■Future prospects for RS Technologies ＜3445＞

2. Medium-term management plan

The company has started a three-year medium-term management plan up to the 2026/12 fiscal year, and has set sales of 64,100 million yen, operating income of 16,830 million yen, ordinary income of 18,230 million yen, and net income attributable to parent company shareholders as performance targets based on the base plan based on existing businesses. The three-year average annual growth rate is 7.3% for sales, 12.3% for operating profit, and 6.9% for ordinary profit. Also, as an upside plan, we set sales of 131,100 million yen and operating income of 24,200 million yen for the fiscal year ending 2026/12 as target values that add to the growth of the renewable energy business, which began initiatives as a new business, and the effects of future M&A. In addition to the semiconductor industry, it is a policy to expand the business area to the renewable energy industry as the target of M&A.

Since the global semiconductor market is driven by AI-related and automotive markets, and growth in the first half of the 10% range can be expected until 2026, we see performance targets for existing businesses at an attainable level. As US-China semiconductor friction continues, there are concerns about a negative impact on the Chinese semiconductor market, but there is no change in the policy of fostering the semiconductor industry as a national policy in China. Also, since the prime wafers handled by the company target the legacy field rather than the advanced field, I don't think they will be adversely affected by export restrictions on cutting-edge semiconductor manufacturing equipment. In fact, profits from the prime wafer business are recovering. Since China is the main production base for personal computers, smartphones, automobiles, home appliances, etc., and the use of domestically produced semiconductors is recommended, we evaluate that developing business in both China and outside of China will lead to risk diversification in the company's medium- to long-term performance.

Note, the medium-term management plan does not include the performance of SGRS, which is an affiliate company applying the equity method and aims to mass-produce 12-inch prime wafers. This is because 12-inch prime wafers will start with a monthly production of 0.05 million sheets at the Dezhou Plant, but for the time being, they are planning to work on quality improvements to clear quality standards for prime wafers, and full-scale mass production is likely to be around 2027. Meanwhile, shipments will continue as monitor wafers.

(1) Wafer recycling business

Regarding the wafer recycling business, in order to respond to strong demand for 12-inch recycled wafers, in addition to promoting capacity expansion in Japan and Taiwan, the strategy is to capture demand in China by starting mass production at SGRS's Dezhou plant. Of these, the combined monthly production capacity of Japan and Taiwan is planned to go from 0.54 million sheets at the end of 2023/12 to 0.69 million sheets at the end of 2026. In Japan, the Kumamoto Plant 1 of JASM Co., Ltd. (TSMC subsidiary) will begin operation within 2024 as a new plant for 12-inch wafers. Also, in addition to Micron Technology's Hiroshima Plant starting operation within 2025, JSMC Co., Ltd., which is a joint venture between SBI Holdings ＜8473＞ and Taiwan's PSMC, has built a new plant in Miyagi prefecture, and a total of 9 new factory projects have been decided from 2024 onwards, with operation scheduled for 2027. In addition to demand from these new plants, it will respond to demand in the Western market. The Taiwan plant plans to respond to increased production, mainly for TSMC.

Furthermore, the SGRS Dezhou Plant will also carry out capital investment of 6 billion yen over 2 years from 2025 onwards, and monthly production capacity will be increased from 0.05 million sheets at the end of the 2023/12 fiscal year to 0.2 million sheets at the end of the 2026/12 fiscal year. About 17 projects have also been decided for a new plant for 12-inch recycled wafers in China, and it will respond to these demands.

(2) Prime wafer business

In the prime wafer business, it is planned to gradually raise the 8-inch monthly production capacity of Shandong GRITEK from 0.13 million sheets at the end of the 2023/12 fiscal year and expand it more than 2 times to 0.28 million sheets at the end of the 2026/12 fiscal year, and the cumulative capital investment amount for 3 years will be 8 billion yen. The 8-inch market share in China in 2023 is at the level of about 5%, and there is plenty of room for growth due to market share expansion. In the future, we are considering expanding into markets other than China by taking advantage of cost competitiveness.

Meanwhile, SGRS, which handles 12-inch prime wafers, has cleared quality standards at a level where they can be sold as products with a monthly production scale of 0.01 million sheets on a test line set up at the research and development building in Beijing. Going forward, capacity will be gradually increased at the Dezhou Plant, and the plan is to increase monthly production to 0.21 million sheets by 2026.

As a sales strategy, we will target Chinese semiconductor manufacturers and secure quality standards for products with circuit line widths of 28 to 40 nanometers, which are volume zones, and expand sales. The strategy is to first aim for top share in the Chinese market, clear the quality standards for 14-20 nanometer products, which are volume zones in the global market, and sell them to major overseas semiconductor manufacturers by utilizing price competitiveness. Major customers in the wafer recycling business have received an intention to purchase prime wafers due to price advantages if quality standards can be secured and a stable supply system can be established, and there is a good possibility that market share will expand once the system is in place.

(3) Develop consumables for semiconductor manufacturing equipment as the third pillar of profit

The company is focusing on consumables for semiconductor manufacturing equipment developed by its subsidiary DG Technologies in order to develop the third revenue pillar following the wafer recycling business and the prime wafer business. Specifically, we aim to increase sales of consumables such as quartz rings and silicon electrodes for fixing silicon wafers with dry etching devices.

The company estimates that the annual market size for these consumables is approximately 150 billion yen, and it aims for a 10% market share (about 15 billion yen) as an immediate sales target. The current sales scale is on the scale of several billion yen, and profitability is low, but the goal is to raise it to 30%, which is equivalent to the wafer recycling business in the future. There are multiple competitors in Japan, Taiwan, South Korea, the United States, etc., but it seems that they are at the same or higher level in terms of quality and technical capabilities. Since it is a multi-product small-lot production, the problem is that production efficiency is low, and we are working to improve productivity and reduce material procurement costs by introducing automation equipment and strengthening production management, etc. On the sales side, in addition to implementing cross-selling to customers in the wafer recycling business, it is a strategy to expand sales by delivering as genuine products to major dry etching equipment manufacturers, and we aim for a global market share of about 30% and sales of 45 billion yen as long-term targets. The business scale of Techno Quartz ＜5217＞, which is a competitor of quartz glass, is at the level of sales of 17 billion yen and an operating profit margin of 21% according to the results of the 2024/3 fiscal year, and we believe that it is possible for DG Technologies to raise the operating profit margin to a level of around 20% if the sales scale expands.

(Author: FISCO Visiting Analyst Joe Sato)