KYOWA ELECTRONIC INSTRUMENTS CO.,LTD. Q4 FY2024 earnings call

Overall Financial Performance

• Consolidated revenue was 15.35 billion yen, up 3.0% YoY, marking the second consecutive year of revenue growth
• Operating profit was 1.356 billion yen, up 22.5% YoY, and net profit was 1.066 billion yen, up 18.7% YoY, marking the second consecutive year of profit growth
• Total assets decreased 558 million yen due to reduced trade receivables, total liabilities decreased 1.055 billion yen due to short-term debt repayment, and net equity increased 496 million yen, pushing the equity ratio up to 75.3%
• Operating cash flow increased 1.873 billion yen driven by improved trade receivable collection, ending cash balance stood at 5.966 billion yen
• An interim dividend system was introduced; full-year dividend per share is set at 20 yen (up 3.5 yen YoY) with a 51.1% payout ratio, maintaining the company's 50%+ payout target

Prior Mid-Term Management Plan (2022-2024) Review

• The first year was impacted by post-COVID component sourcing difficulties, leading to revenue below initial targets
• From H2 2023, component sourcing constraints eased, driving revenue and production recovery, improved cost ratios, and operating profit and ROE achieved initial plan targets; the 50%+ payout policy was maintained
• The plan strengthened the business foundation and laid groundwork for future growth, with initiatives carried over to the new mid-term plan

New Mid-Term Management Plan "KYOWA Vision 2027" (2025-2027)

The plan's core goals are to drive sustainable growth via deepening existing businesses and expanding new services, and improve corporate value via higher profitability and better capital efficiency.

Key Sector Priorities

• Automotive Testing: Meet growing testing demand from EV and hydrogen fuel vehicle development, capture evolving testing needs and deliver high-value added measurement solutions
• Industrial Measurement: Leverage growing R&D and capital investment driven by automation and stricter regulations to win new orders via targeted sales proposals and reliable production
• Environment, Disaster Prevention & Energy: Group-wide capacity building to meet growing measurement demand for renewable energy facilities and nuclear power safety upgrades
• Transportation & Infrastructure: Capture steady demand for aging infrastructure measurement equipment updates, and growing new demand from aerospace and aviation startup projects

Core Strategies

1. Expand Measurement Business

• Expand calibration services: Invest in equipment expansion, personnel training, and new public certifications to meet growing demand for internationally accredited calibration, targeting 200 million yen in calibration revenue (310% of 2024 levels) plus related product growth
• Commercialize cloud services: Launch two types of unified IoT multi-point measurement data management and monitoring services, gradually build out organizational capacity and expand cloud-compatible products, with long-term plans to add AI analytics capabilities to create new customer value
• Invest in production strengthening: Optimize and improve efficiency at the Yamagata factory, and invest in new sensor production capacity to improve quality, cost and delivery performance and build a foundation for future growth

1. Improve Customer Satisfaction: Expand e-commerce product offerings, increase digital sales and marketing, strengthen customer-focused information dissemination, and improve general product solution capacity
2. Strengthen Transformative Business Foundation: Rebuild IT infrastructure, invest in employee-friendly work environments to boost productivity, cultivate collaborative corporate culture, and improve product strategy and asset efficiency to increase overall organizational execution
3. Advance ESG Initiatives: Steadily implement and monitor initiatives aligned with the company's materiality priorities

Capital and Shareholder Strategy

• Management recognizes current PBR is ~0.6x (below 1x) driven by low ROE, which lags market return expectations
• Targets: ROE of 8% and PBR of 1x or above by the end of the mid-term plan
• Key initiatives: Improve profitability, optimize balance sheet, expand shareholder returns (adopt progressive dividend policy to maintain/increase dividends, plan to purchase at least 15 billion yen of treasury stock over 3 years, consider introducing a shareholder benefit program), and improve market valuation

By business segment (revenue contribution % calculated against total 15.35 billion yen consolidated revenue):

1. Measurement Equipment Segment: 13.928 billion yen (+2.2% YoY), 90.7% of total revenue
2. Consulting Segment: 1.421 billion yen (+11.6% YoY), 9.3% of total revenue

By major product field:

1. Automotive Testing Field: 3.935 billion yen (+20.2% YoY), grew on EV development demand and rebounding engine testing demand in Europe
2. Industrial Measurement Field: 3.478 billion yen (+3.6% YoY), grew on general-purpose product demand from electronics manufacturers and overseas Japanese firms
3. Environment, Disaster Prevention & Energy Field: 2.361 billion yen (-6.4% YoY), decreased due to lower dam-related update project revenue, but orders remain strong and renewable energy related demand is growing
4. Transportation & Infrastructure Field: 2.354 billion yen (-12.3% YoY), decreased due to lapped large highway project revenue from the prior year, offset by growth in railway, aerospace and aviation segments

Overseas revenue totaled 2.158 billion yen (+2.8% YoY): China saw sales network expansion to local automakers despite slow economic conditions, Europe grew on rebounding high-temperature gauge demand, and Asia decreased due to the deconsolidation of the Thailand subsidiary and lapped large prior-year orders.

• For the 2025 fiscal year (current fiscal year), Kyowa Denki projects 15.8 billion yen in consolidated revenue, 1.4 billion yen in operating profit, 1.45 billion yen in ordinary profit, and 1.1 billion yen in net profit, which would mark the third consecutive year of growth in both revenue and profit
• Full-year 2025 dividend is projected at 20 yen per share (10 yen interim, 10 yen year-end), maintaining the 2024 full-year dividend level
• The 3-year mid-term plan (2025-2027) targets 17 billion yen in consolidated revenue and 1.7 billion yen in operating profit by 2027
• Cash allocation over the mid-term plan will prioritize investment in strategic priority projects and business foundation strengthening, while maintaining financial soundness and expanding shareholder returns

• Current capacity for internationally accredited JCSS/ASNITE calibration services cannot keep up with rapidly growing demand, which could lead to service delays and opportunity loss if expansion investments are not implemented on schedule
• PBR has remained below 1x and ROE lags market expectations, creating pressure to improve profitability and market valuation
• The automotive testing market is rapidly evolving with the shift to EVs, and failure to adapt to changing testing needs could lead to missed growth opportunities

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