Fellow Tech Holdings <6890> announced its future efforts towards realizing management conscious of the cost of capital and stock prices on the 31st.
The current recognition of PBR (Price to Book Ratio) and ROE (Return on Equity) is that PBR has continued to fall below 1x from the fiscal year ending March 2022 to the fiscal year ending March 2024, and PBR for the fiscal year ending March 2024 decreased significantly from the previous year due to the significant decrease in ROE, reaching 0.68x. The cost of capital for shareholders calculated by CAPM (Capital Asset Pricing Model) was 8.62% in the fiscal year ending March 2024. The ROE for the fiscal year ending March 2024 is 7.8% and is below the cost of capital for shareholders, it is recognized as a management issue to strengthen profitability exceeding the cost of capital for shareholders. Regarding the improvement of PBR, it will first improve ROE and PER by breaking down ROE x PER. With regard to the improvement of ROE, the policy is to improve ROE by achieving business growth, revenue growth, and strengthening profitability, together with the improvement of total asset turnover and the improvement of financial leverage by managing ROIC (return on invested capital) and focusing on business selection and concentration. They aim for a ROE of 15% in the fiscal year ending March 2027 (medium-term management plan KPI). Regarding the improvement of PER, they plan to further strengthen non-financial strategies (sustainability and IR/SR) and shareholder return strategies.
The ROIC (Return on Invested Capital) for the fiscal year ending March 2024 was significantly lower than the WACC (Weighted Average Cost of Capital) of 7.8%, at 4.5%. Even looking over a 10-year period, there were only two periods (fiscal years ending March 2022 and 2023) where it exceeded the WACC, recognizing improvement of ROIC as an urgent management issue. They aim to achieve a ROIC of 8.0% in the fiscal year ending March 2027 (medium-term management plan KPI) while investing for business growth. To do so, they plan to comprehensively manage ROIC for each business and subsidiary, and strengthen investment control based on ROIC. They also plan to improve ROIC by reviewing the business portfolio, selecting and concentrating on businesses, and restructuring the group organization (selling businesses, selling part of the equity stake, and disassociating from other businesses).
They aim to improve ROIC while investing for business growth. They aim for a ROIC of 8.0% in the fiscal year ending March 2027 (medium-term management plan KPI).
The company aims to improve PBR (improvement of ROE x improvement of PER) by implementing the following measures:
They decompose ROE into profit margin, total asset turnover, and financial leverage, and provide the following improvement measures:
As a measure to improve profit margin,
They thoroughly promote digitization, automation, AI, and visualisation of production sites.
They shorten the operating capital turnover period (such as compressing inventory).
They strengthen investment control by comprehensively managing ROIC for each business and subsidiary.
As a measure to improve total asset turnover,
They shorten the operating capital turnover period (such as compressing inventory).
They shorten the operating capital turnover period (such as compressing inventory) and strengthen investment control by comprehensively managing ROIC for each business and subsidiary.
They shorten the operating capital turnover period (such as compressing inventory).
They shorten the operating capital turnover period (such as compressing inventory).
As a measure to improve financial leverage,
They improve the operating and free cash flows by starting to operate new factories and diversifying the financing of their Chinese subsidiary (selling part of the equity stake or inviting external capital).
They aim for further diversification in financing of their Chinese subsidiary (selling part of the equity stake or inviting external capital).
They select and concentrate on businesses (sell businesses or dissociate from other businesses).
They shorten the operating capital turnover period (such as compressing inventory).
Furthermore, the PER is decomposed into capital cost and expected EPS growth rate, and the following is mentioned.
As a measure to improve capital costs,
considering diversifying shareholder returns, such as share buybacks as future M&A funds.
Strengthening efforts to sustainably reduce GHG emissions and other sustainability initiatives.
Strengthening engagement activities such as IR/SR activities (plant tours at home and abroad, meetings with outside directors, etc.).
By clarifying the contents and strategies of each business of semiconductors, electronic devices, and autos, it leads to better understanding.
Expanding China's external manufacturing base in response to US-China semiconductor friction (including capacity expansion) and starting operations early.
As a measure to improve expected EPS growth rate,
Malaysia (Ceramics, quartz, metal fabrication, robot assembly, Johor Bahru: power semiconductor substrates), Japan (Ishikawa (ceramics), Kumamoto (precision parts regeneration cleaning, quartz), Okayama (CVD-SiC))
are mentioned.
The company prioritizes dialogue with shareholders and investors as part of its non-financial strategy. For domestic and overseas institutions, the company will hold earnings conferences twice in the fiscal year ending March 2024, announce performance, business strategies, and progress on medium-term management plans, and conduct Q&A events. The company presented its future business strategies in 208 IR interviews (including small conferences) and 4 conference events.
The dialogue theme is "Awareness of the impact on the company's current performance and future prospects due to strengthening of US-China semiconductor friction", "The relationship between generated AI development and our business, and the status of our China IPO", "Capital investment and cash flow", and "Activities related to ESG/sustainability".
The company shares information in a timely manner with the Board of Directors and division manager meetings and reflects it in its management strategy. Comments from investors and analysts with high immediacy are immediately reported to management through division manager meetings, emails, etc., and quarterly feedback and evaluation are reported to the Board of Directors at each earnings announcement.