TOYO KANETSU K.K. Q2 FY2026 earnings call

Consolidated First Half Performance

• Total consolidated revenue was 27.48 billion yen, with year-over-year lower revenue but higher profit; operating profit hit 2.307 billion yen, ordinary profit was 2.461 billion yen (up 0.423 billion yen year-over-year), and net profit attributable to parent company shareholders was 1.653 billion yen (up 0.036 billion yen year-over-year). An interim dividend of 100 yen per share will be paid, half of the planned full-year 200 yen per share dividend.
• Balance sheet highlights: Cash and deposits increased from improved sales receivable collection; work-in-process increased from accelerated manufacturing; tangible fixed assets and interest-bearing debt increased from the consolidation of Sakata Denki and expansion of Kankyo Keisoku's headquarters. Operating cash flow improved, with funds allocated to investing and financing activities.

Core Strategic Framework

• The mid-term management plan's core basic policy is "Establishing a growth foundation for the future", with three key medium-long term management priorities:
  • Optimize business structure and appropriately allocate resources to drive business growth
  • Pursue work standardization and labor saving to improve productivity and profit generation
  • Invest in talent diversity and development to strengthen the company's long-term foundational capabilities
• Current performance assessment: Stock price has increased ~1.7x since FY2021 March, but price-to-book ratio (PBR) remains below 1x. Cost of equity is 6-8%, and return on equity (ROE) has exceeded 9% in the past two years, but this includes one-time gains from land and policy-held share sales, so core operating profitability needs further improvement.

Profit Generation and Capital Allocation Strategy

• Maintenance businesses within the Plant and Logistics Solutions segments are designated as cash cow businesses:
  • Plant segment: Tank maintenance in the mature domestic market generates stable high-margin profit; operating margin has improved to ~10% in recent years from workforce management, multi-year contracts, and automation. Industry-wide labor shortages have reduced competing players, and Toyo Kanetsu's position as the world's second-largest tank maker supports continued stable profit.
  • Logistics Solutions segment maintenance: Toyo Kanetsu holds almost all maintenance contracts for logistics centers it newly developed, achieving high profit margins with steady revenue growth.
• Cash generated from these cash cow businesses is allocated to new system R&D for Logistics Solutions and M&A for the Mirai Sousei segment to drive future growth and expand enterprise value.

Growth Investment Priorities

• Logistics Solutions: The EC market is expected to continue growing in size and penetration, with demand for near-full automation increasing. Toyo Kanetsu will continue leveraging its high engineering capabilities to integrate new technology and deliver customized automated logistics system solutions. A new warehouse management system (WMS) prototype is already complete, developed after adding Barnett Inc. (a software engineering firm) to the group to strengthen software capabilities, and is expected to be launched commercially soon.
• Mirai Sousei: The segment is focused on the environment and disaster prevention, two high expected-growth sectors. It currently includes three core group companies: Kankyo Research (asbestos inspection expertise), Kankyo Keisoku (river water level measurement equipment maintenance), and Sakata Denki (landslide measurement equipment manufacturing and installation), which will create cross-company synergies to address social challenges. M&A activity will continue to target additional environment and disaster prevention firms.
• R&D: R&D budgets have been increased, with key ongoing projects including new baggage handling system development at the terminal.0 HANEDA research hub at Haneda Airport, and large liquefied hydrogen tank development (on track to finalize manufacturing technology by FY2027 March).

Capital, IR and Governance Improvements

• A 1-for-2 stock split will be implemented, with a record date of December 31 and effective date of January 1 next year, to lower per-share price, increase trading volume, boost market liquidity, and expand the shareholder base to include more younger investors.
• Non-financial target achievement metrics have been added to performance-linked equity compensation for executive officers, and restricted stock units have been allocated to all employees to align company-wide focus on stock price and shareholder value creation.
• A dedicated IR team has been newly established to expand engagement including overseas roadshows and shareholder invitation events, to deepen investor understanding of the company.

1. Logistics Solutions Segment: Revenue of 15.999 billion yen (58.2% of total consolidated revenue), operating profit of 2.256 billion yen. This represented a year-over-year decrease in revenue and increase in profit, driven by a temporary lull in large projects and improved performance from accelerated manufacturing and cost control. Orders received totaled 16.739 billion yen, and order backlog hit 34.283 billion yen, both up year-over-year, with orders reaching ~50% of the full-year plan. Maintenance revenue for the segment exceeded 10 billion yen last fiscal year, accounting for over 30% of total segment revenue.
2. Plant Segment: Revenue of 5.757 billion yen (21% of total consolidated revenue), operating profit of 0.426 billion yen. This represented year-over-year growth in both revenue and profit, with improved operating margin achieved after covering the impact of reducing one operational site. Orders received totaled 7.412 billion yen, and order backlog hit 13.357 billion yen, with performance progressing on plan.
3. Mirai Sousei (Future Creation) Segment: Revenue of 5.584 billion yen (20.3% of total consolidated revenue), operating profit of 0.265 billion yen. This represented year-over-year growth in revenue and a decrease in profit, driven by the consolidation of two additional group companies (adding to revenue) and one-time M&A costs recorded in Q1 (reducing profit).

• Full-year guidance for FY2026 March is maintained from the prior May announcement, with no upward or downward revision.
  • Logistics Solutions: While large new projects are temporarily paused, the company expects to hit full-year sales targets through accumulation of small and medium-sized projects. Full-year operating profit guidance is maintained, as the lull in large projects is being used to accelerate R&D and support new system delivery projects, which increase near-term costs.
  • Plant: The segment is progressing in line with plan; overseas tank repair projects started full operations in September, and large liquefied hydrogen tank R&D is progressing as scheduled.
  • Mirai Sousei: Consolidation of new group companies has added to revenue, but profit contributions are not expected until future periods. Full-year operating profit was originally planned to be weighted to the second half, and the company remains focused on achieving the original plan target.
• The company set a long-term target of 90 billion yen in total consolidated revenue for FY2030, with a target share price over 5,000 yen and PBR of 1x. The revenue target breaks down to 60 billion yen for Logistics Solutions (45 billion yen from organic growth, 15 billion yen from M&A), 15 billion yen for Plant, and 15 billion yen for Mirai Sousei. The target is achievable if the company maintains the 1.4x growth rate seen from FY2020 to FY2024.
• The 2030 long-term segment strategy is:
  • Logistics Solutions: Maintain growth as the core business through expanding business scope, developing new customers, and strengthening maintenance capabilities
  • Mirai Sousei: Pursue M&A of environment and disaster prevention firms and maximize cross-company synergies
  • Plant: Maintain stable profit from core tank maintenance, capture new tank construction demand domestically and overseas, and develop next-generation energy storage tank technology centered on hydrogen

• The Logistics Solutions segment is facing a temporary lull in large new construction projects this fiscal year, which has reduced near-term segment revenue.
• PBR remains below 1x despite share price growth since 2021, and core operating ROE (excluding one-time asset sale gains) has not yet met the 6-8% cost of equity target required to exceed shareholder return expectations.
• The domestic tank maintenance market is facing industry-wide labor shortages that have reduced the number of active market participants, which could create operational workforce challenges for Toyo Kanetsu's own operations even as it improves market pricing and opportunity.

No substantive question and answer content was included in the provided transcript.