SUMINOE Co.,Ltd. Q4 FY2025 earnings call

• Consolidated Full-Year Performance:

  • Total consolidated revenue reached 104.791 billion yen, increasing year-over-year for the fifth consecutive period.
  • Operating profit was 3.001 billion yen, down 298 million yen year-over-year; ordinary profit was 2.514 billion yen; net profit attributable to parent company shareholders was 669 million yen, both down year-over-year. Results beat the prior earnings forecast for revenue and profit except for net profit.
  • Profit declines were driven by automaker production plan fluctuations, higher logistics costs, foreign exchange losses at consolidated subsidiaries, and cyberattack-related system outage response costs.

• Segment Operational Highlights:

  • Automotive & Vehicle Interiors: Domestic automotive orders grew due to higher sales of booked vehicle models and resolved production adjustments from automaker certification scandals; railway and bus interior orders grew with rising domestic and inbound tourism demand, with sales up 2% year-over-year domestically. Overseas sales fell 1.3% year-over-year, pressured by production cuts and exits of Japanese automakers in China and Southeast Asia, despite steady car mat sales in North Central America from restructuring and promotional efforts. Profit fell due to lower production efficiency from overseas production adjustments and higher logistics costs.
  • Interiors: Revenue grew across commercial tile carpets (led by the recycled ECOS line, up 4.1% year-over-year), new U Life curtains (up 1.7% year-over-year), wall coverings (up 3.3% year-over-year driven by growing demand for security window films), and the fast-growing space design business (up 8% year-over-year from strong commercial interior and luxury condominium option sales). The business passed through higher raw material and energy costs to achieve profit growth, though residential carpet sales remain down 6.6% year-over-year due to continued weak demand.
  • Functional Materials: Despite growth in deodorant and filter products, heating textile material orders dropped sharply due to a prolonged warm winter. The Vietnam factory, relocated from Suzhou, China, redirected half of its production capacity to automotive carpets and mats to improve productivity after reduced demand for heating products.

• Mid-Term Strategic Initiatives (SUMINOE GROUP WAY STEP II 2025-2027):

  • Prioritize stable production of high-quality synthetic leather at the new Mexico plant, which began mass production, to improve profitability; expand proprietary decoration technology to grow market share. Secured first large contracts with non-Japanese North American automakers in 2025 May Term, and is expanding proposals to other non-Japanese automakers, leveraging its unique position as a supplier of full-range automotive interior products.
  • Add a new synthetic leather finishing line at the Thai subsidiary (total investment of ~160 million yen) scheduled to start production in 2027 May Term to expand the Asian supply base.
  • Formed a strategic partnership with France's TESCA group to complement each other's geographic footprints and expand supply to Europe, South America and other unserved regions for global growth.
  • For the Interiors business, expand premium products with new imported luxury rug collection Epilogue and growing existing custom rug line itten, and expand variants of the eco-friendly ECOS tile carpet line, to strengthen the SUMINOE brand.
  • Follow a stable dividend policy with a guaranteed floor of 35 yen per share and a target payout ratio of 38%, planning 40 yen per share for 2025 May Term, 43 yen for 2026 May Term, and a target of 70 yen per share by the final 2027 May Term of STEP II.
  • Strengthen IR activities and build out the SUMINOE brand following the 2024 name change from Suminoe Orimono Co., Ltd., with expanded information disclosure and PR.

1. Automotive & Vehicle Interiors Business: Revenue of 63.478 billion yen, accounting for 60.6% of total consolidated revenue; segment profit of 4.094 billion yen. It achieved slight revenue growth but lower profit year-over-year. 2. Interiors Business: Revenue of 38.264 billion yen, accounting for 36.5% of total consolidated revenue; segment profit of 1.023 billion yen. It achieved both revenue and profit growth year-over-year. 3. Functional Materials Business: Revenue of 2.566 billion yen, accounting for 2.4% of total consolidated revenue; segment loss of 124 million yen. Revenue dropped significantly year-over-year due to continued warm winter conditions.

• For 2026 May Term, management forecasts total consolidated revenue of 105.0 billion yen, operating profit of 3.1 billion yen, ordinary profit of 3.35 billion yen, and net profit attributable to parent company shareholders of 1.5 billion yen, representing expected revenue and profit growth from 2025 May Term. The forecast assumes an exchange rate of 144 JPY per USD.
• The 2026 May Term guidance is lower than the original STEP II mid-term plan (which targeted 106.0 billion yen revenue and 4.2 billion yen operating profit) because management incorporated a conservative assumption for the uncertain impact of 15% US Trump-era tariffs on automaker strategies, so the mid-term target is now tracking one year behind schedule.
• Segment guidance for 2026 May Term: Automotive & Vehicle Interiors is expected to see a slight revenue decrease to 63.17 billion yen with profit growth to 4.3 billion yen driven by growth of high value-added products including Mexican synthetic leather; Interiors is expected to grow revenue to 38.74 billion yen and profit to 1.15 billion yen; Functional Materials is expected to recover to 2.62 billion yen revenue and return to a small segment profit of 20 million yen, driven by improved Vietnam factory utilization and expanded year-round product production.
• Regional guidance: Domestic sales will grow gradually; North Central America sales are expected to be flat due to foreign exchange impacts; China sales are expected to drop further to 6.3 billion yen from the 2025 May Term actual of 7.285 billion yen; Asia excluding China will recover slightly to 9.4 billion yen.
• The final STEP II 2027 May Term target remains unchanged at 109.0 billion yen revenue, 5.0 billion yen operating profit, 5.0 billion yen ordinary profit, and 2.6 billion yen net profit attributable to parent company shareholders, with a target 5% operating margin, 8% ROE and 1x PBR.
• Capital expenditure is planned to be slightly restrained at ~32.0 billion yen for 2026 May Term, down slightly from 32.2 billion yen in 2025 May Term.

• Uncertainty around the impact of the 15% US Trump-era tariffs on automaker production and sourcing strategies, which pressured management to set conservative 2026 May Term guidance.
• Continued weak demand in the Chinese automotive market, with production cuts and exits of Japanese automakers leading to expected further sales declines in 2026 May Term.
• Persistently weak demand for residential carpets within the Interiors business, with premium product expansion not yet offsetting the overall demand decline.
• Exposure to foreign exchange volatility, which caused significant foreign exchange losses in 2025 May Term that pressured ordinary profit.
• Unexpected one-time costs from operational events, including cyberattack-related system outage response costs that reduced 2025 May Term profit.
• Low current operating profitability (3% operating margin, 2.1% ROE in 2025 May Term) and a sustained PBR below 0.5x, which reflects market concerns over asset efficiency and profitability.
• Long-term demand headwinds: falling new housing starts and non-residential construction starts in Japan, declining overall global automotive production volumes.

Q: PBR has stayed below 0.5x for a long time amid ongoing trade policy uncertainty, even as individual shareholders have grown significantly. Why do you think this is the case, and what is your plan to improve it? / A: Management believes the core issue is insufficient net profit attributable to parent company shareholders, which keeps earnings per share low and depresses both PER and the overall share price. A major structural factor reducing reported net profit is the large number of joint ventures in Asia, which leads to 700-800 million yen of net profit allocated to non-controlling shareholders annually. By growing the 100% owned North Central American operations (via Mexico investment), all profit from this growth will accrue to the parent. Management focuses on growing the 60% revenue share automotive interiors business to hit the mid-term target of 5 billion yen operating profit and 2.6 billion yen net profit; hitting these targets will double EPS, enable the planned 70 yen per share dividend, and likely double the share price, which will naturally lift PBR. Management prioritizes growing actual profits over short-term adjustments to assets to improve the PBR metric. (1087 characters)