Mitsubishi Kakoki Kaisha,Ltd. Q3 FY2026 earnings call

Company and Long-Term Vision Overview

• Mitsubishi Kakoki is a 90-year-old Japanese manufacturing and engineering firm based in Kawasaki, Kanagawa, with approximately 1,000 consolidated employees.
• The firm has a 2050 Management Vision that targets solving five core social issues: CO2/climate change, resource circulation, water/food, natural disasters, and labor shortage. Four strategic business areas (circular economy promotion, clean energy, labor/energy saving, next-gen technology development) are prioritized to achieve this vision.
• The 2035 milestone (for the firm's 100th anniversary) targets total sales of 100 billion yen, with strategic business areas accounting for over 50% of total revenue.

Current Medium-Term Management Plan (Current Mid-Term Plan)

• The current 3-year mid-term plan (final year 2028 March fiscal year) is positioned as the "3-year leap forward" growth phase, building on prior period foundation work. The core goal is to expand GX (Green Transformation) business to become the company's core growth driver.
• Four core pillars: 1) Evolve the business portfolio via GX business establishment, 2) Establish capital cost and share price-conscious management with strengthened growth investment and shareholder returns, 3) Strengthen human and technical capital, 4) Improve governance transparency.
• Portfolio positioning: GX Business is classified as a growth business receiving aggressive resource and capital allocation; Engineering Business and Unit Machinery Business are classified as mature foundation businesses, focused on improving profitability via differentiation and competitive advantage.
• Total planned growth investment is 8 billion yen: 3 billion yen for R&D and 5 billion yen for M&A, with GX Business as the main recipient of this allocation.
• Mid-term numerical targets for FY2028: 90 billion yen total revenue (all-time high), operating profit margin of 9%+, ROE of 12%+.
• Strengthened shareholder return policy: Target 40% payout ratio by the final mid-term year, with a 3.5% DOE minimum dividend floor throughout the mid-term period to ensure stable dividends.

GX Business Operational Updates

• GX Business was carved out of existing Engineering and Unit Machinery businesses in April 2025 to make progress and commitment visible to all stakeholders, focusing on leveraging existing core technologies rather than building an entirely new business from scratch.
• Prioritizes circular economy and clean energy as quick-win areas: actively pursuing market expansion for hydrogen utilization (including the top-market-share HyGeia small packaged hydrogen production unit series) and biogas projects, while developing low-carbon hydrogen and CO2 capture products for commercial launch within the current mid-term period.
• Key ongoing projects: 1) Developing two types of CO2 capture equipment for blue hydrogen production, compatible with new and existing installations, 2) Supplying large-scale hydrogen production equipment for Nippon Steel's hydrogen reduction steelmaking decarbonization demonstration project, 3) Adapting the top-market-share Mitsubishi Selfjector (SJ) oil purifier series for new GX uses including sustainable aviation fuel (SAF) production and microalgae concentration, 4) Secured an order for a full extraction equipment package for the world's largest microalgae production facility in Malaysia, leveraging long-standing R&D and separation technology expertise.

For the 2026 March fiscal year (current fiscal year):

1. Engineering Business: Expected revenue contribution is ~50% of total consolidated revenue. Order intake is projected to decrease year-over-year (and versus plan) due to delayed customer investment decisions on some projects. Revenue and segment profit are both projected to increase year-over-year, supported by a high backlog of orders carried over from prior periods.
2. Unit Machinery Business: Expected revenue contribution is ~25% of total consolidated revenue. Order intake is projected to remain at a high level, driven by strong demand for oil purifiers, related components, and marine environmental compliance equipment supported by favorable shipping market conditions. Revenue is projected to increase year-over-year, and segment profit is projected to grow on the back of higher gross profit from revenue expansion and improved cost ratios from strong after-sales service.
3. GX Business (newly established this fiscal year): Expected revenue contribution is ~25% of total consolidated revenue. Order intake is projected to increase year-over-year, exceeding original plan on stronger-than-expected demand from hydrogen utilization and biogas projects. Revenue and segment profit are both projected to increase significantly year-over-year, supported by carry-over prior period order backlog.

• Consolidated full-year FY2026 guidance projects significant year-over-year revenue and operating profit growth, driven by high prior-period order backlog and strong sales of marine equipment and components.
• Maintains the current mid-term plan target of 90 billion yen total revenue, 9%+ operating profit margin, and 12%+ ROE by FY2028.
• Maintains the GX Business target of 23 billion yen revenue by FY2027/2028, with management confirming the target is fully achievable based on the current pipeline of decarbonization and hydrogen-related projects.
• Reaffirms the shareholder return guidance of 40% payout ratio by the final mid-term year and a 3.5% DOE minimum dividend floor throughout the mid-term period.
• Long-term guidance maintains the 2035 milestone of 100 billion yen total revenue with strategic decarbonization businesses accounting for over 50% of sales.

• Delayed customer investment decisions in the Engineering Business, driven by global macroeconomic factors including tariff policy uncertainty and high inflation, is an industry-wide risk that has negatively impacted current FY2026 order intake projections.
• Green hydrogen production, while a long-term growth opportunity, still faces major commercialization hurdles including high production costs that limit near-term large-scale adoption.
• GX Business growth depends on continued policy support for hydrogen and decarbonization, and changes to government incentive programs could negatively impact demand growth.

Q: What development projects is the company currently prioritizing? / A: Management prioritizes hydrogen utilization projects, including hydrogen production equipment for hydrogen reduction steelmaking and for synthetic/SAF fuel production. It is also prioritizing CO2 capture device development to enable blue hydrogen production from existing steam reforming hydrogen manufacturing processes, aligning with decarbonization goals.

Q: What is behind the recent growth in hydrogen demand, and why is it a strategic focus for the company? / A: Hydrogen is a zero-CO2 energy source that can replace fossil fuels to cut emissions, and it is storable for long periods unlike electricity, addressing intermittency issues for renewable energy. It also improves Japan's energy security by enabling domestic production independent of fossil fuel import markets. Japan's 2024 Hydrogen Society Promotion Act has created new subsidies and support frameworks that are expected to drive rapid infrastructure and demand growth, making it a core long-term growth driver for the company.

Q: What competitive advantages does the company hold in hydrogen production equipment versus peers? / A: The company has over 60 years of specialized experience in hydrogen production equipment, building deep proprietary know-how across materials, process design, catalysts, and adsorbents that few peers can match. For small packaged units for hydrogen refueling stations, it holds specialized compact and skid-mounted design expertise that is critical for customer adoption. This combination of integrated technical capabilities makes the company a top choice for customers.

Q: Is the recent growth in Unit Machinery operating margin sustainable going forward? / A: Management expects that the rapid year-over-year growth pace of sales and profit seen in recent years will moderate, with growth slowing to a more gradual steady rate going forward.