Nihon Tokushu Toryo Co.,Ltd. Q4 FY2025 earnings call

Overall 2025 March fiscal year results:

• All core top and bottom line metrics exceeded the prior published forecast and achieved the prior medium-term plan targets: total revenue 66.06 billion yen (+2.1% YoY), operating profit 4.456 billion yen (+14.1% YoY), ordinary profit 6.709 billion yen (+12.5% YoY), net profit attributable to parent shareholders 4.942 billion yen (+25.2% YoY), ROE 8.9% (up 1 percentage point YoY, slightly below original plan).

New Medium-Term Management Plan (targeting 2030 March fiscal year):

• Overall goal: 80.0 billion yen total revenue, ROE above 10%
• Core strategic pillars: 4 business strategy pillars (optimize product portfolio, maximize sales opportunities, drive fundamental productivity improvement, innovate technical capability); financial & capital strategy (improve ROE and PBR, accelerate strategic growth investment, strengthen shareholder returns); management foundation strategy (promote ESG management, strengthen governance, enhance human capital, advance DX, foster a culture of innovation).

塗料関連事業 Strategic Priorities:

• 2030 target: 26.6 billion yen revenue, 6% operating profit margin
• Expand share of existing products via labor-saving construction methods for thick-film epoxy flooring and expanded lineups of water-based flooring for the eco-friendly product market
• Strengthen sales capabilities in the Tokyo metropolitan area and eastern Japan by reallocating personnel to target large-scale projects and new customers in high-growth sectors such as logistics warehouses and infrastructure
• Build a vertically integrated value chain to improve profitability and supply stability, including in-house production of specialized resins to address supply chain risks from upstream chemical production cuts
• Develop new high value-added products including new-certified aircraft coatings, high-performance water-based paints, and biomass-based products to reduce petroleum dependence.

自動車製品関連事業 Strategic Priorities:

• 2030 target: 53.4 billion yen revenue, 8.4% operating profit margin
• Develop technologies and materials to reduce environmental impact, including commercializing 100% recycled material products that combine monomaterial and proprietary functional fiber technology for expansion into automotive interior products
• Expand overseas market share: target 1.7x equity profit in North America from new BEV interior part orders, 2x sales and profit in Southeast Asia from new floor carpet orders, and expand in the growing Indian BEV market
• Implement structural reform to improve profitability: build new general-purpose production lines that double productivity and cut CO2 emissions by 30% via AI/robotics labor reduction and high-speed heating molding technology, and optimize production location allocation and consolidation across Japan
• Leverage proprietary NV (noise/vibration) technology to develop new modular rear surrounding parts, building on the successful recent entry into trunk part supply.

Financial & Capital Strategy:

• Set total shareholder return payout ratio target at 70%
• Progress with unwinding cross-shareholdings and accelerate early share buyback programs
• Prioritize growth investment that supports revenue expansion, new customer acquisition, efficiency improvement, and profitability, and will conduct ongoing monitoring to adjust plans as needed.

Governance & Organizational Strategy:

• Increase outside director ratio to 43% from 33% via appointing a new experienced female outside director to strengthen board independence and effectiveness
• Shorten director tenure from 2 years to 1 year
• Reform human resources: review seniority-based wages, expand training programs, promote senior employee engagement, and build an organizational culture that encourages innovation and experimentation
• Advance digital transformation across core business and management processes.

For the 2025 March fiscal year (actual results):

1. 塗料関連事業 (Paints-related Business):
   • Revenue: 23.722 billion yen, +15.1% year-over-year
   • Segment profit: 0.953 billion yen, +108.7% year-over-year, profit margin 4% (up 1.8 percentage points YoY)
   • Revenue contribution to total company: 35.9% (up 4 percentage points YoY), with contracted construction accounting for 17.3% of total company revenue and waterproofing materials 8.9%.
2. 自動車製品関連事業 (Automotive Products-related Business):
   • Revenue: 42.321 billion yen, -4% year-over-year
   • Segment profit: 3.493 billion yen, +1.6% year-over-year, profit margin 8.3% (up 0.5 percentage points YoY)
   • Revenue contribution to total company: 64.1% (down 4 percentage points YoY)

For the 2026 March fiscal year (forecast):

1. 塗料関連事業:
   • Forecast revenue: 21.0 billion yen, -11.5% YoY
   • Forecast segment profit: 0.55 billion yen, -42.3% YoY, forecast profit margin 2.6% (down 1.4 percentage points YoY)
2. 自動車製品関連事業:
   • Forecast revenue: 42.0 billion yen, nearly flat YoY
   • Forecast segment profit: 2.15 billion yen, -38.5% YoY, forecast profit margin 5.1% (down 3.2 percentage points YoY)

• 2026 March fiscal year full-year consolidated guidance: Total revenue 63.0 billion yen (-4.6% YoY), operating profit 2.7 billion yen (-39.4% YoY), ordinary profit 5.1 billion yen (-24% YoY, including ~1.83 billion yen in equity method investment income), net profit attributable to parent shareholders 4.0 billion yen (-19.1% YoY)
• American tariff impacts for the automotive segment are not reflected in the 2026 guidance due to high forecast uncertainty
• 2026 planned capital expenditure is 3.597 billion yen, sharply up from the ~1.1 billion yen annual level of the prior two years, to support production capacity expansion; depreciation is forecast at 2.782 billion yen, nearly flat with 2025 actual results
• 2026 full-year dividend forecast is 110 yen per share, an increase of 20 yen from the 2025 full-year dividend, accelerating the prior pace of dividend growth
• The new 5-year medium-term plan targets 80.0 billion yen total revenue and ROE above 10% by the 2030 March fiscal year, with 20-30% growth across core metrics relative to 2025 results.

• The global automotive industry is in a transition from internal combustion engine vehicles to battery electric vehicles, with BEV adoption growing slower than previously expected, creating uncertainty for long-term demand forecasting and investment planning
• The Chinese automotive market continues to face difficult operating conditions, which is expected to drive a 1.0 billion yen revenue decline for the company's Chinese subsidiary in 2026
• U.S. tariff policy impacts on the automotive segment cannot be accurately forecast at the start of the 2026 fiscal year, creating downside risk to results
• ROE has remained between 7-8% in recent years, below the company's 10% target, and sustained improvement in profitability and capital efficiency remains a core challenge
• PBR has remained at low levels in recent years following the COVID-19 pandemic, global semiconductor shortages, and automotive market shifts, requiring sustained strategic action to improve market valuation

Q: Why has capital expenditure stayed at a low level over the past three years, and what areas will future investment focus on? / A: Management deliberately held back investment in recent years to wait for clarity on the direction of the automotive industry's transition from ICE vehicles to BEVs, as BEV adoption has proceeded slower than earlier expectations. Investment will resume once industry direction becomes clearer. / A: Key future investment areas include reconfiguring and rebuilding production facilities to follow Japanese automakers' plans to分散 production from central Japan to the Tohoku and Kyushu regions, as well as optimizing factory locations to cut logistics costs and meet CO2 reduction targets. The timing of large investment for resin in-house production in the paints segment will be temporarily delayed to assess return on investment first.