Latest Update : Nov.28, 2018
Investor Meeting Presentation for 2Q FY 3/2019 held on November 7, 2018
* Some parts have been added and modified for a clearer understanding.
- In the Electronic Devices & Components business, sales for the full year rose by 10 billion yen, compared to the previous plan, and profits rose by 1 billion yen, and can you tell us the reason for this? In the media various predictions have been made about some high-end smartphones for the second half, and how are these being incorporated this time? Although the full year plan for the Mitsumi Business is unchanged, could you tell us the details of the plan, including how you arranged to recover one-time costs for semi-conductor from the first half in the second half?
- For LED backlights, does this mean the assumption at the beginning of the year was too cautious in the first place?
- In the Q1 Investor Conference Call last time, there was the explanation that bearings were reaching a "plateau," but this time the sales plan for the third quarter is down. This leveling off and current adjustments in the industry, how deep do you sense this is? In the explanation just now, for next fiscal year it's possible to have a 10% increase in volume again, but could you explain how you can see that now?
- With regard to the wording on slide 18 "strengthening profitability," are we to understand that even though sales and unit volumes are somewhat down for the third quarter, profits and profit margins will increase?
- In the Q1 Investor Meeting Presentation reference materials, external sales in the second quarter were planned to be 212 million units, however you said the actual record was 206 million units. Can you give a summary of those that are predicted to increase and those predicted to decrease in the second half, including customer inventory adjustments?
- Please explain the reason why the profit forecast has not changed despite the lowering of the sales forecast for the Mitsumi Business by 10 billion yen.
- The profit plan for the Electronic Devices and Components business was unchanged, but to be honest, I feel that LED backlights unit volume is severe. Was the profit plan this time unchanged due to the price projection last time being too conservative?
- About the change in the foreign exchange assumption this time, compared to the existing plan, I think the change has had a fairly positive effect in terms of profits. Considering the fact that even so the profit forecast is not changed much, can we understand this to be because uncertainty factors from smartphone risk and games are taken into account to some extent in the performance projection this time?
- Regarding the second quarter results, the expression "timing issue" is used in the Electronic Devices and Components and Mitsumi segments, does this mean that the timing of production on the customer side was wrong, or that there was some sort of effect from individual internal factors inside the company?
- Regarding ball bearings, I think in the stock market there is concern about how much downside there will be, as it seems the trend of is that ball bearings are peaking out overall. From your company's viewpoint, what do you think is the percentage of the business which will possibly decline?
- As for bearing inventory, what was said at the briefing, if the status of "air fees falling to as low as 20 million yen" is considered optimization, how much time will be required for optimization of the status of the gap between current production and demand?
- In conclusion, as long as there is no major slowdown, there is no major worry?
- Can you tell us a little about China +1? I think this is an overall discussion involving product other than bearings, and to the extent possible it's okay, so could you tell us what kind of response is being demanded from customers now?
- As for the Mitsumi Business, is there an effect from the US and China tariff problem?
- Particularly, regarding the second and third quarters in this instance, there is a large volume of things that will be affected, and what is your comment on this?
- Regarding backlight demand for the next fiscal year and thereafter, could you share with us any updates?
- Can we understand that the tone has not changed much from earlier explanations?
- In Electronic Devices and Components with backlights, you explained that there was a timing issue in the second quarter, but in terms of the Company's productivity and yield, what was the situation for the second quarter and what kind of outlook do you have for the third quarter? I think there were reports that backlights were not available, could you confirm the status of this?
- How about Mitsumi Business's Electronic Devices and Components and Smartphone related?
- On the point of Electronic Devices and Components sales results for the second quarter being above the forecast, and the sales forecast for the fiscal year being increased by 10 billion yen, could you confirm for us how the plan was changed from the original? Could you confirm for us whether this was just a change of price, or are you assuming that while the old models are selling well, new models are not selling, and so forth?
- Regarding the adjustment of operating income, while the amount was 6.5 billion yen for the first half, it is forecasted to be 11 billion yen for the second half, and we may suppose this is because costs piled up due to the merger with U-Shin in the second quarter. Please allow me to check on this, as to whether there is any apparent cost or the notion of a buffer for smartphone or game risk.
- If you don't mind, could you give us a sense of the scale of the cost of the environmental measures?
- As for ball bearing production capacity, could you tell us when you will increase monthly production up to 315 million units, and also about the plan and timing for even greater increases in production?
- What about after that?
- As for camera actuators in the Mitsumi Business, how were the results for the new products in the second quarter, and is it correct to speculate that because camera actuators will greatly increase in the third quarter, profits will still increase despite the decrease of overall sales for Mitsumi in the second half? As we approach mid-November, can you include in your explanation what kind of results are coming out?
- At the present point, how do you see the seasonality of the third and fourth quarters?
Question and Answer
- Regarding LED backlights, since in the first quarter we had not really gotten started, we are now seeing the present situation, and we would like you to understand that these have been incorporated in the way you have suggested.
Concerning the Mitsumi Business, earthquake impact of 1 billion yen was included in the second quarter, and some is also incorporated into the third quarter, but we think we can overcome this as overall income is growing. There is no specific reason for this.
- That's a correct understanding.
- First of all, in our explanation last time, we meant "If we reach a plateau it will be easy," however, that ended up being interpreted as "we actually reached plateau" by some people.
Bearings themselves, as we just said, are extremely solid and absolutely no worry. However, I think it's true that this was somewhat affected by such things as virtual currency and sentiment toward capital investment centering on China. However, it's an undeniable fact that electrification of automobiles is progressing, and we think the installation of servers, etc., is a problem that will not wait. I do not know if we will get to a plateau, but last month in Europe we had orders for 1.5 months, so I think that booking is very strong. Consequently, I think in the big picture there is no need to worry.
- Yes. The profit margins are already increasing. We would like you to understand that profit margins are also increasing not only in bearings, but also in rod-ends & fasteners.
- Fundamentally, we do not see anything for which demand is falling. Since the denominator is 300 million units, our understanding is that a difference of 5 million units is within the margin of error. We think that for now we want to have proper capacity and we should prepare systems for cars and cooling fans, which will be the biggest drivers going forward, and to have inventory.
- As for sales, while such things as mechanical components and smart phones are in the midst of changes, we are adjusting the balance between the actual results for the first and second quarters, and the third and fourth quarters.
- Please allow me to refrain from commenting on price, but the profit structure from the models up to last year has greatly changed. So, as was the case up to last year, comparing the assumed amount where if we just sold just this much, profit would probably increase by this amount, the impact of new smartphones on results turned out to be reduced. However, since exchange reserves are low and things will become a little more severe, we set it at 110 yen.
- Because it's not our place to comment on the situation of a specific customers, we cannot comment on the relationship between that and foreign exchange, but we aren't in strong disagreement with what you point out.
- This can be understood as a situation at the customer generally.
- Many people think of large bearings and small bearings as being the same thing, but actually they are completely different. When industrial machinery slowed down in the past, there was no decrease for our bearings at all. Since applications are different and there are new applications coming out that use large volumes, even if there is something to cause a slowdown, we have been able to offset this. If the economy deteriorates very badly it's a different matter, but in the current situation, we don't think there is anything that points to such a particular decline.
- We have to carefully think about the inventory allocation watching the market. Speaking from experience, there used to be a situation where we had 3 months of inventory at maximum, however, even so it was all gone as soon as the economy turned up, therefore since I have been at the company, I have had no experience at disposing of bearing inventory.
In addition, since currently we are making about 300 million units per month, and supposing we sell 300 million units a month, 3 months of inventory would come to about 900 million units. We think that is a little too much, but it would be fine to keep inventory up to about a 2-month portion. Because the difference between production and sales is only about 10 million units, I don't think there is a problem with the current situation continuing for another year.
Particularly in bearings for automotive, and fan motors recently, our productivity improvements and fan motor demand peaked by chance at the same time, and we were able to supply all of it, but if we hadn't had the inventory that would not have been possible. If we had not had the productivity improvements and inventory, we would definitely not have been able to supply it, so in that case we would have been saying "it's terrible we cannot set up servers."
Our strength is that even if demand falls, we address it properly without fear, and that is the source of our competitive strength, I think. This is particularly important for ball bearings, and I have said this to our people in charge of bearings.
- That's about right.
- The easiest-to-understand example is of US companies doing assembly etc. in China, and most of the products are subject to customs duties in this instance. Today, now that the mid-term elections are over, we don't know whether things will change going forward, but if this trend continues, there will be many customers who will have to change their production centers.
As for bearings, since there are some entering the United States via Mexico, I don't think that all of the affected customers will come to us and say "Since it's 25% more expensive now, I want to buy from MinebeaMitsumi," but actually there are those customers who come to us and say "We'd like you to give us a quote".
Our special aspect is that since we are operating with excess capacity, Cambodia and other places have an accepting stance, so we are shifting toward such demand there. Customers have just started considering and studying, and to be able to show you all some numbers will probably take another 6 months or so, I think.
- Because the Mitsumi Business is very broad, there are some products for customers who have given instructions to move assembly, but there are differences of degree among them, and we cannot say this unconditionally.
- There have been no specific actions on the large volume of things that will be affected.
- My personal view is that it will not be fall.
- It hasn't changed at all.
- I cannot say anything about this in specific but there is no problem with yield.
- There's no problem at all.
- As for the point that sales were more than the second quarter assumption, I think the original guidance was a little too conservative. As for the structure of the model used in forecasting, various things could happen, but at the present point we do not foresee any major changes in the assumptions in the initial model.
- In the second half, on the assumption that we will actively do M&A, various expenses are anticipated. As an assumption, since this M&A is not the only case, and in the second half, part of the specified costs of the environmental measures are projected, the numbers have increased slightly in the forecast.
- The magnitude is not so great.
- 315 million units is now ongoing.
At the time of the last production increase, our costs got very high since we made productivity improvements as well, and drastically shortened delivery times, so this time we are holding down investment and are making it so that we can introduce equipment that can bring prices down.
Because we can start bringing in the equipment at about the middle of next year, for the 315 million-unit system, it will take until the end of next year or into the year after next, I think.
- At the present point we are not thinking about it, however we have received reports that we will reach up to 335 million units in our existing factories. Unless the kind of trend happens in which it does not appear that we will be on time just with what we've got, I think that we can handle it without building a new factory, but at this point I see no indication of that.
- The status of camera actuators is as you indicated, we have been addressing a huge upswing toward the third quarter. And results have been following.
In the future, in addition to North America customers, there are business discussions with customers in Greater China, so I would like to address this properly.
- I think there are various points of change but, at the present point the forecast is that the third quarter is the peak and the fourth quarter will see a slowdown.