5440.T

Core Business Model & Competitive Advantages

• Kyoei Steel is an electric arc furnace (EAF) steel producer that melts recycled iron scrap to produce steel, primarily for construction and civil engineering infrastructure. EAF production has ~1/6 the CO2 emissions of traditional blast furnace production, making it a highly sustainable circular economy business.
• The company's core competitive advantage is its established "3-polar global system" with manufacturing and sales bases across Japan, Vietnam, and North America, which diversifies risk across different market environments, with overseas revenues already exceeding 50% of group total.
• Second core advantage is its unique in-house developed environmental recycling business, which leverages EAF waste heat to process difficult-to-treat industrial and medical waste, with iron content recycled into new steel products and remaining byproducts reused as slag.
• Third advantage is integrated group synergy, with in-house group companies covering every step from scrap procurement, production, byproduct treatment, distribution to processing, creating a flexible, stable operating structure.

Operational & Strategic Initiatives

• Domestic steel: Focuses on maintaining and expanding top domestic rebar market share, with priorities including increasing presence in the stable-demand Tokyo metropolitan area, launching the "Ethical Steel" branded product line, strengthening upstream scrap procurement and downstream rebar processing, and mitigating 2024 logistics issues via new warehouses and reduced truck waiting times.
• Vietnam: Completed a new rolling mill at its northern Vietnam facility that started operations in June 2025, expected to deliver fundamental cost improvements and increased competitiveness amid recovering demand.
• North America: Commenced construction on a large productivity improvement investment at its Texas, US facility, scheduled to start operations in 2027; Japanese engineers have been deployed to improve efficiency at existing facilities in the interim. Canada completed a new product warehouse in summer 2025, expanding shipping capacity for its fast-growing thin rebar product line.
• Branding: Launched the "Ethical Steel" brand in 2024 to highlight the company's unique combination of steel production and hazardous waste recycling, appointed Ultraman as brand character to boost public awareness.
• ESG & Governance: Targets carbon neutrality by 2050, with an interim target of 50% CO2 emission reduction by 2030 compared to 2013 levels. Reduced board size from 11 to 9 members to speed decision making, with 4 outside directors including 2 women.
• Human Resources: Invests in talent development, including overseas rotations and training for young employees, and runs an internal group-wide talent exchange program developed from employee ideas.

• The FY2025 full-year earnings guidance was slightly downgraded from initial expectations in the Q1 2025 results announcement, but the company still expects full-year performance to exceed prior year levels, as recovering overseas earnings offset weak domestic demand.
• For the mid-term management plan NeXuS II 2026, the company maintains its final FY2026 target of 25 billion yen operating profit, ROE of at least 8%, and aims to structure the business to deliver 20 billion yen operating profit even in weak market conditions to support stable shareholder returns, employee compensation and growth investment.
• The company maintains its dividend policy of a 30%-35% consolidated payout ratio, with a minimum annual dividend of 30 yen per share regardless of earnings volatility.

1. Domestic Steel Business: Holds 19% domestic rebar market share (domestic No.1). In FY2025, demand has been sluggish due to 2024 construction sector issues, putting performance under moderate pressure. Contribution to group revenue is under 50%, as overseas revenues exceed half of group total.
2. Overseas Steel Business: Accounts for over 50% of total group revenue. Vietnam holds over 10% market share (ranked 2nd domestically); demand recovered from the 2022-2023 real estate downturn starting in 2024. North American operations: the US has productivity issues undergoing improvement, while Canada's West Coast exclusive electric arc furnace (EAF) operation delivers stable earnings, with new thin rebar driving sales growth. The segment recovered from prior years' downturn in FY2025 and is expected to contribute to full-year profit growth.
3. Environmental Recycling Business: A unique proprietary business developed in-house, uses EAF high heat to harmlessly melt treat industrial/medical waste, and is an important stable profit contributor for the group.
4. Other: Includes port operations and other ancillary businesses.

• Domestic Japanese steel demand is in long-term decline due to population reduction, pressuring domestic segment performance.
• EAF steel profit margins are exposed to iron scrap price volatility and overall construction sector cyclicality, leading to natural earnings volatility.
• Trump administration trade tariffs create a risk that Japanese steel manufacturers barred from exporting to the US will redirect excess supply to domestic or regional markets, creating downward pricing pressure.
• The US segment currently faces material productivity challenges that require large capital investment and multi-year turnaround.
• Vietnam faces a structural scrap shortage that requires higher-cost imports to support production, squeezing margins.

Q: What are Kyoei Steel's key differentiation points versus competing EAF steel producers? / A: The core differentiation is the company's 3-polar global production network across Japan, Vietnam and North America. This structure not only diversifies geographic risk but also provides multiple growth vectors, unlike most domestic-focused Japanese competitors. Additional differentiators include four domestic production bases that enable strong business continuity planning (BCP) and multi-site coordination, and broader business scope beyond core steel manufacturing that leverages group-wide synergies. The company actively pursues expanded business lines alongside its geographic expansion.

Q: What impact do Trump's steel tariffs have on Kyoei Steel's performance? / A: The company's EAF business is fundamentally local production for local consumption, so there is almost no negative impact from tariffs across all its operations. Having domestic production bases in the US actually creates a tailwind for North American operations. A small volume of specialty mining-focused product exported from Canada to the US faces minimal competition, so no material impact, and any tariff impact is offset by Canada's retaliatory tariffs. Vietnam faces no direct impact, though the company monitors for potential redirected supply from Japanese exporters barred from the US market and continues cost reduction efforts to mitigate any potential pricing pressure.

Q: How does iron scrap procurement differ across the three polar regions, and how does the company adapt? / A: Both Japan and the US are net scrap exporters, with sufficient domestic scrap supply to meet local production needs. Vietnam has low domestic scrap generation, so the company must import the deficit from Japan and other origins. The core of the company's business model is local sourcing of scrap for local production of rebar for local demand, which keeps transportation costs low, a strategy it maintains across all three regions. This aligns with the natural EAF industry dynamic of local consumption and keeps the business resilient to trade disruptions.

Q: Does Kyoei Steel have plans to expand into new geographic regions beyond its existing three poles? / A: The current mid-term plan prioritizes stabilizing operations in Vietnam and expanding the profit base of the North American business, with around 255 million USD of ongoing productivity investment at the company's Texas facility. No new geographic expansions are planned during the current mid-term plan period, but the company is open to opportunistic expansion if attractive opportunities arise. It also remains actively focused on expanding into new non-core business lines domestically, beyond its core rebar manufacturing.