Taikisha Ltd. Q2 FY2026 earnings call

Market Environment

• Overseas: Despite concerns over global economic slowdown, capital investment from manufacturers remains solid.
• Domestic: Investment from semiconductor, automotive, and data center sectors continues; urban redevelopment demand is steady.
• All performance metrics hit record highs for the first half, with recurring profit up 55.9% year-over-year.

Long-Term Strategy (10-Year Plan 2035)

• Vision: "Be Engineering for a Sustainable Society", aligned with global carbon neutrality and smart factory trends.
• 2035 targets: Completed construction over 500 billion yen, ROE ≥12%, DOE ≥5%.

Ongoing Mid-Term Management Plan Initiatives

• Growth market expansion: Cross-segment personnel/technical exchange in the battery sector; participation in the battery supply chain association BASC.
• Global strategy: Expand clean room panel production capacity at India's Nicomac, grow domestic air conditioning business in India; establish ASEAN Headquarters in Singapore to build cross-border sales network for non-Japanese clients; grow domestic partner network TPG (Taikisha Partners Group) membership.
• R&D and digital investment: Continue R&D for dry decoration systems for coating business; develop on-site DX applications based on BIM; develop AI-integrated air conditioning control systems, currently in client site testing/verification.
• Human capital enhancement: Set KPIs to increase headcount of engineering and global-ready talent; run ongoing overseas trainee programs for early global talent development.
• Governance: Roll out division- and site-level ROIC target setting; reduce policy-held shareholding to below 20% of net assets by FY2026 March end.

Shareholder Return

• Committed to gradually raising DOE from 4% to 5%+ by 2035; targets 4% DOE during the mid-term plan period.
• 2026 March Term full-year dividend unchanged at 94 yen per share;
• Plans to buy back 50 billion yen of own shares annually, 150 billion yen total over the 3-year mid-term plan, to increase total shareholder return.

For the 2026 March Term 2nd Quarter (interim):

1. **環境システム事業 (Environment Systems Business):
   • Received order value: 101.5 billion yen (up 18.1 billion yen year-over-year), 56% of total company received orders.
   • Completed construction value: 87.0 billion yen (up 17.3 billion yen year-over-year), 66.7% of total company completed construction.
   • Recurring profit: 9.7 billion yen (up 5.4 billion yen year-over-year), 88.2% of total company recurring profit.
2. **塗装システム事業 (Coating Systems Business):
   • Received order value: 79.9 billion yen (up 35.0 billion yen year-over-year), 44% of total company received orders.
   • Completed construction value: 43.4 billion yen (down 1.4 billion yen year-over-year), 33.3% of total company completed construction.
   • Recurring profit: 0.7 billion yen (down 1.1 billion yen year-over-year), 6.4% of total company recurring profit.
3. Company-wide: Total received orders 181.4 billion yen (up 53.2 billion yen YoY), total completed construction 130.4 billion yen (up 15.8 billion yen YoY), total recurring profit 11.0 billion yen (up 3.9 billion yen YoY). Total carried forward construction reached a record high of 288.5 billion yen.

• Full-year 2026 March Term total received orders: 346.5 billion yen (still a record high, down from initial forecast due to delayed orders in environment systems, but still up year-over-year).
• Full-year total completed construction: 286.7 billion yen (up from initial forecast, up 10.4 billion yen year-over-year, due to faster-than-expected domestic construction progress).
• Full-year total recurring profit: 20.0 billion yen (up from initial forecast, a new record high, up 61 million yen year-over-year, driven by improved domestic project profitability offsetting higher SG&A from personnel and growth investment).
  • Environment Systems Business: Received orders 220.0 billion yen (down from initial forecast, but still a record high above the 2023 March Term level); completed construction unchanged from initial forecast at 187.0 billion yen; recurring profit raised 17.0 billion yen above initial forecast to 17.0 billion yen, matching the record 2024 March Term profit level.
  • Coating Systems Business: Received orders unchanged from initial forecast at 126.5 billion yen (a new record high); completed construction raised 7.7 billion yen above initial forecast to 99.7 billion yen due to construction progress and internal transaction adjustments; recurring profit unchanged from initial forecast at 3.0 billion yen, with a year-over-year decline driven by the prior-year large domestic project base effect and higher SG&A for growth investment.
• All mid-term plan targets except received orders are on track to be met for FY2026, with improved project profitability raising confidence in hitting full mid-term goals.

• Multiple large industrial air conditioning projects face delayed order timing due to fluid customer investment timelines, requiring downward adjustment to full-year received order guidance.
• Global economic slowdown creates uncertainty for overseas capital investment plans.
• Growth investment (R&D, digital, M&A, human capital) will increase SG&A cost burden in the second and third years of the mid-term plan.
• Coating Systems Business' large European projects have higher outsourcing ratios, limiting near-term margin upside.
• Indian operations are still in the scale expansion phase, with current limited profit contribution from environment systems operations.

Q: What are the specific factors behind the delayed order timing for industrial air conditioning that pushed down full-year guidance? Is it poor estimation accuracy, or are customers delaying investment due to market conditions? / A: Customer investment timing has become more volatile recently, with multiple late-fiscal-year projects facing delay risk. All delayed projects are still in negotiation; some may close this fiscal year, while others may slip to next year or later. The guidance revision incorporates this risk, with no single common root cause beyond general investment timing fluidity.

Q: What is driving the improvement in Environment Systems Business' margin, and is this improvement sustainable into coming periods? / A: The H1 improvement mainly comes from better profitability of projects completed in the first half, an unusual timing shift as profit from year-end projects normally contributes more in H2. Current quote-stage profitability is at healthy improved levels, so further margin gains are expected for next fiscal year and beyond, with continued upside from improved incoming order quality.

Q: How are automotive industry shifts (shift toward hybrids, tariff effects) impacting the Coating Systems Business, and will growing U.S. auto investment contribute to profits? / A: We have contracts with clients that exclude tariff impact from project costs, so there is no direct impact from U.S. trade policy uncertainty. While there is some variation in investment pace across automakers, overall investment appetite remains solid, even with shifts of investment location from Canada to the U.S. We expect growing U.S. investment, and see stronger ongoing demand in Europe that is not exposed to tariffs, which will continue to deliver profit contribution.

Q: What are the prospects for Indian operations for both business segments? / A: For Environment Systems, the Indian operation is still scaling up to serve growing demand from semiconductors, pharma, and data centers, so it is not yet meaningfully profitable; we expect profit contribution as scale grows. For Coating Systems, India is seeing rapidly growing motorization like China in the 2000s, with Japanese automakers planning to double production capacity over the next decade. Taikisha has operated here early, and the business maintains higher profitability than other overseas locations, which we expect to sustain going forward.