Latest Update : May 23, 2014
Investor Meeting Presentation for FY 3/2014 held on May 9, 2014
* Some parts have been added and modified for a clearer understanding.
- Now that demand for LED backlights is so strong, how far can sales climb given your production capacity?
- Is there any possibility that the big orders you're currently getting for LED backlights may be due to anticipatory demand?
- I think it would be great if your high-end LED backlights, which enjoy a whopping 70% share of the market, were more widely used. What is your current plan for keeping sales up once they become mainstream so they don't turn into just another common product?
- You said that operating income for the fourth quarter included a foreign exchange gain of 1.4 billion yen, do you expect an increase in profits for this first quarter aside from foreign currency gains?
- What exactly is the monthly average for the external ball bearing shipment volume under the new medium-term business plan shown on slide 26? Which market is showing the greatest demand now?
- In light of your ball bearing shipment volumes, do you expect to see an uptick in global business confidence compared with the January-March period?
- If sales continue at the current pace, do you believe they will exceed the latest forecast figures shown in the graph on page 26 even after factoring in seasonal trends?
- I have some questions about your new medium-term business plan. Your hybrid component sales target is 40 billion yen for this fiscal year and 70 billion yen three years from now. How many new hybrid component products will you be adding to your lineup, which business segments will sell them, and how profitable will they be?
- The forecast for measuring components you announced during this presentation seems slightly lower than previously stated. Do you see some decline on the horizon?
- Why is the increase in projected depreciation cost totaling 26.2 billion yen for the fiscal year ending March 2015 larger than the projected capital expenditure total of 21.5 billion yen?
- I would like to ask you about the fourth quarter operating income figures. What was the total for the temporary expenses you had expected to incur during the fourth quarter, which you mentioned at the February investor meeting?
- You project LED backlight sales to total 80 billion yen this fiscal year. Can you give us the projected sales figures for each quarter so I can see how sales will pick up in the first two quarters? Also, how do you expect profitability will change from the last fiscal year? How will the ratio of sales to Chinese manufacturers change?
- What's the forecast for sales of turbocharger bearing units in your new medium-term business plan?
- Can you tell us how your initiatives to boost production capacity for LED backlights in China and Cambodia are moving along as well as the risks involved?
- Don't you think you can expect to see more growth in rod-end bearing sales given the current volume of commercial aircraft orders going to Airbus and Boeing?
- Has your motor business become a steady profit generator? What has changed since the previous fiscal year?
- What was the operating margin for the machined components business segment in the fiscal year that ended March 2014? Do you expect to see any positive factors that will expand the operating margin this fiscal year other than growing sales?
- Given the supply-demand balance, isn't it only natural that there be a difference in the operating margin when LED backlight sales total 80 billion yen and by the time they reach 100 billion yen?
- What's your policy for buying back your own shares? What were the terms and conditions for repurchasing your own shares in the past and what is your buyback strategy now?
- You mentioned that there was a temporary cost increase of 0.4 billion yen in the fourth quarter of the previous fiscal year. Excluding that one-off factor, do you expect profits to decline in any business segments this first quarter compared with the last fourth quarter?
- Operating income for the machined components business segment rose significantly in the fourth quarter. Were there any special reasons for that?
Question and Answer
- We can generate 100 billion yen in sales annually with our current production capacity. We decided to make an urgent capital investment totaling 3.2 billion yen this fiscal year. In order to increase sales, we must clear some hurdles that we cannot overcome all by ourselves, like securing parts from external suppliers, so that's going to be a challenge. That's why, to tell you the truth, I don't want to give you any specific figures.
- Last year we received orders far exceeding our initial projection. Mobile phone companies in China and South Korea are now aggressively advertising their products. All these advertisements are for ultra-slim products. You can't hear the sound of 1.3 billion people waking up unless you actually go where they are. We've gone around the world to see for ourselves how well LED backlights are selling, and the orders coming from China seem to reflect a real demand. We want to have the kind of production capacity that will enable us to meet customers' needs as much as possible.
- I've talked about demand growth only in the smartphone market, but our lighting technology is also appreciated in other markets including thin tablets, automobiles, and more. Although it's true that we cannot tell what things will be like five years from now, our strategy is to leverage our technological capability in the areas that we specialize in. That will enable us to enter the LED lighting market for smart cities and smart buildings and keep sales and profitability up. LED backlights and LED lighting for smart cities and smart buildings are all handled by our Lighting Device Business Unit. We regard them as the same in the sense that we are taking the lighting technology in our hands and making it our own.
- We project that exchange rates for this fiscal year including the first quarter will not be that different from the fourth quarter. If the exchange rate for the Thai baht, which means a lot to us, remains between 3.4 and 3.5 baht to the yen, that will be great.
- The monthly average ball bearing shipment volume for this fiscal year is expected to total 228 million units, including 142 million units to be shipped externally and 86 million units to be shipped internally. It will total 234 million units next fiscal year, including 150 million units in external sihpment and 84 million units in internal shipment. The figures for the year after next will be 155 million units in external shipment and 83 million units in internal shipment for a total of 238 million units.
Demand is strong in the automobile, data center fan motor, and home appliances markets. On top of that, demand for our ball bearings will grow as living standards rise. For example, more ATMs will be introduced in India, etc. There was a surge in demand in Japan during the January-March period due to the scheduled consumption tax increase. At the time there were growing concerns about an economic slowdown during the April-June period. Those fears have since been put to rest by robust demand across the automobile market as well as in the office automation equipment market and we expect sales to remain upbeat. In addition to aircraft parts, our growth drivers include LED backlights whose sales are now skyrocketing. I talked earlier about the correlation between the world's GDP growth rates and the growth of our continuing operations. Growth of businesses that operate in special environments, like LED backlights, is expected to exceed the economic growth rate.
- Shipment for April totaled 231 million units, with 139 million units shipped externally and 92 million units shipped internally. Shipment for May will total 231 million units, with 143 million units to be sold externally and 88 million units to be sold internally.
- Most of our hybrid components fall under the electronic parts category, which basically encompasses motors.
While we announced our target for this year as 40 billion yen, I'm afraid I can't provide you with specific figures due to customer confidentiality. Profitability will also vary. Hybrid components are key to our business strategy and these figures represent sales of our products that can be categorized as hybrid components. A certain portion of their sales will be posted under different business divisions.
- We project measuring component sales to total 12.8 billion yen this fiscal year, 15.7 billion yen next fiscal year, and 19.0 billion yen the year after that. Sales are up in the automobile market.
- It's because we now depreciate some of our general-purpose production lines over a two-year period using the accelerated depreciation method and recognize them as taxable expenses in addition to depreciating dedicated equipment for LED backlight production over a period of two years as we always have. The increase due to this change will come to about 0.7 billion yen for this fiscal year.
- Temporary expenses totaled about 0.4 billion yen for disposal of surplus materials used in motor, LED backlight and measuring component production. Other expenses were accounted for as an extraordinary loss.
- The figures announced this fiscal year include 16.6 billion yen for the first quarter, 24.0 billion yen for the second quarter, 23.0 billion yen for the third quarter, and 17.0 billion yen for the fourth quarter, for 80.6 billion yen in total. Sales to Chinese customers remained steady from January to March 2014, which was the fourth quarter of the previous fiscal year, and did not fall as much as we had expected. We can expect sales for this first quarter to far exceed our forecast. Our operating margin will be affected by depreciation costs this fiscal year since, as I mentioned earlier, we changed the depreciation period from 10 years to 2 years for some assets. That's why we don't expect to have a high operating margin this first quarter, but it should edge up toward the double digits in the second quarter when sales are expected to take off.
I cannot provide you with the percentage ratio of sales to Chinese customers at this time.
- Sales will total 1.0 billion yen this fiscal year and 2.0 billion yen next fiscal year. Although our previously announced forecast was 5.0 billion yen, we changed our projection due to the status of customer sales. Sales should rise substantially in the subsequent fiscal year.
- Our local staff is working really hard right now. Unfortunately we were unable to reach the production volumes that could fully satisfy customer needs last month. Still I can say we are making steady progress. If we can hold the line and consequently bring sales up to 100 billion yen, things should all work out in the end.
- We are all aware of the current situation and are now discussing how we can create synergy while trying to overcome hurdles within the organization. It will be a while before we see those efforts pay off in quantitative terms. This is an area we still need to work on, and we are going to put more effort into it.
- Last fiscal year, we saw more than 10 billion yen year on year improvement in motors. We gradually succeeded in getting a share of some niche markets. Since our market share has increased for products used in some specific applications, profit vulnerability has declined. On top of that, our customers in the automobile and office automation equipment industries saw demand recover thanks to upward market trends. We expect the business to remain somewhat upbeat.
- Despite the fact that our operating margin rose to 26.0% in the fourth quarter of the last fiscal year, the operating margin for this fiscal year is projected to be 24.1%. That may seem strange but that's what we project. Since both production and sales volumes are upbeat in the first quarter, the operating margin should exceed our forecast if things continue to go as they are now. The operating margin for ball bearings is the highest, followed by pivot assemblies and rod-end fasteners at the moment.
- Since we're a parts manufacturer, we've never raised our sales prices just because we were busy. We want to supply cutting-edge products to a host of customers, but the terms and conditions are different for customers who buy large quantities and those who don't because that's how the economy works. Although there are limitations to the injecting molding technology when making thinner products, we should be finished with depreciation of manufacturing equipment by that point.
- When we bought back our shares in the past, we did that because our share price was abnormally low. Ensuring growth is our priority now, and to that end we are always looking into M&A opportunities as well. Under the current circumstances, we see there are things other than buying back our own shares that we should give higher priority to.
- I don't think so as long as things keep moving at the current pace.
- There were no special factors behind the increase.