6381.T

Company Overview

• Founded in 1926, approaching 100th anniversary; core business is industrial equipment manufacturing, with core products dating back to Japan's first domestically produced spray gun (1927) and air compressors (1928).
• 66.3% of sales come from overseas, with 31 subsidiaries across 22 countries and regions; 65% of ~1,900 total employees are based overseas.

Long-Term Vision and Growth Strategy

• Long-term "Vision 2035" targets 100 billion yen in sales by 2035, double the 2024 level, achieved via three phased mid-term management plans.
• Three-layer growth model: (1) Organic growth from existing two core businesses; (2) M&A to expand into adjacent areas and enter new businesses leveraging existing technical strengths; (3) New business exploration via open innovation and co-creation with external partners.
• Portfolio allocation: Stable cash flow from low-growth mature products (oil-fed compressors, standard hand spray guns) funds R&D and investment in high-growth, high-margin products (oil-free compressors, vacuum pumps, after-sales service, customized products).

Focus Areas and Operational Progress

• Geographic focus: Prioritize high-growth India and ASEAN (targeting 17% annual growth in India), followed by underpenetrated US market; set conservative targets for Japan and China amid shrinking Chinese domestic demand.
• Localization strategy: A new knock-down production plant in India was completed and started small-scale production in spring 2025, with medium compressor production scheduled to start in winter 2025. The plant uses Chinese core components and locally sourced Indian parts to comply with Make in India local content requirements.
• R&D capability enhancement: Completed the new IWATA Technology Park prototyping facility at headquarters, which started phased operation in late 2024 with latest machine tools and 3D printers to speed up prototyping and new product launches.
• M&A and new business: M&A activities are ongoing but no deals have closed in the past 7 years; the company maintains an active pipeline of target candidates and continues discussions. Launched a new downstream business initiative "Auto Tech Base Shonan" in Kanagawa to test coating service and automotive repair business models leveraging in-house equipment.
• Governance and cultural transformation: Launched internal branding to shift the historically conservative corporate culture to support execution of the new growth strategy, ahead of the 100th anniversary.
• ESG and compliance: Strengthen governance for overseas subsidiaries, recruit specialized talent, advance CO2 reduction initiatives, and develop energy-efficient, low-environmental-impact products aligned with tightening global environmental regulations.

Capital Policy and Shareholder Return

• Switched return metric to Dividend on Equity (DOE), targeting 7-7.5% DOE during the first mid-term plan.
• Plans for 3 to 3.5 billion yen in share repurchases over the 3-year plan period, plus progressive dividend increases, to return accumulated cash from past M&A inactivity to shareholders.

• First Mid-Term Management Plan (FY2025-FY2027, ending March 2028) sets a target of 62 billion yen in total sales, 10% operating margin, 11% ROE, and 132 yen EPS. The temporary projected decline in operating margin from the 2024 actual 10.7% is intentional, to allocate more capital to growth investments.
• Geographic growth targets: India and ASEAN are targeted for the highest annual average sales growth; the US is targeted for material growth after market expansion; Japan and China are targeted for stable, conservative growth amid market conditions.
• Management confirms that core initiatives (existing business expansion, R&D facility completion, India new plant construction) are progressing on schedule as of 6 months into the plan. M&A is the only area lagging schedule due to external timing factors, but activities continue actively.

For the 2024 full fiscal year, Anest Iwata reported total consolidated net sales of 54.4 billion yen.

1. Air Energy Segment: This segment focuses on air compressors (centered on oil-free scroll compressors) and vacuum equipment, accounting for 62% of total sales, equal to approximately 33.73 billion yen. The segment holds the number 1 global production share for small oil-free scroll compressors (a product first developed globally by Anest Iwata in 1991), and holds the number 2 share for small compressors in the Japanese domestic market. Global segment demand is growing at a 7% annual average rate, with India seeing 17% annual growth driven by manufacturing relocation.
2. Coating Segment: This segment focuses on spray guns, coating equipment and total coating solutions, accounting for 38% of total sales, equal to approximately 20.67 billion yen. The segment holds 75% share of the high-end hand spray gun market in Japan, 20-30% share globally (ranking 2nd worldwide), and holds the number 1 global total share for airbrushes.

• Rising global protectionism and trade policy uncertainty increases supply chain risk, requiring costly regional restructuring of production.
• Geopolitical tensions, particularly around China, create uncertain sales impacts; the Chinese market has already seen weak performance for 3-4 years, though management expects it has bottomed.
• Africa (South Africa) is a high-potential long-term growth market, but currently underperforms due to limited company resource allocation and insufficient home office support.
• Long lead times for capital equipment (1-1.5 years for new machine tools) delayed the ramp-up of the new prototyping facility.
• Existing vacuum pump product lines are not suitable for mass industrial applications, limiting near-term growth in that large segment.

Q: What is the competitive environment for the high-end spray gun market in Coating, and where does Anest Iwata stand? / A: The market is split: Chinese and Taiwanese manufacturers dominate mid/low price tiers by volume, while a small number of players including Anest Iwata compete in the high-end tier, which represents most of the market by value. High-end products differentiate based on finer, more uniform atomization that delivers superior finish quality, which is where Anest Iwata's 100-year technical advantage gives it leading market share. / Q: What are the prospects for growth in India, and how are you adapting to Make in India rules? / A: Growth is driven primarily by relocation of global manufacturing to India under Make in India, which is driving strong demand for factory compressed air and coating equipment, leading to 17% annual segment growth. The company built a local knock-down plant using core components from a previously acquired Chinese medium compressor manufacturer, and sources 20-50% of parts locally to meet local content requirements for government-linked contracts; production is ramping up on schedule. / Q: Where do you see the highest margin growth opportunities in new end markets like EV batteries? / A: Higher margins come from higher added-value, which means customer-specific customized products generally deliver higher margins than generic commodities. The most attractive high-margin growth area is expected to be functional material coating applications for EV battery cases, which leverages Anest Iwata's existing spraying and atomization core technology. The company will focus on this and other high-value growth market applications. / Q: Is the current M&A strategy still active, given no deals have closed in 7 years? / A: M&A remains a core strategic priority to drive growth, acquire new technology and talent, and expand into adjacent areas. The company maintains a robust pipeline of target candidates and holds active ongoing discussions with multiple prospective targets. No deals are ready to announce currently, but any material progress will be disclosed appropriately when timing is right.