5852.T

Overall Performance Driven by Domestic Recovery

• Domestic Japanese automotive production has maintained a recovery trend since Q1, which continued into Q3, driving increased order volume from the company's major customers. Global new product launches and mass production starts also contributed to the 3.8 billion yen year-over-year revenue increase, which aligns with overall growth in operating volume.
• Operating profit growth came from increased sales volume, improved underlying profitability from production system rationalization, and contributions from one-time revenue items. Net income turned to a large surplus driven by operating profit growth and a gain from the sale of a Chinese mold subsidiary, offsetting foreign exchange losses from yen appreciation during the cumulative period.

Sales Volume Trend

• Sales volume decreased slightly in Q2 due to summer holiday impacts, but recovered to nearly Q1 levels in Q3. A slight sequential increase in volume is expected for Q4, keeping operating volume around the same level as Q3.

Regional Die-casting Operational Updates

• Japan: Work volume decreased slightly in Q2 but recovered to Q1 levels in Q3. Profit growth drivers include 363 million yen from increased sales volume, 262 million yen from manufacturing cost improvements, and 291 million yen from raw material market impacts.
• North America: Sales volume and operating volume remained stable quarter-over-quarter. While the US plant continues to face operational challenges, manufacturing cost deterioration has eased compared to the prior year. Cumulative profit recovery drivers include 763 million yen from increased sales volume, 235 million yen from reduced depreciation expenses, and 435 million yen from manufacturing cost improvements.
• Asia: Sales volume has been volatile, driven by a significant drop in orders from Chinese local manufacturers compared to Q4 of last year. Growing work volume in India has partially offset this decline, and India is expected to drive the projected Q4 volume increase. Profit growth drivers include 240 million yen from increased sales volume and 152 million yen from manufacturing cost improvements, offset partially by 110 million yen in higher depreciation from Indian capital expenditures and a 170 million yen negative impact from local raw material market conditions, leading to a slight year-over-year net profit increase.

Non-core Business Performance

• Aluminum business delivered slight year-over-year profit growth. Finished product business outperformed initial expectations despite projected order declines for large cleanroom projects.

• Management maintains the full-year earnings guidance originally published in October, with no upward or downward revision, even though cumulative operating profit and net income through Q3 already exceed the full-year guidance.
• Management is taking a conservative approach to Q4 profit projections, particularly for the North American business, as US operations remain in an improving state with unstable profitability.
• Foreign exchange movements have been extremely volatile recently, and management needs more time to assess the end-of-March foreign exchange outlook to refine projections. Foreign exchange gains and losses are highly volatile quarter-to-quarter due to the company's structure of foreign currency-denominated intercompany lending.
• The outcome of various year-end accounting treatments for net income cannot be clearly forecast at this stage.
• Management notes that revising guidance at this time could cause confusion for investors due to the high level of uncertainty. The company will refine projections as the year-end approaches and disclose updated guidance if needed at an appropriate time.
• There are both upside and downside risks to the current full-year forecast, but downside risks are more prevalent in management's current assessment.

1. Die-casting Business Japan Segment: Cumulative revenue through 3Q is 50.4 billion yen, with cumulative segment profit of 1.7 billion yen. 3Q standalone revenue is 16.9 billion yen, 3Q standalone profit is 540 million yen. This segment led overall growth, with a 3 billion yen year-over-year revenue increase and 781 million yen year-over-year profit increase. 2. Die-casting Business North America Segment: Cumulative revenue through 3Q is 39.3 billion yen, cumulative segment profit is 342 million yen, a 1.4 billion yen year-over-year profit increase. 3Q standalone revenue is 13 billion yen, 3Q standalone profit is 260 million yen, returning to profit after a 2Q deficit. The Mexico plant maintains steady profits, while the US plant benefited from one-time revenue to achieve quarterly profit. 3. Die-casting Business Asia Segment: Cumulative revenue through 3Q is 26.1 billion yen, cumulative segment profit is 570 million yen. 3Q standalone revenue is 8.8 billion yen, 3Q standalone profit is 410 million yen, achieving both revenue and profit growth year-over-year. Growth in orders from India partially offset the significant drop in orders from Chinese local customers. 4. Aluminum Business: 3Q standalone revenue is 1.6 billion yen, 3Q standalone segment profit is 85 million yen. Cumulative segment profit through 3Q is 179 million yen, a slight year-over-year profit increase. 5. Finished Product Business: 3Q standalone revenue is 774 million yen, 3Q standalone segment profit is 99 million yen, roughly flat sequentially. Cumulative revenue through 3Q is 2.68 billion yen, cumulative profit is 334 million yen. While revenue and profit are down year-over-year, performance exceeds the initial plan that projected lower orders for large cleanroom projects. Total consolidated cumulative revenue through 3Q is 123.3 billion yen, 3.8 billion yen higher year-over-year. Consolidated operating profit is 3.178 billion yen, 2.257 billion yen higher year-over-year. Consolidated net income is 3.487 billion yen, 5.175 billion yen higher year-over-year, turning from a prior-year deficit to a large surplus.

• US operations in North America remain unstable: even after removing the impact of one-time revenue from Q3, the US plant still posts a certain level of deficit, and production is not yet stabilized. There is a risk that Q4 results could deteriorate to the weak levels seen in Q2, and achieving full-year break-even for the US plant in the current fiscal year is no longer feasible.
• Key ongoing challenges for North American restructuring: Unresolved manufacturing issues require mandatory weekend and holiday overtime, leading to high overtime premium costs (1.5x to 1.7x pay) that create significant cost pressure. While manufacturing costs have improved year-over-year, the US plant still remains unprofitable on a steady-state basis excluding one-time and spot revenues.
• Significant order decline in Asia: Orders from Chinese local customers have dropped sharply year-over-year, following a temporary peak in Q4 of the prior year, and this weak trend is expected to continue into Q4 of the current fiscal year. Intensifying price competition in China also creates pressure.
• Foreign exchange risk: Large recent foreign exchange volatility creates uncertainty for full-year ordinary profit projections, as foreign exchange gains/losses on foreign currency intercompany loans can cause large swings in ordinary profit.
• For next fiscal year, potential risks include trade policy impacts such as Trump tariffs and USMCA rules affecting the Mexico plant, alongside ongoing uncertainly around the Chinese market.

Q: Can you provide more specific details on the one-time revenue in the North America segment?

A: This follows common industry practice in the automotive parts sector: when a customer does not reach the originally planned production volume, the customer will compensate the company for a portion of the equipment costs. The Q3 one-time revenue for the US plant comes from this type of compensatory payment.

Q: What specific downside risks are you forecasting for North America in Q4?

A: Production at the US plant is still not stabilized, and after removing the effect of the one-time compensation payment, the plant still posts a certain level of deficit. We have incorporated maximum downside risk into our Q4 forecast, assuming a potential return to the severe weak performance seen in Q2, and maintain a conservative projection.

Q: Will steady-state profitably for North American operations only be achieved starting from next fiscal year?

A: We previously targeted breaking even this fiscal year, but we must acknowledge that based on cumulative performance through Q3, achieving full-year profitability for the US plant this fiscal year is extremely challenging.

Q: What are the main challenges and future plans for North American restructuring?

A: In summer 2024, production disruption at the US plant caused delivery delays and incurred large additional costs leading to significant deficits. We launched a restructuring plan at the start of this fiscal year focused on improving productivity and cutting excess costs from manufacturing issues. While overall manufacturing costs have improved year-over-year, the US plant is still not profitable on a steady-state basis excluding one-time items. The core ongoing issue is unresolved manufacturing problems that drive high overtime costs from required weekend/holiday work. Japanese technical support has driven progress, but we have not yet reached a stable sufficient profit level. Specific additional measures are still under discussion, so we will not provide further comment at this time.

Q: What is the sector and scale of manufacturing investment in India?

A: The Indian automotive market is growing very rapidly and is projected to become larger than Japan's domestic market. Japanese automakers retain strong competitiveness in India, with Maruti Suzuki holding the top market position and Toyota also performing very strongly, leading to strong growth in sales from new product launches. While India does not face the same level of production disruption as the US, occasional production issues still lead to alternating profit and deficit results. Investment costs are currently growing alongside market expansion, so profit contributions are limited at this stage, but significant contributions to overall earnings are expected as the market grows.

Q: Is current manufacturing investment focused on capacity expansion, and are there plans for a new factory?

A: We completed construction of a new factory on the site of our existing Indian facility one year ago, and are currently investing in casting machines and processing equipment to support production of upcoming new products, with some production already started. This is advance investment for new products, and there are no current plans for additional new factories.

Q: How do you assess current foreign exchange risk, and can you share the impact of a 1 yen move in the yen exchange rate?

A: The company follows a local-for-local production strategy, so foreign exchange has limited impact on core operating profit: yen depreciation increases revenue but also increases local manufacturing costs, leaving core profit roughly neutral to exchange rate moves. The largest impact is on non-operating foreign exchange gains/losses from foreign currency-denominated loans from the parent company to overseas subsidiaries. Cumulative foreign exchange loss through Q2 was 450 million yen, and a 250 million yen foreign exchange gain in Q3 reduced the cumulative loss to 200 million yen through Q3, which can be used to approximate the impact of exchange rate movements between quarter ends.

Q: What is driving the expected Q4 volume increase in Asia, and what is the current trend for orders from Chinese local customers?

A: Orders from Chinese local customers have dropped sharply after a temporary peak in Q4 of last year, as major Chinese automakers have slowed down significantly in 2025. The company supplies Chinese leading automakers through local tier 1 suppliers, and these automakers have reported around 30% year-over-year sales declines, leading to an even larger drop in the company's orders. This weak trend has continued through Q2 and Q3, and is expected to continue into Q4. The entire expected Q4 volume increase in Asia is driven by strong growth in orders from Japanese automakers in India.

Q: Why are you maintaining guidance even though results through Q3 are already above full-year projections? Is a large deviation from the current forecast likely?

A: Multiple uncertain factors remain: if all uncertain factors (foreign exchange, North American performance, year-end accounting items) move to the downside, there is a possibility of a downside miss, but not all risks will necessarily materialize. Given the current high level of uncertainty, we have chosen to maintain the existing guidance. We will refine projections as year-end approaches. While both upside and downside risks exist, downside risks are more prevalent at this stage.

Q: Can you share the positive and negative factors expected for next fiscal year?

A: Full next fiscal year plans are still being compiled, so we will not provide formal commentary. At a high level, we see intensifying price competition in China, and potential trade policy impacts on the Mexico plant from Trump tariffs and USMCA rules. On the positive side, the Japanese segment is expected to remain steady as it has been this fiscal year. Overall positive and negative factors are mixed, so we decline to comment further on directional outlook at this stage to avoid speculation.