Asahi Diamond Industrial Co.,Ltd. Q4 FY2025 earnings call

Overall Financial Results

• Full year 2025 March total net sales reached 41.06 billion yen, up 6.1% YoY; operating profit hit 2.311 billion yen, up 51.4% YoY; ordinary profit was 3.07 billion yen; net profit attributable to parent company shareholders was 2.493 billion yen, with EPS of 48.36 yen.
• Positive operating profit drivers: 1.6 billion yen from sales volume growth, 300 million yen from reduced retirement benefit expenses. Negative drivers: higher personnel costs, increased depreciation expenses, and higher variable cost ratios.
• Quarterly trend: Sales grew gradually through Q1-Q3 led by electronics/semiconductors and transportation, but Q4 saw a decline across all industries except machinery; operating profit fell sharply in Q4 due to lower sales and higher fixed cost burdens.

Mid-Term Management Plan 2025 Progress

• Focus on Semiconductors: Allocated concentrated management resources to the electronics/semiconductor segment to target high-margin niche top market position. Expanded production capacity for SiC lapping wheels to 4x 2022 levels by FY2024, built a flexible production setup that can accommodate future demand recovery. Automated and digitized manufacturing to improve production efficiency and reduce costs, and expanded sales of high-margin products via global trade show participation.
• Strengthen Management Base: Undergoing core system renewal for launch in FY2027 to achieve transparent management metrics and operational efficiency; rolling out SFA systems to speed up information sharing and enable more timely sales strategy. Optimized organizational and personnel resourcing for overseas subsidiaries, and running initiatives to improve corporate branding and employee development.
• Resource Optimization: Conducted product portfolio reviews from a profitability perspective, and decided to end production of multiple unprofitable products. Established a 50/50 joint venture AA Diamond Technology with Tokyo Seimitsu in May 2025 to combine Asahi's diamond tool development strength with Tokyo Seimitsu's dicing application expertise, to develop high-quality, cost-competitive hub blades. Mass production launch is targeted for H2 FY2027, with an initial 10-20% share target in the ¥30+ billion hub blade market.

Capital Policy & Shareholder Returns

• Targeted 50%+ payout ratio and 120%+ total payout ratio on a 3-year average. Approved a full-year dividend of 30 yen per share for FY2025, representing a 62.0% payout ratio. Launched a 2 million share, 1.5 billion yen upper limit share repurchase program in February; 233,000 shares were acquired for ~200 million yen as of end-March, bringing total payout ratio to 70.1%, with repurchases continuing through the end of August.

1. Electronics & Semiconductors (including electroplated diamond wire): Revenue increased 13.5% year-over-year, driven by strong demand for advanced semiconductors, recovering FPD and wire drawing segments. Within this segment, sales of electroplated diamond wire declined overall as SiC-oriented decreases offset silicon-oriented increases. The 5 priority semiconductor products reached 8.3 billion yen in full-year 2024 sales, with 6.7 billion yen from silicon-oriented tools and 1.6 billion yen from SiC-oriented tools.
2. Transportation Equipment: Revenue increased 5.3% year-over-year, with growth led by commercial vehicle sales in India and Central America, and recovering demand for aircraft-related products.
3. Machinery: Revenue was flat year-over-year. Bearing and carbide tool sales increased on gradual recovery, but falling overall machine tool demand offset growth from semiconductor equipment ceramic processing tools.
4. Stone & Construction: Revenue decreased 5.8% year-over-year. Stagnation in the Indonesian mining market reduced resource exploration sales, and shrinking private/demolition construction projects in Japan offset solid public works performance; portable cutter sales were flat year-over-year.

Geographically: Japan +4.8% YoY, China +15.4% YoY, Other Asia-Oceania +8.2% YoY, North America -0.6% YoY, Other regions +24.9% YoY. Revenue contribution percentages were not disclosed in the provided transcript.

• Full year 2026 March total net sales guidance is 42.5 billion yen, representing continued year-over-year revenue growth.
• Operating profit guidance is 2.3 billion yen, ordinary profit 2.6 billion yen, and net profit attributable to parent company shareholders 2.2 billion yen, all representing year-over-year declines driven by higher personnel costs, higher depreciation expenses, and an expected ~800 million yen increase in defined benefit retirement benefit expenses.
• All industry segments are projected to deliver year-over-year revenue growth: Electronics & Semiconductors +2.9% (led by silicon semiconductor products), Transportation Equipment +2.1% (led by automotive), Machinery +3.9% (led by bearings and carbide tools), Stone & Construction +10.7% (led by recovery in Indonesian resource exploration).
• Geographic guidance: Japan +5.4% YoY, China -4.1% YoY, Other Asia-Oceania +11.7% YoY, Europe +6.3% YoY, North America -9.4% YoY, Other regions -12.3% YoY.
• Capital expenditure guidance is 3.5 billion yen, mostly limited to partial equipment installation at the new Asahi Diamond Europe factory, down from 5.298 billion yen in FY2025. Depreciation expense guidance is 3.5 billion yen, up from 3.257 billion yen in FY2025.
• The 5 priority semiconductor products full-year sales target is set at 9.2 billion yen (7.4 billion yen silicon, 1.8 billion yen SiC), below the original Mid-Term Management Plan 2025 target of 13.6 billion yen, due to ongoing SiC market inventory adjustments. The overall Mid-Term Management Plan 2025 full-year financial target is not expected to be met due to larger-than-expected gaps between actual and projected market conditions for the semiconductor industry.
• Management expects limited SiC recovery in H2 FY2026, with tight market conditions continuing through the period.

• Persistent macroeconomic uncertainty: ongoing geopolitical risks, slowing Chinese economic growth, and sharp exchange rate volatility are expected to continue creating an unpredictable operating environment.
• SiC semiconductor demand downturn: Global SiC demand is currently in a prolonged downturn driven by ongoing industry inventory adjustments, and the segment has not grown as quickly as projected when the Mid-Term Management Plan 2025 was developed.
• The company is currently trading below a PBR of 1x, and meeting ROE and PBR targets remains challenging; the company acknowledges a large gap between current profitability and the profitability needed to hit its ROE target of 8%.
• Q4 2025 profitability faced downward pressure from broad-based sales declines across most industry segments and increased fixed cost burdens.
• Unprofitable products continue to drag on overall profitability, requiring ongoing portfolio restructuring.

Q: How is Asahi's production structured to accommodate both SiC and silicon tool demand, given current weak SiC demand? What is your outlook for SiC demand, and are there any credit risks from recent reported stress at U.S. SiC companies?

A: SiC and silicon tools share many production processes, so the production line is designed to flexibly shift capacity between the two product types. Overall combined capacity has been expanded 4x from prior levels, with a mixed setup that allocates capacity for 3x growth in silicon and 5x growth in SiC. Management views the current SiC downturn as temporary, and expects long-term demand growth will fully utilize the expanded capacity; prior years' growth was unsustainably fast, so the current correction is healthy. All potential credit losses have already been priced in, so there is no material remaining impact to the company's accounts receivable.

Q: What are your strategies to address the company's sustained PBR below 1x, and what is your target for ROE?

A: Management prioritizes improving profitability as the core step to lift PBR, and aims to increase ROE to the 8% level. The company will actively reduce shareholder equity by reducing holdings of policy-held shares and continuing aggressive share repurchases to lift valuation.

Q: Do you acknowledge the large gap between the current profit level and the 50 billion yen annual net profit needed to hit the 8% ROE target?

A: Management is fully aware of the gap between current performance and this high target. It will pursue the target by both growing net profit toward the 50 billion yen level and concurrently reducing total shareholder equity to lift ROE.