TENOX CORPORATION Q4 FY2025 earnings call

Overall 2025 March Fiscal Year Performance

• Total net sales came in at 23.717 billion yen, up 17.4% year-over-year. Operating profit and ordinary income both doubled year-over-year.
• Profit attributable to owners of the parent hit 749 million yen, a 93.1% increase year-over-year, driven by contributions from the Hokkaido Shinkansen extension project, improved construction efficiency, and successful pass-through of higher costs to selling prices.
• Ending order backlog was 9.7 billion yen, after recognizing ~6.8 billion yen in revenue from the Hokkaido Shinkansen project carried over from the prior year's backlog, showing continued steady order growth.
• Cash increased by 1.856 billion yen over the fiscal year, driven by strong operating performance and percentage of completion accounting for the large Hokkaido Shinkansen project.
• ROE improved 2.7 percentage points year-over-year to 5.9%, though it remains below the 8% target.
• The annual dividend per share was increased from 38 yen to 50 yen, bringing DOE (Dividend on Equity) to 2.6%, meeting and exceeding the medium-term target of 2% or higher.

Market Environment

• Overall construction investment market has seen a slight nominal increase, driven by rising labor and material costs, but actual construction volume (measured by concrete pile and cement shipments) is declining, with sharp drops in regional areas. Management's on-the-ground view for urban-focused Tenox is that the market is flat.
• Factory construction starts have seen a slight decline post-Covid after a wave of investment, while the data center construction segment is growing by nearly 10% on the back of hundreds of billions of yen in new investment, and management is focusing on capturing this growing market opportunity.
• Defense-related construction demand is growing, with the overall Japanese defense budget up 9.4% year-over-year, and Tenox has seen a marked increase in defense-related work; management has already begun studying application of its technologies to planned blast shelter construction for 100 million people.

Medium-Term Capital Allocation & Strategy Progress

• The medium-term plan allocates 7 billion yen over three years, split into 3 billion yen for existing business investment (37.5% progress to date, on track), 1 billion yen for dividends (34.2% progress to date, on track), and 3 billion yen for growth sector investment (2.8% progress to date, with major planned investments moving forward that will bring progress on track).
• For 2026 March fiscal year, the dividend per share is planned at 52 yen (a 2 yen increase), maintaining DOE at 2.6% in line with the capital return commitment.

Operational & Product Strategy

• Two new construction methods that greatly reduce residual construction soil were launched in the 2024 fiscal year; this addresses a growing industry demand for waste reduction after stricter regulations were introduced following the 2021 Atami residual soil disaster, and the new methods have received strong market reception.
• For the Vietnam overseas business: Tenox acquired a construction business in 2024 to add construction capabilities, and is now in late-stage (90% complete) negotiations to acquire a local concrete pile manufacturer to add manufacturing capabilities. The acquisition is expected to close during the 2026 March fiscal year, allowing Tenox to build a full integrated manufacturing, sales, and construction value chain to grow the Vietnamese business amid the country's expanding economy and growing middle class.
• Sustainability and social issue-focused technology development: Tenox is expanding its proven liquefaction countermeasure technology to reduce earthquake damage, completed a successful pilot project for construction using 100% next-generation renewable RD diesel as part of an Osaka prefecture program, and completed successful test construction for a newly developed electric small pile driver that reduces CO2 emissions by ~30% and operates at much lower noise levels, which has received strong positive feedback from major general contractors.

Human Capital & Capital Efficiency

• Management is prioritizing workplace improvements and capability development to address industry-wide labor shortages, including a dedicated intensive training program for 20 identified next-generation leaders to prepare for company growth.
• Management is committed to reaching the ROE target of 8% and the PBR target of 1.0x, and plans to strengthen IR/SR activities in the 2026 fiscal year to improve market understanding of the company.

• Construction Business: Revenue grew steadily from 15.3 billion yen in the 2021 March fiscal year to 23.717 billion yen in the 2025 March fiscal year, accounting for the overwhelming majority of total company revenue (over 99% of total revenue). Within the Construction segment, the civil engineering sub-segment saw strong revenue growth driven by the Hokkaido Shinkansen extension project, while ground improvement work revenue decreased slightly, partially due to reallocation of internal equipment and personnel to the Hokkaido Shinkansen project. The overseas Vietnam construction business saw growing profits as it emerged from the post-Covid economic downturn. - Civil engineering construction consulting and other general businesses: Maintained stable financial performance with no significant fluctuations.

• For the 2026 March fiscal year, management expects a slight decline in revenue and approximately 1 billion yen decrease in profit, as the Hokkaido Shinkansen extension project has passed its peak revenue contribution. Profit attributable to owners of the parent is forecast at 650 million yen, a 99 million yen decrease year-over-year. ROE is expected to decline slightly to 4.8%.
• The decline in civil engineering revenue (expected to drop by nearly 4 billion yen) is planned to be partially offset by growth in the building construction segment.
• Management plans to implement the planned scale of growth strategy investments laid out in the medium-term plan during the 2026 March fiscal year.
• For the 2027 March fiscal year (the final year of the medium-term plan), the next large Shinkansen project is expected to materialize, which will lift underlying profitability back up, and management plans to achieve the medium-term 8% ROE target.
• The 2026 March fiscal year dividend is planned at 52 yen per share, maintaining a 2.6% DOE, representing a 2 yen increase from the 2025 fiscal year.

• Industry-wide headwinds: Rising labor costs and material prices are putting pressure on margins, and the company faces industry-wide labor shortages that impact operational capacity.
• Regional market decline: Demand for construction has seen sharp contraction in regional Japanese markets, even as urban and growth segments remain stable.
• After reallocating significant internal capacity to the Hokkaido Shinkansen project in 2025, the ground improvement segment saw a temporary decline in revenue, highlighting the risk of resource constraints when prioritizing large projects.
• Growth investment execution risk: While the Vietnam acquisition is 90% complete, it had not been finalized by the time of the earning call, and the low current progress on growth sector investment means there is execution risk for the 3 billion yen planned growth allocation.

No formal question and answer section was included in the provided transcript.