Latest / Investor Exchange / MARUWA CO., LTD. First Quarter Financials 2025

Transcript

MARUWA CO., LTD. First Quarter Financials 2025 · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:07
  Welcome, curious minds. Ever feel like you're drowning in information but still
• 0:12
  not quite getting what's truly important?
• 0:14
  That's exactly why we're here on The Deep Dive. We take the raw material,
• 0:18
  your articles, your research, your notes, and we unpack them to find those crucial nuggets of insight.
• 0:25
  Today, we're diving into the recent consolidated financial results for the first
• 0:29
  quarter of fiscal year 2025.
• 0:31
  That's April 1st to June 30th, 2025. And the company is M-A-R-W-U-Y-O-E-G-I.
• 0:39
  You've provided us with their official financial report from July 24th.
• 0:43
  Looks like it's packed with numbers and details. It is.
• 0:46
  And our mission for this deep dive is really to extract the most important insights
• 0:49
  about M-A-R-W-Y's financial performance.
• 0:51
  We'll look at the key figures, sure, but maybe more importantly,
• 0:54
  we need to understand why things shaped up the way they did.
• 0:57
  You know, was it good? Bad?
• 0:58
  Somewhere in between. And then we'll peek into their outlook for the rest of the fiscal year.
• 1:02
  This isn't just about crunching numbers, right? It's about understanding the
• 1:04
  story behind them, what it means for the company's health, its future.
• 1:08
  All right, let's peel back the layers then. Let's see what MERE's first three
• 1:11
  months of this fiscal year actually reveal.
• 1:14
  Okay, first up, let's jump right into the core operating results, the headlines.
• 1:19
  When you look at this first quarter, some numbers immediately pop out.
• 1:23
  We saw consolidated net sales hit $17,256 million. That's a 6.2% increase compared to last year.
• 1:30
  And operating profit also rose to $6,002 million. That's a 6.4% year-on-year increase.
• 1:36
  The report even calls these their highest first quarter results for both sales
• 1:39
  and operating profit. That's pretty good, doesn't it?
• 1:42
  On the surface, yeah, definitely positive figures, shows solid top-line performance,
• 1:46
  improved operational efficiency too.
• 1:48
  But what's fascinating here, though, is that while these are record highs for
• 1:51
  Q1 in absolute terms, if you look closer at the rate of growth,
• 1:54
  you know, it's actually significantly lower compared to the previous year.
• 1:56
  We don't even call much lower.
• 1:57
  Well, for example, same time last year, Q1 FY 2024, net sales grew by almost
• 2:02
  28 percent, 27.7 percent to be exact.
• 2:05
  And operating profit jumped by nearly 60 percent, 59.8 percent.
• 2:09
  OK, so big difference in momentum. Exactly.
• 2:12
  So the numbers are higher now. Yes, record highs. But the speed of that growth
• 2:16
  has definitely slowed down from that really explosive pace last year. Not necessarily bad.
• 2:21
  I mean, growth is growth, but it does highlight a shift.
• 2:24
  OK, but here's where it gets, well, really interesting for me.
• 2:27
  Despite those increases in sales and operating profit, the ordinary profit actually decreased.
• 2:32
  Down 7.4% year-on-year to $5,722 million.
• 2:37
  And the profit attributable to owners of the parent, the net profit,
• 2:41
  essentially that saw a pretty big drop too.
• 2:43
  13.9% year-on-year down to $3,878 million.
• 2:47
  So how does that work? Record sales, record operating profit,
• 2:51
  but then these other profit figures dip. It feels a big counterintuitive.
• 2:54
  Yeah, it does raise that important question, and the report is actually very
• 2:57
  clear on this one. The main reason for that drop in ordinary profit was the
• 3:00
  absence of foreign exchange gains. Ah, currency effects.
• 3:04
  Precisely. Those gains were recorded in the same period last year.
• 3:07
  See, ordinary profit includes non-operating stuff like interest and,
• 3:12
  crucially here, foreign exchange movements.
• 3:14
  In Q1 last year, M.A. Rue got a boost, $472 million in FX gains because the
• 3:20
  yen had depreciated sharply.
• 3:22
  Okay. Now, fast forward to this Q1, Q1 FY 2025.
• 3:27
  They actually had foreign exchange losses of 356 million.
• 3:31
  Wow, that's a huge swing. It is, from a gain of almost half a billion yen to
• 3:36
  a loss of over a third of a billion.
• 3:38
  That swing just hammered their ordinary profit and then consequently their net profit.
• 3:42
  It really shows how external factors, things they can't fully control like currency
• 3:47
  markets, can heavily influence that bottom line, even when the core business
• 3:51
  is doing well. That's a massive shift.
• 3:53
  So core operations performing well, but the currency markets basically decided
• 3:56
  the final profit number of this quarter. In large part, yes.
• 3:58
  And we also see their basic earnings per share, the EPS, that dropped too.
• 4:01
  From about 365 last year to 314 this quarter.
• 4:05
  Makes sense, given that profit decline? Exactly. That's a direct reflection.
• 4:09
  Lower net profit means lower EPS for shareholders. It shows that immediate impact. Right.
• 4:14
  Okay, let's dig a bit deeper then. We need to peek under the hood.
• 4:17
  Where are these sales and profits, or lack thereof in some cases, actually coming from?
• 4:23
  MIRWay has two main segments, ceramic components and lighting equipment.
• 4:27
  How did each of those perform? Good question.
• 4:30
  Let's start with ceramic components. It's their bigger segment by far.
• 4:33
  It saw net sales increase by 6.5% year-on-year, reaching $15,248 million.
• 4:39
  Okay, so growth there. Yes. And segment profit also rose by 4.4% year-on-year to $6,064 million.
• 4:47
  So continued solid performance in their main high-tech market.
• 4:50
  What were the drivers within ceramic components, though? Was it strong across the board or more mixed?
• 4:55
  It was a bit mixed, actually. The report notes that demand for general-purpose
• 5:00
  memory, the semiconductor part of the business, it remains somewhat weak.
• 5:04
  Okay, that's usually a big area, right? It is.
• 5:06
  But that weakness was effectively offset by really strong performance in the
• 5:10
  telecommunication-related business, specifically for things like next generation,
• 5:14
  high-speed communications, think 5G, maybe beyond.
• 5:18
  Ah, okay. So a tale of two subsegments, really. Telecom, picking up the slack from memory. Exactly.
• 5:24
  That diversification within the segment helped them keep growing overall.
• 5:27
  Shows some resilience. Got it.
• 5:29
  Now, what about the other segment? Lighting equipment. The report mentioned
• 5:33
  some interesting policy tailwinds like Japan phasing out fluorescent lamps.
• 5:38
  Sounds like a good market to be in. You'd think so, right? The market drivers do sound positive.
• 5:43
  Steady demand for high-end condo lighting, public LED projects,
• 5:46
  plus that fluorescent phase out by 2027.
• 5:48
  But despite those seemingly positive market forces, the financial results for
• 5:52
  this segment in Q1 were, well.
• 5:55
  Quite different. How different? Net sales actually decreased by 4.4% year-on-year,
• 5:59
  down to $2,007 million. Okay, a dip in sales.
• 6:02
  And the segment profit saw a really significant drop, down 70.1% year-on-year to just $336 million.
• 6:09
  Wow, 70%. That's a dramatic decline in profit for lighting, especially when
• 6:14
  the market sounds pretty good. It is stark. What does that suggest?
• 6:17
  Maybe increased costs or something else going on internally?
• 6:20
  It strongly suggests other factors are at play, yeah.
• 6:24
  Things that aren't explicitly detailed is the reason, but likely candidates
• 6:27
  are, you know, increased operational costs, maybe changes in the product mix
• 6:33
  they sold, perhaps competitive pressures, squeezing margins.
• 6:37
  It's a real reminder, isn't it? Even if the market looks favorable,
• 6:40
  execution and efficiency are absolutely key.
• 6:43
  Tailwinds don't automatically mean profit. Absolutely. It highlights that critical
• 6:47
  point. Market opportunity is one thing. Capturing it profitably is another.
• 6:51
  Internal efficiency, cost control, execution, they matter hugely.
• 6:55
  Okay, so we've looked at the P&L, the profit and loss for the quarter,
• 6:59
  but what about the overall financial health, the foundation?
• 7:02
  Let's shift gears to their balance
• 7:04
  sheet, their consolidated financial position as of June 30th, 2025.
• 7:08
  What do the assets and liabilities tell us? Right. The balance sheet gives us
• 7:12
  that snapshot of stability.
• 7:13
  So total assets slightly decreased just by about $1 billion from the end of the last fiscal year.
• 7:19
  They now total $141,281 million.
• 7:24
  Now, that decrease was mainly due to a drop in current assets,
• 7:27
  about $4.6 billion less, largely because cash and deposits went down.
• 7:32
  Okay, less cash on hand. But importantly, non-current assets actually increased
• 7:36
  by about $3.6 billion. And that was driven by?
• 7:39
  Mostly by an increase in property, plant, and equipment, PP&E,
• 7:43
  things like factories, machinery.
• 7:45
  So they're using some cash, maybe investing it in the business infrastructure.
• 7:49
  Could be a good sign for future growth. It often is, yes.
• 7:52
  Yeah. It signals ongoing investment in long-term capabilities,
• 7:55
  even if it reduces cash in the short term. Makes sense. What about the other
• 7:59
  side of the balance sheet?
• 8:00
  Liabilities and net assets. Total liabilities saw a nice decrease,
• 8:04
  down $4.6 billion to $9,806 million. Why the drop?
• 8:08
  Largely due to a decline in current liabilities, specifically income taxes payable.
• 8:12
  Basically, they paid their tax bill. Okay, so managing their short-term debts well. Seems so.
• 8:17
  And on the net assets side, that's the equity part, there was an increase.
• 8:20
  Up $3.6 billion to $131,474 million.
• 8:26
  And that increase was primarily driven by that $3.8 billion in net profit we
• 8:30
  talked about earlier, the profit attributable to owners of the parent.
• 8:34
  Right. So the profit, even though lower than last year, is still flowing directly
• 8:38
  into the company's equity base, strengthening it.
• 8:40
  Exactly. It's building up the owner's stake. And this leads to a figure that
• 8:43
  really jumped out at me, their equity to asset ratio. Ah, yes,
• 8:47
  that is quite remarkable.
• 8:48
  How high is it? It stands at 93.1% as of June 30th. That's up from 89.9% at
• 8:54
  the end of the previous fiscal year.
• 8:56
  93%. That's exceptionally high, isn't it? It really is. It indicates an incredibly
• 8:59
  robust financial structure with very, very minimal reliance on external debt.
• 9:04
  It suggests huge financial flexibility, resilience against shocks.
• 9:08
  Think of it like having almost no mortgage on a very valuable house.
• 9:11
  That's a strong position to be in.
• 9:13
  But just playing devil's advocate, is there ever a downside to having so little
• 9:17
  debt? Could it limit aggressive growth opportunities, or is it purely a strength
• 9:21
  here? That's a fair question.
• 9:22
  Some argue very low debt can mean missed opportunities for leverage-fueled growth,
• 9:27
  like large acquisitions.
• 9:29
  But Amory Way's strategy clearly leans towards stability and funding growth internally.
• 9:34
  For them, this ratio signifies immense strength and the ability to weather storms
• 9:39
  or fund investments without needing external lenders.
• 9:42
  It's a strategic choice for resilience. Okay. And speaking of confidence in
• 9:46
  shareholder returns, despite the Q1 profit dip, we also see they're forecasting
• 9:51
  increased cash dividends.
• 9:52
  Yes, that's right. They've forecasted annual dividends per share for this current
• 9:56
  fiscal year, ending March 2026, to be 102 also 0-0.
• 10:01
  That's split into two payments of 51 each. And it's an increase from the on-94
• 10:06
  total dividend they paid for the last fiscal year.
• 10:08
  So raising the dividend, that definitely signals confidence in future earnings, doesn't it?
• 10:12
  Despite that Q1 currency issue. It certainly does. It suggests management believes
• 10:16
  the underlying business is strong enough to generate the cash needed for higher
• 10:19
  payouts going forward. Okay, so we've dissected the past quarter,
• 10:23
  looked at their financial health. Now let's talk about the future.
• 10:26
  What's MRWA's outlook for the rest of the fiscal year, the one ending March 31st, 2026?
• 10:33
  Well, despite all the global uncertainties they mentioned, geopolitical risks,
• 10:36
  etc., MRWA has stated quite clearly that there is no change to their consolidated
• 10:41
  earnings forecast for the full year, the one they announced back in April.
• 10:44
  No change, even after the Q1 results.
• 10:47
  No change. They're sticking to their forecast for full-year net sales of $76,800 million.
• 10:52
  That's a 6.9% year-on-year increase planned.
• 10:56
  And they're also forecasting operating profit of $28,800 million,
• 11:00
  which would be a 7.0% year-on-year increase.
• 11:04
  That's interesting. Holding steady on the full-year forecast despite the Q1
• 11:07
  profit challenges from foreign exchange.
• 11:09
  Does this imply they expect the currency headwinds to ease off?
• 11:12
  Or maybe they expect other areas to perform even stronger to compensate.
• 11:16
  That's the million dollar question, isn't it? Or perhaps the multi-billion yen question here.
• 11:21
  They are quite explicit, actually. While they give forecasts for sales and operating
• 11:26
  profit, they specifically say it's difficult to forecast figures below ordinary profit.
• 11:31
  Why's that? Primarily because of that potential volatility from exchange rates.
• 11:35
  Ah, so they're acknowledging the FX risk continues. Exactly.
• 11:39
  It suggests they think currency could remain a bit of a wild card for the bottom
• 11:43
  line figures like ordinary and net profit, But they are clearly banking on strong
• 11:48
  underlying business performance, strong sales and operating profit to hit those overall targets.
• 11:53
  Okay, so focusing on what they can control more directly, the operations.
• 11:57
  Let's look at that anticipated performance by segment then.
• 12:00
  What's the outlook for ceramic components, their big engine,
• 12:03
  especially given that mixed picture in Q1?
• 12:06
  For the semiconductor-related part of that business, they anticipate rising
• 12:09
  demand linked to generative AI applications. That's a huge growth area globally.
• 12:14
  They also expect a gradual recovery for that general-purpose memory demand,
• 12:18
  probably in the second half of the fiscal year.
• 12:20
  Okay, so betting on AI in a memory bounce back. Yes.
• 12:24
  Plus, they expect their specialized high-purity C-Sci-C products,
• 12:28
  silicon carbide, for power electronics to see growing demand later in the year, too.
• 12:33
  And the telecommunication side is expected to keep up its strong demand for
• 12:37
  next-gen high-speed stuff.
• 12:38
  So overall, a pretty optimistic outlook for ceramics. Sounds like they're counting
• 12:42
  on several key tech trends.
• 12:44
  What about the other areas? Automobile-related, industrial equipment,
• 12:48
  and critically, what about that lighting equipment business?
• 12:51
  How do they plan to fix the profit issue there? Okay, for the automobile-related
• 12:56
  business, they acknowledge some inventory adjustments happening at customers
• 12:59
  now, especially for new energy vehicles, EVs, and the like, but they expect
• 13:03
  a recovery there in the second half, too.
• 13:05
  They're watching geopolitical risks, but focusing on boosting profitability
• 13:09
  by using AI and robotics in their factories.
• 13:12
  Automation for efficiency makes sense. Mm-hmm. In the industrial equipment area,
• 13:16
  demand for power modules might be a bit soft, but they're counting on new medical-related
• 13:20
  products to help performance. Okay.
• 13:22
  Diversification again. And lighting, the one with the big profit drop.
• 13:26
  Right, lighting equipment.
• 13:27
  They still expect steady performance from the high-end condo and public LED
• 13:31
  projects, but their explicit focus now is on enhancing profitability.
• 13:36
  Oh. Through more factory automation and improving the production yields on their newer products.
• 13:40
  Basically, tackling the efficiency and cost side directly to address that profit dip we saw.
• 13:46
  So across the board, really, a focus on improving efficiency,
• 13:50
  using tech like AI and robotics, and leveraging new products or markets to drive
• 13:55
  growth and, importantly, profitability.
• 13:58
  Seems like a common playbook these days. It is. Companies everywhere are looking
• 14:01
  for those operational efficiencies to navigate costs and competition.
• 14:05
  Okay, what a deep dive this has been. We've really seen MRWY navigate a complex
• 14:11
  global landscape in their first fiscal quarter.
• 14:13
  On one hand, you've got these record highs for net sales and operating profit.
• 14:17
  Driven largely by that strong performance in ceramic components,
• 14:21
  especially in next-gen telecom.
• 14:23
  That's a solid operational base. Definitely.
• 14:25
  But on the other hand, their ordinary and net profits took a significant hit
• 14:29
  from those foreign exchange losses, a really stark contrast to the FX games they had last year.
• 14:34
  And that lighting equipment segment, well, it saw that really notable profit
• 14:39
  decline, even though the market trends look supportive.
• 14:41
  It really highlighted those internal execution challenges. Calenges they seem
• 14:45
  to be actively addressing now through automation and yield improvement.
• 14:49
  But looking ahead, the company is holding firm on its full year forecast for
• 14:53
  sales and operating profit.
• 14:54
  They're banking on that second half recovery in memory and auto,
• 14:58
  plus continued growth from things like generative AI.
• 15:01
  And underpinning all of that is an incredibly high equity to asset ratio,
• 15:06
  signaling a remarkably strong, stable financial foundation.
• 15:10
  Gives them a lot of resilience. Yeah, this deep dive really shows, doesn't it?
• 15:14
  Judging a company's performance takes more than just glancing at those headline fowls.
• 15:18
  You really have to understand the nuances, how global factors like currency
• 15:22
  swings interact with specific industry trends, demand for AI chips,
• 15:27
  shifts in lighting policy.
• 15:29
  The why behind the numbers, as always, is the most telling part,
• 15:32
  especially seeing how they plan to invest in things like automation to tackle the challenges.
• 15:37
  So thinking about this, what does it all mean for you listening in?
• 15:41
  As you consider investments, or just try to stay informed about the economy,
• 15:45
  it raises a really important question, I think.
• 15:47
  How much weight should you actually place on those short-term external impacts,
• 15:51
  like foreign exchange, versus a company's underlying operational strength and
• 15:55
  its long-term strategic vision?
• 15:57
  Especially when they're clearly investing in things like automation and new
• 16:00
  products to boost that efficiency, is the core strange more important than the temporary FX noise?
• 16:05
  Something to mull over until our next deep dive.
• 16:09
  Music.