TDK Corporation
Q3 2022 Earnings Call Transcript

Published: 31 Jan 2022

[Operator:]

Now it is on time. They would like to start the performance briefing session of performance briefing sessions of Q3 of FY March 2022 of TDK Corporation. Today’s speaker is Executive Vice President, Tetsuji Yamanishi. Hello everyone. Thank you very much.

[Tetsuji Yamanishi:]

Hey, I am Yamanishi speaking. Thank you very much for joining us today in your very busy schedule. Thank you. Okay, then I’d like to start with the performance briefing of Q3 of FY March 2022. I start with the key points concerning earnings. And even under the COVID-19 pandemic and continuing from the first half, and that normalizations of the social and economic activities is going on in all over the world, but that is still and it's -- the constraints on the separate chains have prolonged so that adversely affected the production units of automobiles and smartphone, but on the other hand, now, at our electronics business had been steady so that we could have increase our sales in all segments and including that improvement of profits under the passive components and also the sensor profitability have included and we have a very well balanced earnings structure. Sales have increased by 26.3% year-on-year and open income have increased by 31.3% year-on-year and for both the Q3 and the first nine months of the fiscal year have both have recognized an all time high. In automobile markets and due to that step, the shortage of the semiconductors, for example, and not have lowered that prediction needs in the one year but still that further development of EXP and further electrification of e-desk have increased in the number of components installed per vehicle that have a feasible for a business so that our business is steady. And we could expand the sales of the passive components as well as sensors in ICT markets. And now still and some, the shortage of the semiconductors and the push down to the production of smartphones and also with the lower than the last year, but our own components have adapted more in the smartphones and on top of that, a very strong demand in the PC and the tablets a major contribution of a steady business and still that's a very good investments to the data center pushing up to the server demands and all of these are sales on the secondary battery sensor as well as how did HDD head have increased. Also the end of the market of industrial equipments, now, the CapEx is very steady by the corporations and our sales for that semiconductor manufacturing equipment and renewable energy have increased and also passive components and industrial power supply have expanded the sales. And also for the secondary battery also have a very good business including the increasing sales of the middle sized battery for the home used in ESS. Just relax under this and the good favorable environments, then the first nine months of this fiscal year have not only surpassed our forecast so that's why and the full year projection were revised upward in light of operating results through Q3 and that the latest order trends. Again we have this in revision and from the last time in October and I’ll expand the details later. Next let me talk about the consolidated result of the first nine months of the Q3. Exchange impacted to that the net sales have about 85.3 billion and also 3.5 billion in other income, including all these; the total sales was 1,393.9 billion yen. That is 307.1 billion yen or 28.3% increase year-on-year. Operating income was 139.2 billion. That is 31.8 billion yen or 29.5% up from the year earlier. The income before tax was 146.6 billion, net income was 117.3 billion yen, so, on these KPIs, we could recognize all time high. Earnings per share were 309.53 yen. When it comes to the sensitivity to the currency, there's no any change before so that one change to the dollar have the impact on the operating income of 1.2 billion yen and 200 million yen for the Euro. Next left me report about the consolidated results for Q3. So again the exchange impacts on the sales have this 39.9 billion and also 5.3 billion impact on the operating income. And including all these impacts, the total net sales was 499.7 billion yen, that is unhandled 4 billion or 26.3% increase year-on-year. Net operating income was 59.2 billion, that is the 14.1 billion yen or 31.3% of the increase year-on-year. Income before tax was 62.2 billion yen and net income was 49.1 billion yen, just like for the nine months -- a first to the nine months and total also we have record high KPIs for all this and the figures and earnings per share was 129.5 yen. Next, let me talk about the segment wise business performance in Q3. In the passive component segments, the sales were 129.5 billion that is 18.3% increase year-on-year. The demand in automotive markets have been pushed up by the increasing number of components and mounted onto the vehicles and also now on a industry record markets of the renewable energy business also have been favorable and in the ICT market, although the demand in smartphone were declined, but they had some demand in the base stations wearable devices have more than offset. So, then on all these entertainment installations, we could have the positive growth in all of the segments. Operating income was 22.6 billion, that is 69.3% of increase year-on-year and operating income margin has 17.5% with increase in profitability. Business wise, excluding high frequency components, and then we have all the profit increase particularly and improvement of the profitability of capacitor and inductor devices that pushed up the business performance of all the segments. When it comes to high frequency components, the profit have declined slightly due to the upfront investment for the R&D for new products. Next, sensor application product segments; now, we have consecutively the positive all time sale high sales from the last Q3 and also in the Q3, we also have a record high sales of 36.1 billion that is a 57.1% increase year-on-year. Operating income also secured the profits including that it pushed up sales and also the better product mix. So now we can push out that profitability from the Q2 and now we have the operating margin of over 10% and as a result of that also in the first nine months of the fiscal year, we could secure the profits. The temperature and pressure sensors, there was very steady and demand for the industrial equipments or the home appliances. Then we have the increase in sales also for the home sensors and that’s supported by the automotive markets and we have largely improved the profits. Thermal sensor is in the ICT markets now and the increase of demand in ICT market bit then also adapted for the new applications and we have to know largely substantial increase in sales and profits and for the MEMS sensors we could enjoy about the expansion of customer base and application base. Now having reflected steadily on the performance in motion sensors, MEMS microphones sales have increasing substantially and now with the profitability improvement, we could successfully shrink that gradually the loss. Next magnetic and application products business, net sales was 64 billion yen, 14.4% year-on-year. Operating income was 3.3 billion. down 22.5% year-on-year. But here may remind you that in the third quarter previous year, we had booked 2.4 billion yen from the sales gain of suspension business. So in substance, the segment was able to secure growth in profit. Listed in head, server demand for data centers has been firm. Near-line HDD has grown 1.8 times in volume. The total HDD and head became profitable with its volume growing 28%. Hard disk and drive suspension near line on the hard disk drives for major customers and data centers continued to be firm, given us growth both in revenue and profit. Magnet, sales for the automotive has been firm in sales with price increase of raw materials, loss number increased slightly. Next, I will explain our energy and application products. Revenue was 256.1 billion yen, operating income was 30.9 billion yen, up 31.1% in sales and 8.9% in profit year-on-year. As for rechargeable batteries, this segment was impacted by FX changes as well as the increased price of raw materials; talking of FX, the cheaper Japanese yen. But if we are to exclude this with the smartphone production decline as much as 11% from the previous year, sales for smartphones declined. In contrast, and power on sales for electric motorcycles and the residential energy storage systems expanded. For the entire business, it became almost flat year-on-year. Excluding FX impact and also the pricing factor, operating income, while the real sales did not grow, we made efforts to improve costs and the fixed cost efficiency. And we are seeing improved profit starting from the second quarter. But in the third quarter of this year, raw materials price started again going up rapidly. So now we still have some potential factor to push the profit and also now we have about 5.1 billion as the real data to be paid. As for the industrial equipment power devices, demand in this action has been rather firm, giving us opportunity to increase the revenue. But then we also have been faced with an increase in the materials so we had to procure and also we have been within COVID-19. And with all these factors in place, we are having a slight decline in profit. Next, I'd like to go through all the factors behind ups and downs of sales and operating profit numbers for the third quarter and how by segment. First on the passive components segment. Net sales were up 2.2 billion or 1.7% from the second quarter, operating income was up 1.3 billion or 5.9%. Passive sales, it grew up steadily, thanks to the strong and older market. In the industrial equipment market, renewable energy and manufacturing facilities grew in sales. Whereas in the ICT market, sales for smartphones declined. The business, they became profitable except for the RF components. Operating income side, capacitors and inductors contributed to the overall profit growth. Next, sensor and application products. Revenue here was 3.5 billion, up 10.6%. Operating income was an up 2.3 billion yen. We continued to improve further since the second quarter. Temperature and pressure sensor slightly declined, partially due to the seasonal factor. And in all the sensors, whole sensors grew firmly, particularly for the auto and TRM sensors grew significantly in the sales volume of new products since Q2, thanks to the major customers for smart-phones. Motion sensor or sensors in our family growing in sales, thanks to the expanded base of customers and applications. Operating grew significantly, thanks to the good business of TMR sensors. Motion sensors are contributed to greatly to profit, reflecting the improved customer mix and product mix. All in all, they're contributed greatly to the overall profit improvement. Next I will explain the magnetic application products; revenue being 1.3 billion yen, down 2.1%. Operating income was down 2.7 billion yen excluding a one-time cost of about 4 billion yen we had in the third – in second quarter. Revenue in HDD Heads volume mainly for PCs was down about 8% and hard disk drive assembly sales volume also was down about 15%. In contrast, HDD suspensions hurt on our growth and profit driven by near line business. Magnets, this business grew in profit, thanks to the firm demand for auto. Operating income declined sharply due to the decline in HDD Heads volume as well as the sudden pricing erosion. Suspension improved on its profit, driven by the growth in sales and the mixture improvement by high-valued products. Magnets are still in loss because the impact from the price rise is still with us. Next, energy and application product segment. Revenue was a 20.6 billion yen, up 8.8%. Operating income was 4.7 billion, up 13.6%. Rechargeable batteries, sales grew, now thanks to the increased production volume of smartphones. Power cell products sales grew in one excluding the effects impact and raw materials and price increase shifted to our selling price, revenue actually grew from the second quarter. Industrial power and supplies grew slightly in revenue. Operating income, raw materials and for the rechargeable batteries started rising further from the second quarter and its impact is still with us that we made for the Air Force to improve the efficiency of fixed costs resulted in the improved profitability starting from the second quarter. Industrial power supplies, thanks to the increase in sales resulted in growth both in revenue and profit. Next, I will go into debt also 14.1 billion yen of the operating income. With no growth in sales of passive components, profit expanded. With the sensor business becoming profitable, profit expanded with the recovery in the profit of HDD Heads, though we had some impact from the rising costs of materials, we had an increase in profit as much as 12.6 billion yen. The impact from the sales price discounts remained rather small, rationalization costs down air force as well as the impact of 8.6 billion yen coming from the structural reform we executed in the fourth quarter in the previous year, in the previous fiscal year, our profit has been raised up. actually increase 12.5 billion, major factors for that, in the first in the third quarter previous year, we had sales of the special budget of almost 2.4 billion yen, and also the rechargeable, the royalty and a cost being of 5.1 billion yen. And with the COVID-19 going on, there has been a price increase in the distribution cost. Well, of course, the Japanese yen becoming cheaper and actually up 5.3 billion, all in all, it is going to be 14.1 billion yen improvement in profit. Lastly, I will explain our focus for the full year now consolidated performance. As I said in the outset, with the actuals and up until the third quarter, and in light of the orders we have received in the latest quarter, we revised upward our last numbers we announced back in November, November 1st, so we made this revision again a full year, now sales is now 1.850 trillion yen, operating income 160 billion yen, income before income taxes now 168 billion yen, net income is now 113 billion yen. As for net sales, demand for in passive components, particularly for auto and industrial equipments, and also for the rechargeable batteries, demand for smartphones turned out to be much faster than we had expected. So these are the reasons why we wanted to actually make the upper revision as for the operating income. We expect to grow the profit, thanks to the increased sales. We're also expecting to have one-time cost of 9 billion yen for the consolidation of locations as well as the sales, disposition of assets and that is being expected in the fourth quarter. We expect to do have one-time costs in tax around 17 billion yen about, that is expected in the fourth quarter. So with this and factors in place now, we are happy to announce that we made these revisions. As for all the year-end dividend and CapEx and depreciation, amortization and R&D costs, there has been no change since the last-time announcement. This concludes my explanation. Thank you indeed for your kind attention.

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