ALINCO INCORPORATED Q2 FY2026 earnings call

• Brand and Organizational Updates

  • Alinco established a new brand statement "Creating peace of mind and prosperity" in June 2025 to formalize the company's mission, 42 years after rebranding from Inoue Tekko to Alinco.
  • The development department was spun off from the production division and upgraded to an independent Technology Development Headquarters, to strengthen R&D and drive DX initiatives, enabling faster delivery of new customer-focused products.

• Core Market and Strategy

  • The company's long-term strategy is focused on becoming a top player in niche markets, leveraging customer feedback to develop differentiated products faster than competitors to grow market share (exemplified by its leading 24-model lineup of low-power wireless intercoms, versus 10 or fewer from competitors).
  • The core construction scaffolding market is undergoing a transition from legacy frame scaffolding (which still makes up 70% of the existing market) to new system scaffolding. Alinco's Albatross new scaffolding, launched in 2011, already holds large market share, and the company aims to grow share further amid the ongoing replacement cycle.
  • The company's core construction business is highly correlated with nominal construction investment, which has recovered to over 70 trillion yen, supporting 2 consecutive years of record sales.

• Capital and Shareholder Return

  • The company has not cut dividends since 2010, maintaining a policy of stable dividends. The payout ratio was raised to 40% in 2020, and the Mid-Term Management Plan 2027 commits to progressive dividends with no cuts through March 2027. The expected current dividend yield is approximately 4.26%.
  • The company maintains a stable financial position, with a 44.8% equity ratio and D/E ratio of 0.83x, well below 1x.

• Mid-Term Management Plan 2027

  • The 3-year plan has three core priorities: (1) optimize the business portfolio to turn the two underperforming segments (Housing Equipment and Electronic Equipment) profitable, while growing the core construction business via deeper sales-rental integration and Albatross expansion; (2) increase profitability to achieve a 9%+ ROE and reach a 1x PBR (current 0.67x) to meet Tokyo Stock Exchange requirements; (3) maintain progressive dividend policy to grow shareholder value.
  • Total planned investment over the 3-year plan is 16.5 billion yen, with 5.5 billion yen invested in the first year for a 33.8% progress rate. Ten billion yen of the total planned investment is allocated to human capital and DX (10x the allocation in the prior mid-term plan), aligning with the new independent Technology Development Headquarters structure.
  • The 3-year plan final goal (FY2027 March) is 68 billion yen in sales and 5 billion yen in operating profit, with a long-term target of 100 billion yen in total sales.

1. Construction Equipment Related Business: Sales grew steadily led by the strategic product Albatross, with combined sales of this segment and the Rental Related Business up 261 million yen year-over-year. Profit decreased 24% YoY due to product mix shifts lowering overall margin, even as sales increased. It is one of the two core profit-generating segments for the firm. 2. Rental Related Business: The industry trend of shifting from purchasing to rental continued. Performance was very strong in the Tokyo and Kanto regions, but underperformed plan in the Kansai region. Profit decreased slightly due to higher depreciation expenses from active rental equipment investment, but a recovery in Kansai performance is expected in the second half. It is the other core profit-generating segment alongside construction equipment. 3. Housing Equipment Related Business: Sales are strong, with particularly robust demand for brown rice coolers, aerial work platforms, and fitness equipment. Profit has recovered from the prior year level but has not returned to pre-headwind levels due to ongoing negative foreign exchange impacts from high import costs. 4. Electronic Equipment Related Business: Sales are strong led by fire department radio replacement demand. Profit has improved from the prior year but the segment has not yet exited deficit status. Turning both this segment and Housing Equipment to full profitability is a key management priority for the second half.

• Full-year FY2026 (March) guidance is maintained for 3% revenue growth to 63.5 billion yen (a second consecutive record high), with 6 billion yen growth in ordinary profit to 3.3 billion yen, representing 19% total revenue growth and 22% ordinary profit growth from FY2025.
  • Second quarter actual results were 102% of plan for revenue, 95% for operating profit, 95% for ordinary profit, and 99% for net income attributable to parent shareholders, which management states is broadly in line with initial plans, as the plan weighted more performance to the second half, so full year targets remain achievable.
  • For Construction Equipment Related Business, management targets full-year plan achievement via stronger Albatross sales and increased sales of high-margin aluminum products.
  • For Rental Related Business, management expects utilization in the Kansai region to recover in the second half after the Osaka-Kansai World Expo concludes, enabling full-year plan achievement as large IR construction projects begin ramping up.
  • For Housing Equipment Related Business, management will focus on continuing strong sales of brown rice coolers and aerial work platforms, while expanding higher-margin commercial fitness products and launching new branded products to grow profitability.
  • For Electronic Equipment Related Business, management will focus on capturing peak fire radio replacement demand to grow revenue and improve profitability.

• Persistent or further yen depreciation against the US dollar increases import costs for the company's high-import segments, most notably Housing Equipment Related Business. The company has hedged 40% of its annual ~$70 million USD imports at an average rate in the mid-140 yen range, but 60% of imports remain unhedged, meaning a 1 yen move weaker equals ~40 million yen in higher costs and lower profit.
  • If yen depreciation moves significantly beyond the planned 150 yen/USD assumption for FY2026, new mitigation actions will be required to offset cost increases.
  • Rental segment performance in the Kansai region is currently below plan, and recovery depends on projected demand growth from upcoming large construction projects, which may take longer than expected to materialize.
  • Both the Housing Equipment and Electronic Equipment segments are currently not profitable, and their turnaround may take longer than planned, putting full-year and mid-term profit targets at risk.

Q: What is the timeline and outlook for fire radio digital replacement demand? / A: Japan completed a full shift from analog to digital fire radios in 2016, and manufacturers recommend 10-year replacement cycles. This means replacement demand started ramping up around 2023, with most replacement deadlines falling during the current mid-term plan period (through FY2027 March). Alinco entered the market in 2013 to develop digital-compliant radios and is focused on growing market share by launching customer-aligned new products to capture this ongoing demand.

Q: What is the current demand trend for construction equipment amid the shift to rental? / A: Alinco primarily sells scaffolding to large rental companies and construction firms. In recent periods, purchases were slow as rental companies had enough existing equipment to meet demand. Currently, however, inquiries and orders are growing as firms prepare for future demand from growing urban redevelopment, aging infrastructure renewal, and national disaster resilience projects. In Kansai, large IR construction projects will start ramping up in December 2025 after the World Expo ends, driving growing demand for Alinco equipment.

Q: How sensitive is Alinco's profit to USD/JPY exchange rate movements? / A: Alinco has far more imports than exports, with annual dollar-denominated imports around $70 million. Without hedging, every 1 yen of yen depreciation increases annual costs by 70 million yen. Alinco currently hedges 40% of imports at an average rate in the mid-140 yen range, leaving 60% unhedged. This means each 1 yen move now changes annual profit by approximately 40 million yen. Management will continue to monitor exchange rates and opportunistically add hedges to mitigate volatility risk.

Q: Will strong demand for brown rice coolers continue into the winter and beyond? / A: Demand surged after the 2024 rice shortage, and the company sells primarily to rice producers via home centers. Historically sales were concentrated in the fall harvest season, but orders have remained strong through 2025, with extended lead times for delivery. Market penetration is still low, as producers increasingly focus on preserving rice quality, so demand is expected to remain strong. Alinco is expanding production capacity and improving product variations to meet ongoing strong demand.