TOMOE ENGINEERING CO.,LTD.(TOMOE KOGYO CO.,LTD.) Q4 FY2025 earnings call

Overall Financial Results

• Total consolidated revenue hit 59.365 billion yen, up 13.9% year-over-year, marking 2 consecutive years of record high revenue. Operating profit was 5.352 billion yen (up 13.8% YoY), ordinary profit was 5.401 billion yen (up 13.1% YoY), and net profit attributable to parent shareholders was 3.851 billion yen (up 6.5% YoY), with 5 consecutive years of record high profit for operating and ordinary profit, and 2 consecutive years for net profit.
• The previous medium-term management plan exceeded all final targets for revenue, ordinary profit, and ROE, and achieved a PBR of 1.11x, meeting the target of over 1x.

New Medium-Term Management Plan (through 2028 October fiscal year) Key Strategies

• Overall Targets: Target 70 billion yen in total revenue, 7 billion yen in ordinary profit, 10.5% ROE, 1.5x PBR, and 70 billion yen market capitalization by 2028 October fiscal year. Prioritize growing the machinery manufacturing and sales segment.
• Chemical Industrial Products Sales Segment Strategies:
  • Expand gross profit of more than 100 million yen per product to stabilize and grow earnings, target 50 billion yen in revenue and 4.2 billion yen in operating profit by 2028.
  • Promote overseas business expansion: expand in Southeast Asia, increase sales in Europe, and develop the Indian market.
  • Shift management resources to high-profit businesses, improve profitability of underperforming segments, and actively pursue M&A as an option for corporate value growth.
  • Push new product development to diversify revenue bases, with focused expansion by sub-segment: high value-added products for chemical, industrial materials, and mineral-related; expand next-gen power semiconductor materials for functional materials; build semiconductor cycle-resistant structure for electronic materials; expand imported and recycled resin for synthetic resin.
• Machinery Manufacturing and Sales Segment Strategies:
  • Grow based on three core pillars plus production capacity expansion via new factory, target 20 billion yen in revenue and 2.8 billion yen in operating profit by 2028.
  • Pillar 1: Expand overseas business for core centrifugal separators, focus on developing the Indian market plus expansion in Southeast Asia, the US, and China; increase production capacity to 1.5x current level via new factory targeting 2027 October operation.
  • Pillar 2: Establish business foundation for binary power generators, leverage the first order of 30kW small units to expand orders, and develop 100kW medium units.
  • Pillar 3: Strengthen machinery trading function and expand environmentally friendly products: ultra-low temperature belt dryers are already in customer pilot trials with multiple ongoing negotiations; hydrogen concentration sensors have been launched for commercial sales.
  • Differentiate via strong after-sales maintenance service for custom-made machinery to extend product lifespan.
• Capital Allocation (3-year cumulative):
  • Expect 14.5 billion yen in operating cash flow plus up to 6 billion yen in external funding (including public subsidies for new factory and leveraged borrowings as needed), totaling 20 billion yen for allocation: 8-8.5 billion yen for shareholder returns (including 900 million yen in already completed share buybacks), 7.5-8 billion yen for growth investment (led by new factory construction), and 3-4 billion yen for strategic investment, with willingness to increase allocation for attractive investment opportunities.
• Shareholder Return Policy:
  • Raise target payout ratio from 40%+ to 50%+.
  • Introduce new Dividend on Equity (DOE) policy with a 5% DOE lower bound, prioritizing stable and continuous shareholder returns.
• Sustainability and Non-Financial Targets:
  • Climate change response: Cut Scope1+Scope2 emissions from 903 tons (2021) to 499 tons (2025), and cut Scope3 emissions from 298,000 tons (2024) to 196,000 tons (2025); aim to increase the share of decarbonization product sales from the current 48%.
  • Human capital management: Increase female general employee ratio to over 8% by 2026 from the current 6%+; maintain annual base wage increase of 5%+ to retain talent and improve employee productivity.

1. Chemical Industrial Products Sales Segment: Total revenue for 2025 October fiscal year is 44.127 billion yen, up 12.8% year-over-year, accounting for 74.3% of total consolidated revenue. Operating profit is 3.508 billion yen, down 0.2% year-over-year, with profit margin down 1.5 percentage points due to rising raw material purchase costs. Segment breakdown by field: Chemical products-related gained 850 million yen in revenue; Mineral-related gained 7.586 billion yen driven by surging demand for antimony trioxide after China's export restrictions; Industrial materials-related decreased 82 million yen; Functional materials-related decreased 1.977 billion yen due to weak demand for power semiconductor materials amid sluggish EV market; Electronic materials-related decreased 311 million yen; Synthetic resin-related decreased 904 million yen. 2. Machinery Manufacturing and Sales Segment: Total revenue for 2025 October fiscal year is 15.238 billion yen, up 17.2% year-over-year, accounting for 25.7% of total consolidated revenue. Operating profit is 1.844 billion yen, up 55.4% year-over-year. Segment breakdown by field: Domestic public demand gained 1.4 billion yen; Domestic private demand gained 1.315 billion yen driven by active private capital expenditure; Overseas decreased 480 million yen due to the absence of last year's large carryover project, underlying sales remain solid. Unfilled orders for the segment hit a new record high, up 275 million yen year-over-year.

• 2026 October fiscal year full year guidance: Expect total consolidated revenue of 63.2 billion yen, up 6.5% year-over-year; operating profit of 5.75 billion yen, up 7.4% YoY; ordinary profit of 5.77 billion yen, up 6.8% YoY; net profit attributable to parent shareholders of 4.2 billion yen, up 9.1% YoY, all targeting new record highs as the first year of the new medium-term plan.
• Chemical Industrial Products Sales Segment 2026 guidance: Revenue 45.8 billion yen (up 3.8% YoY); operating profit 3.67 billion yen (up 4.6% YoY), with stronger growth in the second half driven by the recovery of functional materials. Breakdown: Chemical products-related +1.307 billion yen, mineral-related -1.95 billion yen, industrial materials-related +215 million yen, functional materials-related +1.278 billion yen, electronic materials-related +337 million yen, synthetic resin-related +451 million yen.
• Machinery Manufacturing and Sales Segment 2026 guidance: Revenue 17.4 billion yen (up 14.2% YoY); operating profit 2.08 billion yen (up 12.8% YoY), with revenue and profit concentrated in the first half due to the seasonality of domestic public demand. Breakdown: Domestic public demand +138 million yen, domestic private demand +330 million yen, overseas +1.693 billion yen. New binary power generation and other new product revenue is currently included in private demand parts repair.
• 2026 unfilled orders for the machinery segment are expected to decrease year-over-year, as forecast sales growth outpaces expected order growth, but the current order pipeline remains solid.

• Chemical segment: Functional and electronic materials-related revenue and profit are sensitive to semiconductor and EV market cycles; a slower-than-expected recovery of SiC and power semiconductor demand would miss segment growth targets.
• Machinery segment: Overseas expansion faces intense price competition from European incumbents, and project timelines are volatile especially in new markets like India, leading to uncertainty around growth; domestic public demand projects carry risk of order losses.
• The 20 billion yen antimony trioxide revenue decline from 2025's record level relies on other large product lines to offset the loss, though management expects sufficient offset, growth depends on the performance of those new large products.
• The new medium-term plan's targets are acknowledged by management as challenging, and require successful execution of all key strategic initiatives to achieve.

Q: The plan forecasts ~2 billion yen in revenue decline for inorganic materials (mineral-related) this year after 2025's antimony trioxide boom – which areas will drive inorganic/material profit growth over the 3-year plan? / A: The 2 billion yen decline from 2025's extraordinary antimony trioxide demand will be fully offset by 2-3 other existing large products that are already seeing growth. Specifically, industrial materials for super high-rise buildings have rebounded sharply after project delays, vermiculite for coatings/agriculture has secured large overseas tender orders, and functional materials for power semiconductors are gradually recovering with new products starting to contribute.

Q: Does the company expect overseas machinery profit growth to come from growing parts repair revenue for already delivered centrifugal separators over the 3-year plan? / A: Parts repair revenue only accumulates after machines are delivered and enter operation, so new machine sales must grow first to drive future repair revenue. Currently, the US and China already have large installed bases with steady constant repair revenue. In new markets like India, the company will prioritize growing new machine sales in the first 2 years of the plan, and repair revenue will start to grow meaningfully by the third year of the plan, leading to an upward profit trajectory.

Q: Is the recovery forecast for SiC and GaN in functional materials dependent on overall semiconductor market recovery, and how will new products drive growth? / A: The 2026 forecast assumes SiC demand recovers in the second half as customer inventory adjustments end, and customer order restart signals already support this, but the final outcome depends on market conditions. Over the past 2 years of slow SiC demand, the team developed multiple new semiconductor-related materials besides SiC, including GaN for AI data centers that is already in commercial sales. The company is focused on growing the number of products with 50 million yen+ in gross profit, and these new products are already starting to gradually contribute to earnings.

Q: How would you rank the growth certainty of each chemical segment, from highest to lowest? / A: Chemical products, mineral-related, and industrial materials-related have very high growth certainty: all three have large numbers of 100 million yen+ gross profit products, stable market positions, and diversified portfolios that can absorb weakness in individual products. Functional and electronic materials have high profit margins but smaller scale, and are more exposed to semiconductor/EV market volatility, so their growth is less certain; functional materials have moderate certainty thanks to the expected SiC recovery, while entirely new products are the most uncertain and considered strategic growth initiatives.