More cautious on earnings from FY3/28 mainly on capacity expansion costs; 2Q guidance achievement likely key to future share price performance; reiterate Buy

We update our earnings estimates for MARUWA in this report. We lower our FY3/28-FY3/29 operating profit estimates by 7%/11% (FY3/27E unchanged). The revisions mainly reflect higher costs associated with capacity expansion for AI applications. In addition to the existing No. 1 plant, the No. 2 plant is progressing smoothly toward starting operations in 3Q3/27 (Oct-Dec). While the company may bring forward the start of operations at the No. 3 plant to 1H3/28, we assume that it could start operations in 1Q3/28 (Apr-Jun), given the current tight supply/demand balance. In addition, we assume that additional capacity expansion will be necessary from FY3/30. We think that achievement of implied 2Q operating profit guidance of ¥8.45 bn could be key to share price performance going forward. In recent quarters, operating profits have continued to miss guidance/consensus due to factors such as the impact of yields on AI-related products (4Q3/26 and 1Q3/27) and unexpected inventory adjustments for