RS Technologies Co.,Ltd. Q2 FY2025 earnings call

• Core Business Performance

  • All existing segments made solid progress in the first half of the fiscal year, meeting overall mid-term management plan targets, with Prime Wafer slightly underperforming offset by stronger-than-expected performance from new business RSPDH.
  • Wafer reclamation operations at the Sanbongi and Taiwan factories are fully utilized after capacity expansion, supported by strong semiconductor market growth.
  • Demand for silicon components in the Prime Wafer segment is recovering from end-of-2024 inventory adjustments, and maintains a high operating margin level.

• New Business and M&A Updates

  • Newly acquired RSPDH contributed to revenue and profit growth in the semiconductor equipment and materials segment, with optical pickup modules produced and shipped ahead of schedule, and is on track to reach 10 billion yen in full-year revenue. RSPDH plans to shift its core focus to the automotive camera module business starting next fiscal year, and is currently seeking Chinese partners.
  • LE System is expanding beyond vanadium redox flow electrolyte production to focus on full energy solution services including energy storage business and power consulting, which is progressing smoothly. LE System's new electrolyte factory in Dezhou, Shandong Province, China, is progressing as planned adjacent to the GRITEK subsidiary site.

• Capital Investment and Capacity Expansion

  • 2025 wafer reclamation capacity expansion adds 20,000 units per month of capacity across Sanbongi and Taiwan factories: Taiwan's expansion completed in Q2, and Sanbongi's expanded capacity will enter full operation in the second half of the fiscal year, bringing total monthly capacity to 340,000 units at Sanbongi and 290,000 units at Taiwan. Further capacity expansion is planned starting 2027 with Sanbongi's 7th factory and Taiwan's 2nd factory.
  • 12-inch prime wafer business at Chinese equity-method affiliate SGRS is in an investment phase. A capital increase was completed in January 2025, raising RS Technologies' ownership stake as product quality has stabilized, with further stake increases aligned with 300,000 unit capacity investment under consideration.
  • Prime Wafer 8-inch expansion capacity started partial operation in the first half, with full commercial operation starting in the second half, and new product development is ongoing to match market demand.

1. Wafer Reclamation Business: 21.2% YoY increase in revenue, 12.1% YoY increase in operating profit. Revenue contribution is approximately 58% of total consolidated revenue (based on aggregated results). Operating margin decreased 2.9 percentage points YoY due to the rising proportion of higher-cost sales wafers. 2. Prime Wafer Business: 1.1% YoY decrease in revenue, 5.6% YoY increase in operating profit. Revenue contribution is approximately 27% of total consolidated revenue. 8-inch wafer shipment volume increased due to capacity expansion investment, but average selling price declined due to Chinese market conditions, leading to a flat YoY revenue result. Operating margin rose 1.3 percentage points quarter-over-quarter due to improved productivity, better raw material sourcing strategy, and higher proportion of high-margin silicon components. 3. Semiconductor-related Equipment and Materials Business: Revenue increased sharply YoY due to the addition of newly acquired RSPDH consolidation starting this period, with 2.6 billion yen quarter-over-quarter revenue growth from RSPDH's ahead-of-schedule production and shipment of optical pickup modules. Revenue contribution is approximately 15% of total consolidated revenue. Operating margin increased 9.9 percentage points quarter-over-quarter driven by RSPDH's improved production efficiency. Existing DG Technologies and trading business performed in line with plan, and LE System already recognized revenue from vanadium redox flow electrolyte for a Spanish energy storage project in the first quarter.

• Management expects the strong business environment for wafer reclamation to continue long-term, driven by global semiconductor market growth, new fab construction, AI-related manufacturing innovation, and new equipment adoption.
  • Chinese 12-inch prime wafer market is expected to experience accelerated growth starting 2027, aligned with China's local sourcing policy, and RS Technologies plans to scale up mass production to capture this demand. The Chinese reclaimed wafer market is also expected to expand from 2027, and the company is preparing capacity to capture local demand, which is currently almost entirely from domestic Chinese semiconductor customers.
  • 12-inch prime wafer strategy follows RS Technologies' existing strength in smaller wafers: the company will first commercialize 12-inch wafers for power semiconductors (such as IGBT) based on its 8-inch experience, then expand into higher-volume memory and logic wafer market, with capacity investment timed to align with the 2027 full market launch.
  • M&A will remain a core growth engine going forward, with target areas including semiconductor-related manufacturers and new energy companies such as LE System. The company will actively pursue opportunities globally, covering China, Japan, Europe, and North America.
  • RSPDH is expected to reach approximately 10 billion yen in revenue for the full 2025 fiscal year, in line with expectations.

• U.S. tariffs: While current impact on consolidated results and the mid-term management plan is extremely minimal, there is potential for limited disruption to sales activities for silicon components, trading business, and LE System electrolyte in the U.S. market going forward. If reclaimed wafers are added to tariff lists in the future, the impact will still be minor because U.S. shipments only account for 4% of the wafer reclamation segment's total revenue.
  • Foreign exchange volatility: Q2 results were negatively impacted by 1.481 billion yen of foreign exchange losses driven by New Taiwan Dollar appreciation against the U.S. Dollar, even after the company's hedging activities. Net assets declined 3.1 billion yen compared to the end of last year due to foreign exchange impacts.
  • Increased investment losses: The 12-inch prime wafer business in China is still in an investment phase, and the capital increase in January 2025 raised RS Technologies' ownership stake, leading to higher recognized investment losses in the current period. This will continue until the business reaches commercial scale.
  • Competitive environment: Competition in the Chinese prime wafer market has intensified compared to last year, though demand for the company's core 8-inch power semiconductor wafers has not seen a significant decline. The company pursues a cautious investment approach for the more volatile 12-inch market to avoid large losses.
  • Subsidy uncertainty: The amount and continued availability of Chinese government subsidies for the Prime Wafer business depend on Chinese government policy, and future changes cannot be predicted accurately, though management expects similar subsidy levels to continue for the near term.

Q: What is the progress of mid-term management plan across segments, and what is the status of 2025 reclaimed wafer capacity expansion? / A: Management does not disclose segment-level mid-term plan targets, but overall first half performance is on track: Prime Wafer was slightly below plan, and this gap was fully offset by better-than-expected performance from RSPDH. For 2025 capacity expansion, Taiwan completed its 20,000 unit per month expansion in Q2, while Sanbongi's expansion will enter full operation in the second half, bringing total monthly capacity to 340,000 units at Sanbongi and 290,000 units at Taiwan.

Q: Why has wafer reclamation segment operating margin declined, and will this trend continue? What is driving Prime Wafer's high operating margin? / A: Core reclaimed wafer still maintains a stable high margin; the segment-level decline only comes from a higher share of higher-cost sales wafers to meet customer demand. Management does not expect the share of sales wafers to increase sharply, so the current margin level will remain stable. Prime Wafer's high margin comes from timely, targeted rather than excessive investment that keeps capacity utilization high, plus ongoing cost reduction, optimized raw material sourcing, and utilization of Chinese preferential policies.

Q: What is the strategy for the 12-inch wafer business, and why did the company increase its stake in SGRS? / A: RS Technologies leverages its existing experience in 5/6/8-inch wafers, starting with 12-inch power semiconductor wafers before expanding into higher-volume memory and logic products. The company expects the Chinese 12-inch market to fully develop around 2027, and will time capacity investment to this timeline. The company initially kept a lower stake to limit risk, but increased stake after SGRS achieved stable product quality, and will consider further stake increases aligned with future 300,000 unit capacity expansion.

Q: What is the company's M&A strategy going forward, and will it focus only on China? / A: M&A has been core to RS Technologies' growth, and the company will continue to use M&A as a key growth driver. Target sectors are semiconductor-related manufacturers and new energy-related companies matching the existing LE System investment. The company will not limit M&A to China: it will target opportunities in Japan, and also actively evaluate opportunities in Europe and North America for global expansion.