Osaki Electric Co.,Ltd. Q2 FY2026 earnings call

Overall H1 Performance

• Osaki Electric achieved year-on-year growth in both revenue and operating profit for the first half of fiscal 2025 (April–September 2025). Domestic revenue grew on strong demand for current-generation smart meters ahead of the 2nd-generation launch, while overall overseas revenue declined due to headwinds in Oceania and Asia, offset by UK growth.

Key Product & Operational Milestones

• Domestic smart meter: Phase 1 production setup for 2nd-generation smart meters is complete, and order activity is ahead of plan.
• Oceania next-generation meter: Development and production preparation for the new NEOS meter is on schedule, with order intake starting in July 2025.
• Asia next-generation industrial meter: Development is on track for a 2026 fiscal year market launch.
• Organizational restructuring: A 14% headcount reduction vs. March 2024 has been completed, optimizing development and headquarters functions and cutting selling, general and administrative costs.

Capital & Shareholder Return

• Non-core asset reduction: 1 non-operating real estate asset has been sold, generating 0.94 billion yen in capital gains, working toward the target of selling 70% of non-core real estate holdings (by book value) by the end of the mid-term plan. 900 million yen of cross-held policy shares have been sold (generating 0.79 billion yen in gains), working toward the 2 billion yen reduction target.
• Share buyback & dividend: 2.0 billion yen worth of own shares (2.46 million shares) were bought back in the 12 months to August 2025, with a portion retired in September 2025. The DOE target was raised from 2% to 3%, bringing the 2025 full-year dividend forecast to 35 yen per share (13 yen increase year-on-year). A payout ratio target will apply after the mid-term plan is achieved in 2026.

Sustainability

• New CSR policies and guidelines were established in February 2025, and two new working groups were added to the CEO-led sustainability committee to accelerate environmental and social initiatives. Osaki was newly added to two major ESG indices this fiscal year.

Domestic segments:

1. Smart Meter Business (Domestic Measurement Control): Year-on-year revenue growth, driven by strong final demand for current-generation smart meters and power utility equipment ahead of the product line transition. Full-year outlook is above initial forecast, ahead of full-scale 2nd-generation shipments starting in Q4.
2. Solution Business: Overall year-on-year revenue decline in H1. GX energy management services grew revenue, but commercial meters underperformed year-on-year, and smart lock new product launch delays kept performance flat year-on-year, alongside a base effect decline at a subsidiary. Full-year revenue is expected to come in below initial forecast.
3. Switchboard Business: H1 revenue is below year-ago levels, due to project delays pushing shipments to the second half, despite solid demand from both power utilities and industrial customers including data centers. Full-year revenue is expected to exceed prior year results and meet initial forecast, with profit margins expected to exceed initial forecast from improved operating leverage.

Overseas segments (by region):

1. Oceania: H1 revenue declined year-on-year due to customer inventory adjustment, pulled down by Australian state government budget reallocation after natural disasters and pre-launch purchase deferrals for the new NEOS next-generation meter. Full-year revenue is expected to come in below initial forecast, though there is no impact to market share and housing demand remains solid.
2. Europe (UK): H1 revenue grew year-on-year driven by sustained shipments under the government-led smart meter project, with improved profit margins from cost reduction. Full-year revenue is expected to exceed initial forecast.
3. Asia / Middle East & Africa:

• Asia: H1 revenue declined year-on-year due to a base effect from a one-off large project in the prior year period. Full-year revenue is expected to exceed initial forecast from growing industrial meter sales and a weaker yen currency assumption.
• Middle East & Africa: H1 revenue grew slightly year-on-year from additional orders from existing key customers, amid continued selective order-taking to manage credit risk. Full-year revenue is expected to exceed initial forecast from upward order adjustments and a weaker yen assumption.

• Full-year 2025 consolidated revenue and operating profit guidance is maintained at the initial forecast level, with only internal regional/segment composition revisions.
• Domestic: Revenue is expected to match initial forecast: upside from Q4 2nd-generation smart meter shipments offsets downside from smart lock launch delays. Operating profit is expected to be higher than initially planned, driven by smart meter growth and improved switchboard profitability. Domestic smart meter and switchboard full-year outlooks are above/meeting initial forecast respectively, while the solution business outlook is below initial forecast due to smart lock delays.
• Overseas: USD-based revenue is expected to decline due to ongoing inventory adjustment in Oceania, but a weaker yen currency assumption brings full-year revenue in line with initial forecast. Lower revenue in Oceania will drive a full-year overseas operating profit decline, offsetting cost cutting, with the total domestic profit increase covering this gap to keep consolidated profit on track. UK, Asia, and Middle East & Africa full-year outlooks are all above initial forecast, while Oceania is below.
• The mid-term management plan targets for fiscal 2026 (100 billion yen revenue, 9 billion yen operating profit, 10% ROE) remain unchanged.
• Capital expenditure is expected to stay elevated through fiscal 2026, focused on 2nd-generation smart meter production capacity. Depreciation will increase further from Q2 2025 onward ahead of full production ramp-up.

• Oceania inventory adjustment is taking longer than initially expected, driven by post-disaster budget reallocation by state governments and pre-launch purchase deferrals for the new NEOS meter, pushing full-year 2025 revenue below forecast.
• New product launch delays in the solution business (smart locks) have pushed full-year 2025 revenue below initial forecast and are slowing progress against mid-term plan targets for the segment.
• Credit risk in the Middle East & Africa market requires continued selective order-taking, limiting near-term revenue growth in the region.
• H1 R&D spending fell 0.38 billion yen year-on-year as a one-time effect of overseas restructuring, though full-year spending is expected to match prior year levels.

Q: Why is 2nd-generation smart meter order intake ahead of initial forecast, and can we expect upside to 2026 fiscal year revenue? / A: Osaki confirms order intake is running stronger than initial plan, so 2025 full-year revenue and profit for the segment will come in above forecast. Detailed bidding information cannot be disclosed as it impacts future order strategy. Management says additional visibility is needed before confirming 2026 fiscal year upside.

Q: Is it correct that total underlying demand in Oceania is unchanged, with just order timing shifted to 2026 or later? What is the basis for the forecast that inventory adjustment will end by 2025 year-end? / A: Total underlying market demand in Oceania has not changed. The adjustment was originally expected to end in H1 2025, but has been extended by purchase deferrals ahead of NEOS launch and state government budget shifts to disaster recovery after a large cyclone. The end-2025 forecast is based on close communication between local management and customer teams with key clients.

Q: The solution business is behind mid-term plan for both GX services and smart locks. What are the key challenges and strategic direction going forward? / A: The segment has fallen behind plan due to new product development delays and shifting competitive dynamics. For GX services, Osaki is working to commercialize a total solution combining renewables, storage batteries, and AI control to support customer decarbonization goals. Management acknowledges the shift from product sales to services has caused implementation challenges, and is focused on eliminating bottlenecks to recover lost progress.

Q: With the self-imposed 5% cap on treasury stock holdings, current holdings are already 4.9%. What is the policy for future share buybacks? / A: The general 5% cap policy remains in place, but temporary overshoots from new buybacks are allowed. The policy of retiring treasury shares with no planned use remains unchanged.