ALINCO INCORPORATED Q4 FY2025 earnings call

• Capital and Logistics Infrastructure Updates

  • The new Fukuchiyama No. 2 Logistics Center was completed on March 31, 2025. Combined with the original 2021 Fukuchiyama Logistics Center, the combined facility has a total floor area of approximately 4,700 tsubo and total site area of ~38,500 square meters, allowing Alinco to eliminate expensive third-party warehouse costs and meet growing customer inventory and logistics demand.

• Branding and ESG Initiatives

  • Alinco provided 2,300 transceivers for free as a bronze partner to the 2025 Osaka-Kansai World Expo to support event operations and build brand visibility as a local Osaka-based company.
  • The company sponsored the film Daichōhen Taroman Manpaku Dai Bakuhatsu, expanding brand exposure beyond traditional product placement for its wireless equipment.
  • Alinco received its second consecutive recognition as a Certified Health & Productivity Management Outstanding Organization 2025 (Large Enterprise Category), and also received the second-stage Eruboshi certification for promoting women's participation in the workplace, continuing its focus on improving workplace conditions.

• Accounting Policy Change for Rental Assets

  • In conjunction with the launch of the Mid-Term Management Plan 2027, Alinco changed the depreciation method for rental assets from 5-year declining balance to 8-year straight-line. This change reduces annual depreciation charges for new investments: for a 1 billion yen initial investment, annual depreciation falls from 400 million yen to 125 million yen. This policy reduced 2025 March term depreciation by 1.33 billion yen, with this benefit expected to continue over multiple coming fiscal periods, enabling higher ongoing investment in Albatross rental assets to meet growing customer demand.

• Dividend Policy and Shareholder Returns

  • Alinco has increased dividends per share from 8 yen in 2010 to 43 yen for the 2025 March term, and has not cut dividends in 15 consecutive years. The company's core policy targets a 40% consolidated payout ratio (increased from 30% in 2020), and committed to progressive dividends (no cuts, steady increases based on profit levels) for the duration of the mid-term plan. The 2025 March term full-year dividend is set at 43 yen, with a 1 yen increase to 44 yen planned for the 2026 March term, maintaining the 40% payout target.

• Mid-Term Management Plan 2027 Core Priorities

  1. Evolve the core business and restructure the business portfolio: Expand the core Albatross scaffolding business, develop next-generation new products, optimize production allocation between Chinese and domestic factories for aluminum products, refocus the fitness business from low-margin home products to higher-margin commercial products for gyms and nursing care facilities, and pursue new growth opportunities for wireless technology in new markets.
  2. Achieve a PBR of 1x by the final year of the plan: Alinco currently trades at ~0.6x PBR, and targets 1x or higher by FY2027 March term, which requires achieving 9% or higher ROE via improved profitability.
  3. Maintain the 40% consolidated payout ratio and deliver progressive dividend increases; if the 2027 March term targets are met, dividends per share are expected to rise to nearly 70 yen.

• Investment Plan Progress

  • The three-year mid-term plan allocates 16.5 billion yen for total investment. 5.5 billion yen was invested in the first year (FY2025 March term), representing 33.3% progress against the total plan. 3 billion yen is allocated for M&A, with 80 million yen invested to date: the company continues to search for synergy-aligned acquisition targets.

Alinco operates four business segments for the 2025 March term:

1. Construction Equipment Related Business: This segment (focused on construction scaffolding sales and logistics rack products via subsidiaries) achieved revenue growth but decreased profit (増収減益). Higher manufacturing and import costs driven by persistent yen depreciation offset sales gains.
2. Rental Related Business: This segment (focused on construction scaffolding rental) delivered increased revenue and profit (増収増益). Rising utilization rates driven by ongoing industry demand for replacement of older traditional scaffolding with Alinco's flagship new Albatross scaffolding drove strong performance. A change in depreciation method for rental assets from 5-year declining balance to 8-year straight-line reduced depreciation expenses, further boosting profitability.
3. Housing Equipment Related Business: This segment (selling aluminum ladders, stepladders and fitness products) achieved higher sales than the prior year, but the negative impact of yen depreciation increased its net loss compared to the prior fiscal period. The fitness product line is the primary contributor to the segment's losses.
4. Electronic Equipment Related Business: This segment (centered on wireless radios) saw revenue decline year-over-year, and its net loss widened significantly from the prior term. The main driver of the higher loss is depreciation costs related to the newly acquired subsidiary Toden Kogyo (which operates in printed wiring board manufacturing), as related revenue gains were delayed and existing wireless business profits were not sufficient to offset the new depreciation burden.

Consolidated total revenue increased 3.724 billion yen year-over-year to 61.61 billion yen (an all-time record). Total ordinary profit came to 26.78 billion yen, a 200 million yen decrease from the prior year, driven by a 444 million yen drop in foreign exchange gains that offset a 414 million yen increase in operating profit from the rental depreciation method change.

• FY2026 March Term Guidance: Alinco is projecting another consecutive all-time high consolidated revenue of 63.5 billion yen (an increase of 1.899 billion yen from FY2025), and double-digit year-over-year growth in ordinary profit to 33 billion yen. The company uses an assumed exchange rate of 1 USD = 150 yen for the plan; current spot rates in the mid-140 yen range are more yen-strong than planned, which is a positive offset to import costs at this point in the term.
  • Segment-level guidance for FY2026:
    1. Construction Equipment Related Business: Projected to have lower revenue and profit year-over-year, as the large sales growth in FY2025 is not expected to repeat amid ongoing industry shift toward rental rather than purchase of scaffolding.
    2. Rental Related Business: Projected to deliver continued revenue and profit growth, supported by high Albatross utilization and the ongoing benefit of the depreciation method change, serving as the core support for overall company profit.
    3. Housing Equipment Related Business: Projected to achieve revenue growth but only a reduction in net loss (not full profitability), as the commercial fitness product shift progresses.
    4. Electronic Equipment Related Business: Projected to achieve revenue growth driven by emerging 10-year replacement demand for digital fire department wireless radios (last major digital conversion round was in 2016), but will also only reduce its net loss rather than reaching full profitability.
  • The planned full-year dividend is 44 yen per share, a 1 yen increase from FY2025, consistent with the company's progressive dividend policy and 40% payout target.
• Mid-Term Management Plan 2027 Final Targets (FY2027 March Term): The original targets are maintained with no revisions: consolidated revenue of 68 billion yen, ordinary profit of 5 billion yen, ordinary profit margin of 7% or higher, and ROE of 9% or higher. The company reaffirmed its commitment to achieving these original targets, with the long-term goal of reaching 100 billion yen in total revenue with a balanced, profitable four-segment portfolio.

• Persistent yen depreciation increases import costs for materials and components: Alinco imports approximately 71 million USD annually, so every 1 yen of yen depreciation reduces annual profit by 71 million yen. While the company hedges via forward contracts, large sustained yen depreciation still creates significant downward pressure on profitability, as seen in the FY2025 results where yen depreciation led to a downward profit revision despite meeting revenue targets.
• Unprofitable non-core segments are a drag on overall company profitability: As of FY2025, only the two core segments (construction equipment and rental) generate positive profit, while housing equipment and electronic equipment remain in net losses, pulling down overall consolidated profit margins and delaying progress toward PBR 1x and ROE 9% targets. The success of portfolio restructuring for these two segments is a key uncertainty for the plan.
• Delays in revenue ramp for newly acquired businesses: Depreciation costs for the acquired Toden Kogyo printed wiring board business hit profitability earlier than expected revenue, contributing to the wider loss in the electronic equipment segment in FY2025, and profitability improvement for this business remains uncertain.
• External market risks: Changes in macroeconomic conditions can impact construction start timelines, which affects demand for construction scaffolding (both sales and rental), the company's core business. Uncertainty in global trade policy can also impact import costs and supply chains.

Q: What impact are construction project delays and postponed start dates having on Alinco's business, and what is the outlook? / A: While some individual projects have seen delays, overall demand for the replacement of old traditional scaffolding with Alinco's new Albatross scaffolding remains strong. The shift from ownership of scaffolding to rental is a sustained long-term industry trend that has not been disrupted by minor near-term project delays. Management expects core rental demand to remain solid into the coming fiscal year. The company's expanded logistics capacity also allows it to hold sufficient inventory to meet delayed project demand when it materializes. (Total characters: 598)