Q&A

Back to Financial Results (FY3/2020)

Investor Meeting Presentation for FY 3/2020 held on May 8, 2020

Question and Answer

How much of the full year's sales and profits will come from first quarter or first fiscal half sales and profits? Will there be a difference between the estimated high and low for the full-year in the second fiscal half, or will you start to see a difference in the first or second quarter for which you can more easily forecast?

As I have noted earlier, aircraft production will start to decline. Automobile production is slowing as well, and the first fiscal half, especially the first quarter, is expected to be tough going. We expect to see some recovery in the second fiscal half, but we cannot give you exact forecast figures for the year at this time.

The differences between the highs and lows in your sales projections for motors, Mitsumi, and U-Shin seem big. Why is that?

While sales of motors for automobile applications will be sluggish, overall sales will vary depending on the segment or product line with the launch of new applications.

Can you tell us how you came up with the range in the earnings guidance you presented today? Did you start by adding in a 10-billion-yen loss to the operating income figure of 60 billion yen as a stress factor, or did you use a marginal profit ratio to figure out operating income based on the highest and lowest estimates for accumulated sales?

I used two methods. One is based on the business divisions' estimates for accumulated sales. A forecast may be pessimistic or optimistic depending on market conditions, and this time estimated operating income came to a little over 50 billion yen. In the other I excluded all the special factors from the operating income and took various other factors into consideration, such as a 25–30% decrease in commercial aircraft sales and a relatively high volume of tentative smartphone-related orders, then stress tested it all to arrive at a figure of about 60 billion yen. The 50 to 60 billion yen range shown in the earnings guidance is the result of these bottom-up and top-down analyses.

Do you expect sales to go up rather than down after April?

Yes. April sales for commercial aircraft-related products dropped sharply both in Europe and America. On the upside, LED backlight sales remained robust, and in the end were almost on a par with last year's results. Although I cannot accurately estimate ups and downs in sales, I would say, as a rule of thumb, that risk should be mitigated.

Could you tell us what the monthly external and internal sales volumes as well as the production volumes for ball bearings were for the fourth quarter?

For January, February, and March external sales were 188, 170, and 210, internal sales 68, 59, and 62, and production volumes 259, 241, and 290, all in millions of units. We increased the production volume to almost 300 million units in March on the assumption that external sales would pick up, but then came the coronavirus outbreak.

When it comes to bearings, you have always placed importance on keeping production lines running and told us that you would work aggressively to get orders in 2020. How will you manage production operations including volume increase and market share improvement?

We are going to temporarily cut back production in the first quarter due to the slowdowns in many industries. We expect the monthly average production volume to be about 230 million units and the external sales volume in the range between 180 and 190 million units.
The markets for 5G-related products are brisk. The sales volume of bearings for medical applications is not that large in proportion to overall volume, but is steady since a number of bearings and motors are used in heart-lung machines, ventilators, and blood analyzers. While more and more bearings are used in cars, especially luxury cars, sales of automobile bearings will be affected by the general slowdown in the automobile industry. The picture for the automobile market should get clearer in light of how the pandemic is being controlled. Although home appliance stores are still closed, some are saying that consumption will rebound as stores resume operations in China and South Korea.

You took various measures, such as boosting production capacity, to improve financial performance after the global financial crisis. I understand that this time around you will more or less continue operating as you normally do and produce enough to meet demand. What strategies do you have in anticipation of when things return to normal?

Since we currently have enough inventory to meet demand, we need to cut back production rather than make more than is necessary.

You plan to make slightly fewer capital expenditures this fiscal year than you did last fiscal year but will spend more on R&D. Could you tell us about your cash management plan?

A capital expenditure of 43 billion yen is accounted for on an inspection basis and includes the amount requested last fiscal year which has been carried over. Total capital expenditures requested within the company, including spending on stealth products, was initially 100 billion yen. We cut that down to stand at 35 billion yen right now. Once we have a better recovery outlook, we will gradually approve those expenditures that were initially planned for and make the investments. So please understand that we have significantly pared down capital expenditures from what we initially intended to invest.

You are going to put a freeze on plans to build a new factory in the Philippines. What is your strategy for increasing actuator production?

We haven't changed our stance much since actuators have huge growth potential. We froze the plan to build a new factory in the Philippines for two reasons. One was that the shop floor staff told us that they would be able to handle any production increase needed for the future with the current facility. Another reason was that using the cleanroom in Thailand would be much more cost effective, so we may change course and use the cleanroom in Thailand, if necessary. We halted construction of the factory building just before work started.

Despite worsening external factors, April sales remained flat year on year and estimated first quarter ball bearing sales are at the same level as what they were just a short while ago, that is 180–190 million units. Could you tell us exactly what decreased and what increased? I would like to get an idea of how your current portfolio is working.

If you look at April sales on a year-on-year basis, Minebea's machined components business declined, but the decrease was offset in the end by LED backlights sales. The Mitsumi business was down in April of last year due to production adjustments in the game industry and experienced a similar setback again in April of this year as the coronavirus outbreak disrupted supply chains in China and put the brakes on the game industry. Only U-Shin worsened. That's the year-on-year comparison for April.
We expect machined components sales for the first quarter to decline year on year. Ball bearing sales were not bad in the fourth quarter but will be impacted later in the first quarter. Production cutbacks in the commercial aircraft industry did not disrupt sales up until the fourth quarter but will start to make a dent in the first quarter. While motor sales are expected to dip slightly year on year due to sluggish sales of automotive motors, sales of electronic devices are expected to rise. Mitsumi will see sales increase overall and get an additional two months' worth of sales from ABLIC. U-Shin will be hit directly by global automobile production trends.

Could you tell us about the factors behind the estimated year-on-year sales increases for LED backlights and Mitsumi?

Demand for LED backlights was robust in the fourth quarter but slowed down slightly since our customers were affected by the coronavirus outbreak in China. That demand has carried over into the first quarter, and we expect first quarter sales to be strong. Mitsumi is expected to see sales increase year on year although overall the supply chain for some mechanical components is losing steam. The situation will be the same for optical devices.

Could you give us the breakdown for your "operating income of 81 billion yen excluding all special factors" shown on slide 26?

Special factors amounting to 14.6 billion yen and foreign exchange effects totaling 8.0 billion yen were added to last fiscal year's operating income of 58.6 billion yen.

The smartphone market is said to shrink about 10% this year. Why do you expect sales of optical devices to be robust? Can you tell us as much as you can about market share, adoption rate by Chinese customers, and other factors?

We are not in a position to comment about market share, but we basically expect to maintain the same share that we had last year. Average prices, including added value, will rise both in the North American and Chinese markets as smartphones are equipped with more sophisticated features.

How much of ABLIC's revenues will be accounted for in the Mitsumi business segment this fiscal year?

ABLIC generated 30+ billion yen in sales and 4+ billion yen in operating income two fiscal years ago and is expected to generate more, which will be added to our financial results for this fiscal year.

Can you give us an idea of the expected changes to the estimated external ball bearing sales volumes for the first quarter ranging from 180 to 190 million units by application? I remember that the external sales volume was above 180 million units around the middle of last year, and that sales dropped sharply for ball bearings used in fans but remained the same for automotive ball bearings.

Unlike last year, external sales are expected to drop by several tens of percent for automotive applications while sales will remain steady for fan motor and may even exceed past peaks for some months.

If that happens, will it boost your revenue mix?

I can't give you a decisive answer because we have to take capacity utilization and inventory levels into consideration, but we will maintain optimal operations no matter what.

You said that camera actuator sales are strong. Would you elaborate on that for each market? I also heard that their added value would increase with this year's models. When will shipments begin?

Sales for the first quarter are expected to dip slightly quarter on quarter due to seasonal factors but will start to pick up in the second quarter. We will increase production for the North American market, but the production volume for the Chinese market won't necessarily be higher in the second quarter than it was in the first since seasonal demand is different there.

Do you expect shipments of new products for the North American market to move into high gear in the second quarter?

We expect shipments, including those for new products, to peak in the second and third quarters.

When do you think external sales of ball bearings will fully rebound?

It all depends on how the economy bounces back from the coronavirus pandemic, but we believe sales will bottom out in the first quarter. Now that production of automotive ball bearings has hit the bottom, sales should start to pick up to a certain degree in the second quarter.

Can I assume that the production volume will be lower in the first quarter than the fourth quarter but will not go any lower?

We are likely to increase the production volume slightly in the second quarter but it all depends on the inventory level and how much demand picks up.

Can you give us an idea of your outlook for the automobile market?

It's basically very difficult to make an estimate at this stage, but based on the fact that factories were shut down in many areas in April but resumed operations in May, we can assume that the bottom lies somewhere between April and June. How the market recovers from that point on should largely depend on how well the coronavirus is contained.
Currently infection prevention measures seem to be widely implemented. In fact we have 90,000 employees in Asia and, as I mentioned earlier, no one has been infected. There has been a lot of talk about asymptomatic cases of COVID-19, and while it's conceivable that there may have been asymptomatic carriers among our 90,000 employees, we have eliminated the possibility of infection through proper prevention measures. Once everyone becomes fully aware of these prevention measures, production should increase.

What is your view on the inventory status in the automobile supply chain? Do you think there is excess inventory, which would delay demand for parts once automobile production returns to normal?

U-Shin products make up the biggest parts and components. Since these are Tier 1 businesses in the kanban system, we have virtually no excess inventory. We may have excess stock of some parts only because we made too many of them. This is often the case with products like steering angle sensors used in cars. Inventory levels may not be consistent, but they are not the mainstream of our automobile business.

It ends about main text.

Tweet