NISSO GROUP Co.,Ltd. Q1 FY2025 earnings call

• Corporate Strategy and Holding Company Transition

  • In June 2025, the company will transition to a holding company structure under the new name Nissou Group Co., Ltd., which will oversee group-wide strategy, M&A, cross-group synergy initiatives, human resources, IT, and IR.
  • The company is recruiting and training 7 professional leadership roles (dubbed the "Seven Samurai") to support the expanded group: one executive hired for manufacturing cost reduction, one executive for sales strategy scheduled to join in February 2025, with other roles currently in recruitment or internal development.
  • The 4th Medium-Term Management Plan (through FY2027 August) sets a target ROE of 8%, with total planned M&A investment of 5 billion yen and total planned upfront growth investment of 1 billion yen, targeting 30 billion yen in revenue and 2.7 billion yen in EBITDA by FY2027.

• Market and Growth Initiatives

  • The self-consumption renewable energy market is growing strongly driven by Japanese policy support, and the company's construction subsidiary Nissou Engineering participated in the large-scale solar carport project with energy storage at Honda's Kumamoto Factory, and is actively pursuing storage battery installation project opportunities from the new FIP market for curtailed renewable energy.
  • Cross-group product development: Nissou Purity, Nittai Kogyo, and Marutoku co-developed the "Crafree" branded vanity, which was exhibited at the Japan Home & Building Show 2024 and will launch commercially in March 2025.
  • Recent M&A and investment: In October 2024, the company acquired good-performing chemical product distributor Taiho Co., Ltd. (annual revenue 2.7 billion yen, annual operating profit 250 million yen) which has expected synergies with group rubber manufacturer Azuma Rubber Industry. In December 2024, the company invested several hundred million yen from the upfront investment budget in WITHDOM Group, a fast-growing residential builder with strong YouTube marketing capabilities, to co-develop housing equipment and supply building materials.

• 1Q Consolidated Results

  • 1Q FY2025 consolidated revenue was 5.62 billion yen, +51% year-over-year, and operating profit was 384 million yen, +44 million yen year-over-year. All metrics exceeded the 25% full-year progress benchmark, so results are considered solidly on track.

1. Metal Processing Business: Revenue of 2.013 billion yen, a 246 million yen increase year-over-year. Order backlog decreased by 1.4 billion yen year-over-year due to completion of large projects, contributing approximately 35.8% of total 1Q consolidated revenue. 2. Construction Business: Revenue grew driven by increased demand for solar array support structures and interior panel construction. Order backlog increased approximately 20% year-over-year to nearly 4 billion yen, with growth led by Tokyo redevelopment projects. 3. Tile Business: Order backlog decreased 28% year-over-year due to a reversal of post-pandemic special demand from the prior year, but the segment is selectively taking high value-added orders so profitability is expected to improve. 4. Chemical Products Business: Formerly the Rubber Processing segment, renamed after the group acquisition of Taiho Co., Ltd. this quarter.

• Full-year FY2025 (August 2025) consolidated guidance is maintained at 20.2 billion yen in revenue, 1.281 billion yen in operating profit, and 2.041 billion yen in EBITDA, which management considers a lower bound, with upside risk to results.
  • Expected growth drivers that support upside include increasing orders for metal sandwich panels, custom processed products, and data center-related projects, plus a full 9 months of earnings contribution from the newly acquired Taiho Co., Ltd.
  • The planned full-year dividend is maintained at 30 yen per share, consistent with prior policy.
  • Management confirms the 4th Medium-Term Management Plan is off to a strong start in its first year (FY2025), and remains on track to hit the 3-year target by FY2027.

• Increased upfront investment in human resources, new businesses and product development, plus higher shipping costs and rising construction subcontracting costs from labor shortages in the construction segment are factored into full-year guidance, limiting expected profit growth despite higher revenue.
  • Tile segment order backlog is experiencing temporary year-over-year decline due to the reversal of post-pandemic special demand from the prior year.
  • The company's current PBR is only 0.5x, reflecting that market expectations for the company's growth have not yet been fully realized, which management identifies as a key issue to address.

Q: What is the company's strategy to improve its 0.5x PBR? / A: Management recognizes 0.5x PBR is an unacceptable underperformance. The core strategy is to hit the 8% ROE target by boosting profitability through group-wide manufacturing cost reduction, improving operational efficiency and synergy via the new holding company structure and new professional leadership team. Management will also accelerate 6 billion yen in total planned M&A and upfront growth investment to clearly communicate the company's growth story to investors, and will strengthen IR activities to improve market awareness and growth expectations, with the goal of reaching at least 1x PBR.

Q: What earnings contribution do you expect from newly acquired Taiho Co., Ltd. this fiscal year? / A: Taiho Co., Ltd. has annual revenue of 2.7 billion yen and annual operating profit of 250 million yen, and 9 months of its full-year results will be consolidated into the group's FY2025 results. This contribution is already fully included in the current full-year guidance, and it will be a material positive contributor to group earnings this year.

Q: How is the company exposed to the growing semiconductor industry? / A: Nissou Purity does not have direct exposure to semiconductor component manufacturing. However, the company sees strong demand for its fire-resistant and non-combustible insulation panels for new semiconductor factories and warehouses, which is a clear tailwind for the business. Additionally, group company Watanabe Technos supplies soundproof enclosures for emergency generators at data centers, which support semiconductor and digital industries, giving the company indirect exposure to this growing market.

Q: What is the current revenue and profit outlook for solar carport projects? / A: The Honda Kumamoto Factory project is the company's first large-scale solar carport project with integrated energy storage, so current contribution to revenue and profit is still limited. Management identifies this segment as a high-potential growth market driven by policy tailwinds for energy storage projects, and plans to share more detailed market and outlook information once the business scales further.