6165.T

Financial Position

• Total assets increased 3.32 billion yen year-over-year, driven by growth in investment securities and accounts receivable.
• Total liabilities increased 32 million yen year-over-year, as growth in notes and accounts payable offset a reduction in interest-bearing debt.
• Net assets increased 3.287 billion yen year-over-year, driven by growth in retained earnings from net income, foreign currency translation adjustments, and increased capital from new share issuance.
• Equity ratio rose 3.6pp to 66.7%. ROIC reached 6.0%, up year-over-year but below the 10% target.
• Capital expenditure was 1.058 billion yen, up 142 million yen year-over-year, with spending focused on labor-saving and automation investments amid business restructuring.
• Operating cash flow generated 2.271 billion yen in inflows; investment cash flow had 2.415 billion yen in outflows (including standard capex and investment securities purchases); free cash flow was -143 million yen. Ending cash and cash equivalents balance was 6.45 billion yen, up 446 million yen year-over-year.

Capital and Share Price Conscious Management

• Current PBR has stayed below 1x and is recently below 0.5x; ROE is below cost of equity, and ROIC is below WACC, so both capital profitability and market valuation require improvement.
• ROE improvement will be pursued via continued ROIC-focused management to boost capital profitability: strengthen earnings through cost reduction and profit structure reform, and improve asset efficiency via enhanced monitoring of investment returns including capex. Financial leverage will be optimized by maintaining an appropriate equity ratio while actively pursuing shareholder returns.
• PER improvement will focus on building growth expectations among shareholders and investors: actively communicate the company's growth story via the long-term vision and medium-term plans, deliver results from M&A and other inorganic growth investments, strengthen governance via improved board effectiveness, and expand IR activities. The near-term target is to lift PBR above 1x, with ongoing improvement in corporate value.

Capital Allocation Policy

• Four core principles aligned with the ultimate goal of maximizing long-term corporate value: prioritize growth investment, actively pursue shareholder returns, utilize interest-bearing debt and other financing as needed, and maintain appropriate on-hand liquidity to preserve an optimal capital structure and sound financial base.
• Growth investment is prioritized to drive business value and generate sustained operating cash flow for future investment; interest-bearing debt will be actively used for inorganic growth such as M&A when internal cash flow is insufficient.
• In addition to stable sustained dividends, residual cash after growth investment will be actively returned to shareholders via flexible share repurchases, while always maintaining appropriate liquidity, optimal capital structure and a sound financial base.
• Specific quantitative capital allocation plans for the next medium-term plan will be published when the plan is released next year, with regular progress updates thereafter.

Long-Term Vision "Vision60"

• The company marked its 50th anniversary this year, and has developed Vision60 for the 10-year period to its 60th anniversary, with the core goal of "Moving Beyond Dependence on Mold and Die Parts": expanding the business portfolio to build new future core businesses without shrinking the existing mold and die parts business.
• The company will execute three medium-term business plans over the 10-year period: first for profitability improvement, second for nurturing FA, new businesses and new regions, and third for growing FA, new businesses and new regions.
• Long-term 10-year targets: 80 billion yen in total revenue, 8 billion yen in operating profit, and a 10% operating profit margin.
• Business portfolio targets: reduce the current >90% revenue share of mold and die parts, and grow the share of FA and new businesses.
  • Mold and Die Parts: Maximize synergies from the capital and business alliance with Misumi Group, and build sales and manufacturing systems for growing overseas markets, to improve profitability as a core base business.
  • FA: Leverage growing market demand for automation and labor saving, pursue M&A to grow revenue, and explore expanding target segments beyond factory automation.
  • New Businesses: Pursue M&A to acquire new businesses and partnerships with startups to enter new fields, focusing on opportunities that leverage the company's existing strengths in ultra-precision processing, a large installed base of processing equipment, and existing customer connections, to build new future core businesses.
• The company entered a capital and business alliance with Misumi Group (a long-time competitor) in October 2024 as equal partners, with the goal of coexistence, co-prosperity and mutual growth; logistics integration was announced recently, and the companies will leverage their respective strengths across a broad range of metal processing from standard to custom products, including mold parts, automation equipment and peripheral components, via mutual supply of complementary products.
• The company is also advancing sustainability and human capital management: it targets an organization where diverse talent can work autonomously to contribute to corporate value, with initiatives for DEI promotion, employee well-being, and human capital development.

• The prior mid-term plan concluded in FY2025, and a 1-year pause in new mid-term plan publication has been implemented to measure the impact of the Misumi Group capital and business alliance, after which a more accurate new mid-term plan will be released. • Full year FY2026 (March 2026) consolidated guidance is a year-over-year 2.3% revenue decline to 39.88 billion yen, a 31.8% operating profit decline to 1.15 billion yen, and a 79.3% net income decline to 180 million yen, representing a sharp expected drop in earnings. • The dividend forecast is 18.12 yen per share annually, calculated based on a 3% DOE target. • Assumed foreign exchange rates are 19.50 yen per Chinese yuan, and 142 yen per US dollar. • FY2026 capex is planned at approximately 1.4 billion yen, with depreciation forecast at approximately 1.1 billion yen.

The full year FY2025 (March 2025) consolidated total revenue was 40.822 billion yen, a 2.477 billion yen increase year-over-year (106.5% of prior year revenue). Operating profit was 1.685 billion yen, an increase of 444 million yen year-over-year. Ordinary profit was 1.613 billion yen, and net income attributable to parent company shareholders was 868 million yen.

By region:

• Japan: Revenue decreased year-over-year due to continued market stagnation.
• China: Revenue increased year-over-year, with recovery in market conditions driving overall group revenue growth, and early signs of recovery in both automotive and electronic/semiconductor end markets.
• Southeast Asia, Europe, Americas and other regions: All delivered year-over-year revenue growth.

By industry:

• Automotive: Stagnant in Japan, showing early recovery signs in China.
• Electronic Components & Semiconductors: Stagnant for smartphone end markets in both Japan and China, with early recovery emerging in China recently.
• Home Appliances & Precision Equipment: Overall market is sluggish, but delivered year-over-year revenue growth due to positive foreign exchange impacts.
• Other: Food-related segments continue to perform solidly.

At present, mold and die parts account for over 90% of total revenue, with FA (Factory Automation) and new businesses accounting for the remaining share. The 10-year long-term target aims to reduce the mold and die parts revenue share while growing the FA and new business shares.

• Unexpected departures of employees not covered by the early voluntary retirement scheme during Japanese business rationalization have created ongoing staffing disruptions, and it will take additional time to restructure the business; cost increases from staffing increases before sales and operational restructuring are complete are a key driver of expected FY2026 earnings declines. • Sustained high material costs, rising outsourcing costs, and increased logistics costs associated with higher sales continue to pressure margins. • Domestic Japanese market stagnation and delayed recovery are expected to weigh on results, and the Misumi alliance benefits are expected to be limited in FY2026. • China's mold market growth is slowing, with mature growth and near-stagnation in other regions, creating pressure for the existing core mold business; continued price competition in China also pressures margins. • The company's PBR has remained below 1x for an extended period, and current capital returns (ROE, ROIC) are below the company's cost of capital, requiring material improvement to lift market valuation. • Expanding FA and new businesses requires M&A, which depends on available suitable targets and cannot be strictly scheduled.

Q: Why is the projected year-over-year decline in net income much larger than the decline in operating profit for FY2026?

A: (Full answer text not included in the provided transcript, only the question topic is listed.)

Q: How are foreign exchange impacts incorporated into the FY2026 revenue and operating profit guidance?

A: (Full answer text not included in the provided transcript, only the question topic is listed.)

Q: Management's long-term vision prioritizes FA growth; can you summarize the results of the 2022 FA acquisition of ASC, and what is the outlook for FA growth, including the potential for overseas M&A and a timeline for expansion?

A: The 2022 acquisition of Hokkaido-based ASC is progressing almost exactly in line with initial plans. While internal automation upgrades at the company's Kitakami and Miyako factories have been delayed, one development project is moving forward this year on schedule. The group has now built clearer knowledge of key focus areas for FA, which it will use to drive expansion going forward. For the near term, the company will focus on Japan and China, as China offers significant business opportunities that cannot be ignored. Expansion to Southeast Asia, Europe and the Americas will only happen after the company solidifies FA know-how in Japan and China, so no near-term expansion is planned. M&A candidates have already been identified, and the company plans to execute FA M&A across the three upcoming medium-term plans, as M&A is dependent on target availability and cannot be scheduled to only the final medium-term plan.

Q: Is FA M&A planned for the final of the three 10-year medium-term plans?

A: M&A depends on the other party, so deals cannot be forced or strictly scheduled. However, the company has already conducted research and has multiple FA M&A candidates identified, and plans to complete deals across the three upcoming medium-term plans.