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Edited Transcript of 6479.T earnings conference call or presentation 7-Nov-19 8:30am GMT

Q2 2020 Minebea Mitsumi Inc Earnings Presentation

Tokyo Nov 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Minebea Mitsumi Inc earnings conference call or presentation Thursday, November 7, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Katsuhiko Yoshida

MinebeaMitsumi Inc. - Senior Managing Executive Officer

* Kenji Yahiro

MinebeaMitsumi Inc. - Manager of IR

* Yoshihisa Kainuma

MinebeaMitsumi Inc. - CEO, COO, Chairman & President

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Conference Call Participants

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* Akihiko Uchino

Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst

* Daiki Takayama

Goldman Sachs Group Inc., Research Division - MD, Co-Head of Japan Equity Research & Equity Research Analyst

* Fumihide Goto

Mizuho Securities Co., Ltd., Research Division - Senior Analyst

* Manabu Akizuki

Nomura Securities Co. Ltd., Research Division - Senior Analyst and Executive Director

* Shingo Hirata

UBS Investment Bank, Research Division - Director and Analyst

* Shoji Sato

Morgan Stanley, Research Division - Analyst

* Yoji Watanabe

SMBC Nikko Securities Inc., Research Division - Senior Analyst

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Presentation

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Kenji Yahiro, MinebeaMitsumi Inc. - Manager of IR [1]

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So as the time has come, let me start the meeting. Thank you very much for attending MinebeaMitsumi's Business Results Meeting for Second Quarter of Fiscal Year ending March 31, 2020, despite your busy schedule.

Let me introduce the presenters of our company. To the right, Representative Director, CEO, COO, Mr. Yoshihisa Kainuma; Senior Managing Executive Officer, Katsuhiko Yoshida. I am serving as your emcee, I am from the IR division, name is Yahiro. First, today, Mr. Yoshida will explain the financial results. And next, Mr. Kainuma will talk about the business update and management strategy. After that, we will have a Q&A session. Today, we're planning to end by 7 p.m.

In terms of the financial-related commission. It is in your brief report and the financial supplemental materials. And we have a press release that we announced today, the dividend surplus in terms of -- surplus dividend. We have distributed that material. And we have distributed questionnaires. This will be a very precious feedback to our IR activity. So please answer the questionnaire. And after the meeting, please leave it on your desk. So this meeting, including the Q&A session, is broadcasted live on the Internet. And to be viewed afterwards on the website, it is recorded as well. Please understand that. And please refrain from taking photos or taking audio recordings outside of the related people of our company.

Mr. Yoshida, please begin.

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Katsuhiko Yoshida, MinebeaMitsumi Inc. - Senior Managing Executive Officer [2]

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My name is Yoshida. Today, I would like to explain the consolidated financial results for the second quarter of the fiscal year ending March 31, 2020. And then Mr. Kainuma, Representative Director, CEO and COO, will explain the highlights, including business updates.

So the consolidated net sales for the second quarter of the fiscal year ending March 31, 2020, was impacted strongly by the currency, but the sales was up 18.3% year-on-year and 36.7% quarter-on-quarter to total JPY 279.433 (sic) [279.473 billion]. As a quarter, the net sales hit a record high. Operating income was down 1.3% year-on-year and was up by 5.3x than the previous quarter to total of JPY 19.372 billion. Profit to the period attributable to owners of the parent was down 12.9% year-on-year and up by 6.1x than the previous quarter to total JPY 13.916 billion. Currency fluctuations brought net sales down an estimated JPY 6.1 billion quarter-on-quarter and JPY 7.5 billion down year-on-year. It also brought operating income down JPY 1.8 billion quarter-on-quarter and JPY 3.0 billion year-on-year.

Please go to the next slide. This is a quarterly trend in net sales, operating income and operating margin. The bar graph on the left is net sales and the one on the right is operating income. The line chart is for the operating margin. The operating margin for the second quarter was 6.9%, that was down by 1.4 percentage points year-on-year, but up 5.1 percentage points quarter-on-quarter. However, expenses, including business integration costs of U-Shin totaling approximately JPY 0.8 billion are accounted for as a special factor in the second quarter. The operating margin would have been 7.2% if these were excluded. Although, please note that the figures of the fiscal year ended March 2018 are based on JGAAP and provided for your reference so that you can look at past figures, the same applies hereinafter.

Please go to the next slide. This slide shows the difference between the initial forecast as of May, and actual results for net sales and operating income by business segment with the second quarter. The machine components business segment saw a lower-than-expected net sales, primarily for ball bearings due to the macroeconomic slowdown. Sales for the electronic devices and components business segment were also slower than projected mainly for motors and sensing devices. The MITSUMI business' sales, on the other hand, were higher-than-projected mainly due to increased shipment of mechanical components. The U-Shin business saw lower-than-expected sales due to a significant slowdown in production as a result of the slump in automobile market, especially in China.

Operating income for the machine components business segment fell short of the forecast as the recovery was slow for the demand for ball bearings used in fan motors, and this kept sales volumes down. Operating income for the electronic devices and components business segment are about on target. The MITSUMI business enjoyed higher-than-expected operating income as a result of increased sales. The U-Shin business, on the other hand, saw a lower-than-expected operating income due to a drop in sales.

Please go to the next slide. Now let's take a look at the results by segment, starting with machined components business segment. On the left is a graph indicating quarterly net sales trends, and on the right is a graph with a bar chart, quarterly operating income trends, along with a line chart for operating margins.

Net sales for the second quarter decreased 2% from the previous quarter to total JPY 45.1 billion. Ball bearing sales decreased 2% quarter-on-quarter to total JPY 29.2 billion. External shipment of ball bearings totaled 185 million units per month on average. Despite the slower-than-expected recovery of demand for ball bearings used in fan motors, demand remained up in the automobile market.

Sales of rod-end/fasteners totaling JPY 9.6 billion, were down 4% over the previous quarter. Business for the aircraft industry, especially small and medium-sized aircrafts, remained steady. Sales of pivot assemblies increased 2% quarter-on-quarter to reach JPY 6.4 billion. Pivot assembly steadily contributed to our bottom line as we held on to an 80% plus market share. Operating income for the quarter totaled JPY 10.2 billion, and operating margin was 22.6%. While this represents a 0.6 percentage point decrease in the operating margin, operating income declined 5%.

Looking at the results by product, we see that operating income for ball bearings, rod-ends, fasteners and pivot assemblies all fell slightly quarter-on-quarter.

Now let's look at the next slide. This is for the electric devices and components segment. Net sales increased 30% quarter-on-quarter to reach JPY 101.3 billion. By product, sales of motors were about the same as the last quarter at JPY 45.7 billion. Electronic devices sales increased by 2.1x to total JPY 46.4 billion. This was primarily due to peaking demand for new LED backlight products from our major customers. Sales of sensing devices were about the same as was last quarter at JPY 8.2 billion. The segment recorded an operating income of JPY 6.7 billion and operating margin of 6.6%. By product, operating income for electronic devices and all the products rose quarter-on-quarter.

Next slide, please. Let's look at the performance for the MITSUMI business segment. Net sales doubled from the previous quarter to total JPY 100.9 billion. Net sales increased for all products centering around mechanical components and optical devices. Operating income for the quarter totaled JPY 7.1 billion, and the operating margin was 7.1%.

Next slide, please. Finally, let's look at the U-Shin business segment. Net sales decreased 7% from the previous quarter, including the premerger results to total JPY 32.1 billion. This was due to a significant production decline as a result of a slowdown in the automobile markets, particularly in China, plus Europe and elsewhere. There was approximately JPY 0.4 billion one-time expenses in second quarter related to special factors such as business integration expenses and ramp-up expenses for new products. One-time expenses for full year is expected to be approximately JPY 1 billion. Operating income for the quarter totaled JPY 0.5 billion, putting the operating margin at 1.6%. While this represents a 1.7 percentage point decrease in the operating margin, operating income declined 50%.

Next slide, please. The bar graph here shows trends in profit attributable to owners of the parent, while the line graph chart changes in the profit for the period per share. The profit for the period was JPY 13.9 billion. Earnings per share was JPY 33.5.

The next slide, please. This shows the quarterly inventory trend. At the end of the second quarter, inventories are totaled JPY 181.4 billion, a [featured] 7 billion more than what it was 3 months ago. U-Shin inventory of JPY 15.9 billion was included because of the consolidation.

Next slide, please. This graph contains a bar chart showing trends in net interest-bearing debt, which is total interest-bearing debt minus cash and cash equivalents and the line chart indicating free cash flows at the end of the second quarter. Net interest-bearing debt amounted to JPY 97.9 billion, which was up JPY 76.2 billion from the end of the previous fiscal year.

Next slide, please. This is a summary of the forecast for the fiscal year ending March 31, 2020. While we expect sales to pick up for some products in the second half, global economic trends remain hard to pin down due to currency movements, [a worldwide] decline in automobile shipments and other factors on top of trade frictions that have cast clouds of uncertainty over our markets. As such, we have revised our second fiscal half and full year forecast. The exchange rate is assumed to be JPY 108 to dollar -- to a U.S. dollar.

This slide shows the forecast by business segment, we made revision for each segment as well.

This is the end of my presentation. Thank you very much.

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Kenji Yahiro, MinebeaMitsumi Inc. - Manager of IR [3]

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Mr. Kainuma, please?

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Yoshihisa Kainuma, MinebeaMitsumi Inc. - CEO, COO, Chairman & President [4]

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So let me give my presentation. So I have a cold, so excuse me for sounding a bit disagreeable. So today's highlights. As you see here, these are the -- today's highlights for the automobile, construction equipment, home appliances, machine tools. The market -- these markets are not doing well. Smartphones and games has been supportive of our business. And that has been our first half rough landscape. That said, excluding some industries, the trend of recovery, of course, for the semiconductors business it has been already reported that it's recovering, but I'm going to talk about it in details later. In terms of ball bearings, I think we have already hit the bottom. In terms of automotive-related companies, I think most of them has been suffering from low profits, but U-Shin, unfortunately, I think the business has not been in line with the expectations. This is the thing that we will have to report to you.

So there, we have 2 plants in China. And so we have Chinese automobile -- automakers as the customers and U.S. automotive makers. And we supply handles, et cetera. As seen here, there has been a dramatic deceleration of the Chinese automotive market and the utilization rate has gone down significantly. And that's the current situation. On top of that, the new products has been ramped up. This is in Europe, and I will touch upon that later in detail. And that will be the next pillar of our business. But -- and there's a one-off expenses that we have to account for this ramp-up of the new product. And U-Shin, for sure will grow dramatically. And I am very confident of that.

In terms of M&A, we have been conducting this. And in terms of shareholder returns, as I will explain later, we will execute shareholders' returns.

So for this fiscal year, sales increased and the profit declined for this first half. So JPY 1 trillion, front loading this actualization of this, a year ahead of the schedule, we want to achieve this. The smartphone games has been better than expected, and for this fiscal year, I think will drive our business. The first type of -- income, so (inaudible). The plan was to [12 billion], the difference of this, JPY 4 billion, was because of [electronic] components and MITSUMI was the -- been able to generate more than expected profit. But the U-Shin's one-off expenses and Mr. Yoshida has explained about that. The automotive market has been stagnant. And ball bearings, we do have a large share in ball bearings. Excuse me. So if the overall economy slows down, it means that the utilization rate will go down. And the recovery has been slow, slower than we had expected.

So just going into the second half, I think, basically, we'll be in line with our expectations. As I said, for the games, smartphones is showing strong trends. And I think this is completely different with last year. The last year, there was -- produced a lot, but we weren't able to sell what we have produced. But gradually, our products are selling. And that's the actual feedback that we have been getting. So ball bearings of the 5G IoT-related CapEx is becoming stronger and stronger. So the inventory has been cleared out, and the China air conditioner invert is going -- using inverters, and ball bearings will be sold into these type of air conditioners -- air conditioning machines, and this is where we put our expectations.

So if you look at this chart. So the red line, year-over-year comparison. So as you can see it has gone down substantially. But in the first quarter, it has hit the bottom. And on a single month basis, we have been able to recover to this level. January we'll be in 200 million pieces. That's what we are hearing. So that -- this is completely different from January last year. For instance, if you look at the numbers, August last year, for the ball bearing was 200 million; September, 230 million; October, 199 million. So this year's external sales: August, 178 million; September, 193 million; so October, 195 billion (sic) [195 million]. So for October, there's only 4 million difference for August. So you've gone down -- it's gone down by 22 million. So for ball bearings -- for our ball bearings, this is an indicator of the economy. So it lags in terms of the drop, and it's a kind of a harbinger when it goes up. So when I entered this company that was what I was told. And in reality, if we look at the trend, basically it reflects that situation of the economy. So I think basically, this is a kind of a leading indicator of the recovery of the economic situation if you look at our ball bearing shipments.

The hard disk drives in 2025, maybe it will go to 200 million units. But in terms of the internal sales capacity, but we can reallocate that to the external sales. So the margin improvement should be conducted. And with a new plant construction may be delayed a bit under the circumstances.

So this is just for your reference. This is a public information. So the other industries' year-over-year trend. We -- I have taken the semiconductors, OEM, ODM and related numbers. So you can see that the ball bearings is showing the same trend. And basically, all of these lines have hit the bottom.

So for the electronic devices and components, the backlights -- LED backlights are doing well. The motors business is not doing that well. However, fans is going to recover. So going into the second half, we are looking to a recovery in this business segment.

For the MITSUMI business, games are doing well. And one thing I want to say is OIS. We have multicamera, front cameras will be autofocus, large diameter lens and our adoption new system. So we have a trend that you will start to see emerge. So in terms of optical devices, we said they were not going to be that proactive in this business we have declared as such. But the backlight volume is going to gradually decline. If you assume that it's going to happen, it means that within our sub core business, optical devices is one of areas that we should be focusing on. And one good news is that MITSUMI's analog semiconductors has become a good business. And last month, they have JPY 400 million profit. That's the report that I have gotten. So in that sense, this will -- there would -- are the last of the 8 spheres, but maybe they'll be able to increase their ranking among the 8 spheres.

For U-Shin. Today, specifically in the showroom on the first floor, the smart lock demonstration, is there. So as -- if you have time, please take a look at the smart locks of U-Shin. So CSD, flash handles, E-Access products, these type of products, including home security locks, there will be electrification in this area. So this is the most -- of the strength of Minebea and MITSUMI. So by being -- by doing this business, the U-Shin business, I think we will become a good quality business. So we are being engaged in doing in development and ramping up the production, et cetera. And we are supporting U-Shin in this manner. But in terms of automotive, we can't simply change the process that easily. So it's taking a bit of time, and there's a bottom market. Deceleration in this market has been directly hitting the U-Shin business. But I think now is the time to look for the next opportunity and be unified. There is some new products, which are also displayed downstairs. I would like you to take a look at them if you have time.

Dividend will be JPY 14 and JPY 67 billion. Then the JPY 14 dividend in the second half as well, so a 20% dividend payout ratio. And usually, we say it's between 17.5% and 22.5%. And this is within that range, and we would like to make hard efforts in order to achieve our JPY 67 billion.

And the share buyback. Now we have, again, the authorization for 1 year. And it's not that we have no intention of doing this, however, it is also true that we are faced with severe restrictions, which enable us to do this. But when those restrictions go away, we would definitely like to buy back our shares as a part of our efforts to improve shareholders' return.

So I have given you a brief overview about our strategy. Thank you for listening.

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Questions and Answers

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Kenji Yahiro, MinebeaMitsumi Inc. - Manager of IR [1]

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Next, we would like to have Q&A session. We would like to accept the questions only from institutional investors and analysts. Before asking a question, please mention your affiliation, name and affiliation. Please wait until a microphone is handed to you. So the second person from the left, there in the front row.

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Daiki Takayama, Goldman Sachs Group Inc., Research Division - MD, Co-Head of Japan Equity Research & Equity Research Analyst [2]

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Takayama from Goldman Sachs. The first one is about the ball bearings. Production, volume, second, third and -- for second quarter, the new forecast and the server-related and automobiles-related are recovering. And what seems to be the strongest? The order of strength, I would like to know. And the machined components, profit margin, 27%. And this is probably the highest, but the sales are not expected to rise sharply. But why is the profit margin is likely to go up by this much? And that is my question.

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Katsuhiko Yoshida, MinebeaMitsumi Inc. - Senior Managing Executive Officer [3]

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First of all, the ball bearings' production volume, Q2 actual in average, 244 million units; and Q3, 256 million; and Q4, 259 million. These are the assumptions. And by application, automobile, very strong. As Kainuma explained to you previously, this year, it has renewed a record high number and the strong trend is likely to stay going forward. And home appliances and the like have recovered from the slump.

And basically, there are no negatives year-on-year, but the only weakness is the fan motors. In June, it hit the bottom. June, July and August, the numbers were weak, but it's recovering, boosting overall numbers. And the profit margin. So this year, we are determined to achieve JPY 1 trillion. And that we have set the sales targets are based upon that plan, and there are some ups and downs in terms of the numbers. It may seem odd slightly, but looking at the ball bearings, our sales are expected to grow going forward.

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Yoshihisa Kainuma, MinebeaMitsumi Inc. - CEO, COO, Chairman & President [4]

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If I may add, the ball bearings, Q4 -- towards Q4, it will be stronger than the plan. We have received an indication that seems it stronger than the plan. And the machines for increasing capacity, we will try to suppress the burden in order to improve profit margin. Taking all those into account, probably this type of number is achievable.

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Daiki Takayama, Goldman Sachs Group Inc., Research Division - MD, Co-Head of Japan Equity Research & Equity Research Analyst [5]

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So the product mix, I mean, is it like product mix is going to improve going forward in the second half?

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Unidentified Company Representative, [6]

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The automobiles last month, it made a record high number. In this kind of situation, we are very grateful to achieve that record high number. But compared with fan motor, the mix is much better and our current trend is likely to continue for some time.

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Daiki Takayama, Goldman Sachs Group Inc., Research Division - MD, Co-Head of Japan Equity Research & Equity Research Analyst [7]

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My second question is MITSUMI business. So operating profit. Full year forecast has been revised up. Is it the games? Or China? Or the North America? What is the reason behind that?

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Unidentified Company Representative, [8]

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What is driving the growth is the games, OIS. OIS was reported in newspaper today. Chinese players seem very strong. And American players are slowing down and Chinese players are emerging. And that trend is even stronger this year, and we are pleased to see it. And games, I think you are more knowledgeable, but game business is very solid, so those are the growth drivers in our view.

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Daiki Takayama, Goldman Sachs Group Inc., Research Division - MD, Co-Head of Japan Equity Research & Equity Research Analyst [9]

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Lastly, my question is about U-Shin. So these 5 pillars that you referred to, next fiscal year, what type of sales level can we expect for these 5 pillars? And in terms of the profit improvement measures, so the business environment has changed. So are there some additional measures that you are implementing? So what are your current activities?

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Unidentified Company Representative, [10]

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So in terms of the orders we have already received within the 5 pillars, the CSD, flash handles. So from next year, we are going to see expanded sales of these products. In terms of the production know-how, we are trying to make this integral to our production. And home security locks, I think for next fiscal year, I want to come out with home security locks into market.

In terms of the detailed figures. In May next year, let us announce that. For example, in terms of margin, U-Shin, from Europe perspective, next fiscal year, how much should this be? So what do you currently think? So EUR 10 billion is -- will be the target for U-Shin, so JPY 8 billion is the forecast. So maybe we are short of this target.

But if you look at the situation, it's -- I think the automotive industry, depending on the OEM, is very indifferent. So the strong ones are very strong, but the European OEMs and the U.S. and Chinese local players, they are not doing well. I think that's the current situation. So we have plants all over the world and doing business with all other players. So the macroeconomic situation or the automotive industry, I think we have to observe what's happening in these markets. But the CSD, flash handles, et cetera, for these type of products and some E-Access products, these will be -- we are focusing on the high-end cars.

So U-Shin, currently, basically these are key locks. So they'll be steering locks. These are mechanical products. So they are targeting or providing products to low-end cars. So to be able to improve their margin, we have to change the product mix. But -- well, this is not an excuse, but the automobile market, you have to go through various procedures. The model changes once in every 4 years. So that's the cycle in the automotive market. So it's not a thing that you can snap your fingers into the -- tomorrow. But once we are taken up as a product, we can continue the business.

I think the home security lock, the fifth pillar, I think that's the low hanging fruit. So I think, basically, what you're seeing from the business of ball bearings or what you're seeing from U-Shin, are different. Yes, because U-Shin is just doing business with limited OEMs. But for the ball bearings, I think it's across the board. And in terms of the -- basically, a good reflection of the economic situation for ball bearings. So I think whether -- even if you're going to see a recovery, the machine tools is horrible. So I think it's different depending on the industry. But the semiconductors are recovering. So the recovery is different by the industry. And even if there is a recovery, depending on the strength of the manufacturers, we will be influenced somewhat. And I think as the components manufacturer, that will be our -- that's unavoidable.

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Kenji Yahiro, MinebeaMitsumi Inc. - Manager of IR [11]

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So the person in the front row.

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Shoji Sato, Morgan Stanley, Research Division - Analyst [12]

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Morgan Stanley, my name is Sato. I have 3 questions. The first one is somewhat related to the previous question. The ball bearing at Q2, 185 million was the external sales number. Could you give me the monthly numbers, external and internal sales?

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Unidentified Company Representative, [13]

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At Q2 external sales are 183, 179, 194. And internal sales from July, 64, 66, 63. So the unit is a million units.

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Shoji Sato, Morgan Stanley, Research Division - Analyst [14]

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What about the production?

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Unidentified Company Representative, [15]

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253, 235, 245.

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Shoji Sato, Morgan Stanley, Research Division - Analyst [16]

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So these seem that they have recovered pretty well. And what is the outlook? Or to what extent did it recover in October?

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Yoshihisa Kainuma, MinebeaMitsumi Inc. - CEO, COO, Chairman & President [17]

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October, external sales, as I said previously, 195 million. And internal sales was 65 million. So total is 260 million, and the production has been increased to 254 million. So earlier, I talked a little bit about the production. And with that, as the bottom, actual operation is likely to exceed that level.

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Shoji Sato, Morgan Stanley, Research Division - Analyst [18]

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And my second question is, from Q1 to Q2, backlight and MITSUMI's game, OIS are increasing. But from Q2 to Q3 or to Q4, how do you think these 3 businesses will change?

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Unidentified Company Representative, [19]

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Can I give you sales numbers? Electronic devices, Q2 sales, JPY 46.374 billion and Q3, JPY 52 billion. And then JPY 46.7 billion is the full Q4 number. And the second half, JPY 98.9 billion. And MITSUMI, at Q2, JPY 100.9 billion and JPY 82.4 billion, and the Q4, JPY 52 billion. And the games, Q2 was the peak, and Q3 is likely to slow down a little bit. But customers are selling very well, so there may be some upside. Optical devices, OIS in the Q3 is likely to be far better than Q2 and towards Q4 it will go down again a little bit. That is our view.

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Shoji Sato, Morgan Stanley, Research Division - Analyst [20]

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The electronic devices peaked in Q3. Is that because backlights will increase in Q3? Am I right in assuming that?

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Katsuhiko Yoshida, MinebeaMitsumi Inc. - Senior Managing Executive Officer [21]

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Yes, backlight sales will continue to be robust, Q2 versus Q3.

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Shoji Sato, Morgan Stanley, Research Division - Analyst [22]

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And about U-Shin. After the integration, it's been more than 0.5 year since the integration. I think you have tackled with various production reforms, particularly a European operation. What is the picture? And what kinds of changes can we expect towards the next fiscal year? If you can talk about that.

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Unidentified Company Representative, [23]

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Europe will be the biggest key factor for U-Shin's turnaround. In the past 6 months, I visited Europe 3 times. Once every 2 months, our management visits Europe. And we have organized a huge support team. And centering around a new product, we are implementing improvements. And the vertical integration is going on. And the parts and components, we are supporting production of the parts and the components for vertical integration. And in addition to that, a joint sourcing with Minebea and MITSUMI, purchasing and integrating logistics is another thing we are working on. Next year, there will be many new products launched into the market. So by accumulating ability, we shall be able to have smooth launches and that will change the tide, and U-Shin's business will start to improve. People are motivated. The employees are more serious than -- and diligent than I thought. So organizing good teams, we would like to solve each and every problem. But the automobile market in Europe, there are positives and negatives. And there may not be sufficient sales, so we need to keep paying due attention to that.

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Kenji Yahiro, MinebeaMitsumi Inc. - Manager of IR [24]

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So let's go to the next question. Please raise your hand if you have a question. So on the left, second row from the front.

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Manabu Akizuki, Nomura Securities Co. Ltd., Research Division - Senior Analyst and Executive Director [25]

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Akizuki from Nomura Securities. So there are two brief questions I want to ask. So the previous question said that electro device for the third quarter and fourth quarter, the sales will just go down modestly. I think that is your assumption. So normally, the fourth quarter, basically, the quarter, it's a quarter that the sales drops a lot. So why are you assuming a moderate decline of sales? That's my first question.

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Unidentified Company Representative, [26]

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So it's very difficult to say, but there are new products. The introduction cycle is different from previous years. So normally, toward the second quarter, third quarter, we will produce. And then the fourth quarter, they will see a decline of sales. This product has different cycles than the normal cycle. So that means the fourth quarter, we'll see some level of sales coming up because of this new product.

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Manabu Akizuki, Nomura Securities Co. Ltd., Research Division - Senior Analyst and Executive Director [27]

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Understood. Again, for the electronic devices and components. The MITSUMI business and there are some units that went into electric devices. So for the full year, how much will these sales generate?

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Unidentified Company Representative, [28]

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Well, it's about JPY 15 billion is related to this specific business unit, and JPY 10 billion is what came from MITSUMI. The new business is about JPY 15 billion.

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Manabu Akizuki, Nomura Securities Co. Ltd., Research Division - Senior Analyst and Executive Director [29]

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Again, confirmation about figures. So in terms of the corporate expenses, with the full year expectation, JPY 3 billion -- has increased by JPY 3 billion from the beginning of the fiscal year. So can you go into -- give the breakdown? So the next year onwards? Well, maybe by -- it's JPY 3.5 billion by quarter. I think what's this run rate in the past? Are you going to -- going back to this run rate for the next fiscal year onwards? Would you please give me that number?

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Unidentified Company Representative, [30]

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The first quarter -- in the first quarter, well, when we give a presentation, I think I referred to that for this fiscal year. We extended the retirement age to 65 years old. With this, the retirement, we have increased some provisions for the retirement benefits shortfall because of this. And M&A has been -- we have been very active in -- on M&A front. So expenses and costs related to M&A has been coming up. So that is the major reasons. And for the M&A cost, if this has not gone up about JPY 15 billion, I think basically will be the corporate cost.

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Kenji Yahiro, MinebeaMitsumi Inc. - Manager of IR [31]

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So any other questions? So the second row and the second person from the left.

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Yoji Watanabe, SMBC Nikko Securities Inc., Research Division - Senior Analyst [32]

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Watanabe from SMBC Nikko Securities. I have two questions. One is about OIS. So you said that you'll be more proactive in OIS. But in terms of investment, what is your stance? So Cebu, your capacity expansion? Or are you going to expand the scale of the plan? Are you going to utilize Cambodia plant? So is it -- well, is this focus going to entail any CapEx?

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Unidentified Company Representative, [33]

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So basically, we are not thinking about expanding our capacity at Cebu. So if the volume goes up, this will be absorbed in Cambodia. In terms of CapEx, we are conducting CapEx. But it's -- we're not in the phase that we need huge CapEx. So there will be numerous business opportunities. But if that comes up, we will reallocate existing capacity or rearrange the existing capacity. So we will not invest hugely in CapEx. And I think basically we'll be able to cope with that level.

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Yoji Watanabe, SMBC Nikko Securities Inc., Research Division - Senior Analyst [34]

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So the Chinese OIS will be concentrated in Cambodia and the Philippines will be basically focusing on the biggest customer?

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Unidentified Company Representative, [35]

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So we will rearrange this capacity so that we can enhance our overall capacity. I think that's the way to look at it. So this still will be your sub core business.

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Yoji Watanabe, SMBC Nikko Securities Inc., Research Division - Senior Analyst [36]

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Understood. And my second question is about -- well, I want to ask you about U-Shin. So U-Shin, originally, they have been doing their business. And after the acquisitions, I think the business has changed. But I think the -- with Europe, the major reason or the situation but -- where U-Shin has been [conventionally] during profit is impacted, it's both actually. So the UAM, that's the European business, well, the former U-Shin group, excluding Europe, that has been profitable. And the Europe group -- basically speaking, there are 2 businesses, both has been impacted by the automotive market slowdown. And their profitability is declining for both parts of their business. I cannot go into detail. But I think, more or less, you have some assumptions about the customers. And if you look at those customers -- so doors have 4 handles. And correlated to that decline of the sales of the cars, the handle sales will go down as well. So you can't change the [4M]. But it's difficult to assume that the automotive business is going to come back strongly in the next fiscal year. But besides new products, are there any other measures that you can come out with?

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Unidentified Company Representative, [37]

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So my policy is that -- so home security locks. So new products should be produced at various sites and then sold in various markets. But I think being on defensive is the best defense. That's my policy. In terms of automotive market, there's a very clear demarcation between what we can do and what we can't do. So we can just stand by on the sidelines and expect something to happen, what we can't control. So in terms of what we -- matches our characteristic is the home security lock. I think this is a good match with our business policy. So I'm trying to focus on that.

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Kenji Yahiro, MinebeaMitsumi Inc. - Manager of IR [38]

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Any other questions? Then the second person from the left, far left line.

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Akihiko Uchino, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [39]

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Mitsubishi UFJ Morgan Stanley, Uchino is my name. I have two questions. One, the first one is about backlight. You talked about seasonality earlier. And there will not be a huge decline from Q3 to Q4. As for the future direction, the seasonality could be mitigated next year onwards, is that right? And backlight demand forecast for the next fiscal year.

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Yoshihisa Kainuma, MinebeaMitsumi Inc. - CEO, COO, Chairman & President [40]

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As Yoshida explained earlier, well, it's rather hard to say, but this year, as one factor, the sales -- we have these planned sales. And that is the reason why it's sort of mild card. And smartphones, it probably applies to the overall situation. That is my answer to your first question.

And about the next fiscal year, as I usually say, backlight, I have never heard from our customers that the backlights will diminish or cease to exist. That is what I can say. When it is to disappear, then I will say so. But today, there is no indication that it is going to disappear, and that is as much as what I can say at this point in time. I hope it's all right.

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Akihiko Uchino, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [41]

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It is all right. And my second question is, MITSUMI's machine components, particularly for game consoles. The demand in the first half, or the production, was quite solid. Probably, it was impacted by trade friction in the second half. Is there any risk for slowing down?

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Unidentified Company Representative, [42]

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So with regards to this business, there is no signs of slowing down. Rather, it will be very strong. I cannot give you more details, but if you speak to our customers or the companies that you think are our customers, I think you can understand the situation.

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Kenji Yahiro, MinebeaMitsumi Inc. - Manager of IR [43]

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So if you have a question, please raise your hand. So on the very front row, please.

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Fumihide Goto, Mizuho Securities Co., Ltd., Research Division - Senior Analyst [44]

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Goto from Mizuho Securities, one question. So MITSUMI's midterm direction. So basically trying to flesh up the current business. The actuators, I think you have mentioned that. In games, I think you basically said it was robust. But I think some change will come in the future. So as the next driver, what are the businesses you are trying to develop? So what are the conditions? What is the progress about the next driver MITSUMI?

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Unidentified Company Representative, [45]

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In the conventional segmentations, MITSUMI, is game, OIS and others -- well, others are not that good. I think that's what you think. But semiconductors, that's one, is one area that we want to put a lot of focus on because -- well when we acquired MITSUMI, I thought that the semiconductor business was the first that we're going to sell. But conversely, semiconductors is showing a very good trend. And they are basically the core of generating profit. So we want to develop the semiconductor business.

But if you look at the conventional segmentations, maybe this will lead to misunderstanding. Because in the first floor, we had this IoT displays or exhibitions. And I think you'll understand the home security locks, et cetera. So all of these businesses is backed up by MITSUMI. It's not Minebea. It's MITSUMI's staff or business that's backing up these new businesses.

So the U-Shin cannot do these type of businesses alone. So this -- and I think, basically, it had to change the segmentations in the future. So rather than looking at this conventional segmentations, so this synergy that we are focusing on. This is what -- this combined strength is what we are putting priority on. So if these things come out in the market -- and we have to show that these things will sell. And we do understand that we have to prove ourselves. So we will strive to bring -- to show you that evidence as early as possible. Various measures, initiatives are in place, actually, but maybe not enough to make you believe. So next fiscal year, I hope that we'll be able to show you the evidence of our efforts.

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Kenji Yahiro, MinebeaMitsumi Inc. - Manager of IR [46]

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So any other questions, please raise your hand. Questions? If you have questions, please raise your hand. Then, again, please.

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Unidentified Analyst, [47]

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So this is my second time to ask. For the ball bearings business, there are two questions I have. One is for the fan motors, the recovery of the fan motors. So last year, the level was low, so year-over-year it's better. But is it going to recover to the past peak? Or is it just you're clearing those little hurdles? I want to know about that. Another is for the automotive business, so fuel efficiency, et cetera. And I think basically, it's better that they don't build up, but the automobile output itself is going down. But is this -- are these the factors that are there? Or actually, basically recovering despite the fact that total automobile output is declining? Could you elaborate on that?

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Unidentified Company Representative, [48]

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So the fan motors recovery. So we have 5G, IoT, as you all know will certainly become the driver. So these FM orders, as long as the inventory is cleared out, demand will come back. But how far will this recovery be? I think it depends on how the market behaves. So what we can say at this point is that the -- we hit the bottom, we're seeing a sharp recovery. That's the link that we can say. So in terms of how this chart -- the recovery is going to look like maybe next year and 2 years after, maybe, in retrospect we may be able to say that "Oh, this was a reset recovery." That is what are assuming based on past experiences. So I think, basically, we are assuming and reading in a lot.

For the automotive industry, the electrification is going to go forward. This was a thing that will all happen. So meaning that the motors, or the ball bearings, motors and -- ball bearings that we use in motors will have to prove that it will work from 230 degrees to 120 degrees. There's limited companies -- well Chinese companies cannot supply these type of ball bearings that have this level of heat resistance. So I think that means we have an advantage. So this trend, so -- is EV, then this trend will accelerate. So we have this kind of negatives and positives in this automotive market. But even so, the ball bearings usage -- available bearings in the automotive is increasing. And I think this is remarkable. So a lot of different type of automobiles is going to be EV or become hybrid vehicles. It means that, for instance, the air resistance, control, brakes, et cetera, will use ball bearings. So we will salvage the business and then that will change our margin outlook. So we want to be engaged in this business.

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Kenji Yahiro, MinebeaMitsumi Inc. - Manager of IR [49]

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Next question. Second row from the right-hand side and the [poll's] line.

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Shingo Hirata, UBS Investment Bank, Research Division - Director and Analyst [50]

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Hirata, UBS Securities. I have questions about the backlight. So from Q2 to Q3, sales are likely to increase. And from Q3 to Q4, growth will be modest, you said. And MITSUMI's games, there seems to be an upside. And Q2, 3 and 4, do you feel there is an upside? And did you put together conservative numbers? What is your feeling? And you also said that the backlights will not disappear next year. Is it going up or remains the same? So qualitative information I would like to get, if possible.

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Katsuhiko Yoshida, MinebeaMitsumi Inc. - Senior Managing Executive Officer [51]

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This industry, as you know, it's very difficult to predict. But taking into account various pieces of information, we think that things will be quite solid going forward and the various changes the customers and customers-related information suggests. So I think there is a possibility for upside, and that is about Q2, 3 and 4. But next year onwards, as Kainuma said earlier -- I mean, what Kainuma said is as much information as we can give at this point in time. So if there are any backlight business opportunities, we will capture them.

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Shingo Hirata, UBS Investment Bank, Research Division - Director and Analyst [52]

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My second question is -- so earlier, you said that you will keep looking for M&A opportunities. And Mr. Kainuma, what is the thing you want the most right now? You have both various businesses, and what is lacking in your view and areas or technologies?

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Yoshihisa Kainuma, MinebeaMitsumi Inc. - CEO, COO, Chairman & President [53]

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To be quite frank, there are two things. One is this U.S.-China trade friction. The performance of the companies have deteriorated, and therefore, we stopped or suspended the business. But in terms of the area, it's rather difficult to say. But later on, I think you will be convinced, or that is the type of the area we are aiming at where we can exert our comprehensive capabilities. And U-Shin, I think you will see if you look at downstairs, Minebea and MITSUMI's products. The U-Shin's products that we are working on shall be quite persuasive as a Minebea and MITSUMI product.

And backlight. We had dependency on backlights. And this year, we were helped by backlights. But probably, this year will be the last year of such kinds. And 8 spheres, without depending on a backlight and comprehensive products, we would like to launch on into the market. So that is the same strategy we have been working on in the past several years.

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Kenji Yahiro, MinebeaMitsumi Inc. - Manager of IR [54]

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Thank you. Any other questions? If not, we would like to end the meeting.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]