6999.T

Overall Financial Results

• Full-year FY2026: Operating profit of 3.65 billion yen, up 210% year-over-year; Ordinary profit of 5.22 billion yen; Net profit of 3.95 billion yen
• Non-operating income of 1.58 billion yen, driven by capital investment subsidies and foreign exchange gains from yen depreciation, which positively impacted earnings
• Orders have recovered gradually since hitting a bottom in Q3 FY2025; Q4 FY2026 orders exceeded 20 billion yen for the first time since Q1 FY2022, partially driven by customer inventory buildup amid the Middle East conflict
• Order backlog remains stable at approximately 2 months of monthly sales, with a book-to-bill ratio above 1

Capital Investment, Depreciation and R&D

• FY2026 capital investment totaled 5.9 billion yen, with ~70% allocated to the completed new Malaysia factory, plus additional investment for China facility relocation and domestic Japanese capacity/productivity improvements
• FY2026 R&D spending was flat year-over-year at 3.6 billion yen

New Factory Operations

• KOA DENKO (Malaysia) new factory completed construction in April 2025; sample line is being set up for customer qualification, with commercial shipments planned for October 2026. The facility is being built as a smart factory using MES to improve productivity, reduce costs and compress inventory, primarily producing thick film flat chips
• Xinghe Electronics (Taicang, China) completed relocation from an old to new factory in September 2025 per government request, also producing core thick film flat chips
• Both new factories provide sufficient capacity to serve growing automotive, AI-related and future innovation markets

Growth Market Strategy (AI-related Equipment)

• Management expects growing business opportunities from increasing server volumes and data center infrastructure expansion driven by DX adoption. A single AI server is estimated to require ~360,000 chip resistors
• FY2026 AI server-related sales totaled 3.6 billion yen, with a projected 20% year-over-year increase for FY2027
• AI servers require new performance characteristics from resistors to support higher power consumption; KOA is expanding sales of existing current sensor modules, thin-film high voltage dividers and sulfidation-resistant chips, and will use its broad product portfolio to meet future demand for higher power applications

Corporate Governance Reform

• The Nominating and Remuneration Committee, chaired by an independent outside director with a majority of independent members, has led multi-year governance reform, including development of the executive officer system, CEO succession planning, and a full overhaul of the executive compensation system
• The transition to an executive officer system is nearly complete, with clear separation of powers between the Board of Directors and the Executive Officer Committee to eliminate inefficient dual management
• Board of Directors reform has shifted focus from routine operational reviews to in-depth discussion of strategic topics (investment strategy, human capital, technology), with quarterly reviews of ROE, share price and cost of capital to formalize ROIC-focused management
• Starting June 2025, 5 of 8 Board seats will be held by independent outside directors, and the Board Chair will be an independent outside director to eliminate structural bias and improve monitoring effectiveness
• The new compensation system fully separates pay for Directors (non-executive) and Executive Officers:
  • Director base pay is equal for all internal and external members, with additional pay based on role; no performance bonuses, and fixed-quantity restricted stock grants annually during tenure
  • Executive Officer pay is role-based, with fully performance-linked bonuses tied 100% to ROE achievement against a fixed 9% target ROE

Dividend Policy

• The FY2026 year-end dividend was raised from the initial 15 yen per share to 17 yen per share, bringing full-year dividend to 32 yen per share (payout ratio 30.1%)
• A full-year dividend of 39 yen per share is planned for FY2027, representing a 2.5 yen per share increase, with a projected payout ratio of 30.3%

• FY2027 (March 2027) total sales guidance is 77.4 billion yen, a 5.1 billion yen increase year-over-year, driven by continued strong demand for automotive products in Japan and AI server-related products across Asia including Taiwan and China
• FY2027 operating profit guidance is 2.83 billion yen, an 820 million yen decrease year-over-year. Positive factors are 1.7 billion yen from sales growth and 700 million yen from yen depreciation, while negative factors are 2.2 billion yen from soaring raw material prices and 1.1 billion yen from increased fixed costs
• Net profit guidance is 4.78 billion yen, an 830 million yen increase year-over-year, due to a 3 billion yen special gain from China factory relocation compensation to be recorded in H1
• ROE is projected to be 5.3% for FY2027
• FY2027 capital expenditure guidance is 4.1 billion yen; depreciation is projected at 7.2 billion yen; R&D spending is projected at 3.5 billion yen
• Price corrections to pass through higher raw material costs are planned, but there is a 6-12 month time lag between negotiation and implementation, with most price adjustments expected to shift to FY2028

For the full fiscal year ending March 2026, KOA reported total sales of 72.29 billion yen, a 12.7% increase year-over-year. Segment performance (Q4 FY2026 compared to Q3 FY2026 by product):

• Resistors: 5.4% sales increase, with strong demand across nearly all end-use applications
• Safety Components: 1.6% sales decrease
• ICs: 14.9% sales decrease, concentrated in industrial equipment end markets
• Other products: 16.8% sales decrease By end-use application in Q4 FY2026:
• Automotive: 6.7% sales increase, representing 52% of total Q4 revenue
• Industrial Equipment: 2% sales increase, continuing a recovery from 2024 inventory adjustment
• Telecommunications: 1.7% sales increase, remaining at high levels driven by AI server demand
• Power supplies: 8.7% sales increase, driven by strong server demand
• Home appliances: 15.3% sales increase, driven by peak air conditioner demand in Asia
• Other applications: 4.4% sales decrease, concentrated in distributor channels in North America and China

• The Middle East conflict creates downside risk from higher procurement costs and reduced customer demand due to lower customer production output; the full impact is highly uncertain and not included in the current FY2027 guidance
• Raw material (specifically precious metal contained in resistor paste for core thick film flat chips) prices are soaring, which will lead to higher production costs that will not be fully offset by price increases until FY2028, resulting in expected operating profit decline in FY2027
• The Malaysia new factory will incur qualification and startup costs in FY2027 that will increase selling, general and administrative expenses
• New capacity increases from the China and Malaysia new factories have led to higher depreciation and fixed costs that pressure near-term profitability
• Weakening distributor demand in North America and seasonal demand fluctuations in Asian markets create near-term sales volatility

No question and answer section was included in the provided earnings call transcript.