7735.T FY2025 Q3 Earnings Call Transcript
Date: 2025-01-31
Source: Financial Modeling Prep

Unknown Executive: Hello, everyone. Now it's time, so we would like to start SCREEN Holdings' 2025 March third quarter's financial results reporting. Session will begin now. Now, I would like to introduce our presenters. Representative Director, President and CEO, Toshio Hiroe.
?????: This is Hiroe. Thank you for having me today.
Unknown Executive: And Representative Director, CFO, Yoichi Kondo.
?????: I'm Kondo. Thank you.
Unknown Executive: And on top of CEO and CFO, we have relevant 2 directors. Senior Corporate Strategy Officer, Masato Goto.
Masato Goto: I'm Goto. Thank you.
Unknown Executive: Senior Financial Strategy Officer, Akihiko Miyagawa.
Akihiko MIyagawa: I'm Miyagawa. Thank you.
Unknown Executive: At the beginning, our President, Hiroe, is going to talk about our delayed submission of the Interim Securities Report. We sincerely apologize for the concern and confusion this has caused to our stakeholders, including our shareholders and investors. I would like to give you some report about facts. First of all, the results and  [indiscernible] the indefinite conclusions from the auditing firm was attached to the interim financial report that we have submitted to the Kanto Local Finance Bureau, it was accepted. And on the 13th of February 2025 and [ March ] third quarter the interim financial result/report was also submitted with the review report from auditing firm. And as to the Special Investigation Committee report on the 10th of January, the report was accepted by a Board meeting or the Board. And actually, there was some improper treatment of numbers partially after reviewing the report. However, the scope is limited and also significant in terms of the finance amount was limited. Therefore, we decided not to revise the past year's account settlement since publication of this report is scheduled on the 14th of January. Now about the measures to prevent recurrence. On the 10th of January this year, we launched the project team to formulate measures to prevent recurrence. So basically, in the Special Investigation Committee's report, we now realize that there has been some gap between the field operation and the profit recognition standards and also the compliance awareness must have been suboptimal. So in order to address these problems, we are now looking into the possible countermeasures. So in the end of February, we are planning to publish the countermeasures against the recurrences. So when we do so, we are also planning to announce the plan of the penalty. Now we would like to move on to the consolidated financial results report. And the presenter Mr. Kondo.
?????: Now, let me review the report the financial results. The quarter's consolidated results year-on-year, we were able to achieve both increase of the revenue and the operating profit, the ordinary profit, net profit across the board, we were able to accomplish the record high. SPE drove this positive results. So SPE, GA and FT, they are trending very solid. As to SPE, the revenue and profit increased year-on-year and marked the record high revenue on operating profit and OP margin. Equity ratio was 61.4%. Now the numbers. This is the third quarter cumulative numbers. The revenue was JPY 459.9 billion, operating profit JPY 100.6 billion and OP margin, 21.9%, ordinary income of JPY 102.3 billion and net profit JPY 69.5 billion. The year-on-year difference is JPY 112.1 billion increase in terms of the revenue. The operating profit up by to JPY 36.9 billion. Ordinary income up by JPY 37.6 billion. Net profit up by JPY 24.9 billion. Sales by destination, 12% Japan; 14%, Taiwan; 47%; China; Korea, 7%; 6% Other-Asia; North America, 9%; and Europe, 5%. Now the sales spread or breakdown by segment. SPE 84.8%, GA 7.6% and FT 5.6%, PE 1.5%. Third quarter single company numbers. The SPE, revenue, JPY 154.8 billion, the operating profit JPY 41.9 billion. OP margin, 27.1%. GA, JPY 13.7 billion. OP JPY 1.2 billion, OP margin, 9.2%. FT, JPY 10.2 billion revenue and JPY 1.2 billion, OP12.4% -- OP margin. And PE, JPY 2.6 billion revenue, minus JPY 100 million of OP and the OP margin minus 4.3%. Now this is the Q-on-Q. First, SPE increase of revenue by JPY 38 billion and OP increased by JPY 11.9 billion, and this was due to the increase in China and Korea. As for GA, increase in sales by JPY 900 million. Profit is flat. Recurring business is trending positively, mainly in the U.S. and fixed cost has increased. FT, increase of revenue by JPY 800 million. Profit increased by JPY 900 million. OLED and LCD, both solid. PE, minus JPY 300 million in revenue, minus JPY 200 million in profit, the recovery of the cutting-edge demand is delayed and both sales is solid. Now year-on-year. This is the third quarter's cumulative numbers. SPE, the revenue, JPY 383.9 billion; operating profit, JPY 100.9 billion; OP margin, 26.3%. GA, revenue, JPY 39 billion; OP JPY 3.2 billion; and OP margin, 8.4%. FT, revenue JPY 24.8 billion; the OP, JPY 1.3 billion; OP margin, 5.5%. PE, revenue, JPY 9.6 billion and operating profit is JPY 500 million. SPE had a big increase in revenue and profit, mainly in China. Foundry and Memory, increased mix also positive. GA, revenue increased, but profit decreased and recurring business is solid. Fixed cost has increased as well -- has increased. And FT, large increase in both revenue and profit. LCD and OLED, both increased and cost reduction activities has contributed to the increase of the profit. PE, here minus JPY 800 million. For the revenue, minus JPY 700 million of the profit and we expect increase of the equipment demand next year. The balance sheet, assets remains the same. Total assets remained unchanged. The cash decreased due to the transfer to the certificates of deposit. The total net assets amounted to JPY 415.9 billion, and the equity ratio improved as 61.4%. And that's for the cash flow. The third quarter operating cash flow is JPY 10.9 billion. The free cash flow is JPY 8 billion. And then the financing cash flow is JPY 12 billion negative. And then the Q-on-Q, the cash flow declined, there were advances received which are related to the Chinese customers and also interim income taxes payment. And so in full year, the cash can be generated same as the operating profit. And then the analysis of operating income growth, the cumulative. Last year, JPY 63.6 billion and the associated capacity utilization were positive by JPY 46.5 billion and the profitability of JPY 1.5 billion. And fixed costs, JPY 12 billion negative exchange rate of JPY 1 billion, and then the result was JPY 100.6 billion. And then the increase in sales and capacity utilization is attributable to SPE and FT. And then the increase in the fixed costs due to -- is mainly due to growth investment in SPE, labor cost, depreciation/amortization, R&D expenses and the exchange rates impacted GA and PE and the yen depreciation. So that was from me.
Unknown Executive: Thank you, Mr. Kondo. Now the CEO, Hiroe, is going to talk about the business environment and the outlook. Mr. Hiroe, please.
?????: I'm going to talk about the business environment and the outlook. First about the business environment, SPE, the equipment. There is a trend of accelerating capital investments in cutting-edge semiconductors and by Chinese clients. As for the semiconductors, PCs, smartphones, servers, the investment and the growth rate has been slowing down. And in fact anyway, the -- all of them are making the positive growth. And on the monetary base, the AI accelerator is driving the growth. And as for GA, the business environment remains steady, particularly in the U.S., mainly POD. And the recurring business is also showing stable progress. As for FT, the OLED has driven the growth, but the investment in the LCDs remains steady, and we aim for profit growth next year as well. As for PE, despite the challenging performance this fiscal year, the various inquiries for next year gradually begin to arrive. As for the business outlook, this fiscal year, the full year forecasts has been revised further upward from October announcement. Net sales the OP income, ordinary income, net income, all of them expected to hit the record highs for the fourth consecutive fiscal year. And the year-end dividend forecast has been also revised up to JPY 163 per share. Total annual dividend is projected to be record high at JPY 283 per share. SPE business overview. I would like to starting from SPE market trends and outlook. In calendar year 2024, expected to end with around 9% growth. In the calendar year 2025, we expect around 6% growth. Concerning the Foundry, we expect the expansion of AI market, especially the cutting-edge nodes, the investment is expected to be accelerated. As for the Memory, the growth is driven by the AI-related investments, and this trend will continue in CY 2025 as well. Investment trends by application. Concerning the Foundry, the investments on cutting-edge nodes and advanced packaging are in progressing steadily. And with regard to logic, the investments are focusing -- going to be focusing on cutting-edge development. And with regard to Memory, the AI demand drives the growth and the investments for HBM are surely continued. And about the image devices, the industry-leading company and Chinese clients are showing the signs of resuming investments. In power devices and others, the demand recovery is slowing down than we had expected. Talking about the China market, the investment plans are continuing to be brought forward. And going forward, investments are expected to gradually stabilize and our expectations have not changed. Next is the composition of equipment sales by application. The -- In the Q3, in comparison on the Q2, the Foundry increased significantly. The Flash also rose. And the 3Q cumulative year-on-year, the ratio of sales to Flash rose significantly. And talking about post-sales, the overall sales increased. Therefore, ratio of sales decreased. However, the actual sales amount remained at the same level. In October, the balance between in first half and the second half was not announced, but more than we had expected. We are on the positive side. And then the leading edge investment and the Chinese investment requested to be accelerated, we were able to record sales due to these factors. And the composition of sales by destination. If we compare the second quarter and third quarter, as I mentioned earlier, the startup was accelerated. Therefore, the ratio of sales to China increased significantly, accounting for 49%. The [indiscernible] investment for HBM, the sales to Korea has also risen. And the 3Q cumulative year-on-year, the ratio of sales to China keeps growing at 47%. It's accounting for that big proportion. And the ratio of sales to Taiwan increased due to the investment in cutting-edge area. Next, the forecast going forward, the Q3 sales made a significant increase and -- led by the investment accelerated cutting-edge nodes investment and investments in China. In Q4, the request from our customers to accelerate their -- accelerating their  [ sales ]  has been made. Therefore, this trend will continue. And the October announcement and the January announcement difference, the second half sales forecast increased significantly from October forecast due to the request for accelerating Chinese clients and cutting-edge investment. And productivity improvement by S-Cube 5 was accelerated and so that this make a contribution. And as for the full year results over last year and the full year estimate of this fiscal year compared, the sales ratio of the Foundry is increasing, and that is driven by Taiwan and China. Logic investments forecast on development. So now the investments are [indiscernible]. This is the sales breakdown by destination. The third quarter's actual and the fourth quarter's forecast. Actually, the third quarter, we had the increase of the China sales ratio. In the fourth quarter, it is expected to decline a bit. But relatively speaking, Taiwan's ratio is expected to grow in the fourth quarter, and 22% is going to be from Taiwan. So Taiwan and China's rate are going to be balanced. And October forecast and January results. If you compare the 2, due to the request from the acceleration, there's going to be a big upside, particularly by region. China and Taiwan sales are expected to grow. So last year and this year, the full year comparison, including the actual amount of the sales, the Chinese rate is expected to grow. And as to GA, mainly from North America POD is driving the sales. That is the characteristics. And along with that, since recurring business mainly on ink is trending solidly. So looking at the fourth quarter's forecast, more than half of the portion is represented by them. And at the moment, we are developing new products. So next year, we would like to release them in order to drive our top line. As to FT. As I said before, OLED is driving the business, but LCD is also solid both for revenue and orders. So we are seeing the same trend next year as well. The demand trend or display is expected to be solid. In the first half, we were able to come back to the surplus. So in the second half, we are expecting to improve the profitability. So we should be able to accomplish the surplus for the first time in 3 years, and that's our target. As for PE. Given the miniaturization trend of the circuit board and the cutting-edge investments and recovery, it seems to be taking  some time. There are some trends of the recovery, but it is taking some time. And post-sales trend is solid. So we would like to grow post-sales furthermore. So this is the business forecast of this year. So as to the actual of the third quarter, that's been already briefed. So I would like to give you some overview. If you take a look at the far right, this is the full year forecast revenue, JPY 616 billion, and operating profit JPY 126 billion; OP margin, 20.5% are expected; ordinary profit, JPY 127.5 billion, and the net profit, JPY 91.5 billion. So respectively, they are overshooting the budget. So we have made the upward revision. SPE is driving the growth. SPE's revenue, JPY 510 billion; operating profit, JPY 130 billion; OP margin, 25.5% and so compared with the previous forecast. And revenue-wise, there is an increase by JPY 37 billion. As to GA, the revenue of JPY 51.5 billion; operating profit, JPY 3.5 billion; OP margin's target is 6.8%. Again, in terms of the revenue, we are increasing by JPY 2.5 billion. As for FT revenue, JPY 37 billion, so some customers' projects are to be postponed to the next year. On the other hand, in terms of the profit, JPY 2.5 billion is expected and OP margin, 6.8%. PE revenue, JPY 14.5 billion and OP JPY 1 billion and OP margin 6.9%. We are struggling. The third quarter was negative, but in the fourth quarter, we'd like to improve. And as a result, we are going to work hard to accomplish those full year forecast. And other -- and adjustment, well, including the development in Holding revenue, JPY 3 billion and the OP is minus JPY 11 billion, and these are not changed from the previous forecast, and we are aiming to accomplish these numbers for the full year. Now R&D expenses and CapEx and depreciation and amortization. R&D, just like the previous report, we are planning JPY 33 billion. As for CapEx, depreciation is not -- consumption is progressing and some projects were postponed. And therefore, our forecast is JPY 28 billion. So this number was revised slightly. As to depreciation and amortization, it is JPY 12.5 billion. So these are the targets we are going to accomplish. As for the R&D, basically, there is the progress according to the schedule, mainly in SPE, we are going to implement strategic investments. But we also are going to invest in the new businesses as well. And particularly advanced packaging area; strategically, we would like to proceed with the investment. As for CapEx, it is going to be heavier in the second half. Again, mainly in SPE R&D, the manufacturing equipment are invested. In Hikone new building, this is a hydrogen-related building, and this is scheduled to be completed. So these are the scope of the CapEx investment. And this is the profit analysis comparing last year and this year. So last year, it was JPY 94.1 billion. The revenue increase and utilization ratio has added JPY 47 billion and profitability, plus JPY 2 billion and the fixed cost factor is a negative minus JPY 18 billion and the ForEx plus JPY 1 billion. So we are forecasting JPY 126 billion of operating profit, so increase of the revenue. And the utilization rate is driven by SPE and FT majority is actually contributed by SPE. As to profitability, the positive factor is the SPE. It is driving that number. As to the increase of the fixed cost, again, SPE is the main factor. Holdings new business is making the intensive investment as well, but they are both important investment for growth, and they are including the labor cost, depreciation and R&D expenses. As for dividend, for March 2025 years, dividend forecast is JPY 163 per stock. This is the upward revision. And therefore, the full year dividend is going to be JPY 283, and this is going to be the record high. So the consolidated dividend payout ratio target is 30%. So if you do the math, I think you'll be able to come up with these numbers. And other topics, they are included in the materials. So please take a look at them when you have time.
Unknown Executive: Thank you, Mr. Hiroe. Now we would like to have a question-and-answer session. And the first is Yoshida-san of CLSA Securities.
Yu Yoshida: Yoshida of CLSA Securities. You reported a wonderful financial results. And then the -- as for the WFE forecast of 6%, I would like to ask by application, what is the respective growth rate? And also the growth rate of China, what is your expectation? And the CY25, if you divide the first half and the second half, what is the height of the mountain? As for the WFE forecast, I would like to ask you.
Unknown Executive: And Hiroe is going to answer to your question. The forecast for the 2025, okay?
?????: Yes. And as for the forecast for 2025, foundry is expected to be very strong. We expect the foundry is going to drive the growth. Taiwan foundry is the main one, but the Chinese foundry will also another factor to grow. And Logic is expected to be slower a little bit. And the DRAM in the memory, the investment is expected to be steady. And the NAND in the second half is expected to pick up. The weak area is Power area. The investment in Power is expected to decrease. And the entire Chinese market it is expected to be stabilized. And so next fiscal year, especially the first half of the next fiscal year, the WFE follows the calendar year, but our first half of fiscal year, the Chinese market is expected to be steady. And -- but for the second half, there might be some adjustment gradually. And throughout the year, the calendar year 2025, it's almost the same as 2024 in our expectations.
Yu Yoshida: So what about the amount of height of first half and the second half?
?????: In the first half, the orders have come inside; therefore, we expect it to be steady. In the second half, it's a little bit uncertain. Having said that, there is some amount of orders are expected to be made. Therefore -- so first half and the second half, the first half sales is expected to be stronger according to the current situation.
Yu Yoshida: The second point, in the midterm management plan, the growth investment progress and depending on the situation, you are going to make the flexible share buyback. And then the -- in comparison to the forecast, the capital investment is a little decreased. And then the performance is quite good. And under current situation, what is your idea of the shareholder return for the next fiscal year?
?????: In our policy, that 30% payout ratio will be maintained while keeping that flexibly, we are going to conduct share buybacks. And that is our policy, which was announced. And the contents of investments are being scrutinized. The various things have been visualized. And so accordingly, we would like to make a release to you internally when we have come inside and then we would take some actions.
Unknown Executive: Next is the Morgan Stanley MUFJ Securities, Mr. Wadaki.
Tetsuya Wadaki: This is Wadaki speaking. That was an impressive financial results. My first question, so the cleaning equipment seems to be doing extremely well. So what's the reason behind that? Compared with other equipment, it is doing especially well. So if you have any analysis, could you share the results of that?
?????: Let me take that question. So as for the cleaning equipment, since we mentioned in the previous IR Day, the more the miniaturization investment goes on, then more benefit we receive. Another point, advanced packaging area, in one sense, it required some special cleaning process. And therefore, we can collaborate with them, and we are commercializing our special technologies, and that is now leading or leading up to the business results. So that is our strength. So with the foundry customers, we are moving forward together, and that is actually driving our performance.
Tetsuya Wadaki: So how much of the percentage of the revenue did you make from the cleaning equipment for the packaging application this year and next year?
?????: We are still looking into the numbers, and we are not yet announcing and disclosing the numbers, so we are still reviewing the numbers. At some point of time in the future, we should be able to share the information. I'm sorry.
Tetsuya Wadaki: My second question, I think this is related to Mr. Yoshida's question. Not just your company, but to all the equipment manufacturers are receiving the request of acceleration from China and the revenue to China is basically very profitable. So next year, there could be some negative backlash. I understand that you can -- you have some visibility in terms of the revenue, but I am also still worried in the second half next year. And also the mix is going to be affected. So how would it impact on the product profitability improvement?
?????: Like you said, right, there is the acceleration of the project from China, and those are the projects with high profitability for us. So this time around, this has really contributed to the increase of the profitability. And towards the next year, that is going to be influenced. So we will have to take on new measures to improve the profitability. And we can't negate the fact that the business mix is going to be negative or is going to be worsened next year. However, our profitability standing has improved to some extent, particularly S-Cube 6 and the Hikone plant, various initiatives are now contributing to the profitability. So I think that we will be able to deliver the satisfactory profitability next year as well.
Unknown Executive: Mr. Shimamoto of Okasan Securities.
Shimamoto Takashi: My name is Shimamoto of Okasan Securities. I would like to ask about the WFE. I wasn't able to join the first half. I'm sorry if you have already talked about, I'm sorry about that. But the direction by application, what will be the growth rate, respectively, foundry, memory, DRAM and NAND and also Chinese market, would you give us more details?
?????: The respective growth of each application is under scrutinization. Therefore, I cannot talk about the detailed numbers, but the strongest growth is expected to be a foundry. Foundry, the investment themselves in the cutting-edge field is going to increase. And as I answered previously, the investment in the miniaturization would give us positive aspects, and that will be the driver. And the ratio of China is expected to decrease a little bit, and then that will become a sort of offset. And the major one is the -- those things. And it's common to WFE, a common trend to WFE and investment in memories. DRAM-related investment is expected to pick up a little bit. And the NAND as well, we expect some increase. And as for the numbers, we are going to examine further so that I can talk to you later.
Shimamoto Takashi: Let me check. In the question of Yoshida-san, as for China, the last year and this year, I heard that the same level, what was the same level?
?????: I'm sorry, according to the WFE, the same level. Our share of sales is a little bit decreased. And WFE, you mean the same level in terms of the monetary value or ratio?
Shimamoto Takashi: The composition ratio. So the monetary value is same level?
?????: Sorry, we haven't examined in detail.
Shimamoto Takashi: And the second point, in relation to this, the concept for next fiscal year, you outperformed the WFE this year. And then you are very strong in the foundry. I think outperform is okay, but 2 consecutive years, is it really true to make such a significant outperform? And then for the next fiscal year, what is the probability of outperforming the WFE?
?????: Talking about the next fiscal year, we are still under study. And so at the next occasion, I would like to give you details. And for the sales, which was expected to be made next fiscal year has been shifted this fiscal year. It was accelerated. Therefore, by that amount, the forecast for next fiscal year, there is a some decrease. And -- but we would like -- we are considering the 10% growth. We talked about it in the last announcement, how we would like to achieve that level. However, our forecast is same level or higher. And we are going to scrutinize the budget, and we would like to make an update next time.
Unknown Executive: Now next is Mr. Nakamura from Goldman Sachs.
Shuhei Nakamura: First question, as to the performance of SPE business this year, the third quarter revenue was beyond JPY 150 billion. So actually, there is an increase of the production capacity as you first anticipated. So if this strong demand continues, do you think you can continue to ship this much every quarter and the production -- excuse me, the profitability in the third quarter, it is 27%. However, in the fourth quarter, it is going to come down to the 23%. So in the current environment, what would be the average OP margin that you can accomplish?
?????: So in terms of the production capacity, honestly speaking, it is not at the level where we can constantly sell beyond JPY 150 billion. In the third quarter, we did a lot of stretch so that we can keep up with the demand. So if we constantly have the demand for JPY 150 billion of revenue, then it is going to be tight. So in the fourth quarter, it's JPY 120 billion expected. And therefore, it is going to give us a bit of a leeway. And S-Cube 5 has been fully now operating, we are now improving the productivity continuously. So next year, maybe somewhere in the middle of next year, we should be able to have the production capacity that can constantly produce to achieve JPY 150 billion. So we would like to give you the updated information as per necessity. And in terms of the fourth quarter profitability is expected to decline, and it is because of the reduction of the revenue mostly. The actual profitability itself is not going to change that much. That's our anticipation. So in that sense, in terms of our capability, operating profit margin capability should be around 25%. So if it is around JPY 600 billion of revenue, then there's going to be upside. But if it is around JPY 500 billion double, then the OP margin could be around 25% or slightly lower than the 25%. That is going to be our actual ability.
Shuhei Nakamura: The second question, again, about the way to look at the revenue of SPE business. This is a clarification question to the previous question. So at the moment, next year's revenue-wise, well, you are saying that it is going to be almost the same as this year. So you are saying that it is going to be same as the revenue performance for the year ending in March of 2025?
?????: Yes, the March 2025 year, we are expecting to have the JPY 510 billion of revenue. So either that level or higher than that is what we are aspiring for.
Unknown Executive: Nakanomyo-san from Jefferies Securities.
Masahiro Nakanomyo: Nakanomyo from Jefferies. Sorry to ask you the similar questions. But the 2025 WFE base, the China level is same as this year. But in the Q2, the financial report, you said that China is expected to go down around 20%, if I remember correctly. And then for the 3 months, China sales increased for -- instead of 2 to 3 months, but recently, Chinese investment, the inquiries are coming. And originally, it was expected to go down to the around mid-30% level. But this seems to increase a little more. When you mentioned for the past 2 years, the new customers of China made aggressive investment. Therefore, investment plan in 2025 was not so strong. I remember you mentioned that. But in recently, the situation has changed drastically.
?????: It's not that drastic, but they are a bit more active in my understanding.
Masahiro Nakanomyo: On the other hand, in December, the U.S. new regulation was imposed and the many companies are listed in the entity list. What kind of impact that list would give you?
?????: At the moment, the comment hasn't changed from the previous time. In the U.S. entity list company numbers have increased; however, we follow the Japanese regulation for import -- I'm sorry, for export. And according to the legal guidelines, I'm talking about this. But we heard that and expect that the regulation will be tightened. And -- but to give you some comment on that, it's a bit too early, and I'm not in the position to talk about the trend going forward.
Masahiro Nakanomyo: And so after the first half of 2025, you received accelerated investment. But in the second half of 2025, including the regulations, it's still uncertain.
?????: Yes, not sure about the regulations. So we are talking about excluding the regulations impact. If the regulations are newly imposed and then based on the regulations, what kind of impact will be given, I would like to share with you when it has been -- it's cleared.
Masahiro Nakanomyo: And the second point, this is also a confirmation. The previous time, WFE is expected to increase around 10%. And -- but the WFE is 6%. And then your company is targeting the remaining the same.
?????: And so the relativity to the WFE is because this fiscal year's result is too strong. And the WFE is -- we expect WFE to land around 9%. We still have a fourth quarter. In that sense, along with the request of acceleration, we expect an increase in sales. In the third quarter, we had an increase. But in the fourth quarter, the -- even if we capture the -- some of the shift from the fourth quarter to the third quarter, but still, we have an increase, but that we get some decrease in the '25. Therefore, that we expect a little lower than we had expected.
Masahiro Nakanomyo: And the WFE's number is a little bit tricky and the yen base trend is around, I think, FY '24 is around 25% growth. And WFE is 9% and then the increase higher than that, such benchmarking is not appropriate for benchmarking of the front-end forecast companies in Japan.
?????: Yes, it's a bit difficult for us to make a comment because it's a fact that, that is affected by the foreign exchange rate. So it's a bit difficult to talk from a viewpoint of Japanese yen. And this -- the WFE follows the dollar base and then they see the growth rate. And as you mentioned, the Japanese equipment manufacturers under the current foreign exchange rate trend, it becomes lower.
Unknown Executive: And next, SMBC Nikko Securities, Hanaya-san.
Takeru Hanaya: I am Hanaya from SMBC Nikko Securities. Well, the time is tight. So first question, I would like to ask about China. So your assumption is based on not really including the regulations. However, the customers are worried about the regulations and they are asking for the acceleration and the shipment is now happening in the third quarter instead of fourth quarter. So they are worried about the risk of no longer being able to purchase the product from you later. Do you think that is the situation? Have you been discussing that backdrop?
?????: Honestly speaking, we don't know. But probably what you have said could be right, that's our assumption. So we don't know yet what kind of regulations will be implemented. So earlier, the better could be the mentality. That is just our assumption.
Takeru Hanaya: Second question, so the third quarter's performance was very strong. So if you take a look at the Q-on-Q, the revenues increased and profit increased. Compared with the revenue increase, profit increase was not as strong. So in the second half, I think you are going to increase your profit in the second half. Is that why?
?????: The valuation value, unfortunately, that has slided to the fourth quarter. That's right. So it is planned to be posted in the fourth quarter. In terms of the profitability in the third quarter, I would like to ask Miyagawa-san to make a comment.
Akihiko MIyagawa: As to the profitability in the third quarter, so the revenue increase was much stronger in the third quarter compared with the profit increase. I think that was the question. Is this a correct understanding of the question, Hanaya-san?
Takeru Hanaya: Yes.
Akihiko MIyagawa: Okay. So Q-on-Q, the revenue increased by JPY 38 billion. Profit increase -- profit is increasing a lot, but it is JPY 11.9 billion. I thought that it could have been higher.
Takeru Hanaya: Okay. Understood. Well, the first quarter and second quarter customer mix is the reason, and that's why profitability is not as strong as the revenue increase. That's all. So the second quarter was better. Is that what you mean?
Akihiko MIyagawa: Yes, that's correct.
Takeru Hanaya: So if the Chinese -- sales to China increased, well, in the second quarter and third quarter, the China sales representation has increased. However, the mix other than China was worsened. Or is it the mix change within China business?
Akihiko MIyagawa: Well, within the mix in China, the new company's profitability is high. But if we have more business with the existing customers, then it is negative impact in terms of the mix and the profitability. And there has been acceleration of the cutting-edge business. Therefore, that had a slightly negative impact on the profitability.
Unknown Executive: So it's time. So we would like to conclude the consolidated business results and forecast for FY '25 March third quarter ended December 31, 2024. Thank you very much indeed for joining today despite the busy schedule. Thank you so much.