T.RAD Co., Ltd. Q2 FY2026 earnings call

• Financial Results for 2Q 2025 (25/9 period)

  • Consolidated net sales reached 77.511 billion yen, a 1.9% year-over-year decrease driven by lower foreign-currency sales in the US and China, plus yen appreciation, partially offset by domestic sales growth.
  • Operating profit reached 5.393 billion yen, and net income attributable to parent shareholders hit 4.094 billion yen, a triple-digit percentage increase year-over-year, with an over 3.3 billion yen increase from the prior year (which had high extraordinary losses). The 2Q net income already exceeded the full-year net income forecast issued in August.
  • Consolidated recurring profit increased 2.794 billion yen year-over-year, driven by higher sales, improved raw material cost ratios, better operating leverage in the domestic segment, and improved recurring profit across all overseas regions.
  • Extraordinary losses were minimal at just 39 million yen, compared to 1 billion yen in extraordinary losses for legacy system cleanup in the prior year period.

• US Tariff Policy Response

  • T.RAD is rebuilding component sourcing routes, shifting sourcing from China to ASEAN where possible, and negotiating with customers to pass through tariff costs. Full-year 2025 tariff burden is projected at 1.2 billion yen, with negotiation progress already achieved.
  • The firm is expanding local production in the US and hiring local talent to meet customer demand for regional production, including adding automated equipment to enable production with smaller teams and evaluating new local factory sites. Domestic expansion is also under evaluation to respond to strong domestic inquiry volumes.

• Long-Term Growth Strategy: Multi-Pathway Powertrain Opportunity

  • Global carbon neutrality trends have shifted to a "multi-pathway" model, where multiple powertrain types (gasoline, e-fuel, hydrogen engines, hybrids, fuel cells, BEV) are deployed based on regional characteristics, rather than prioritizing BEV exclusively.
  • All powertrain types require heat exchangers, and vehicle electrification actually increases the number of heat exchangers required per vehicle (additional units are needed to cool motors, batteries, and inverters, plus additional low-temperature radiators), creating growing demand for T.RAD's products.
  • Updated 2030 sales forecasts reflect a large reduction in projected BEV share, with increased share for hybrids and plug-in hybrids, which represents a major market share expansion opportunity for T.RAD. The firm secured a large global order for its new integrated multi-function radiator (多機能RAD) for hybrid vehicles from a major automaker, which is expected to drive sales growth in North America and China.

• Production Capacity Expansion (Mid-Term Plan)

  • T.RAD is evaluating a new factory in Tennessee, near its existing Kentucky facility in the US, with planned investment of 7.5 billion to 10 billion yen.
  • Domestic capacity is already overloaded: in addition to the new Hadano, Kanagawa factory opening in late November 2025, T.RAD is evaluating a 2.5 billion yen new factory at the Shiga Works, and a 5 billion yen investment for a second Nagoya location to serve Chukyo region customers. All amounts are preliminary pending formal internal approval.

• Capital Allocation & Shareholder Return

  • T.RAD expects annual operating cash flow of 10 billion to 15 billion yen, plus 5 billion yen in annual borrowing, maintaining a 40% equity ratio, to allocate 15 billion to 20 billion yen annually to growth investment, strategic investment, and shareholder return.
  • Growth investment focuses on multi-pathway heat exchanger development, automation/labor saving equipment, DX, and human resources. Strategic investment covers new facilities to meet customer demand.
  • The firm has increased its 2025 interim dividend by 40 yen to 160 yen per share, with an unchanged projected year-end dividend of 160 yen, for a full-year dividend of 320 yen per share (3.5% DOE, 28% payout ratio, 13% projected ROE). It is also executing 4 billion yen in share buybacks in 2025, bringing total projected shareholder return payout ratio above 90%. The long-term target is 5%+ DOE by 2030.
  • T.RAD targets PBR improvement by sustainably achieving 15%+ ROE, with a target of 4.5% net income margin and improved capital efficiency via higher financial leverage.

Regional Segments:

• Japan: Increased sales revenue, delivered large year-over-year operating profit growth, and is projected to have an improved operating profit margin for full-year 2025. Domestic sales grew year-over-year even as overall consolidated sales declined.
• United States: Decreased sales revenue due to lower foreign currency-based auto and commercial vehicle sales, economic slowdown, and yen appreciation. However, it achieved large year-over-year operating profit growth driven by production transfer project progress and ongoing profitability improvements, with full-year operating profit projected to reach near break-even (improved from -0.6 billion yen last fiscal year and -2.3 billion yen in FY2024 March). It makes up a large, critical share of T.RAD's total revenue.
• Europe: Decreased sales revenue year-over-year for the 2Q period, but still achieved operating profit growth.
• China: Decreased sales revenue year-over-year due to economic slowdown, but maintained profitability via fixed cost cutting and is targeting continued black ink (positive net income) performance. It has delivered year-over-year operating profit improvement in the 2Q period.
• Asia (excluding China/Japan): Grown in revenue contribution and delivered expanding operating profit, growing in importance as a regional segment replacing China's historical contribution.

End-Use Segments:

• Automotive: Full-year 2025 revenue is projected to decline year-over-year, reflecting weak market conditions in the US and China.
• Construction & Industrial Machinery: Full-year 2025 revenue is projected to increase 1.5% year-over-year, which is attributed to a rebound from prior production adjustments rather than a sustained improving trend.

• Full-Year 2025 (26/3 period) Guidance: Management upwardly revised full-year guidance, driven by a stronger-than-expected first half performance and reduced downside risk from US tariffs. Consolidated sales guidance was increased by 3 billion yen, and profit guidance was increased by more than 2 billion yen from the prior forecast.
• Full-year 2025 projected consolidated net income is 6.4 billion yen: excluding one-time extraordinary items that impacted the prior year, this represents a continued increase in the core net income base, from 6.6 billion yen last year to 6.9 billion yen this year.
• Full-year operating profit margin is projected to reach 5.7%, up from 4.6% last year and 2.8% in FY2024 March, driven by selling price improvements, cost reduction, and the ongoing US segment profitability recovery.
• The long-term target for 2030 is 200 billion yen in net sales, 11 billion yen in operating profit (5.5% margin), 9 billion yen in net income (4.5% margin), 60 billion yen in net assets, and 15% ROE, which management remains committed to achieving.
• Full-year 2025 sales are projected to be nearly flat to slightly down year-over-year, with both profit amount and margin improving year-over-year. The share of overseas revenue is projected to decline for the second consecutive year, driven by exchange rate and market conditions in China.

• US tariff policy remains volatile, creating uncertainty for costs and profitability, even though downside risk has moderated in the near term.
• Continued economic slowdown in the US and China is pushing down automotive and commercial vehicle sales, reducing revenue in these key regions.
• Yen appreciation creates negative translation impacts on consolidated overseas revenue.
• Ongoing supply chain chain disruption risk and geopolitical risk could lead to unexpected cost volatility.
• While China has maintained profitability via cost cutting amid continued declining revenue, sustaining black ink performance in this market will require ongoing cost management efforts.
• Higher capital expenditure for capacity expansion is concentrated in the second half of the year, leading to higher depreciation expense that pressures second half profitability.

Q: Why does management expect year-over-year lower sales and profit in the second half, and what is the balance of upside vs downside risk? / A: Lower second half profit is concentrated in Japan and the US. In Japan, the first half included one-time valuation gains from hedged raw material purchases that are not expected to repeat, and all regions see higher depreciation from second half capital expenditures under the annual budget. In the US, lower sales and profit reflect an expected decline in sales for all-terrain vehicles (ATV) from European customers, even as new large hybrid orders are secured. The guidance incorporates a range of potential risks from tariff volatility and supply chain disruption, resulting in a cautious projection.

Q: Is there any plan to implement a stock split given the recent share price increase? / A: The current unit purchase price is around 800,000 yen, but new market mechanisms (fractional share trading, 1-share trading, and digital yen-based trading) are creating more accessible purchase opportunities for retail investors without T.RAD needing to split. Stock split would also increase administrative costs for shareholder communications and venue constraints for shareholder meetings, so management plans to maintain the current structure and adapt to market institutional changes rather than implement a split for now.

Q: What is your view on the changing competitive landscape against domestic and global mega suppliers in the heat exchanger market? / A: T.RAD has competed globally with other Japanese domestic suppliers for a long time, and competition has intensified recently in the US and China following strategy shifts at some peer firms. Unlike mega suppliers that produce a broad range of auto components, T.RAD focuses exclusively on heat exchangers and can dedicate full resources to cost competitiveness and product quality for this single product category. T.RAD is building out regional production networks to deliver cost-competitive, high-quality products matching local customer demand, and is confident it can compete effectively focused on its core heat exchanger expertise.