RIVER ELETEC CORPORATION Q4 FY2025 earnings call

• Overall 2025 Fiscal Year Performance

  • Full-year revenue grew 4.5% year-over-year to 5.698 billion yen, but operating loss was 75 million yen, ordinary loss 60 million yen, and net loss attributable to parent company shareholders 79 million yen, missing all initial targets. The loss was driven by temporary costs for new automotive production line launch and increased R&D spending for new products.
  • Q4 2025 saw a clear recovery: revenue reached 1.661 billion yen (up 367 million yen quarter-over-quarter), operating profit of 27 million yen, and operating margin of 1.7%, up 6.1 percentage points from Q3. Recovery was driven by easing inventory adjustments and a shift to yen depreciation after Q3's yen appreciation.
  • Capital expenditure for the year was 788 million yen (focused on new automotive lines and clean room expansion at the Aomori subsidiary), depreciation was 630 million yen, and R&D spending was 302 million yen (up 59 million yen year-over-year for new element development).

• Product Portfolio Progress

  • Tuning fork-type crystal devices: Strong demand for ultra-small products for wearable medical/healthcare devices and emerging demand from automotive and smart rings, but smartphone segment demand remained stagnant, leading to missed sales targets.
  • AT-cut crystal devices: Ultra-small models for medical/healthcare performed very strongly, with full production and expansion ongoing, leveraging trends of automotive electrification and re-evaluation of Made-in-Japan products amid geopolitical risks.
  • KoT-cut crystal devices: Proprietary oscillator IC was developed in-house, and sample shipments of the KCRO-04 crystal oscillator have started, with multiple mass production projects ongoing for high-frequency AI and high-speed communication applications.
  • Automotive market entry: New dedicated production line was launched but slightly delayed from plan; IATF16949 automotive quality certification is on track to obtain within 2025, to build out a full sales expansion system.

• New Medium-Term Management Plan R2027

  • Maintains the company's long-term vision and four existing management policies: earning customer satisfaction and trust, creating value through original thinking, strengthening profitability and cash generation via structural reform, and establishing a sustainable management base.
  • Sets 2027 (final year of the 3-year plan) targets: 7.305 billion yen in revenue, 769 million yen in operating profit, 10.5% operating margin, and 7.5% ROIC.
  • Focuses on three high-growth demand areas: AI-related high-speed communication, smart automotive in-vehicle systems, and diversified IoT devices, targeting differentiated positioning based on proprietary technology.
  • Maintains organic growth as core, with no current plans for M&A or alliances; prioritizes capital allocation to growth investment while targeting a 45-50% equity ratio and maintains a 20% dividend payout ratio target, with consideration for introducing a DOE (dividend on equity) framework.

For the 2025 March fiscal year, total company sales reached 5.698 billion yen, a 4.5% increase year-over-year. Breakdown by application segment:

• Smartphone: 2.138 billion yen, down 280 million yen year-over-year, accounting for approximately 37.5% of total revenue
• Industrial equipment: 948 million yen, up 27 million yen year-over-year, accounting for approximately 16.6% of total revenue
• Consumer equipment: 802 million yen, up 102 million yen year-over-year, accounting for approximately 14.1% of total revenue
• Medical and healthcare: 678 million yen, up 147 million yen year-over-year, accounting for approximately 11.9% of total revenue
• Automotive (in-vehicle): 535 million yen, up 231 million yen year-over-year, accounting for approximately 9.4% of total revenue
• Other: Up approximately 68 million yen year-over-year, accounting for approximately 10.5% of total revenue

Geographically, overseas sales accounted for 90.8% of total revenue, an increase of 2.5 percentage points year-over-year, with growth in Taiwan, China, and Europe, and declines in South Korea and the U.S. due to weak demand.

For the 2026 March fiscal year, management forecasts continued recovery from Q4 2025's improving trend, projecting full-year revenue growth and return to net profit:

• Forecasts 6.07 billion yen in total revenue, 148 million yen in operating profit, 109 million yen in ordinary profit, and 279 million yen in net profit attributable to parent company shareholders, assuming an exchange rate of 152 yen per U.S. dollar.
• Revenue growth will be driven by steady growth in the automotive segment, while smartphone segment revenue is expected to remain flat. Profit improvement will come from stable production at the newly launched automotive line, which will reduce startup-related costs.
• Capital expenditure is planned at 626 million yen, a 20% decrease year-over-year after several years of aggressive upfront investment averaging 800 million yen annually. R&D spending will be maintained at over 300 million yen (a slight year-over-year increase), focused on continued development of high-frequency KoT-cut devices to support reliable sample delivery to customers.
• All previous strategic priorities from the prior medium-term plan will continue, with the new R2027 3-year plan targeting long-term growth focused on automotive, medical/healthcare, and AI/high-speed communication end markets.

• Macroeconomic and demand risks: Slow recovery of the Chinese economy, weak demand in some end markets, potential U.S. recession, and unstable global financial market conditions all pose downside risks to performance.
• Geopolitical and policy risks: Persistent instability in international geopolitical relations; the impact of U.S. tariff policy remains highly uncertain and is not incorporated into the current 2026 fiscal year forecast, creating unpriced downside exposure.
• Foreign exchange risk: Exchange rates are currently highly volatile. A 10 yen appreciation of the yen against the U.S. dollar is estimated to reduce full-year revenue by 160 million yen and operating profit by 100 million yen.
• Operational execution risks: The new automotive production line launch was slightly delayed from the original plan, and achieving stable operation and full utilization to meet expected contribution to 2026 fiscal year performance carries execution risk.
• Prior target underperformance: All quantitative targets of the previous medium-term plan were missed, primarily due to lower-than-expected sales growth, which remains a key ongoing risk for the new R2027 plan.

Q: What were the past fiscal year sales from the newly launched automotive production line, and what is the expected full-year revenue contribution for the upcoming 2026 fiscal year? Was the new line unprofitable in the just-ended fiscal year?

A: The new automotive production line recorded 535 million yen in revenue for the 2025 fiscal year, a 231 million yen year-over-year increase. The line was in launch stage last year, so it dragged operating profit by 226 million yen due to ramp-up costs, resulting in a negative contribution for the year. For 2026, stable operation of the line is expected to drive further revenue growth and deliver positive profit contribution as utilization rises.

Q: What is River Eletech's core competitive strength in the medical market, and what is the growth outlook for this segment?

A: Our core strength is in producing ultra-small, highly reliable crystal devices that meet the strict size and performance requirements for wearable medical and hearing health products. Demand for ultra-small models has grown strongly, with revenue rising 147 million yen year-over-year to 678 million yen in 2025. We expect continued growth as demand for wearable health monitoring devices and hearing aids expands, and we aim to establish a leading market position for small, high-reliability medical-grade crystal products.

Q: Why were all targets of the previous medium-term plan missed, and what is different for the new R2027 plan?

A: The main miss came from lower-than-expected sales growth, driven by prolonged stagnant demand for smartphone-related products that outpaced initial projections. The core strategic directions of the prior plan (product portfolio optimization, automotive market entry, structural reform) remain valid and will be continued in R2027. We have adjusted our targets to reflect the current market environment, added clearer focus on high-growth areas (automotive electrification, AI high-speed communication, medical devices), and strengthened performance tracking via ROIC-based management to improve execution.