. The large net profit growth includes a 1.5 billion yen negative goodwill extraordinary gain from the RSPDH share acquisition. • Net assets increased 20.1 billion yen YoY to 135.5 billion yen at period end.

• Core Business Strengths & Positioning • Wafer Reclamation: RS Technologies holds 33% global share of the 12-inch reclaimed wafer market (leading position), with a stable business model that is resilient to economic cycles. The company has direct sales to all global customers, unique proprietary stripping technology that minimizes wafer damage, reduces required polishing, extends recyclable life for customer cost reduction, and achieves high-level metal impurity removal. Shipments from the company's Mikawa and Taiwan factories have grown steadily year-over-year, with both facilities operating at full capacity post-expansion. • Prime Wafer: The company operates through joint venture Gritek with Chinese state-owned research institution Grinm, focusing on 8-inch prime wafers, particularly in the low-resistance power semiconductor niche that is less cyclical and supports stable high margins. 8-inch production focuses on automotive, inverter, and industrial equipment end markets, with approximately 30% of 2024 prime wafer segment revenue coming from silicon components.

• New Business Initiatives • Total Energy Solution: RS Technologies acquired LE System in 2023 to enter the vanadium redox flow battery (VRFB) market. LE System has over 20 years of exclusive VRFB electrolyte R&D experience, giving it technological and quality advantages. The company will establish RS Energy subsidiary in China in March 2025 to build a local production base to eliminate export logistics costs, and will expand to a full-range solution provider from energy cost optimization to energy storage plant construction in Japan. • Automotive and Optical Modules: RS Technologies consolidated RSPDH as a subsidiary in December 2024 to enter the optical pickup module and automotive camera module manufacturing and sales business, with plans to expand the automotive camera business across China.

• M&A Strategy • The company has a proven track record of value-creating M&A: the 2010 acquisition of RS Technologies' original wafer reclamation assets, 2018 acquisition of Gritek for prime wafer entry, 2019 acquisition of failed DG Technologies that doubled revenue in 5 years, and 2023 acquisition of LE System for VRFB market access. The company targets 20% return on investment for new M&A, focusing on semiconductor, energy, and new frontier businesses.

• Capital Allocation (2025-2027 cumulative) • The company plans to allocate approximately 70 billion yen to capital expenditure and 35 billion yen to M&A over the three-year mid-term plan.

• Shareholder Return • 2024 full year dividend is 35 yen per share, with a total payout ratio of 9.8%. The company targets a 12.1% total payout ratio for 2025.

1. Wafer Reclamation Business: Accounts for ~40% of total consolidated revenue. Performance was solid in both sales and operating profit, with an operating margin 1.5 percentage points lower than the prior year driven by a lower mix of higher-margin sold wafers compared to the high-mix prior year second half. In Q4, increased shipments from capacity expansion and favorable sales mix drove revenue growth, capturing strong demand from new semiconductor fabs in Japan and the U.S. 2. Prime Wafer Business: Accounts for ~33% of total consolidated revenue. Benefited from recovering Chinese semiconductor market conditions in 2024. Operating margin improved 3.3 percentage points year-over-year from effective raw material sourcing strategies and yield improvement initiatives. Q4 revenue declined quarter-over-quarter due to customer inventory adjustment for silicon components. 3. Semiconductor-related Equipment & Materials Business: Accounts for ~27% of total consolidated revenue. Grew revenue 15.8% year-over-year driven by a large Q1 spot project and recovering semiconductor equipment market conditions. DG Technologies saw recovering demand, and strong sales of semiconductor inspection equipment from the trading division offset a sales decline in a specific product from subsidiary Union Electronic Solution in the second half, delivering both revenue and operating profit growth.

• 2025 December fiscal year targets: 75.0 billion yen revenue, 15.1 billion yen operating profit, 16.6 billion yen ordinary profit, 8.76 billion yen net profit attributable to parent shareholders.
• 2027 December fiscal year long-term targets: 100.0 billion yen revenue, 21.9 billion yen operating profit, ROIC of at least 13%, ROE of at least 14%.
• Wafer Reclamation: Aims to build a global 1,000,000 units per month production capacity by 2027, capturing new business in Europe and China. 2025 capacity expansion in Japan and Taiwan is expected to contribute to earnings starting from Q3 2025.
• Prime Wafer: 8-inch capacity will be expanded to 250,000 units per month in 2025, targeting over 300,000 units per month capacity by 2027. 12-inch prime wafer (equity method investee) targets 300,000 units per month capacity after 2027 aligned with Chinese domestic semiconductor localization trends.
• New businesses: LE System is projected to generate ~1.0 billion yen revenue in 2025, and RSPDH is projected to generate ~10.0 billion yen revenue in 2025, both included in the mid-term plan targets.

• Geopolitical risk: The company maintains a decoupling strategy with localized operations for wafer reclamation in China/Taiwan and coverage of other regions from Mikawa, with prime wafer production and sales focused on domestic Chinese markets, to minimize the impact of intensified U.S.-China friction. No current tariffs apply to wafer reclamation, and any future policy changes from U.S. political shifts are expected to have only a minor impact.
• Cyclical risk: While the broader semiconductor market has significant cyclical swings, wafer reclamation is inherently resilient: demand for test wafers remains stable as long as fabs stay operational, and lower demand for new wafers during downturns actually increases customer preference for cheaper reclaimed wafers, supporting stable earnings.
• Competitive risk: China's largest domestic prime wafer manufacturer is rapidly expanding production capacity and is recognized as a primary strong competitor.

Q: How does RS Technologies view the competitive threat from increasing domestic prime wafer localization in China, and what is its competitive strategy? / A: Management recognizes China's largest domestic prime wafer producer, which is both an existing customer for RS' reclaimed wafers and a prime wafer competitor, as the strongest competitor due to its rapidly expanding technology and production scale. RS is continuing to invest in expanding its own production capacity and improving technology to prepare for market share growth.

Q: What is the expected growth trajectory for each segment under the mid-term plan? / A: Wafer reclamation is expected to grow ~5% annually aligned with market growth, with faster growth after the new Mikawa No.7 factory starts operations in 2027. Prime wafer will grow in line with the mid-single-digit annual growth of the 8-inch wafer market. New businesses LE System and RSPDH are expected to contribute ~1 billion yen and ~10 billion yen in revenue respectively in 2025.

Q: How does RS Technologies plan to close the gap where Gritek's equity-based market capitalization exceeds RS Technologies' total market cap, and what is the connection to the holding company restructuring? / A: Management acknowledges the valuation gap and is committed to increasing RS Technologies' market capitalization through improved IR and better utilization of Gritek's assets. A transfer of 70% of RS' DG Technologies stake to Gritek is under consideration to support global market expansion and lift RS' valuation. The holding company restructuring is expected to support faster, more focused strategic decision-making for the diversified business portfolio, which will ultimately support higher valuation.

Q: How does RS Technologies' unique reclaimed wafer technology create price competitiveness that competitors cannot match? / A: The company's chemical-based stripping process minimizes wafer damage and reduces required polishing, cutting capital expenditure for polishing equipment and increasing production efficiency by reducing bottlenecks. Combined with scale of over 500,000 12-inch wafers per month across two factories, this delivers significant cost advantages. The company has specialized chemical expertise dating back to 1985, and decades of accumulated experience in low-damage stripping cannot be easily replicated by new entrants that typically rely on mechanical polishing.