RS Technologies Co.,Ltd. Q4 FY2025 earnings call

• Overall Financial Results
  • For the full year 2025, RS Technologies achieved all-time record high revenue of 76.707 billion yen (up 29.6% YoY), operating profit of 14.281 billion yen (up 8.9% YoY), and ordinary profit of 16.635 billion yen (up 6.2% YoY).
  • Net income attributable to parent company shareholders decreased 1.6 percentage points YoY, but when excluding the negative goodwill impact from the RSPDH acquisition in the prior fiscal year, net income increased 0.984 billion yen YoY.
• Current Segment Operational Updates
  • Wafer Reclamation Business: Mitsugi and Tainan plants both operated at full capacity after capacity expansion, with performance meeting full-year plan targets. A 50,000 units per month capacity expansion completed in 2025 reached full operation in the second half as planned, driving revenue and profit growth. Operating margin fell 1.2 percentage points YoY due to temporary high-cost wafer purchases in the first half, but recovered to the normal level of ~38% in the second half.
  • Prime Wafer Business: 8-inch prime wafer shipment volume increased more than 20% YoY driven by capital investment effects and recovering demand from China's consumer replacement subsidy policy, but average selling price fell ~10% YoY due to significant price drops in general-purpose products (IGBT, memory wafers) which account for 20-30% of product mix, pulling down total operating profit. Shipment volume of silicon components increased more than 10% YoY after developing new Chinese customers to tap the expanding 12-inch Chinese market.
  • Semiconductor-related Equipment & Components Business: Newly consolidated RSPDH achieved faster-than-planned production and sales of optical pickup modules, which was the main driver of the segment's revenue and profit growth. The Energy business completed its first shipment of VRFB electrolyte starting with a shipment to Spain, and built up sales track records in Japan and China. 12-inch prime wafer business operated by equity-method investee SGRS remains in the investment phase, with increased investment losses driven by capacity expansion and an increased ownership stake to 39% (including GRITEK holdings); the company structures the business to limit its own cash outlay and hedge risk, and the business continues to progress steadily.
• Balance Sheet & Cash Flow
  • Net assets increased 17.783 billion yen from the end of the prior year to 153.331 billion yen. Ending cash and cash equivalents increased 12.128 billion yen from the end of the prior year to 95.888 billion yen.

1. Wafer Reclamation Business: Revenue was 27.529 billion yen, up 15.7% year-over-year; Operating profit was 10.167 billion yen, up 12.2% year-over-year. Revenue contribution percentage: 35.9% of total company revenue. 2. Prime Wafer Business: Revenue was 20.893 billion yen, up 2.2% year-over-year; Operating profit was 4.159 billion yen, down 12.3% year-over-year. Revenue contribution percentage: 27.2% of total company revenue. 3. Semiconductor-related Equipment & Components Business: Revenue was 30.469 billion yen, up 87.1% year-over-year; Operating profit was 1.624 billion yen, up 83.7% year-over-year. Revenue contribution percentage: 39.7% of total company revenue. Within this segment: RSPDH accounts for approximately half of the segment's total revenue, significantly exceeding its initial full-year forecast of 10 billion yen; The Energy business missed its 1 billion yen full-year revenue target by several hundred million yen, and recorded a full-year operating loss due to being in the investment phase; DG Technologies hit an all-time high revenue amid recovering semiconductor market conditions, but did not contribute positively to operating profit; The trading business saw strong sales of semiconductor manufacturing equipment.

• 2026 December Fiscal Year Guidance: Sets revenue of 84 billion yen, operating profit of 15.4 billion yen, ordinary profit of 17.2 billion yen, and net income attributable to parent company shareholders of 10 billion yen.
• Medium-term Targets (2026-2028): Targets sustained growth from 2027 onwards, with ROIC of 11% or higher and ROE of 13% or higher.
• Wafer Reclamation Capacity Expansion Guidance: Plans to expand combined monthly production capacity across Japan, Taiwan, and China to ~1.2 million units by the end of 2028. Revised the prior capacity expansion plan: accelerated the restart of Mitsugi Plant No.7 from 2027 to 2026, increasing 2026 capacity from 360,000 units/month to 380,000 units/month and 2027 capacity from 440,000 units/month to 470,000 units/month; acquired a second plant near the existing Tainan Plant to support higher 2027+ capacity; delayed the Chinese capacity expansion plan due to geopolitical considerations, pushing back the 150,000 units/month 2026 target to 50,000 units/month by 2027 and 100,000 units/month by 2028, with no change to the long-term entry plan. Total 2026 monthly capacity will increase 70,000 units after the Mitsugi and Tainan expansions.
• Prime Wafer Capacity Expansion Guidance: Plans to increase 8-inch monthly capacity from 250,000 units (end-2025) to 300,000 units in 2026, with future investment decisions based on market conditions. Plans to increase 12-inch monthly capacity from 110,000 units to 150,000 units in 2026, with all investment coming from SGRS and no cash outlay from RS Technologies.
• Energy Business Guidance: Will start operations at the new Chinese electrolyte plant in 2026 to drive growth. A 12,000 MWh energy storage facility planned for Fukushima has been selected for SII subsidies, with total project value of ~1 billion yen and a subsidy of ~381 million yen covering one-third of total cost.
• Shareholder Return Guidance: 2025 full-year dividend increased 10 yen per share to 45 yen, and 2026 dividend is targeted at 55 yen per share, with the company committed to continued dividend increases and higher payout ratios going forward.
• Cash Allocation: Over the 2026-2028 period, cash will be prioritized for large-scale capital investment in the high-margin wafer reclamation business and R&D for cutting-edge applications, continued M&A for synergetic targets and new market entry, alongside increased shareholder returns.

• Geopolitical risk between Japan and China forced a delay to the planned wafer reclamation capacity expansion in China, pushing back capacity ramp and potential revenue/profit growth from the market.
• The wafer reclamation business relies on growing demand from major customers (including Taiwanese foundries and Korean memory makers); a slowdown in semiconductor industry capex could reduce demand for reclaimed wafers and leave new expanded capacity underutilized.
• In the Prime Wafer business, general-purpose 8-inch wafer prices continue to face downward pressure, which could further compress operating margins if product mix adjustments do not offset this trend.
• The 12-inch Prime Wafer business (SGRS) and Energy business remain in the investment phase, so continued investment losses will weigh on consolidated results in the near term, and there is no guarantee these investments will generate expected returns in the future.
• Large-scale capital expenditure over the medium term leads to increased depreciation expense and temporarily lowers capital returns (ROIC, ROE) and operating margin, with uncertainty over the timing of demand growth to absorb new capacity.
• Chinese 12-inch legacy semiconductor production currently demands lower-priced silicon components, which puts downward pressure on the segment's operating margin, and it remains uncertain when higher quality (higher margin) demand will materialize.

Q: What is the price trend outlook for reclaimed wafers?

A: Cutting-edge semiconductor reclaimed wafers have higher quality requirements and command higher prices. Currently, demand for high-quality, high-value-added reclaimed wafers is growing driven by AI demand, so the company expects average selling prices to rise going forward.

Q: What is the current status of reclaimed wafer shipments to Korea?

A: Korean memory makers are currently reporting strong performance and expanding production, which is driving growing demand for reclaimed wafers in Korea. The company plans to expand its production capacity to increase its market share in Korea.

Q: What is the expected depreciation expense for fiscal 2026?

A: Depreciation expense is expected to be ~6.4 billion yen for 2026. For 2027 and beyond, depreciation will increase as assets increase at the Mitsugi and Tainan plants, which is already incorporated into plans, but the company will refine the forecast and update with more detailed figures in the future.

Q: Why were 2026 and 2027 plans revised in this rolling update from the prior medium-term plan?

A: The launch of new businesses has been slightly delayed compared to original expectations, which is reflected in the lower revenue and profit projections. The company will continue to work on launching new businesses and will provide updates when new plans are finalized.

Q: ROIC and ROE are on a downward trend, indicating lower capital efficiency. What is management's view on this trend?

A: Management recognizes that the metrics are on a downward trend, but the company is currently in a phase of prioritizing upfront growth investment. The decline in profitability is temporary, and after 3 years, the large-scale investment in reclaimed wafers and the maturing of the energy business will drive a recovery in profitability.

Q: For the 8-inch prime wafer capacity expansion to 300,000 units per month in 2026, is there an expectation of full utilization?

A: Currently, 8-inch production is already running at roughly full capacity at 250,000 units per month. While the 8-inch market has short-term volatility, overall it is a relatively stable market, and gradual capex by 8-inch semiconductor customers will continue to generate incremental demand that will absorb the new 300,000 units per month capacity, so full utilization is expected.

Q: What is the future strategy for silicon components?

A: Global demand for semiconductor manufacturing equipment is growing, so the market for the company's specialty silicon ingots for etching device consumables is expanding. Going forward, the company will strengthen collaboration with subsidiary DG Technologies, which processes silicon components into final products, to build an integrated upstream-downstream operating structure. Over the medium to long term, the company will target more large-diameter silicon component orders to drive profit growth.

Q: Is the wafer reclamation capacity expansion only for silicon wafers? Is it possible to convert capacity for SiC, GaN or other new materials? Was the capacity expansion decision based on customer communication?

A: Currently, mass production is focused on silicon reclaimed wafers. The company is open to entering reclamation for SiC, GaN and other new materials if demand materializes, but demand for these materials is not high enough at present, so the company will continue to monitor market conditions and enter when the timing is right. Management is also collecting information and conducting R&D for glass substrates, which are seeing growing use in backend processes. All capacity expansion plans for wafer reclamation are developed based on communication and confirmed demand from major customers including large Taiwanese foundries.

Q: What was the background for changing SGRS's capital expenditure plan?

A: SGRS, the equity-method investee operating the 12-inch prime wafer business, originally planned to reach 150,000 units per month in 2026 and 300,000 units per month in 2027. The plan was changed to a more gradual capacity ramp based on current market conditions, to optimize the profit and loss outlook.

Q: What is the outlook and strategy for SGRS's 12-inch prime wafer business?

A: The company is expanding from 8-inch to 12-inch wafers, and will leverage its existing expertise in 8-inch power semiconductor and IGBT wafers by horizontally expanding to 12-inch products in these same core segments to stabilize profitability. The company will then gradually pursue customer qualification and development for higher-volume memory and logic wafer segments going forward.

Q: Why does the new medium-term plan project a lower operating profit margin than the prior plan? Will profitability stay low for the full three-year investment period?

A: Similar to the dynamic for ROIC/ROE, the company is currently in an investment phase, so the plan incorporates a temporary decline in operating margin. While margin is projected to fall temporarily, the absolute amount of operating profit is still planned to grow continuously over the period.

Q: What is the performance review and outlook for RSPDH?

A: In the 2025 fiscal year, RSPDH accelerated production of optical pickup modules, resulting in full-year revenue that significantly exceeded the initial 10 billion yen forecast. The company expects revenue to again exceed 10 billion yen in 2026, and is planning a full entry into the automotive camera module market. Going forward, RSPDH will explore additional new business lines leveraging its existing camera module expertise.

Q: Can you provide an update on the progress of the energy storage business, specifically regarding the METI subsidy selection?

A: The subsidized project will develop a 12,000 MWh energy storage facility on existing land owned by subsidiary LE System in Namie, Fukushima. The project has been selected for SII subsidies, with total subsidy of ~381 million yen, covering one-third of the ~1 billion yen total project cost.

Q: Why did you increase the dividend by 10 yen per share this year, compared to the original expectation of a 5 yen increase?

A: The increase to a 10 yen per share raise reflects the company's strong revenue and profit growth this year, and the fact that shareholder return is one of the company's most important policy priorities. These factors were considered comprehensively to arrive at the 10 yen increase.