Murata Manufacturing : Earnings call transcript for Second Quarter of FY2023 (Presentation/Q&A session)

Murata Manufacturing Co., Ltd.

Q2 Financial Results Briefing for the Fiscal Year Ending March 2024

October 31, 2023

Event Summary

[Company Name]	Murata Manufacturing Co., Ltd.
[Company ID]	6981-QCODE
[Event Language]	JPN
[Event Name]	Q2 Financial Results Briefing for the Fiscal Year Ending March 2024
[Fiscal Period]	FY2024 Q2
[Date]	October 31, 2023
[Time]	15:30 - 16:39
	(Total: 69 minutes, Presentation: 20 minutes, Q&A: 49 minutes)
[Venue]	Webcast
[Number of Speakers]	3
	Norio Nakajima	President, Representative Director
	Masanori Minamide	Executive Vice President (Board Member),
		General Manager, Corporate Unit
	Nagato Omori	Executive Vice President Ceramic Capacitor
		Business Unit
[Analyst Names]	Daiki Takayama	Goldman Sachs
	Shoji Sato	Morgan Stanley MUFG Securities
	Akihiko Uchino	Mitsubishi UFJ Morgan Stanley Securities
	Manabu Akizuki	Nomura Securities
	Fumihide Goto	Mizuho Securities
	Hideaki Yasuda	TOYO SECURITIES
	Takayuki Naito	Citigroup Global Markets
	Shingo Hirata	UBS Securities

p. 1

Presentation

Moderator: As it's time to start, we would like to begin Murata Manufacturing Co., Ltd.'s Q2 financial results briefing for the fiscal year ending March 2024. Thank you very much for joining us today despite your busy schedules. First, let me introduce today's attendees from our company. We have our President and Representative Director, Norio Nakajima.

Nakajima: Thank you.

Moderator: Next, we have Masanori Minamide, our Executive Vice President and General Manager of the Corporate Unit.

Minamide: Thank you.

Moderator: And we have Nagato Omori, our Executive Vice President and General Manager of the Ceramic Capacitor Business Unit.

Omori: Thank you.

Moderator: Additionally, members of our IR team are also in attendance. For today's proceedings, we will first provide an explanation of our financial results, followed by a Q&A session starting around 3:50 PM. The materials for this presentation are available on our company website, in the IR Library under the Investor Relations section. Also, timely disclosure of the presentation materials has been carried out, so you can verify them through the Tokyo Stock Exchange's timely disclosure information service. Now, I'll hand over to Minamide to explain the details of our financial results.

p. 2

Minamide: Thank you for your continued support and cooperation with Murata Manufacturing's investor relations activities. I'd like to express my gratitude on this occasion. Now, let me explain the financial results.

Please refer to page two for the performance of H1 of FY2023. Compared to the same period last year, our revenue decreased by 11.9% to JPY810.4 billion, and operating profit fell by 30.7% to JPY138.9 billion. I will provide more details on this later, including the reasoning behind these figures.

Compared to our earnings forecast, there was an increase of 2.8% in revenue and 65.4% in operating profit. This significant increase in profit was largely due to the depreciation of the yen. However, it's also important to note that we managed to control fixed costs, improve the profit margin of our devices and modules, and reduce inventory. Consequently, we have generally optimized inventory levels across many of our products.

p. 3

Please turn to page three, where we explain our FY2023 earnings forecast. We have revised our earnings forecast based on the H1 performance and the demand outlook for H2. We plan for revenue to be JPY1.62 trillion, down 1.2% from the previous forecast. Operating profit, however, is expected to increase by 22.7% from the previous forecast to JPY270 billion. I will explain the factors behind this in more detail later. We have maintained the announced annual dividend.

p. 4

Now, please look at page five. This page provides an overview of the performance for H1. On the far right of this table, you'll notice a section titled constant currency basis. As shown here, even excluding the impact of foreign exchange, revenue and profits decreased year-on-year in the H1 of FY2023.

Regarding Q2 of FY2023, we saw an increase in high frequency modules, multilayer resin substrates, and capacitors for smartphones, primarily due to seasonal factors. In the mobility sector, the increase in capacitors contributed to an increase in operating profit.

p. 5

Please turn to page six for the trends in sales, orders, and order backlog. Regarding the order backlog, this quarter also saw order volume keep below sales, resulting in a book-to-bill ratio of 0.95, leading to a slight decrease in the order backlog. While the BB ratio stands at 0.95, this is primarily due to the battery & power supply sector, where the BB ratio significantly fell below 1. However, in other sectors, the BB ratio is around 1, showing slight signs of improvement.

Please turn to page seven for the segment-wise revenue breakdown. Compared to the immediate previous quarter, all sectors except battery & power supply experienced an increase in revenue. However, YoY, there has been a decrease in revenue across all segments.

p. 6

Now, let's move to page eight, where we have outlined the contributing factors. For capacitors, we saw an increase in the mobility sector, but a decrease in other areas, leading to an overall decrease of 7.6%. The trend for inductors is almost identical to that of capacitors. As for high-frequency devices and communication modules, a notable point is the increase in surface acoustic wave (SAW) filters for smartphones. On the other hand, due to a review of our product portfolio, there has been a decrease in connectivity modules. Additionally, high frequency modules have also decreased compared to the same period last year. The battery & power supply segment experienced a significant decrease.

p. 7

Moving on to page nine, overall, there has been an increase in sales from Q1. However, the battery & power supply segment continues to experience a decline due to ongoing inventory adjustments by customers.

Please turn to page ten, which outlines revenue by application. The trend here aligns with what was mentioned earlier. From the immediate previous quarter, there has been a decrease in the home electronics segment, largely due to batteries for power tools. YoY, the mobility segment has seen a significant increase, but other areas have experienced a decline.

p. 8

Moving on to page 11, the trends are generally consistent with what has been discussed in the product- specific sections earlier. I invite you to review the details later.

The same applies to page 12.

p. 9