■Summary

Fuji Spinning Holdings <3104>, established in 1896, develops its main businesses in the abrasive materials sector and chemical industrial products sector, with its lifestyle clothing (like B.V.D.) business serving as a secondary business. The company has prospered alongside Japan's textile industry, but has now undergone significant transformation, with its original textile and spinning business accounting for less than 20% of total operations. The three main core businesses account for approximately 40% of revenue from abrasives, about 30% from chemical industrial products, and about 20% from lifestyle clothing, while efforts are being made to nurture the chemical products (resin mold) business within other operations as a 'fourth pillar.'

1. Overview of Results for the Second Quarter of the Fiscal Year Ending March 2025

In the second quarter of the fiscal year ending March 2025, consolidated results showed revenue of 21,060 million yen, a 23.2% increase compared to the previous period, operating profit of 2,992 million yen, up 226.1%, ordinary profit of 3,071 million yen, a 143.4% increase, and net income attributable to parent company shareholders of 2,095 million yen, reflecting a 133.6% increase. Compared to the initial plan, revenue was up 2.7%, operating profit increased by 24.7%, ordinary profit rose by 22.8%, and net income attributable to parent company shareholders grew by 30.9%, exceeding both revenue and profit initial forecasts.

The demand for semiconductors is turning towards recovery, driven by advanced semiconductors such as generative AI. In the second quarter of the fiscal year ending March 2025, the abrasive materials business is also rapidly recovering and expanding, while the chemical industrial products business is gently picking up, achieving the highest first-half performance (in terms of revenue) in the mid-term management plan period.

2. Performance Outlook for the Fiscal Year Ending March 2025

The performance forecast for the fiscal year ending March 2025 envisions revenue of 43,700 million yen (an increase of 7,592 million yen from the previous period), operating profit of 6,000 million yen (up 3,182 million yen), ordinary profit of 6,200 million yen (an increase of 2,924 million yen), and net income attributable to parent company shareholders of 4,100 million yen (up 1,983 million yen), indicating significant growth in both revenue and profit. In particular, the core abrasive materials business is anticipated to achieve revenue of 18,400 million yen (a 37.1% increase from the previous period) and operating profit of 4,200 million yen (up 286.4%, with an operating margin of 22.8%). This is due to the sharp increase in demand for logic semiconductors against the backdrop of a global generative AI boom. The company's abrasives (soft pads) occupy a significant share in the logic semiconductor manufacturing process, and the high growth of logic semiconductors used in generative AI and IoT sectors is driving the expansion of the company's orders.

The performance forecast for the fiscal year ending March 2025 was formulated through two upward revisions from the initial plan, but depending on the upside of semiconductor demand in the latter half of the fiscal year, it is conceivable that this revised plan may be exceeded.

3. Growth Strategy for the Polishing Materials Business

In the polishing materials sector, the main market of CMP applications is growing in sync with the high growth of logic semiconductors. In terms of production, the Oita plant was completed in 2020, and continuous equipment enhancements have been carried out since then. There is sufficient production capacity, and it seems that the company can adequately respond to the rapid increase in orders for polishing materials for the time being.

As a new field, the SiC wafer application market is expected to become a large-scale market (the 'second pillar' after CMP applications) in the future, as the electrification of automobiles progresses, and also includes renewable energy (such as solar and wind power).

Additionally, in response to the increasing quality requirements associated with 'miniaturization and stacking of semiconductors,' the integration of manufacturing, sales, and technological development is progressing to provide detailed responses. The potential for polishing materials in fields outside semiconductors is also being explored, and ultimately, the goal is to become a Global niche number one comprehensive polishing materials manufacturer.

4. Implementation of Growth Investments

The company positions the latter two years of the 5-year period in its medium-term management plan 'Enhancement 21-25' as a 'stage for expanding growth investments,' promoting research and development investments (expected to be 1,697 million yen for the fiscal year ending March 2025) to address customer needs in cutting-edge semiconductors (such as miniaturization and stacking), as well as to nurture new business initiatives. It is also executing capital investments (expected to be 6,220 million yen for the fiscal year ending March 2025) for further expansion of its core businesses (polishing materials and chemical products). Regarding M&A, due to the lack of appropriate projects, the anticipated growth investments of 25 billion yen to 30 billion yen will be directed toward organic growth areas in polishing materials and chemical products where growth is expected.

■Key Points

With the recovery and expansion of orders for polishing materials and chemical products, a significant increase in revenue and profit is expected for the fiscal year ending March 2025.

To expand semiconductor demand, the priority is to accelerate research and development as well as capital investments in polishing materials without letting up.

The last two years of the medium-term management plan are positioned as "Expansion of Growth Investments," actively executing growth and research and development investments.

The company will publish its first "Integrated Report" (September 30, 2024), introducing its strengths, growth strategies, and sustainability management efforts.

■ Company Overview

Focusing on the polishing materials and chemical products businesses, business expansion is carried out with four pillars.

1. Company Overview

(1) From establishment to growth period: Development of the textile and spinning industry and diversification era.

Established in 1896 as Fuji Spinning Co., Ltd., this long-established company started its spinning business using the abundant water from Mount Fuji as a power source, and a spinning factory began operations in Koyama Town, Shizuoka Prefecture. It successively operated spinning factories before and after the war, expanding the textile and spinning business. In 1939, Yanai Chemical Industry Co., Ltd., the current base for the chemical products business, was established, entering the chemical field. Additionally, in 1976, a licensing agreement was signed with the USA's B.V.D., laying the foundation for the lifestyle apparel business, which has now developed into a prominent business.

(2) Difficult Period: 10 consecutive periods without Dividends.

The textile and spinning industry drastically lost its international competitiveness due to the oil shocks, the collapse of the bubble economy, and Japan-US trade friction from the 1970s to the 1990s. Domestic production became hollowed out, and the domestic textile and spinning industry entered a state of decline. The company also closed its domestic factories one after another and shifted to China and Thailand. Management was tough due to unprofitable products and a high-cost structure, and it faced a management crisis, with 10 consecutive periods without Dividends from the 1997 fiscal year (Dividends were restored in the 2007 fiscal year with a 2 yen Dividend).

(3) Turning Point: Business Structure Reform.

As the management crisis continued, Mitsuo Nakano took office as president in 2006 and proceeded with a business structure reform. He simultaneously carried out structural reforms in the textile business and the development of growth businesses in non-textile fields (abrasives, chemical industrial products), successfully replacing the business in a short period, which ultimately restructured a business portfolio with sustainable growth and high profitability. Nakano also introduced the current medium-term management plan "Strengthening 21-25," which can be considered the origin of the medium-term management plan "Transformation 06-10," and quickly executed based on long-term strategies such as "Breakthrough 11-13", "Advance 14-16", "Accelerate 17-20", and "Strengthening 21-25".

On June 29, 2022, the CEO (president) was replaced. From Nakano to Masaki Inoue, a succession was made to rejuvenate the management structure. President Inoue has been promoting the formulation and advancement of the current medium-term management plan "Strengthening 21-25" alongside structural reform, and decision-making on capital investment has been smoothly handed over, thanks in part to the cooperation with former president Nakano.

(Written by: Fisco Guest Analyst, Keiji Shimizu)