HIRANO TECSEED CO.,LTD. Q4 FY2025 earnings call

Overall Financial Performance

• Total company revenue: 48.355 billion yen, +1.409 billion yen year-over-year, with growth driven primarily by ancillary construction work in the energy sector in North America
• Total operating profit: 1.681 billion yen, -1.554 billion yen year-over-year; operating margin contracted 3.4pp to 3.5%, due to rising industrial material and labor costs, delayed project costs from customer requests, and slowed customer capital expenditure
• Net profit decreased due to a 478 million yen special loss for bad debt provision related to the bankruptcy of Northvolt Ett AB
• By region, North America accounts for 69.5% of total revenue, followed by 17.2% for East Asia excluding Japan, 11.1% for Japan, 2.0% for other Asia, and 0.2% for Europe

Segment Operational Status

• Coating-related equipment: Core equipment orders continue to decline due to EV market slowdown and policy uncertainty in North America. The company expanded its scope of work and secured continued orders for ancillary work (e.g., equipment frames, electrical work) in response to customer requests, and also gained orders from the optical film sector, leading to higher full-year orders than the prior year. Revenue grew on the back of backlog digestion, particularly in the energy segment, with ancillary work contributing significantly to growth.
• Chemical machinery-related equipment: There is sustained investment appetite for film-forming equipment for electronic materials (e.g., MLCC, polyimide film), and the company is strengthening efforts to secure new orders. Order volume stayed flat year-over-year, and revenue remained soft due to low production volume.

Balance Sheet Status

• Total current assets decreased 1.133 billion yen year-over-year, and fixed assets decreased 0.102 billion yen year-over-year
• Total current liabilities decreased 0.459 billion yen year-over-year, and fixed liabilities decreased 0.454 billion yen year-over-year
• Net assets decreased 0.321 billion yen year-over-year, and equity ratio rose slightly to 62% from 61.3% in the prior year

Medium-Term Management Plan Update

• The company launched a medium-term plan ending in FY2027, but current market conditions have diverged significantly from original assumptions. The company has initiated a full review of the plan, with revised results expected to be released around November 2025
• The company maintains its existing shareholder return policy for the remainder of the current plan period, balancing growth capital needs and shareholder returns

1. Coating-related equipment segment:

• Orders received: 26.596 billion yen, +2.373 billion yen year-over-year
• Revenue: 42.02 billion yen, +4.646 billion yen year-over-year, accounting for approximately 86.9% of total company revenue
• Operating profit: 2.543 billion yen, -0.625 billion yen year-over-year

1. Chemical machinery-related equipment segment:

• Orders received: 5.127 billion yen, +0.978 billion yen year-over-year
• Revenue: 4.645 billion yen, -3.204 billion yen year-over-year, accounting for approximately 9.6% of total company revenue
• Operating profit: 0.293 billion yen, -0.964 billion yen year-over-year

• For FY2025 (ending March 2026), management guides a downward revision to top and bottom line compared to FY2024 actual results: total revenue of 33.5 billion yen, operating profit of 1.5 billion yen
• Management expects an improvement in operating margin to 4.5%, 1pp higher than FY2024's 3.5%, driven by cost reduction and profit improvement initiatives
• The annual dividend per share is forecast at 84 yen, maintaining the existing policy of a 3.5% minimum DOE
• ROE is targeted at 2.9% for FY2025, up from 2.4% in FY2024
• The company will actively pursue order acquisition outside North America, and tap latent demand for equipment modification, relocation, and parts supply in addition to new equipment projects

• Slowdown in the EV market has reduced customer investment appetite, leading to delayed project execution, lower-than-planned revenue growth, and increased additional costs for storage and sub-contractor arrangement
• Uncertainty over US policy under the new Trump administration creates risks of further customer capital expenditure plan revisions, which could negatively impact order and revenue execution
• Sustained high inflation for industrial materials and labor costs continues to pressure profitability, and cost increases may not be fully offset by internal efficiency measures
• Chinese automotive battery production capacity already exceeds 2030 projected demand as of 2023, which will further reduce demand for new production equipment from the energy storage and EV battery segments
• The company recorded a material bad debt loss from the bankruptcy of customer Northvolt Ett AB, highlighting counterparty credit risk in large international projects

Q: What is the outlook for increased EV-related construction and how will it impact Hirano Techseed's North American operations? / A: EV market growth has slowed significantly, with most major customers pausing or revising their capital expansion plans. While ancillary work for existing projects continues to support near-term revenue, large new core equipment orders are expected to remain weak in the coming fiscal year. The company is adjusting its North American operational footprint to align with lower projected project volume to control fixed costs. / Q: How is the company responding to customer requests for project delivery delays, and how does it approach price renegotiation? / A: The company incurs extra costs for product storage, sub-contractor retention, and schedule adjustments when customers request delays. It pursues additional orders for the scope changes tied to delays, and actively negotiates to pass through extra costs to customers to protect margins. Management notes that negotiation outcomes vary by customer and project, but cost recovery is a key priority for the business. / Q: What is the company's progress on perovskite solar cell equipment and what are its future plans? / A: Hirano Techseed continues to develop coating equipment tailored for perovskite solar cell production and collaborates with multiple industry players on R&D. Commercial adoption of perovskite remains at an early stage, so the business is positioning itself to capture demand as the market scales, but does not expect large-scale revenue contribution from this segment in the near term. / Q: What are the key priorities for margin improvement in the coming fiscal year? / A: The core initiatives are standardizing and commonalizing parts and equipment designs to improve production efficiency and reduce procurement costs. The company will continue to focus on cost recovery for project changes and delays, and diversify into higher-margin aftersales business (modifications, parts) to offset margin pressure on new equipment.