Ferrotec (6890) Earnings & Mid-Term Plan Rolling Dive: Massive Upward Revision and Growth Story Driven by Explosive AI Demand

1. Introduction: Ferrotec's Earnings Highlights and Dramatic Upward Revision of Performance Forecasts

The latest earnings and mid-term management plan (rolling plan) released by Ferrotec Corporation (Securities Code: 6890) indicate that the company has entered a phase of exceptionally strong growth, underpinned by the rapid proliferation of generative AI and the global resurgence in semiconductor investment .

The most significant topics in this announcement are the substantial upward revision of the full-year earnings forecast for the fiscal year ending December 2026 and the early achievement of targets set in the previous mid-term management plan . The sales forecast has been raised by 30 billion yen to 380 billion yen (a 31.5% increase year-on-year), and the operating profit forecast has been increased by 22 billion yen to 60 billion yen (an operating profit margin of 15.8% ).

In this report, based on the disclosed PDF materials, we extract 10 key topics that investors should focus on, providing an in-depth analysis ranging from trends in each business segment and the accounting structure of the fiscal year change, to capital expenditure and shareholder return policies.

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2. Structure of the Fiscal Year Change (9-Month Period) and Impact on Consolidated Results

As a prerequisite, it is important to understand that the company is currently in the process of changing its fiscal year-end to December. For the current fiscal year (ending December 2026), the parent company's accounting period covers April to December 2026 (a 9-month period) .

Meanwhile, consolidated subsidiaries , including major overseas operations, will include a full 12 months of results from January to December . In this Q1 earnings report, while the parent company accounts for the three months from April to June, the consolidated subsidiaries account for the six months from January to June. Although this is an irregular schedule due to the transition, the actual negative impact on consolidated performance is limited, and the company's underlying business growth is strongly reflected in the figures.

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3. Upward Revision of the FY2026 Plan and Early Achievement of Mid-Term Targets

The company has revised its performance plan, significantly surpassing the targets disclosed in May. The slide below clearly illustrates the progress of the newly announced performance plan.

[Why this slide is important: Data significance and background]

This slide provides critical data proving that demand is expanding at a speed far exceeding previous assumptions . In the disclosure on May 29, the operating profit target for the fiscal year ending December 2026 was set at 38 billion yen (10.9% margin). However, just two months later, in the July 22 disclosure (and August 14 announcement), the operating profit target was raised to 60 billion yen (15.8% margin) —a massive upward revision of +22 billion yen (+4.9 percentage points) .

Of particular note is that this 60 billion yen operating profit level significantly exceeds the target originally aimed for the fiscal year ending December 2027 (48 billion yen) more than a year ahead of schedule . In response to this dramatic excess demand, the company has completely overhauled its old targets for the fiscal year ending December 2027 (400 billion yen in sales and 48 billion yen in operating profit) and is currently scrutinizing new, higher-level targets of approximately 500 billion yen in sales and 80 billion yen in operating profit . This slide symbolizes that Ferrotec has ascended to a higher stage of profitability.

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4. Detailed Analysis of Sales by Segment and Product

The driving forces behind this explosive performance are the two main pillars: the "Electronic Device Business" and the "Semiconductor and Other Equipment-Related Business." The breakdown can be read from the slide summarizing product sales for the Q1 actuals and the Q2+Q3 plan.

[Why this slide is important: Data significance and background]

This slide quantitatively shows which product areas are acting as the engine for the company's performance. With a projected consolidated sales figure of 380 billion yen, there is a notable disparity in growth rates and powerful momentum across products.

1. Explosive Growth in the Electronic Device Business (Thermo-modules)

   • The full-year sales for the Electronic Device Business are planned at 84.555 billion yen (+46.8% YoY) . The core thermo-module segment is expected to see an astonishing growth rate of 55.927 billion yen (+81.5% YoY) for the full year.
   • Background : With the rapid expansion of generative AI models, demand for optical transceivers (optical communication modules) for AI servers in AI data centers has exploded . Thermo-modules are essential core components for precise temperature control within these transceivers, leading to a global concentration of demand for the company's products.

2. Strong Performance in Semiconductor and Other Equipment-Related Business (Material Products/Ceramics)

   • This pillar accounts for approximately 64% of total sales, with 242.201 billion yen (+30.8% YoY) .
   • Looking at the breakdown, vacuum seals and metal processing reached 74.472 billion yen (+51.3% YoY) , ceramics reached 52.906 billion yen (+30.1% YoY) , and quartz products reached 39.198 billion yen (+14.0% YoY) , all achieving significant revenue growth.
   • Background : Demand from major U.S. semiconductor manufacturing equipment makers is recovering and growing rapidly, and equipment-related demand accompanying the localization of semiconductors in the Chinese market continues to rise.

3. Recovery in Automotive-Related Business

   • The automotive-related business is planned at 36.049 billion yen (+23.3% YoY) for the full year.
   • Background : Riding the recovery trend in the Chinese automotive market, shipments of substrates for power semiconductors are on an upward trend, and the increasing adoption rate of SiC (silicon carbide) modules for EVs and next-generation vehicles is contributing to profit growth.

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5. Mid-Term Management Plan KPIs, Capital Expenditure, and Financial Strategy

In line with the rapid expansion of business, the key KPIs and capital expenditure plans in the mid-term management plan have been dynamically altered. The slide below provides an overview of the comprehensive management indicators.

[Why this slide is important: Data significance and background]

This slide serves as a compass for overseeing the balance between Ferrotec's "growth investment" and "financial soundness."

• Quantification of Significant Upward Revisions The full-year forecast for the fiscal year ending December 2026 includes a massive upward revision: sales of 380 billion yen (+30 billion yen), operating profit of 60 billion yen (+22 billion yen), and net income of 36 billion yen (+13 billion yen) . The operating profit margin is set to improve sharply from 9.5% in the previous fiscal year to 15.7% (15.8% on a full-year basis reflecting Q1 actuals and H2 plans).

• Continuation of Aggressive Capital Expenditure Capital expenditure of 65 billion yen is planned for the fiscal year ending December 2026. The company is actively expanding production capacity for ceramics, thermo-modules, and power semiconductor substrates to meet the surge in demand.

• Maintenance of a Sound Financial Base Even while executing massive capital investments, the company plans to maintain an equity ratio of 40.0% , demonstrating that growth capital is being deployed under sound financial control. Furthermore, as indicated by the "Plan under review" note covering the 2027 and 2028 columns, the company is breaking through its previous planning framework and redesigning its strategy to aim for even greater heights.

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6. Shareholder Return Policy: Introduction of DOE and Significant Dividend Increase to 200 Yen

Ferrotec has clearly demonstrated its stance of directly returning the benefits of its business expansion to shareholders.

As a shareholder return policy, the company has adopted DOE (Dividend on Equity ratio), reflecting the stability and growth of shareholder equity, and set a lower limit of 3.5% . Furthermore, it maintains its policy of considering share buybacks flexibly, aiming for a total return ratio of 50% .

In line with this, the company plans an annual dividend of 200 yen per share (150 yen ordinary dividend + 50 yen special dividend) for the fiscal year ending December 2026. This is a significant increase of 52 yen from the previous year's 148 yen, showcasing a strong commitment to returning profit growth to shareholders following the upward revision.

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7. Conclusion: The Ferrotec Growth Story Deciphered from Earnings Materials

Synthesizing the above elements, there is a clear growth story in Ferrotec's earnings and business development:

1. Sophistication of Product Mix via AI Special Demand : The surge in thermo-modules for AI server optical transceivers (+81.5% YoY) has increased the ratio of high-margin products, boosting the overall profit margin (15.8%).
2. Capturing Global Demand for Semiconductor Materials : By supplying critical components such as ceramics and vacuum seals to both U.S. and Chinese semiconductor equipment and device manufacturers, the company has achieved growth exceeding 30% YoY.
3. Significant Early Achievement and Resetting of Mid-Term Plans : The company is on track to clear its December 2027 targets a year ahead of schedule, entering a new stage aimed at 500 billion yen in sales and 80 billion yen in operating profit.
4. Balance Between Investment and Shareholder Returns : While capturing future demand with 65 billion yen in capital expenditure, the company is executing generous returns through a 3.5% DOE floor and a 200-yen annual dividend.

Ferrotec is not merely riding the recovery cycle of the semiconductor market; it has established a position as a core supplier for the structural technological innovation of "Generative AI." The upcoming formal announcement of its rolling plan and the setting of new targets are highly anticipated.