KYOWA ELECTRONIC INSTRUMENTS CO.,LTD. Q2 FY2025 earnings call

Overall Financial Performance

• The company achieved 3 consecutive years of revenue growth, with consolidated revenue of 8.06 billion yen, up 6.5% YoY.
• Operating profit was 747 million yen, up 6.5% YoY; interim net profit was 553 million yen, down 2.5% YoY due to the recognition of foreign exchange losses and lower non-operating gains compared to the prior year.
• Total assets decreased by 804 million yen from the end of the prior fiscal year, total liabilities decreased by 556 million yen, and the equity ratio rose 1.6pp to 76.9%.
• The company adopted a progressive dividend policy starting this fiscal year: an interim dividend of 10 yen per share (up 2 yen from the prior year), with a planned year-end dividend of 10 yen per share for a total annual dividend of 20 yen.

Capital Cost & Share Price Aware Management Initiatives

• Growth Investment: The mid-term management plan "KYOWA Vision 2027" plans total investment of approximately 3.5 billion yen from 2025 to 2027 to strengthen core businesses and management infrastructure. Current investments include production capacity expansion at Yamagata Factory, core system reconstruction, calibration facility expansion, R&D investment, and human resource development, to strengthen long-term business foundations.
• Shareholder Return Expansion: The company is ongoing share repurchases with an upper limit of 2.5 million shares (9.2% of outstanding shares excluding treasury shares), reaching 88% progress based on acquisition amount as of end of August 2025. A new shareholder benefit program was introduced, granting 2,000 yen in QUO card to holders of 200-599 shares, and 5,000 yen in QUO card to holders of 600+ shares, to increase investment attractiveness and encourage long-term shareholding.

New Business Initiatives

• Launched the new cloud service KYOWA CLOUD in April 2025, a core initiative for cloud service commercialization in the mid-term plan. It includes two offerings: KYOWA CLOUD STREAM (real-time web monitoring for fast events to streamline automotive testing processes) and KYOWA CLOUD FIELD (long-term monitoring for infrastructure structure condition monitoring to streamline infrastructure management work).
• Began remote measurement at the Yokohama "Hama Wing" wind farm using KYOWA CLOUD FIELD, using the co-sponsored facility as an R&D and demonstration site to explore measurement demand in the growing wind power sector.

Corporate Social Initiatives

• Supports next-generation talent development through co-sponsorship of industry events: it has long supported the Student Formula Japan Conference by lending measurement equipment, and newly co-sponsored the Noshiro Space Event to support student rocket development, aligned with the company's growing focus on the aerospace sector.

Core Business Segments

1. Measurement Equipment Segment: 7.338 billion yen, up 7.3% year-over-year (YoY), accounting for 91% of total consolidated revenue. Growth was driven by resolved production stagnation, price adjustment effects, increased general-purpose product sales centered on measuring instruments, and steady performance of custom products and maintenance/repair services.
2. Consulting Segment: 721 million yen, down 1.4% YoY, accounting for 9% of total consolidated revenue. The decline came after railway-related measurement demand peaked in the prior year.

Major End-Use Segments

1. Automotive Testing: 1.644 billion yen, down 20.9% YoY, due to the lapping effect of large collision test-related projects in the prior year; general-purpose product sales increased driven by growing testing demand for new vehicle development.
2. Industrial Measurement: 1.664 billion yen, down 3.1% YoY, due to the lapping effect of large custom system projects in the prior year; general-purpose product sales stayed steady driven by strong demand for air conditioning and semiconductor-related applications overseas.
3. Environment, Disaster Prevention & Energy: 1.527 billion yen, up 22.9% YoY, driven by strong growth in dam-related update demand for embankment observation equipment in custom systems, and steady energy-related general-purpose product sales.
4. Transportation & Infrastructure: 1.076 billion yen, up 12.6% YoY; railway-related sales declined, but both general-purpose and custom products grew strongly in aerospace, driving overall segment growth.
5. Overseas Total Sales: 1.08 billion yen, up 4.3% YoY. US sales saw a slight decline due to temporary business stagnation from trade policy impacts; China maintained steady growth driven by industrial measurement demand for air conditioning; India (+31 million yen YoY) and Thailand (+26 million yen YoY) saw particularly strong growth.

• Management maintained the original full-year 2025 December fiscal year consolidated guidance, with planned revenue of 15.8 billion yen, operating profit of 1.4 billion yen, ordinary profit of 1.45 billion yen, and net profit of 1.1 billion yen, representing 3 consecutive years of growth in both revenue and profit.
• The forecast expects an operating margin of 8.9% and ROE of 6.1%, with a planned total annual dividend of 20 yen per share, unchanged from prior guidance.
• As of the interim period, revenue and profit are broadly in line with plan, and management aims to meet full-year targets by fulfilling backlogged orders and expanding new orders through solution-focused sales that address customer challenges.

No specific material operational or financial risks were explicitly discussed in the available transcript.

Q: The mid-term plan targets an 8% ROE by fiscal 2027, and current guidance calls for 6.1% ROE this year, requiring 2 percentage points of improvement over 2 years. Given the ~50% payout ratio, equity will continue to grow. What are your key initiatives to hit this ROE target by increasing returns on growing equity? / A: The top priority to hit the 8% 2027 target is improving core business profitability. The company will use planned investments to drive operational efficiency and sales expansion to grow net profit, the numerator of ROE. Management is actively reviewing all needed measures to align profit and capital growth to hit the target, and will continue to explore accelerating share repurchases to manage equity size beyond the current ongoing program.

Q: Your equity ratio is over 75%, leaving significant capital headroom. Do you plan to pursue M&A alongside organic R&D and capex as part of your growth strategy? / A: M&A is considered as a strategic option to expand and strengthen the company's business. The company will not pursue M&A purely for scale; only deals that provide clear synergies to further develop existing business will be actively considered. No specific M&A plans can be disclosed at this time.