HOKKAN HOLDINGS LIMITED Q2 FY2026 earnings call

• Macro Environment and First Half Performance

  • Japan saw improving employment/income but delayed consumer sentiment recovery amid persistent inflation, with ongoing uncertainty from US trade policy. Indonesia faced worsening household consumption and cooled consumer goods demand, while Vietnam posted strong consumption growth driven by tourism-led GDP expansion.
  • Consolidated first half sales fell 2.1% YoY to 46.8 billion yen; operating profit fell 4.2% YoY to 4.2 billion yen; ordinary profit fell 2.3% YoY to 4.5 billion yen; parent net profit rose 7% YoY to 3.4 billion yen boosted by special gains from policy-held share sales.

• Key Strategic Initiatives under Medium-Term Plan "VENTURE-5"

  • Indonesia's Hokkan Delta Pack Industri completed capital expenditure for PET gallon bottle and preform production equipment, started production in October. PET is expected to replace traditional polycarbonate as the mainstream material, and the company aims to expand market share and build a new high-margin business.
  • Japan Canpack completed construction of the Meiwa Warehouse adjacent to its Gunma factory, started operation in May. The 2,400-tsubo warehouse can hold 7,200 pallets of product, reducing high external warehouse rents, cutting logistics costs, and lowering greenhouse gas emissions via shorter transport distances.

• Capital Expenditure

  • First half total capital expenditure hit 8.3 billion yen: 1.5 billion for container business capacity expansion, 1.4 billion for filling business including warehouse construction, 4.9 billion for overseas business including new production lines in Indonesia. Depreciation expense for the first half was 3.0 billion yen.
  • Full year 2026 March fiscal year capital expenditure is planned at 16.2 billion yen total: 2.3 billion for container, 3.8 billion for filling, 9.0 billion for overseas. Full year depreciation is projected at 6.6 billion yen.

• Dividend and Capital Policy

  • Dividend policy during "VENTURE-5" targets consolidated payout ratio of 35%+ and annual dividend per share of 45 yen+. An interim dividend of 30 yen per share is declared for 2026 March fiscal year, payable starting December 9. Based on projected full year parent net profit of 3.2 billion yen, year-end dividend is projected at 63 yen per share, for a full year annual dividend of 93 yen per share.
  • The company targets reducing the ratio of policy-held shares to consolidated net assets to ~10% by March 2027. In the first half, it sold half of its holdings in 2 bank stocks, recording 0.3 billion yen in gains from sales. Proceeds from share sales will be used for growth investment, shareholder returns, and debt repayment.

1. Container Business: Sales of 15.5 billion yen, +3.4% YoY, contributing 33.1% of total consolidated sales; Operating profit of 0.7 billion yen, +97.4% YoY. 2. Filling Business: Sales of 22.1 billion yen, -1.2% YoY, contributing 47.2% of total consolidated sales; Operating profit of 4.3 billion yen, +4.9% YoY. 3. Overseas Business: Sales of 7.4 billion yen, -14.8% YoY, contributing 15.8% of total consolidated sales; Operating loss of 83 million yen. 4. Machinery Manufacturing Business (Other): Sales of 1.7 billion yen, +1.7% YoY, contributing 3.6% of total consolidated sales; Operating profit of 0.2 billion yen, -42.9% YoY.

• Full year 2026 March fiscal year guidance is maintained unchanged from the initial forecast: consolidated sales of 99.0 billion yen, operating profit of 4.7 billion yen, ordinary profit of 4.8 billion yen, parent net profit of 3.2 billion yen. The consolidated sales forecast is ~2 billion yen lower than the original medium-term plan due to domestic volume declines and Indonesia's weak market conditions, while the operating profit forecast is kept unchanged at 4.7 billion yen.
  • Management expects ongoing demand headwinds in Indonesia in the short term, but reaffirms confidence in medium-term long-term economic growth, and will continue proactive capital expenditure while monitoring market conditions. It will pursue new business development and new sales territory expansion to scale overseas operations.
  • The company remains committed to hitting all final-year consolidated targets for the "VENTURE-5" medium-term plan by strengthening domestic profitability via cost reduction and enhancing overseas business profitability to prepare for market recovery. The next fiscal year (final year of VENTURE-5) targets an operating profit of 6.1 billion yen, with growth primarily expected from Indonesian operations.

• Persistent inflation in Japan has delayed consumer sentiment recovery, leading to lower sales volume and soft domestic consumer demand.
  • Ongoing geopolitical uncertainty (Ukraine, Middle East) and changes in US trade policy keep the overall business outlook unclear.
  • Indonesia's current household consumption downturn and consumer goods demand cooling have led to weaker overseas business performance, with sustained slowdown posing a risk to full year target achievement and potential future impairment if recovery is delayed.
  • Domestic price pass-through of increased logistics and labor costs is still in progress, and cost pressure continues to weigh on profitability.
  • The company's revenue and profit are heavily concentrated in the first half (driven by summer demand for soft drinks), leading to significant seasonal profit volatility.

Q: Why is the operating margin of the filling business much higher than the container business, and why is there a large year-over-year difference in container business profit despite little change in filling business profit with similar sales? / A: Filling business profit is concentrated in the first half (April-September), which is the peak demand season for beverages. All annual production line maintenance is scheduled in the off-peak second half, concentrating maintenance costs there and creating a large first half/second half profit gap for filling. The main driver of the margin gap is industry structure: container manufacturing overall has very low margins due to intense competition between industry players, which explains the large difference in profit performance between the two segments.

Q: The next fiscal year's operating profit target of 6.1 billion yen is quite challenging, and over half of full year capital expenditure is allocated to overseas business. What key initiatives will drive target achievement, and will the overseas investments deliver the expected returns? / A: The majority of profit growth will come from Indonesian operations. Hokkan Indonesia is building a third new filling production line scheduled to start operation in June next year, which will act as a new revenue stream. Hokkan Delta Pack Industri already started new equipment in Q3, and has acquired two plots of land for rapid new business expansion next fiscal year. Domestically, price pass-through for raw material and energy costs is almost complete thanks to customer understanding, and the company continues to make progress on passing through higher logistics and labor costs, so domestic performance is expected to stay solid. Combined, these factors put the 6.1 billion yen target within reach.

Q: What is Hokkan's competitive positioning in Japan and Indonesia, and is there any significant threat from competitors catching up domestically? / A: In Japan, the competitive landscape is stable, and Japan Canpack is the largest domestic contract filling player, holding a clear leading market position. In Indonesia, Hokkan Delta Pack Industri is the market leader in cup beverage containers with a 20+% market share. Hokkan Indonesia is one of only two players offering aseptic contract filling in Indonesia, leaving large untapped market opportunities. There is no sign of existing competitors changing the market dynamics in domestic contract filling, even with new private label-focused filling entrants, so the leading position remains secure. The cup container business in Indonesia is well positioned to grow with the overall expanding market.

Q: Why is the current weak performance in Indonesia considered temporary? Is there material impairment risk for the large recent capital investments there? / A: Local analysts widely expect Indonesia to continue strong long-term growth, with industry research projecting ~10% annual growth in the drinking water sector over the next 10 years. The current slowdown stems from post-election policy transitional disruption, and Indonesia remains in a demographic dividend period with a strong growth base supported by solid population growth. Management judges that impairment risk is not material at this stage: all Indonesian subsidiaries are still projected to deliver full year net profit, so there is no current concern over goodwill or asset impairment.