SEIKO ELECTRIC CO.,LTD. Q4 FY2024 earnings call

• Financial Position & Capital Return: Total assets increased by 1.576 billion yen YoY to 30.331 billion yen, driven by increased net assets from new share issuance and higher retained earnings from net income. Cash and cash equivalents increased by 0.911 billion yen to 3.16 billion yen at period end. A full-year dividend of 40 yen per share was declared, a 5 yen increase from the prior year.
• Core Strategic Priorities (FY2025): Management continues to advance the three key priorities of the mid-term management plan SEIKO IC2026. 1. Digital First Focus: Three core digital focus areas: (a) Smart security: expanding its proprietary robot system with new security robot deployments; (b) Power monitoring and control systems: expanding nationwide to all power utilities beyond initial deployments with Kyushu Electric Power; (c) Smart ports: further expanding market share for its container systems, where it already holds the leading domestic market share. 2. Decarbonization / Carbon Neutrality: The company expects 5 years of growth from large-scale energy infrastructure projects including AI data centers, semiconductor factories, and energy storage facilities, and continues R&D on proprietary energy storage systems including redox flow batteries.
• 2024 Operational Highlights: The company began construction on the Hibiki R&D Center to accelerate DX and GX development, scheduled for completion in April 2026. The center will consolidate development engineers, facilitate industry-academia-government collaboration, and host demonstration facilities for next-generation power control systems and smart security solutions. New product launches included a dimmable film electronic shade kit for the Nissan Serena C28, and the KOKEN work accident prevention app for fall risk management. The company also advanced sustainability and governance improvements, earning continued recognition as a Certified Health and Productivity Management Outstanding Enterprise and selection for the 2024 Health and Productivity Management Brand, as well as Kurumin certification for childcare support and Eruboshi certification for women's active participation.
• Capital Cost & Share Price Conscious Management: The company targets PBR improvement and targets sustained consolidated ROE of 10% or higher by FY2026. It currently maintains ROE around 10%, above its estimated cost of equity of 6-8%, and identifies improving PBR as a key priority through stronger growth strategy recognition, improved capital efficiency, enhanced shareholder returns, and expanded IR activities.

1. Power Segment: Both sales and profit increased, driven by strong performance in information control products (including smart security systems like remote monitoring systems, and power control systems for integrated control stations), growing demand for power distribution equipment, and successful cost reduction efforts. Combined with the Environment and Energy segment, it contributes approximately 70% of total company revenue and profit. 2. Environment and Energy Segment: Both sales and profit increased. Delays in on-site construction progress in the domestic public sector eased, with strong performance from monitoring and control systems for water treatment facilities and power reception and distribution systems for highways. 3. Information Segment: Both sales and profit increased, driven by strong performance from cyberport-related projects in the port sector (collaborated with the Ministry of Land, Infrastructure, Transport and Tourism) and nursing care certification support system development in the healthcare sector. 4. Service Segment: Both sales and profit increased, driven by growing demand in the renewable energy sector (including power reception and transformation systems for solar power plants) and steady equipment renewal demand from major clients. 5. Other Segment: Both sales and profit decreased. While maintenance work for power generation and substations for power companies remained steady, domestic demand for electronic control equipment declined. Total company net sales for FY2024 hit 29.099 billion yen (up 7.5% YoY), operating profit hit 2.016 billion yen (up 24.2% YoY), ordinary profit hit 2.359 billion yen (up 29.9% YoY), and net income hit 1.536 billion yen (up 27.7% YoY), marking all-time record results with 4 consecutive years of revenue growth and 7 consecutive years of profit growth.

• FY2025 Full Year Financial Guidance: Management expects net sales of 33 billion yen, up 13.4% YoY; operating profit of 2.6 billion yen, up 29.0% YoY; net income of 1.85 billion yen, up 20.4% YoY. Growth is expected to be led by the Environment and Energy segment, which will benefit from rising demand for energy solutions for AI data centers, semiconductor factories, and energy storage facilities.
• Dividend Guidance: The company plans an annual dividend of 45 yen per share (22.5 yen for interim and 22.5 yen for final dividend), a 5 yen increase from FY2024, continuing the trend of 5 yen annual dividend increases starting in FY2022.
• Segment Growth Outlook: Power segment growth is expected from expanding sales of power reception and distribution systems and smart security solutions to utilities nationwide. Environment and Energy segment growth will come from strong order intake in the public sector and large-scale energy solutions projects. Service segment growth will continue from expanding renewable energy and energy efficiency businesses primarily in the Kyushu region.

• Management identifies rising raw material prices and increasing personnel costs as key external headwinds for FY2025.
• Cost pass-through for the public sector portion of the core power and environment businesses has been slower than for the information and service sectors, creating ongoing margin pressure.
• The Chinese business previously suffered from market-related declines, requiring structural reform to shift from product-focused operations to maintenance services and downsize operations.
• The company notes that its current PBR remains around 1x, which is below market expectations, requiring continued efforts to improve market valuation.

Q: After the end of FIT policy, has investment in mega-solar solar projects wrapped up, and what new focus areas will the company pursue? / A: The company supplied extra-high voltage power reception and transformation systems for mega-solar projects, but demand has declined after the end of the FIT policy. Currently, the company is receiving strong inquiry flow for large-scale projects including AI data centers, energy storage facilities, and semiconductor factories, and is shifting its focus to these high-growth areas.

Q: What is the progress of passing higher input costs through to product prices, and what is the company's policy going forward? / A: The company has been passing through higher material and labor costs to customers in its core power and environment businesses. Price pass-through is largely complete in the information sector's maintenance and service businesses, so the company is generally seeing adequate progress overall, but rollout has been delayed for the public sector segment.

Q: What factors drove the improvement in profitability over the past year? / A: The company strengthened its project management system, particularly for the construction division, to address prior issues with unprofitable individual projects and poor project oversight. Additionally, the growth of higher-margin information control (IT/OT) businesses in the power and other core segments has lifted overall segment profitability.