SCREEN (7735) The Hidden Giant of AI Chips Dominating Semiconductor Cleaning #Updated for Oct. 30 Interim Results

SCREEN Holdings Co., Ltd., headquartered in Kyoto, Japan, is a premier global leader in precision equipment manufacturing. The company operates through four primary business segments: Semiconductor Production Equipment (SPE), Graphic Arts Equipment (GA), Display Production Equipment and Coater (FT), and PCB-Related Equipment (PE). SPE serves as the central growth driver, generating 80.2% of total net sales (¥605.7 billion) in FY2026. SCREEN maintains the No. 1 global market share in semiconductor cleaning equipment, including single-wafer processors, batch-type systems, and spin scrubbers. By leveraging its core proprietary technologies in surface processing, coating, and direct imaging, SCREEN provides highly competitive solutions to propel global AI, advanced logic foundry, and memory semiconductor innovation.

Under its medium-term plan "Value Up Further 2026", SCREEN's strategic growth is driven by surging AI demand across advanced logic/foundry and HBM memory, complemented by expansion in Advanced Packaging and boosted capacity investments (including Nagaokakyo and the US ATCA center, with Capex expanded to ¥58.0 billion). Backed by a projected CY2026 WFE market of $155 billion (+25%), SCREEN forecasts record FY2027 performance with net sales of ¥743.0 billion and operating income of ¥156.5 billion (21.1% operating margin). Annual dividend forecast is set at ¥183 per share (post 1:2 stock split).

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Positive Signals / Bullish Catalysts (FY2027 H1 Update)

1. Aggressive Growth Investment (Capex Upward Revision)

• Full-year Capex raised by ¥15.0B to ¥58.0B (up from ¥43.0B previously) to accelerate capacity expansion at the Nagaokakyo plant and push forward US R&D operations (ATCA center), demonstrating strong management confidence in AI-driven demand (advanced logic & HBM).

2. Robust Shareholder Returns (¥183 Annual Dividend Forecast)

• Decided H1 dividend of ¥60/share and maintained full-year dividend forecast at ¥183/share (post 1:2 stock split), adhering to its >30% payout ratio policy and marking a significant YoY dividend hike.

3. Upward Revision of H2 Net Sales & Guidance Intact

• Maintained record full-year guidance (Net Sales: ¥743.0B, Operating Income: ¥156.5B, OP Margin: 21.1%) while revising H2 net sales forecast upward from ¥426.0B to ¥434.6B.

4. Favorable Macro WFE Market Outlook

• Revised CY2026 global WFE market forecast up to $155B (+25% YoY) and projected CY2027 to reach $200B, creating strong medium-to-long-term industry tailwinds for SPE growth.

5. Narrowing Corporate & R&D Expenses

• Full-year operating loss in "Corporate/Adjustments" (including headquarters R&D) narrowed by ¥1.5B (from -¥12.0B to -¥10.5B).

Negative Signals / Bearish Risks (FY2027 H1 Update)

1. Loss of FX Safety Buffer & Masking of Core Profit Pressures

• Assumed USD rate raised from ¥145 to ¥150/USD. Despite the FX tailwind (+¥1.3B OP per ¥1 USD depreciation), full-year OP guidance was kept unchanged at ¥156.5B, raising concerns that underlying cost inflation or order shifts are being masked by currency tailwinds while eliminating future FX buffers.

2. H1 FY2027 Performance Shortfall

• 1H Net Sales (¥308.4B, -¥8.6B vs. July guidance) and Operating Income (¥54.5B, -¥1.5B vs. guidance) both missed targets. The core SPE segment also underperformed guidance (Sales: ¥251.3B, -¥8.7B; OP: ¥57.5B, -¥3.0B).

3. High Execution Risk in H2-Heavy SPE Backlog

• Reaching full-year SPE targets (Sales: ¥620.0B, OP: ¥159.0B) requires an aggressive H2 surge to ¥368.7B in sales and ¥101.5B in OP (H2 OP margin of 27.5%), heightening sensitivity to customer acceptance timing and shipping delays.

4. Sharp Guidance Cut in FT Segment (Advanced Packaging)

• Full-year FT operating income slashed from ¥2.5B (5.8% margin) to ¥1.0B (2.4% margin), with H2 OP plummeting to ¥0.2B (0.9% margin) due to initial integration costs of the Advanced Packaging business and panel display investment fluctuations.

5. PE Segment H1 Deficit

• PE (PCB Equipment) 1H OP fell into a ¥0.1B deficit (vs. ¥0 forecast), reflecting prolonged softness in the PCB equipment market.

6. Fixed Cost Inflation (-¥32.0B YoY) & Depreciation Risk

• Fixed costs exerted a -¥32.0B drag on YoY operating profit due to higher R&D and personnel expenses. The Capex expansion to ¥58.0B will further increase future depreciation burdens.

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