3501.T

• Overall Interim Financial Performance

  • Total consolidated revenue reached 52.962 billion yen, an increase of 2.264 billion yen year-over-year; operating profit reached 886 million yen, an increase of 144 million yen year-over-year; ordinary profit reached 1.187 billion yen, an increase of 740 million yen year-over-year; net profit attributable to parent company shareholders reached 86 million yen, an increase of 21 million yen year-over-year. Revenue, operating profit, and ordinary profit exceeded the initial plan, while net profit slightly missed the initial plan.
  • Growth drivers include contribution from floor carpet operations launched in North and Central America in the prior fiscal year, recovered demand from railway and bus production recovery, and strong growth of the space design business in the interior segment.
  • Operating profit grew year-over-year due to the penetration of price adjustment effects implemented in response to persistently high raw material and energy prices across both the interior and automotive/vehicle interiors segments. Ordinary profit grew due to the shift from foreign exchange losses recorded in the prior year period to foreign exchange gains in the current period.

• Key Operational Updates & Milestones

  • Historical milestone: The "Flying Feather" lightweight car, developed in the 1950s by SUMINOE's former subsidiary Suminoe Seisakusho in cooperation with Nissan, was selected as a Historical Heritage Car by the Japan Automobile Hall of Fame.
  • Space design business expansion: Subsidiary Preteria Textile acquired a similar interior business from FD Bay Holdings to expand operations in the Chukyo region, adding curtain and furniture sales business for luxury tower condominiums based in Nagoya. The acquisition is mid-period, so no material impact on current period results, with effects expected to appear from the next fiscal year. Subsidiary CPO, which operates store interior business, delivered strong sales growth and contributed to current period results.
  • Traditional technology inheritance: SUMINOE completed delivery of the replaced carpet for the plenary session hall of the House of Representatives, and completed delivery of a stage curtain for the Tokyo Takarazuka Theater made using the traditional hand-woven Nishijin Hon-tsuzure Nishiki-ori technique.
  • R&D strengthening: The company is developing new functional products including human/object detection sensors and wetting/moisture detection systems, made with conductive woven fabric technology. Applications for this technology are being explored across multiple sectors including railway.
  • Capital structure and investment: Total assets reached 97.177 billion yen, an increase of 2.2 billion yen from the end of the prior fiscal year. Interest-bearing borrowings increased 1.356 billion yen to 22.281 billion yen for funding purposes. Full fiscal year capital expenditure is planned at approximately 3.2 billion yen, with depreciation expense planned at 2.4 billion yen.
  • Shareholder return: After a 1-for-2 stock split implemented in March last year, the full year dividend for 2026 is planned at 43 yen per share (up from 40 yen in 2025), with an interim dividend of 21.5 yen per share planned. The company maintains a minimum dividend floor of 35 yen per share barring extreme environmental changes, and has adjusted the target payout ratio from 33% to 38% of net profit.

• Full fiscal 2026 (May 2026 year-end) guidance is maintained at the previously announced levels: total revenue of 105 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. This represents expected year-over-year revenue and profit growth from the prior full fiscal year results, with a foreign exchange assumption of 144 yen per USD.
  • Segment full fiscal 2026 guidance:
    • Automotive and Vehicle Interiors Business: Revenue of 63.17 billion yen (a 308 million yen decrease year-over-year), segment profit of 4.3 billion yen (a 205 million yen increase year-over-year)
    • Interior Business: Revenue of 38.74 billion yen (a 475 million yen increase year-over-year), segment profit of 1.15 billion yen (a 126 million yen increase year-over-year)
    • Functional Materials Business: Revenue of 2.62 billion yen (a 53 million yen increase year-over-year), segment profit of 20 million yen (a 144 million yen improvement year-over-year, shifting from a prior year loss of 124 million yen)
  • Mid-term long-term guidance: The company's 6-year mid-term management plan (SUMINOE GROUP WAY STEP II) targets total revenue of 109 billion yen and operating profit of 5 billion yen for the 2027 May fiscal year (the final year of the plan). The plan targets 65.08 billion yen in revenue and 5.54 billion yen in segment profit for the automotive/vehicle interiors business, and 40.03 billion yen in revenue and 1.36 billion yen in segment profit for the interior business.

1. Automotive and Vehicle Interiors Business: Revenue of 32.591 billion yen, an increase of 1.434 billion yen year-over-year. Segment profit of 1.62 billion yen, a decrease of 87 million yen year-over-year. This segment represented 60.6% of total company revenue as of the 2025 full fiscal year. 2. Interior Business: Revenue of 18.598 billion yen, an increase of 919 million yen year-over-year. Segment profit of 297 million yen, an increase of 222 million yen year-over-year. Within this segment, space design business grew 25.5% year-over-year; commercial carpet grew 4.2% year-over-year; residential carpet declined 7.2% year-over-year; curtains declined 5.6% year-over-year; wall covering (led by subsidiary Lunon Co., Ltd.) grew 6.5% year-over-year. This segment represented 36.5% of total company revenue as of the 2025 full fiscal year. 3. Functional Materials Business: Revenue of 1.565 billion yen, a decrease of 70 million yen year-over-year. Segment profit swung from a negative 31 million yen in the prior year period to a positive 30 million yen, achieving a shift to black ink.

• Trumps tariffs have negatively impacted production levels at Japanese automakers, creating difficulties for price pass-through and pressuring profitability of the automotive interiors segment. The company is not directly impacted by the tariffs, but is indirectly impacted by automaker production cuts and market uncertainty.
  • Productivity deterioration at new North and Central American production facilities for newly ordered products is a key factor dragging down segment profit for the automotive/vehicle interiors business.
  • Weak performance of Japanese automakers in China creates a negative headwind for automotive segment revenue.
  • Macroeconomic headwinds: New housing starts declined 7.9% year-over-year, and private non-residential construction declined 13.7% year-over-year, creating a challenging operating environment for the interior business. Consumer cost-cutting sentiment is negatively impacting residential carpet and curtain sales.
  • The functional materials business remains small scale and has not generated meaningful profit to date, acting as a drag on overall company performance.

Q: Given that full year guidance is unchanged with an assumption of 144 yen per USD, and current spot exchange rates would imply a positive FX impact, can we expect FX benefits to act as an upside surprise if current rates hold through the second half? Or should we understand that existing negative headwinds will offset this upside, leading to profit landing at the 3.1 billion yen target? Can you explain the logic behind the unchanged 3.1 billion yen target and 144 yen assumption?

A: Roughly, a 1 yen change in USDJPY impacts annual revenue by approximately 200 million yen and operating profit by between 100 million and 200 million yen. The interior and vehicle interiors segments continue to grow without major exposure to FX volatility. However, the automotive interiors segment is already facing headwinds from the impact of Trump tariffs, with most Japanese automakers outside of Toyota facing difficult conditions across multiple regions, including very challenging performance in China. Overall automotive segment sales are broadly flat, with some areas growing and some declining. There are clear existing profit compression headwinds, so the company cannot project a net positive impact even after accounting for FX benefits, hence the decision to maintain guidance unchanged.

Q: The mid-term target of 5 billion yen in operating profit for the final year of the plan requires a more than 50% increase from this year's 3.1 billion yen, representing a jump of more than 1.5 billion yen. Which segments will drive this growth, and will it come from volume growth, price increases, or new facility contributions? How is the 5 billion yen target built up?

A: Management recognizes that hitting the 5 billion yen target from current levels requires significant growth and represents a very high hurdle. Since 2026 is still in progress, detailed annual projections for future years have not been completed. The outlook for automotive business remains uncertain, and the impact of the upcoming Supreme Court ruling on Trump tariffs is still unknowable, leaving the company with limited control over external factors. While production at the Mexico facility is progressing steadily, current productivity issues are pressuring profit, and the company is working to resolve these issues in the US and Mexico; resolving these problems will be the key driver of future profit growth. The interior business is already progressing ahead of the mid-term plan trajectory, performing slightly above target. While the automotive sector outlook is uncertain, the vehicle interiors business continues to grow, so the question is how much this growth can offset automotive headwinds. At this point, it is still very difficult to accurately assess the full situation.

Q: The vehicle interiors (railway and bus) business has recovered significantly from the COVID-19 downturn. What is the current state of the recovery, and what is the mid-term growth outlook? Is the business already at its cyclical peak, or will it continue to grow from replacement demand going forward?

A: Railway and bus operations are included within the automotive segment, and the company does not disclose separate segment details. It is a relatively small business focused almost entirely on the domestic Japanese market, so its overall size is limited. The large decline seen during COVID is now in a recovery trend, and profitability has already recovered to pre-COVID levels. Key drivers of recovery include the earnings recovery of railway and bus operators, who are now proceeding with interior replacements while capturing inbound demand. There are also multiple ongoing orders for newly built rolling stock including Taiwan High Speed Rail projects. In addition, the integration of acquired Seki Orimono Co., Ltd. has added manufacturing depth and increased profit. The company already held very high market share in the railway and bus sector, and limited remaining players in the space mean that the company's market share has expanded further, adding additional profit. That said, since the business is limited to the domestic market, while there is still some room for growth, it is approaching its upper limit of potential expansion.

Q: What is your assessment of profit margins, continuity, and lifetime value for the space design business, which grew strongly in the interior segment? Is the business mostly one-off orders, or does it have increasing recurring/stock characteristics?

A: Currently, space design business accounts for around 10% of total interior business revenue, and it still has mostly one-off project characteristics. Subsidiary CPO handles store design and interiors, and manages consistent nationwide interior projects for repeat clients including ABC Mart and Welcia Pharmacy, so while the orders are one-off, the company has a stable client base and is growing sales steadily. Subsidiary Preteria Textile primarily handles interiors and furniture for luxury tower condominiums, acting as a key partner for large developers including Sumitomo Fudosan and Mitsui Fudosan. While orders are still one-off, the trend of tower condominium development is expanding from major cities to regional areas, so the company is steadily capturing share in these new projects, and there is still room for future growth.

Q: What are the key management challenges for achieving sustained mid-long term growth?

A: The main growth investment to date has been the over 3 billion yen invested to acquire land and build production capacity for carpet, mat, and synthetic leather production in Mexico, North/Central America. The facility is not yet delivering full profit contribution, so getting this facility up to full operational efficiency and generating meaningful profit is the first priority. The company already holds reserved land equal to the size of the existing completed factory to allow for future expansion, and will time additional investment appropriately based on future business trends. For the interior business, the company has already grown revenue from just over 30 billion yen to nearly 40 billion yen through small targeted M&A, and will continue to actively pursue additional M&A that expands the company's market footprint. The functional materials business is still very small at just over 3 billion yen in revenue and generates almost no profit at present, so growing both revenue and profit by capturing new business is a key challenge going forward.

Q: How do you classify each segment based on growth and profit profile: high growth/high margin, maintain size/improve profit, or potential for strategic review? What is the growth strategy for each?

A: For the automotive business, synthetic leather is the new core growth pillar; production has just started, and growing this business will be the key driver of future profit growth. For the interior business, the company is shifting the product mix to high value-added products. Residential products are facing strong headwinds from inflation and consumer cost-cutting, but high value-added products focused on the affluent segment are not impacted by these trends. The company is already rolling out high value-added carpets, and plans to launch high value-added curtain products to increase profit margins. The functional materials business operates an OEM business providing various functional materials including value-added processing, but it is currently stagnating and is the main profit weakness for the company. The key challenge is to bring the currently under development new products to market successfully and deliver profit growth.

Q: What is the most important KPI, outside of revenue and profit, that management uses to measure corporate value for the mid-term plan?

A: Historically, the company has had very low operating profit margin of around 3% currently, and the company targets to increase this to 5%. While 5% is not a high level by market standards, it is a key target for the company. A core KPI is achieving ROE of 8% or higher. Achieving this target will allow the company to increase its PBR from the current 0.5x range to 1x, which is the key goal to improve corporate value.

Q: What are the targets and ongoing initiatives for profit improvement in the interior business? Will the positive improvement effects end this year, or will they continue, and what is the ultimate profit improvement target for the segment?

A: Currently, the interior business operating profit margin is around 3%, and the near-term target is 5%. The interior industry faces very intense price competition, with large projects often requiring low-price tender offers that the company previously had to accept to win volume. Over the past two years, the company has exited the low price segment and shifted to selling value-added products. Volume has still grown even after this shift, and the company is growing profit by avoiding unprofitable projects and expanding high value-added product lines. The company owns the Tango Texstyle hand-weaving factory in Tango Peninsula, which produces high value-added rugs, and there are very few large-scale hand-weaving manufacturers of this type in Japan, so the company will continue to grow this high-margin business going forward, with improvement efforts continuing beyond the current fiscal year.