HODEN SEIMITSU KAKO KENKYUSHO CO.,LTD. Q4 FY2025 earnings call

Overall Financial Results

• Full year FY2025 (February 2025) delivered 6.1% year-over-year revenue growth to 12.8 billion yen, and 199.4% year-over-year operating profit growth to 0.689 billion yen. Net profit attributable to parent shareholders reached 0.583 billion yen, 2.5x year-over-year, driven by reduced tax burden from recognition of expected deferred tax asset recoveries. Results showed increased revenue and profit year-over-year, and decreased revenue but increased profit compared to the original published plan.
• The Environment & Energy sector's revenue share increased 5 percentage points year-over-year, lifting the Electric Discharge Machining & Surface Treatment segment's overall revenue share to 67%.

Mid-Term Management Plan (2027) First Year Progress

• Management designated four core focus priorities for the plan, with the first year (FY2025) focusing on organizational reform and revenue base strengthening.
• Organizational & Human Capital Reform: Strengthened headquarters functions to support growth sector investment plans and embed cost awareness across the firm. Steadily implemented specialized mid-career hiring to build capacity in growth sectors, and refreshed personnel systems to support growth targets.
• Profit Base Strengthening: Company-wide initiatives to embed profitability awareness maximized use of internal resources and reduced outsourcing leakage of work. These activities were the main contributor to the year's significant profit improvement. Management will continue and expand these activities to solidify the firm's profit structure.

Strategic Business Positioning

• Management is prioritizing optimal resource allocation, with targeted growth in the high-potential Energy and Aerospace & Defense sectors to develop these into core business pillars. Aluminum extrusion molds are positioned as stable profit contributors, while ceramic honeycomb extrusion molds and the press business are targeted for competitiveness enhancement and growth in new market segments.
• The capital and business alliance with Mitsubishi Heavy Industries, formed in January 2024, has already increased communication opportunities and improved sales intelligence. Management expects ongoing synergy benefits that will boost business stability while maintaining the firm's operational independence.

Segment-Specific Operational Progress

• Energy Sector (Electric Discharge Machining & Surface Treatment): Gas turbine parts for natural gas power generation see sustained strong demand, with continued demand expected as a backup power source during the transition to renewable energy. Existing technology can be adapted for hydrogen co-firing to support carbon neutrality targets. A planned factory expansion was revised to start production from April 2025 at existing sites (in response to earlier customer production increases and extended construction lead times), with capacity expansion now focused on two existing locations.
• Aerospace & Defense (Electric Discharge Machining & Surface Treatment): Aerospace demand is recovering from COVID-19, with increased demand for low-fuel-consumption new engines and maintenance. Defense demand is growing following a large increase in Japan's defense budget, with demand for building a resilient domestic supply chain. Aircraft engine component production has recovered from COVID-era halving, with planned production volumes over the next three years exceeding original launch targets. Growth targets for the aerospace sector have been brought forward one year (to FY2026, February 2026): the sector is on track to hit 1.5x FY2024 (February 2024) revenue a year early, driven by sustained post-COVID production levels, new model transitions, and sharp increases in defense component production. Gas turbine parts are expected to hit 1.3x FY2024 revenue by FY2027 (February 2027).
• Molds Segment: Aluminum extrusion molds are not expected to see significant near-term growth, so management is focused on maintaining profitability via digital process overhauls. Ceramic honeycomb extrusion molds are being developed for new applications including CO2 capture and gas separation to support carbon neutrality, with technical validation ongoing alongside customers; contributions to profit are not expected until the next mid-term management plan.
• Machinery & Equipment Segment: In March 2025, the press business and environmental business centered on mixed melting technology were integrated to leverage combined technical capabilities for synergies in product and technology development. The company's digital servo press is already in advanced validation for multiple fuel cell manufacturing processes, supporting the automotive industry's transition to carbon neutrality. The environmental business is collaborating with industry, academia, and government to advance plastic recycling and food waste resource recycling for a circular economy.

Shareholder Return

• Management identifies stable, sustained shareholder returns as the most important management priority, targeting a 30% payout ratio while prioritizing growth investment from a mid-term perspective. The FY2025 year-end dividend was increased 5 yen from the original forecast to 12 yen per share, with a planned FY2026 dividend of 15 yen per share.

1. Electric Discharge Machining & Surface Treatment: This segment achieved year-over-year and plan-beating growth in both revenue and profit, driven by increased production volume and improved profitability. It contributed 67% of total consolidated revenue. By sub-sector: (1) Aerospace & Defense: Revenue grew year-over-year due to higher demand for aerospace and defense components, but missed plan as delayed hiring slowed new model aircraft engine production. (2) Transportation & Logistics: Revenue grew year-over-year from price adjustments on automotive surface treatment parts, and performed broadly in line with plan. (3) Environment & Energy: Revenue grew both year-over-year and against plan, driven by higher demand for gas turbine parts (from rising power demand) and centrifugal compressor parts (from increased refining demand in oil and gas). Operating profit grew year-over-year and beat plan, driven by fixed cost reductions from maintenance cost reviews, adjusted capital expenditure plans, and delayed hiring. This segment's full year revenue was 85.76 billion yen.
2. Molds: This segment reported year-over-year and plan-missing declines in both revenue and profit. By sub-sector: (1) Housing: Domestic aluminum extrusion molds maintained year-over-year revenue level via price adjustments, but revenue declined overall due to falling orders from the company's Thai overseas subsidiary, and performed in line with plan. (2) Transportation & Logistics: Revenue declined year-over-year and missed plan, driven by a sluggish Chinese market and delayed/relaxed emission regulations that shifted product mix and reduced demand for ceramic honeycomb extrusion molds. Operating profit declined year-over-year and missed plan, driven by lower revenue and reduced sales of high value-added products. This segment's full year revenue was not explicitly stated as a standalone absolute figure in the transcript.
3. ** Machinery & Equipment**: This segment also reported year-over-year and plan-missing declines in both revenue and profit. By sub-sector: (1) Machinery Equipment: Revenue declined year-over-year due to falling press machine sales, and missed plan due to delayed deliveries from plan changes and lower demand for auxiliary equipment. (2) Transportation & Logistics: Revenue declined year-over-year due to the sluggish automotive market, but performed broadly in line with plan. Operating profit declined year-over-year despite fixed cost compression efforts (driven by lower revenue) and missed plan due to delayed machinery sales. This segment's full year revenue was not explicitly stated as a standalone absolute figure in the transcript. Total consolidated revenue for FY2025 was 12.8 billion yen, with operating profit of 0.689 billion yen, and parent-owned net income of 0.583 billion yen.

• Full year FY2026 (February 2026) consolidated guidance targets total revenue of 14.4 billion yen, operating profit of 0.714 billion yen, and an operating profit margin of 5%. Growth is driven primarily by increased sales in the Electric Discharge Machining & Surface Treatment segment, from higher volumes of aircraft engine components and defense equipment.
• A segment restructuring will take effect in FY2026: a portion of the environmental business from the Electric Discharge Machining & Surface Treatment segment will be transferred to the Machinery & Equipment segment, to integrate the mixed melting device business with the press business.
• By segment, FY2026 guidance expects: (1) Electric Discharge Machining & Surface Treatment: Increased revenue and profit, led by Aerospace & Defense growth; Energy sector output will be flat year-over-year due to temporary production disruption during capacity expansion for gas turbine parts; Transportation output is expected to be flat due to slowing automotive industry growth. (2) Molds: Moderate revenue and profit growth, with conservative market outlook, supported by expanded sales efforts to new sectors and production efficiency improvements. (3) Machinery & Equipment: Increased revenue and profit, including revenue from delayed press equipment deliveries from FY2025 and growth from the transferred environmental mixed melting machine business; the segment will continue profit improvement efforts for automotive press components.
• Capital expenditure through the second year of the mid-term plan will focus on redeveloping production capacity for gas turbine parts, aircraft engine parts, and defense equipment. Research and development will focus on production efficiency improvements from automation, labor saving, and process improvements, alongside environmental technology development.
• Full investment payback from the current capacity expansion round is expected in the second half of the third year of the mid-term plan (FY2027).

• The aerospace segment faced operational delays in FY2025: production of new model aircraft engine components missed plan due to delayed hiring, leading to lower output than expected.
• The original gas turbine capacity expansion plan had to be revised due to earlier-than-expected customer production increases and extended factory construction lead times, requiring an adjustment to use existing production locations instead of a new factory.
• Near-term headwinds: Housing and Transportation sectors face headwinds from declining birthrates and China economic slowdown; the machinery sector faces risks from prolonged high price levels. Aluminum extrusion mold demand from overseas subsidiaries is weak, with no significant near-term growth expected.
• New product development for ceramic honeycomb molds in new carbon neutrality applications requires time for technical advancement, with no profit contribution expected until the next mid-term plan. The Mold segment overall faces demand weakness from the Chinese automotive market and shifting emission regulation timelines.

No question and answer section was included in the provided earnings call transcript.