6599.T

Company Overview and Core Business

• Founded in 1973, headquartered in Hachioji, Tokyo, with capital of 143.01 million yen. Full year FY2025 March term sales of 4.025 billion yen, ordinary income of 475 million yen, 146 total employees. Operates 4 domestic production bases and 1 wholly-owned subsidiary in Suzhou, China.
• Core business is contract design and manufacturing of industrial computers for social and industrial infrastructure, accounting for over 80% of total revenue. Business focuses on high-reliability applications with long-term stable production after mass production starts.

Product and Operational Strength

• Core product categories include backplane system board computers, single-board computers for IoT/Edge applications, backplanes, computer chassis, and control computers. Backplane systems are widely used in industrial applications for three key advantages: easy maintenance (hot-swappable boards allow replacement without full system shutdown), scalability (unused reserve slots support future function expansion), and versatility (uses international standard bus structures, allowing third-party standard components to be used).
• Maintains distributed production with common core equipment across all facilities for business continuity (BCP), enabling production to continue at other sites if one site is disrupted.

Growth Strategy

• Strengthen core high-reliability industrial control business, leveraging the company's position as a specialized manufacturer to meet demand from large system manufacturers facing technical resource constraints.
• Expand the scope of contract services beyond backplanes and chassis to additional high-value-added products, with a focus on growing the board computer business. New business segments now account for 20% of total sales, with management targeting continued growth of this ratio.
• Strategically utilize the Suzhou, China subsidiary to support production and growth.

Shareholder Return

• Maintains a policy of sustaining 20% year-over-year dividend growth. Targets a full year FY2026 dividend of 48 yen per share, unchanged from initial guidance.

• Full year FY2026 March term guidance is unchanged from initial projections: total sales of 4.1 billion yen, operating income of 520 million yen, ordinary income of 520 million yen, net income of 340 million yen, with a net income margin of 8.3%. The full year dividend forecast of 48 yen per share is also maintained.
• The overall semiconductor industry is projected to grow ~10% year-over-year, with a sharp split between AI and non-AI segments: production adjustment continues at some non-AI semiconductor manufacturing equipment makers, while AI-related demand outpaces supply.
• Transportation segment revenue is likely to exceed the full year budget due to stronger-than-expected domestic project performance in the first half.
• For Communication, Broadcasting and Power: the power sub-segment is performing better than expected with new projects, driven by growing demand for power infrastructure for AI data centers, while the communication and broadcasting sub-segment is expected to remain sluggish.
• The Defense and Security segment is seeing higher-than-expected revenue growth from increased projects and repeat order volume, supported by Japan's expanded defense spending.
• The Electronic Applications segment will continue to see production adjustment due to customer model updates and model change-related production declines at the Chinese subsidiary.
• Management expects that the semiconductor-related business within the Measurement and Control segment will return to strong growth in the current or next fiscal year.

For the first half of the FY2026 March term, total company sales were 1.937 billion yen, up 0.3% year-over-year. Segment performance by application field is as follows:

1. Measurement and Control segment: This is the company's largest segment, centered on semiconductor manufacturing equipment, accounting for ~60% of total revenue. First half sales decreased 3.2% year-over-year, due to reduced EV-related investment offsetting strong growth in AI-related cutting-edge fields.
2. Transportation segment: Includes railway and highway infrastructure applications. Revenue increased 11.9% year-over-year, rising from 17.6% to 19.7% of total revenue contribution, driven by early delivery requests for second half projects.
3. Defense and Security segment: Includes radar and communications equipment for Japanese defense applications. Revenue increased 35.8% year-over-year, rising from 5.6% to 7.5% of total revenue contribution, moving into third place among all segments.
4. Communication, Broadcasting and Power segment: Includes power transmission and distribution equipment, with power sub-segment driving growth. Revenue increased 38.7% year-over-year, rising from 4.7% to 6.4% of total revenue contribution.
5. Electronic Applications segment: Centered on medical equipment such as MRI/CT scanners. Revenue decreased 32.8% year-over-year, falling from 11% to 7.4% of total revenue contribution, due to temporary customer adjustments and model change-related production declines at the Chinese subsidiary.

• Post-supply chain disruption residual effects: After the COVID-19 supply chain chaos, customers accumulated excess inventory that has suppressed new orders, and while conditions have stabilized, residual effects still remain and full recovery has not been completed.
• Segmented industry slowdown: Non-AI semiconductor-related investment and EV-related investment are experiencing slowdowns, which has weighed on the core Measurement and Control segment performance.
• Geopolitical risk: The company operates a production subsidiary in China, with exposure to potential Japan-China trade tensions, though management states no material negative impacts have materialized to date.
• Profitability pressure: Long-term raw material price increases require gradual price pass-through to customers, which takes time to implement and can near-term pressure margins.

Q: How much have post-supply chain disruption conditions stabilized, and what is the current inventory recovery status? / A: During COVID-19, extreme component shortages led many companies to buy far more inventory than needed, even at inflated prices. After this period, customers were left with massive excess inventory, which caused new orders to drop off as they worked through existing stock. Conditions have finally started to stabilize, but residual negative impacts from this overshooting still remain, and full recovery has not been completed.

Q: How does the Japanese government's large semiconductor investment impact Ebren? / A: Semiconductors are now a top national priority in Japan, and this is consistent with the company's view that the semiconductor manufacturing equipment market is its most important business segment. There is no change to the company's focus on growing this core market, which aligns with national strategic priorities.

Q: Have Japan-China tensions had any impact on Ebren's supply chain or operations in China? / A: To date, the company has not experienced any material negative impacts from bilateral tensions on its Chinese subsidiary operations or overall supply chain.

Q: What is the company's strategy for growing revenue while prioritizing high profitability custom/contract projects? / A: The company traditionally focused on backplane and adjacent products, and has expanded its scope to include board computers. Board computers are used in a growing number of applications that do not require full backplane systems as product miniaturization continues. The company is actively pursuing new board computer projects to expand its addressable market and grow the business, which aligns with its goal of expanding contract scope while maintaining strong profitability.