KYOWA ELECTRONIC INSTRUMENTS CO.,LTD. Q4 FY2025 earnings call

Mid-Term Management Plan (KYOWA Vision 2027) Progress

The three-year mid-term plan launched in FY2025 targets sustained business growth and improved corporate value, centered on four core strategies and three priority initiatives. Financial targets for the final fiscal year 2027 are 17.0 billion yen in net sales, 1.7 billion yen in operating profit, and 8% ROE. In the first year (FY2025), net sales reached 16.272 billion yen, exceeding the original plan; rising costs limited operating profit to 1.38 billion yen, with an operating margin of 8.5% and ROE of 5.7%.

• Priority Initiatives Progress:

  • Calibration Business Expansion: Driven by strong market demand, the company expanded the calibration scope for JCSS force gauges and trained additional calibration technicians, leading to a 12% year-over-year increase in calibration business revenue in FY2025. The target is to grow revenue to a 0.2 billion yen scale (triple the FY2024 level) by FY2027 via additional equipment and personnel investment.
  • Cloud Service Commercialization: The company launched two services, "KYOWA CLOUD STREAM" and "KYOWA CLOUD FIELD" in FY2025, and completed operational system improvements including adding management functions and expanding user manuals. The company will continue aggressive sales promotion and develop expanded platform functionality for the future.
  • Production Enhancement Investment Promotion: The company reconfigured the clean room layout and introduced efficiency optimization systems at its core Yamagata Factory to optimize overall production processes. New production equipment will be introduced sequentially starting in 2026 to strengthen production capacity.

• Core Strategy Progress:

  • Further Expansion of the Measurement Business: The company is developing new products aligned with market trends and customer needs, while improving production processes for existing products. New products will be launched sequentially starting in 2026, with core product launches planned for FY2027. The company is also developing new products for e-commerce platforms to expand its customer base.
  • Further Improvement of Customer Satisfaction: The company expanded its product lineup on e-commerce platforms including Amazon and Monotaro, adding 25 new product types in FY2025 to bring the total to 90 types, leveraging the convenience of short-lead-time, easy online purchasing. As a result, e-commerce sales more than doubled year-over-year. The company will continue expanding existing lineups and adding new product categories.
  • Strengthening Business Foundations to Enable Transformation: As part of IT environment restructuring to optimize business processes, the company completed basic design and testing for a new core system in FY2025. The new core system will go live in 2026 to improve operational efficiency and advance information management.
  • ESG Initiatives: On the environmental front, the company promotes solar power utilization and waste reduction to lower environmental impact. On the social front, the company works to improve employee engagement through embedding a new personnel evaluation system and refreshing internal certification programs. On the governance front, the company strengthens information security measures. The company will continue steady implementation and monitoring of initiatives tied to its materiality.

Capital and Share Price Conscious Management

• After implementing aggressive shareholder return and other related policies, Kyowa Dengyo achieved a PBR of 1.03x at the end of FY2025, hitting its target of exceeding 1x PBR. ROE currently trades near the CAPM-calculated cost of equity, but management recognizes a gap between current performance and market expected returns. The company will aim to lift ROE to 8% and stably maintain PBR above 1x via steady execution of the mid-term management plan.
• Current initiatives are structured around four pillars: (1) improve profitability, (2) optimize the balance sheet, (3) enhance shareholder returns, (4) improve market valuation. In FY2025, the company advanced policy-held share整理 to improve asset efficiency, introduced a shareholder benefit program, and acquired and canceled approximately 1.0 billion yen of treasury shares. An additional treasury share acquisition with an upper limit of 0.8 billion yen is planned for FY2026. To improve market valuation, the company began publishing a sustainability report in 2025 to enhance information disclosure.

Recent Operational Highlights

• Open Management and Contribution to Local Communities: The company published its first ever group sustainability report in FY2025 to improve dialogue with stakeholders and promote transparent management. Starting in 2026, the company will publish an annual integrated "KYOWA Report" combining financial results and sustainability activities on its website, with the 2026 report scheduled for release at the end of March. In October 2025, the company hosted the "Kyowa Dengyo Open Festa" to invite local residents and employee families to the facility, holding workshops to increase familiarity with the company, and will continue similar activities going forward.
• Digital Inspection Adoption at Kofu Kyowa Dengyo: The company introduced a new camera-based image inspection system at its Kofu Kyowa Dengyo manufacturing site, which produces measuring instruments. The system replaces manual visual inspection and handwritten check sheets for more than 10 inspection points, enabling instant automated pass/fail judgment and logging results as image data. This implemented reliable quality management based on image data while cutting inspection time from approximately 5 minutes to approximately 10 seconds. A similar camera inspection system has also been introduced at the Yamagata Kyowa Dengyo packing process, and the company will continue similar initiatives to improve production efficiency and product quality.
• Calibration Scope Expansion and Additional Types: Amid growing overall compliance awareness and increasing demand for internationally certified measurement accuracy, the company expanded the calibration scope for JCSS force gauges from the previous 100 Newton range to add the 50 Newton range, and now also supports calibration for general-purpose force gauges. The company will continue expanding capabilities to meet diverse calibration demand and grow the calibration business.

Financial Position Summary

Total assets decreased by 0.352 billion yen due to lower cash and deposits from treasury share purchases and debt repayment, offset by increases in trade receivables and held securities. Total liabilities decreased by 0.412 billion yen driven by short-term debt repayment. Net assets increased by 0.059 billion yen driven by higher valuation gains on securities. Operating cash flow generated 0.563 billion yen in inflows, down 1.053 billion yen year-over-year due to higher trade receivables from concentrated sales at the prior year-end. Investment cash flow saw a 0.07 billion yen increase in expenditures year-over-year driven by fixed asset acquisitions. Financing cash flow saw a 0.723 billion yen increase in expenditures year-over-year driven by treasury share purchases. Ending cash and cash equivalents totaled 4.155 billion yen, down 1.778 billion yen year-over-year.

Dividend Policy

The company's basic policy is progressive dividends aimed at stable shareholder returns. For FY2025, the company revised its dividend forecast to a 21 yen per share annual dividend, a 1 yen increase from the prior year.

Overall Company Performance

Total company net sales for the 2025 December period reached 16.272 billion yen, a 6.0% increase year-over-year, marking the third consecutive year of revenue growth. Operating profit reached 1.385 billion yen, a 2.2% increase year-over-year, also the third consecutive annual gain. Net income fell 3.1% year-over-year to 1.033 billion yen due to foreign exchange impacts. Total orders received increased 2.2% year-over-year to 15.863 billion yen, with an ending order backlog of 5.0 billion yen, in line with historical average levels.

Core Product Segments

1. Measuring Instruments Segment: Driven by increased demand for general-purpose measuring devices and the impact of price adjustments, which led to strong growth in general-purpose product sales, alongside steady performance in custom/system products and maintenance/repair services. Net sales reached 14.937 billion yen, a 7.2% increase year-over-year, accounting for 91.8% of total company revenue.
2. Consulting Segment: A decline in revenue after the completion of a large round of railway-related measurement projects. Net sales reached 1.334 billion yen, a 6.1% decrease year-over-year, accounting for 8.2% of total company revenue.

Major Business Segment by End Market

1. Automotive Testing Field: Net sales fell 17.5% year-over-year to 3.247 billion yen, dragged down by the absence of the large collision testing project booked in the prior year. General-purpose product sales increased on the back of growing testing demand tied to new vehicle development.
2. Industrial Measurement Field: Net sales fell 1.6% year-over-year to 3.424 billion yen, impacted by the prior year's large custom/system product project. General-purpose product sales remained steady driven by strong demand from overseas electrical manufacturers.
3. Environment, Disaster Prevention & Energy Field: Net sales increased 25.7% year-over-year to 2.964 billion yen. Custom/system products grew strongly led by renewal demand for dam embankment observation equipment, while general-purpose products performed steadily driven by energy-related demand from the nuclear power sector.
4. Transportation & Transportation Infrastructure Field: Net sales increased 5.6% year-over-year to 2.488 billion yen. Aerospace-related demand growth drove strong gains in both general-purpose and custom/system products, while consulting services declined after railway-related demand was fulfilled.

Overseas Regional Performance

Total overseas net sales fell 1.4% year-over-year to 2.128 billion yen. The US market saw a slight decline due to temporary business stagnation from trade policy impacts, while China remained steady with growing industrial measurement demand for the second consecutive year. India recorded a 39 million yen year-over-year revenue increase driven by demand from air conditioning-related businesses and Japanese automakers, while Thailand recorded a 46 million yen year-over-year revenue increase driven by industrial measurement demand from EMS companies for substrate stress measurement and air conditioning-related applications.

• For the 2026 December period, Kyowa Dengyo forecasts consolidated net sales of 16.5 billion yen, operating profit of 1.45 billion yen, ordinary profit of 1.5 billion yen, and net income of 1.2 billion yen. The annual dividend per share is forecast to remain stable at 21 yen.
• The company will advance new product development, expand orders, and reduce costs via customized specification proposals and rapid responses to customer requests, while working to establish new technology platforms including MEMS, cloud services, and image processing.
• On the production front, the company will improve productivity via new equipment introduction at Yamagata Factory, and improve delivery lead-time responsiveness via accurate delivery management integrated with diverse data sources.
• On the sales front, the company will leverage its strength in offering total end-to-end solutions from measurement equipment supply to measurement service delivery, strengthen solution proposals that directly resolve customer issues, capture growing measurement demand in growth areas including GX (Green Transformation) and defense, and improve the efficiency of equipment installation and maintenance inspection via group-wide collaboration for field engineering services.
• To support growth, the company will restructure systems to promote employee development, improve operational efficiency via the new core system launch, and build a strong management foundation.
• The mid-term management plan maintains its original targets of 17.0 billion yen in net sales, 1.7 billion yen in operating profit, and 8% ROE by fiscal year 2027.

• Rising raw material prices increase the cost ratio, and higher selling, general and administrative expenses (including repair costs) have put downward pressure on profits, offsetting much of the profit gain from revenue growth in FY2025. Foreign exchange volatility can also impact net income, as seen in the FY2025 swing from a prior year foreign exchange gain to a current year foreign exchange loss that led to a slight decline in net income.
• End-market large project timing creates volatility in annual revenue and profit for the automotive testing and industrial measurement fields, as the absence of large projects booked in the prior year led to year-over-year revenue declines in both segments in FY2025.

The full question and answer content was not included in the provided transcript; only the following list of question topics was included: Q: What is the difference in gross margin between general-purpose products and custom/system products?

A: No answer content provided in the transcript.

Q: What is the future outlook for trends in each major business segment?

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Q: What is the current status of sales and orders in the automotive testing field?

A: No answer content provided in the transcript.

Q: What is the current status of sales and orders in the industrial measurement field?

A: No answer content provided in the transcript.

Q: What is the company's policy for overseas sales?

A: No answer content provided in the transcript.

Q: What is the outlook for measurement equipment maintenance business?

A: No answer content provided in the transcript.

Q: What is the commercialization progress for cloud services?

A: No answer content provided in the transcript.