SATORI ELECTRIC CO.,LTD. Q2 FY2025 earnings call

Overall Financial Results

• Total interim net sales: 77.8 billion yen (+5% YoY); operating profit: 2.08 billion yen (-22% YoY); ordinary profit: 1.66 billion yen (-15% YoY); net profit attributable to parent shareholders: 1.14 billion yen (-10% YoY)
• Excluding special factors (foreign exchange impact, human capital investment, executive stock compensation), operating profit grew 1% YoY; both sales and operating profit exceeded initial guidance

Value Maximization Initiatives

• Mid-term target for fiscal 2026: achieve ROE of 9%+ and PBR of 1.3x+
• Financial Strategy (ROE Improvement via Equity Compression)
  • Sold unnecessary business and operational assets, compressing tangible fixed assets by 2.6 billion yen (acquisition value basis) compared to May 2023
  • Company-wide CCC improvement initiatives reduced inventory holding months to ~1.2 months, half the level of industry peers, without disrupting customer supply chain support
• Non-financial Strategy (Human Capital Management Promotion)
  • Established a human resources management policy focused on cultivating talent for existing business transformation and new business model development
  • Overhauled internal training programs, expanding role-specific programs including executive governance training, demand creation talent strategy training, logical thinking/presentation training, and global talent overseas training to support cultivation of young and new market-focused talent
• Growth Strategy ①: India Business Expansion via SMET
  • Acquired an additional 25% stake in SMET in December 2024, increasing ownership to 75% to strengthen governance and create synergies
  • SMET, a pioneering Indian electronics distributor founded in 1990, already serves ~2,000 domestic Indian customers, provides end-to-end solutions (not just component sales), and has outpaced India's 19% semiconductor market growth in recent years
  • Key focus areas: developed 2-wheeler/3-wheeler EV charger solutions (next-generation GaN device models in development), started new business with ANEVOLVE (ANAND Group subsidiary), and launched infotainment and security solutions for Indian national railways; synergies from distributing Satori Electric's Japanese products through SMET's sales network are already emerging
• Growth Strategy ②: Industrial DX Initiatives
  • Focus on addressing projected 6.5 million labor shortages in Japan by 2030; prioritizing collaborative robot solutions for manufacturing and DX solutions for the livestock industry
  • Partnered with Eco-Pork in January 2025 to integrate Satori's Milfee feed tank level management system with Eco-Pork's AI Pig Camera (camera-based AI pig weight estimation solution) to deliver integrated DX solutions for pig farming efficiency improvement

Overall company net sales for the interim period totaled 77.8 billion yen, a 5% increase year-over-year. No absolute segment revenue figures or revenue contribution percentages were provided. 1. Enterprise Segment: Sales decreased significantly due to extended customer inventory adjustment processes in procurement management services. 2. Mobility Segment: Sales increased as expected, driven by continued strong performance in the India market and growing domestic automotive-related business. 3. Global Segment: Sales increased, supported by higher sales of unit products for office equipment and growing sales of electronic components for PCs and servers ahead of the Christmas shopping season.

• Full-year 2025 May fiscal year guidance is maintained unchanged from the prior forecast: net sales of 154 billion yen and operating profit of 4.3 billion yen, after factoring in interim results and current business environment
• Interim dividend is maintained at 40 yen per share (10 yen increase YoY), and full-year annual dividend guidance is maintained at 86 yen per share (6 yen increase YoY), in line with the company's target 50% payout ratio for net profit attributable to parent shareholders
• Management expects the strong growth trajectory of India's market to continue, and forecasts the domestic industrial DX market to grow gradually

• Core identified risk for India market expansion: vastly different cultural and business practices compared to Japan, particularly around credit, inventory management, and commercial norms
• No major political or tax-related risks have been identified to date
• Future domestic automotive segment sales are exposed to downside risk from changes in vehicle production volumes
• Broader 2025 market uncertainty: potential trade policy changes from the new U.S. administration are expected to impact global markets, though the magnitude and timing of impacts remain unclear; semiconductor manufacturing equipment performance, which was weak in 2024, is expected to improve in 2025 but the timing of recovery remains uncertain

Q: Which high-growth segments for Japanese semiconductors and electronic components exist in India, what is SMET's strategy, and what key risks should be considered? / A: SMET is an India-focused local firm that holds the No.1 market share for smart meters (using Renesas microcontrollers) with in-house programming and reference design capabilities. It currently sources from over 500 suppliers including multiple Japanese firms and Qualcomm, covering all major semiconductor categories and prioritizing products demanded by the Indian market regardless of origin. SMET currently focuses on 2-wheel/3-wheel EV controllers and charging infrastructure, as this segment has far larger volume than passenger vehicles in India. The key risk is differing cultural and business practices; Satori supports SMET on governance and compliance from Japan to mitigate this, and no material political/tax risks are seen currently.

Q: What is the breakdown of SMET's reported revenue, and why was the 25% additional stake acquired at ~1.1 billion yen? / A: The 6.2 billion yen figure is SMET India standalone revenue, while the 25 billion yen full-year forecast includes SMET Singapore on a consolidated basis, which matches the question's clarification. The 1.1 billion yen valuation for the 25% stake came from nearly six months of due diligence and valuation discussions, following the staged acquisition structure (25% initial stake, then 50%, then the current additional 25%) and the agreed mid-range valuation from the process.

Q: Why is Satori's domestic automotive CASE component business performing well while other semiconductor firms struggle, and why are segment full-year forecasts unchanged? / A: Satori's automotive business focuses on IT/sensing-related components for EVs rather than traditional powertrain and electrical systems. Growing standardization in this segment has expanded the market, driving steady sales growth, though future sales will be exposed to changes in vehicle production volumes. The unchanged full-year forecast reflects that interim performance was in line with plan, and the forecasted sequential decline in Mobility and Global segment results in H2 and growth in the Enterprise segment was already baked into the original full-year budget.

Q: What is Satori's outlook on 2025 overall market conditions? / A: Most customers are waiting to see what trade policy changes the new U.S. administration will implement and their global impacts, so near-term visibility remains low. Semiconductor manufacturing equipment, which underperformed in 2024, is expected to improve in 2025 but the timing of recovery is uncertain, and most customers expect conditions to remain similar to 2024. India remains the outlier with expected continued strong growth, and the domestic DX market is expected to see gradual growth.