[Q&A Text] Financial Briefings for the Third Quarter of the Fiscal Year Ending Mach 2024 (April 2023 to March 2024)

Revenues have generally trended as planned from the first quarter to the third quarter, and we expect that the fourth quarter will also trend as planned. Revenue is expected to decrease temporarily in the fourth quarter due to the timing of shipments. On the other hand, profits have exceeded expectations from the first quarter to the third quarter, and we think that the full-year earnings forecast is at a minimum level.

There will be an impact coming from the recovery of the application mix. The outlook for WFE^*1 shows a strong recovery in memory, which will be a tailwind for our company, since we have strength in memory. Also, in GAA^*2 generation, there will be new processes that we have not been  involved in before. That will begin to make a sales contribution since FY2025/3, and will also be a driver for our growth.

Some orders shifted from the second quarter to the third quarter, and the amount of orders received in the third quarter increased significantly compared to the second quarter. In addition to orders for mature nodes in China, which are booming, orders outside of China are also starting to recover. By application, the focus is on DRAM and mature node Logic/Foundry.

While the gross profit margin in the first and second quarters exceeded expectations, it was in line with expectations in the third quarter. We don't think the fourth quarter will be much different from the third quarter. As for FY2025/3, we are cautious about exports to China in the second half and expect a recovery in sales outside of China. Due to changes in the product mix caused by those factors we are forecasting the gross profit margin of 42% to 43%.

Parts sales for new projects were very active in the first and second quarters. The third quarter is that it's looking calm and down a little bit. The operating rate of each device factory is reflected in service sales, and this does not mean that equipment for 200 mm or less or for SiC has declined. We believe that the trend in the fourth quarter will be similar to the third quarter.

We have been expanding our share in batch ALD*3 mainly in cutting-edge fields, but we are also increasing our share in mature nodes that are closer to the cutting-edge. At the cutting edge, there are new needs for insulating film systems, and we expect to be able to achieve POR*4 with our batch ALD.

You're right. This includes the effect of newly acquiring market share as market conditions recover.

In the Batch ALD*3 market, we are constantly competing for first or second place in market share. On the other hand, we recognize that there is still room to increase our share in areas such as LP-CVD*5, so we will work to expand our share.

We have made further progress in acquiring GAA's POR*4 for development use, and have obtained POR*4 from all major manufacturers. Currently, GAA-related orders are expected to reach 10 billion yen, and they are expected to start contributing to sales from FY2025/3, with demand expanding thereafter.

For China, the profit margin tends to be generally high. As for Europe, America, and Japan profit margin for high-value-added products close to the cutting edge are high, and profit margin for service business tends to have higher than equipment business.

There are not many advantages or disadvantages depending on the material used to form the film. The major differences between batch ALD and single-wafer ALD are the structure, area, and complexity of the semiconductor device to be deposited.。

In order to continue developing next-generation products, we plan to strategically increase the ratio of R&D expenses to sales, increasing it from 4-5% to around 6%. Since revenue is expected to expand in the future, we expect the amount of R&D expenses to increase significantly. Investing cash flows are expected to increase accordingly.

It is assumed that everything planned at this time will be covered by cash on hand, including funds generated from periodic cash flows.

Our company has come to the conclusion that four patents are infringed, and we are seeking damages of KRW100 million for each patent as a partial claim.

The dividend payout ratio is expected to be 20-30%, funded by adjusted net income. In addition, although we are currently in a temporary net debt state, after converting to net cash, we aim to use the equivalent of 70% of free cash flow (excluding regular debt repayments) as dividends and share buybacks. Regarding the dividend per share in FY2024/3, we plan to pay the amount for half a year as a year-end dividend, given the listing was in the second half of the year. This amount is 10% based on adjusted net income, and equivalent to 20% on an annual basis.

The ROE target is currently under consideration and will be announced as soon as it is set.

In the third quarter, revenue for China, including equipment and services, was 25.2 billion yen, and the sales composition ratio by region was 47%. The cumulative total for the third quarter was 58.2 billion yen, or 44%. Going forward, as sales outside China recover, we expect this to approach the previous level of around 30%.

The sales ratio for China in FY2024/3 is expected to be in the mid-40% range, including equipment and services. We expect revenue for China in FY2025/3 to remain strong due to active investment at least through the first half of the year, but we are looking at the second half with some caution. On the other hand, we expect revenue outside of China in FY2025/3 to recover throughout the year compared to FY2024/3. As a result, we expect revenue for China in FY2025/3 to decline from the mid-30s to around 40% compared to FY2024/3.