Toppan Holdings Inc. TSE:7911
TOPPAN : Q&A of Fiscal 2025 Third Quarter Results Briefing
Source: MarketScreener
Nine months ended December 31, 2025
Q: I'd like to ask about your thinking on profit margin for FC-BGAs in Electronics, as well as the current takt time situation. It is estimated that the profit margin for FC-BGAs improved QoQ, but do you expect to see further improvement in Q4 due to the product mix?Also, does the current slowdown in takt apply to both existing and new lines?
How much impact is the slowdown in takt having on operating rates? Could you give us some idea in terms of quantitative metrics, such as what percentage increase in product quantities we would see if the takt returns? And when should we expect to see improvement in takt?
A: First of all, as for the improvement of profit margin and product mix, as previously mentioned, we are making progress almost as planned in terms of steadily increasing profits from Q1. High-end switches and other such devices are increasing in number.Performance has been largely in line with the plan up to Q3. The profit margin per unit is expected to improve again, as we have almost completed qualification for new devices, which had been a concern, and we will start working on some of them in Q4. However, the overall manufacturing process has become quite complex, so we are currently slowing down the takt to prevent disruptions within processes.
Rather than employing a single linear flow, we are taking a nesting-based approach. This results in an overall slowdown in takt of just under 20%.
We have largely finalized countermeasures for this issue, so we will be aligning the entire operation around the end of Q4. Considering the lead time, the impact on output will likely start to be felt from the end of Q2 to the beginning of Q3 of the next fiscal year. We envisage gradually increasing output to ultimately reach our target level.
Q: What are the reasons for the significant improvement in profit margin for Information & Communication compared to last year's Q3 and this year's Q1 and Q2? Additionally, in the security business, sales appear to have grown significantly in Q3 on a standalone basis. I'd also like to ask about the factors behind this. A: Margins have improved considerably through Q3, as you mentioned. The margin for the Information segment has been rising overall, but that of secure media has increased significantly in Q3, due to the strong performance of financial printing overseas. This was a driving force for profits, as we received very large IPO-related orders overseas, primarily in the Hong Kong market.In the BPO business, profits decreased until Q2 but moved into growth from Q3, and there has been a considerable shift from one-time to continuous projects. About 90% of projects are now continuous, which is also contributing to improved profit margins.
Q: Should the profit increase for financial printing be viewed as a one-time event, or will it continue to add profit to a certain extent in the next fiscal year?In addition, since most of the BPO projects are now continuous, is it safe to assume that the overall margin will continue to improve in the future?
A: Overseas financial printing involves IPO-related business in overseas markets, which means that performance will be strong if the number of IPOs increases. Although there were some fluctuations, Q3 was very good. While the peak may have passed in Q4, it remains uncertain whether performance will decline into the next fiscal period.As for BPO, as you can see, the number of continuous projects has increased considerably and the profit margin has become stable, so we expect this to continue in the next fiscal year.
Q: For the three months of Q3, were there any segments where actual performance deviated above or below internal projections? A: We believe that overall Q3 results are generally as expected. The Information business is largely in line with our guidance. While operating profit is somewhat higher than planned, we expect Q4 to be in line with our plan due to one-time expenses such as bonus provisions.In the Living business, while the environment in the European and North American markets has been more negative than anticipated since our half year results briefing, which is a cause for concern, SX packaging is expanding in Japan, and decor materials are performing well, so we are on track with our plan overall.
The Electronics business has seen a significant increase in complex products, and we are on track with obtaining qualification. As we are currently operating at a slower takt and proceeding cautiously due to the increase in complex items, our immediate focus is on improving operating rates through Q4. Sales up to Q3 were generally in line with the plan.
Q: Have you already been slowing down the takt for FC-BGAs in Q3? At the half year result briefing, I believe you spoke about achieving solid profit growth QoQ from Q3 through Q4. Has that perspective changed?In the next fiscal year, are profits expected to rise at a slower pace than before?
And, if possible, can you tell us about the status of qualification in relation to servers, network switches, and ASICs?
A: Overall, the product mix has become quite complex, so we're slowing the takt time to ensure the entire flow is carefully maintained. Q4 will show an increase compared to Q3 due to the launch of the new line.However, as I mentioned at the half year results briefing, we have no choice but to slightly lower our Q4 target of 1.6 times the Q3 figure. I believe that we will be able to expand profits sufficiently in the next fiscal year, when the new line starts operating and we see the increase from the Q3 figure.
We will obtain qualification for AI network switches and AI ASICs. The process is largely finalized, and we should be able to steadily obtain qualification going forward. We are currently starting to actually run products on the line and will press forward while ensuring sufficient verification.
Q: Could you tell me specifically whether you have obtained qualification in relation to network switches or AI ASICs, or both? A: We have already obtained qualification for network switches. Final checks are underway for ASICs. Q: With regard to Information & Communication, it seems that communication media improved somewhat compared to H1. I assume this was the effect of structural reforms or something that resulted in improved earnings. Is that the case? A: There has been a gradual increase overall quarter by quarter. The effects of structural reforms have been seen to a certain extent, and there has been improvement compared to last year. If we compare Q2 and Q3 of this year, there is also an annual trend of QoQ improvement. Q: In Electronics, amid ongoing pressure on the supply of materials for FC-BGAs, you said at the half year results briefing that the situation would be manageable this fiscal year, but how much have you been able to secure for next fiscal year? Or have you made progress in qualifying alternatives?Also, on the status of qualification, you said you already obtained qualification for switches and production had started, and that you had slowed the takt due to product complexity. Should we be concerned that takt might be slowed further due to the increase in the number of complex items once you get qualification for ASICs?
A: In terms of materials, I believe you're referring to T-glass. We are currently proceeding with qualification of other manufacturers, so assuming everything goes according to plan, we are making arrangements that should ensure there are no problems through fiscal 2027.Regarding the takt when AI ASICs have entered the production phase, the process is almost identical to the products we're manufacturing now, so there's no need to worry about a further slowdown in takt. Rather, we are talking about how to improve overall efficiency, so I believe that it will not get any worse than it is now.
Q: When is AI ASIC production likely to start? Will you be able to start input before the end of the fiscal year? A: In terms of output, I think it will be around June 2026. Q: Are you going to restore the takt in stages or are you going to invest in areas that could be a bottleneck and then return the takt as a whole to its original level? A: We will take both approaches. Q: The operating companies under the holding company will be integrated in April, so I assume you have already factored in costs like approximately JPY5 billion due to the alignment of bonus provision period coinciding with the integration. Can we assume there won't be any other significant expenses beyond that? A: We are not currently planning for anything that would significantly impact operating profit. I cannot give you a specific figure for extraordinary losses at this time, but I think some of them will be incurred in Q4. Q: Regarding FC-BGAs in Electronics, I believe costs for materials such as copper-clad laminates are seeing significant price increases throughout the supply chain. What is your view on implementing price increases in response? If you were to raise prices, would there be an upside in terms of raising prices above the increase in the cost of materials, or in other words raising prices in a way that would improve your profit margins? A: As you mentioned, we've already heard about price increases. We need to discuss with customers when and how we will respond. Since end users generally know the extent of the increase, I think it would be quite difficult to implement price hikes exceeding the increase in material costs.Rather than that, I believe the fundamental approach to improving profit is to ensure we raise yield and productivity to push up profit margins, and that's what we will focus on doing.
Q: You announced in December that Mr. Oya will be taking over as the new president of the holding company in April. Within the current portfolio, are there any specific businesses in which you aim to push forward with investments, or conversely, any areas you feel need improvement? A: Overall, I believe we have to become more profitable. I want to focus efforts on raising profit margins, such as by scaling up solutions in the Information business from standalone solutions to those that tackle larger clients' management challenges and societal issues.In terms of fields in which we intend to invest, in our global business we want to leverage our technical competitiveness to keep pace with market growth and expand in the security and packaging fields.
In the Electronics business, as we explained during the strategy briefing in December, by investing in advanced semiconductor packaging and other new technologies, we aim to build an entity that is at the forefront of the industry and can secure profits from mass production.