Hirose Electric : Q&A Summary of Financial Results Briefing for the Fiscal Year Ended March 2022

HIROSE ELECTRIC CO., LTD

Financial Results Briefing for the Fiscal Year Ended March 31 2023

Q&A Summary

Q1：

Please tell us about the assembly of the Company plan for FY2023, especially the H1 and H2 assembly. I have the impression that there is no difference between H1 and H2, or that profits are higher in H1 in previous years. However, you put more weight on H2 this fiscal year. Please tell us what are different from previous years. Also, could you please tell us the trend of each segment?

A1：

We are expecting a recovery in orders from H2. Therefore, the profit margin will basically be higher in H2 since sales are higher in H2. In terms of individual segments, it is expected that the sales in Q2 and Q3 in smartphone will be strong because of the seasonality. We expect orders for the general industrial equipment to recover in H2, as we expect it will be difficult in H1. As for the automotive, we see this as the same as in previous years. As for the Consumer/Mobile, we expect it will be quite difficult in Q1, but from Q2 onward, we expect it to rise in line with the launch of set items from customers.

Q2：

Regarding general industrial, please tell us whether the current trend is that orders have stopped falling to some extent? You expect the orders will recover in H2, do you have any background for the expected recovery of order trends?

A2：

Regarding trends in orders for the general industrial, we believe that orders bottomed out in December, Q3, and were moving at the bottom in Q4. So, we are still not seeing a proper recovery in the footprint. There is a backlog of orders in H1. We have heard from our customers and other companies that orders will recover from H2. The machine tools field is a little weak, but the factory automation and smart factory field, such as robots, is relatively strong, although it is declining.

Q3：

Which areas are the biggest factors that are currently causing orders to drop further in Q3 and Q4, for example?

A3：

The decline in orders in Q4 was mainly due to the impact of so‐called seasonality in the smartphone and other fields.

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Q4：

I would like to know the trend of smartphone in FY2023. I think that mid‐range and lower‐end products are selling well, and high‐end products are not selling well anymore. I am concerned that the current mix will deteriorate and the evolution of connector will stop. Please tell us about how you see the technological trends within smartphones.

A4：

Our view of the smartphone for this fiscal year is based on the seasonal movements. We are looking that the movements will be strong in Q2 and Q3, and weak in other periods. We also expect a recovery in the smartphone in the Chinese area. A change in the configuration of these connectors would be a risk for us. The technology required for middle and high‐end connectors has become quite extreme. The number of manufacturers who can produce such connectors has been narrowed down. We will be able to expand our smartphone connectors to wearable devices and share our customer base with them. For us, this is a chance to share our resources and expand our market.

Q5：

I would like to confirm the level of inventories.

A5：

Inventory at the end of March 2023 increased by JPY6 billion from the previous year and it have a sense of excess. The breakdown of the JPY6 billion in products and raw materials is approximately 80% products and 20% raw materials. So we would like to reduce the increased portion of products as much as possible.

Q6：

Looking at the chart of growing image, the profit margin is stable at about 25% while the sales is growing. I wonder if the forecast for this fiscal year may also be more top‐line oriented. I would like to know If there is a subtle change in the balance when considering overall optimization in this area, or if there is a change in the way the strategy should have been implemented in the future. My intention of this question is while your profit margins have always been high and appreciated in the market, I still think that the top line would have liked to see a higher growth rate.

A6：

There is no change at all to our existing stance, which charting a growth course while maintaining profit margins. Our goal is to continue to grow and we are facing a more critical point in FY2023. We have the impression that we need to secure more top line growth. It is said that the connector growth rate is around 3%. I would like to make it a growth path that advances an image considerably, and I believe that we are now moving toward that goal.

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Q7：

Regarding shareholder returns, if you were to achieve JPY47 billion in operating profit this fiscal year, I have the impression that the ROE level would be less than 10%. The denominator of shareholders' equity at the end of the fiscal year ended March 31, 2023 was JPY350 billion, and I have the impression that the denominator has grown considerably. Your return policy is a dividend payout ratio of 50%, but please let me confirm whether you have a policy to further strengthen it based on that.

A7：

I believe that 10% is not an unattainable figure, but improving balance sheet is one of our measures. This includes considering share buybacks as a flexible option. At this point, the business sentiment is not so good, so we are considering executing the plan in a flexible manner while keeping an eye on the business performance or stock price.

Disclaimer

In this material, there are descriptions based on current estimation by Hirose Electric.

Hirose cautions you that a number of important risks, uncertainties and others could cause actual results to differ materially from those discussed in the *forward‐looking statements. Thank you for your understanding.

*Forward‐looking statements include, but are not limited to, those statements using words such as "believe," "expect," "plans," "strategy," "prospects," "forecast," "estimate," "project," "anticipate," "aim," "may" or "might" and words of similar meaning in connection with a discussion of future operations, financial performance, events or conditions. These statements are based on management's assumptions and beliefs in light of the information currently available to it.

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