Daitron Co.,Ltd. Q2 FY2025 earnings call

2Q 2025 Consolidated Financial Results

• The 2Q delivered solid year-over-year top-line and bottom-line growth: total revenue reached 48.852 billion yen, operating profit reached 3.723 billion yen, ordinary profit reached 3.651 billion yen, and quarterly net profit reached 2.555 billion yen, representing 109.1%, 140%, 129.2%, and 135.6% of the prior year period figures respectively.
• Results beat the 1Q-published guidance, with large profit growth driven by front-loaded revenue recognition of equipment projects originally scheduled for the second half of the fiscal year.

11th Medium-Term Management Plan (11M, 2024-2026, Second Step of 2030 VISION)

• Core Goal & Slogan: The slogan is "Advance as a technology-focused company and grow in the global market", with a core target of exceeding 100 billion yen in total revenue.
• Strategic Priorities:
  • Business structure transformation: Maintain a balanced "stable + growth" business portfolio; grow original product and overseas business ratios (both are growing in line with plan despite still being below target). UPS for data centers as a new Green Facility business is already growing strongly, and new software business is being cultivated.
  • Maximize core strengths: Leverage Daitron's combined manufacturing and trading functions in the global market.
  • Focus on priority areas: Expand beyond existing business; cultivate the new UPS business and new AI-related software projects that combine hardware and software capabilities.
  • Reinforce domestic business: Upgrade the Sendai outpost to a full sales office covering the entire Tohoku region, and strengthen coverage of underpenetrated regions including Hokkaido and Shikoku.
  • Expand overseas business: Add new outposts in existing markets including Europe, North America and China; conduct market research for a future entry into India.
  • Production strategy: Improve existing plant capacity and deepen partnerships with external contract manufacturers to expand flexible production capacity.
  • Technology R&D: Invest in improving existing product performance and developing new long-term strategic products; increase patent filings to strengthen intellectual property strategy.
  • Support function enhancement: Advance digital transformation to improve productivity and quality; increase employee training investment to improve human capital; promote diversity and inclusion; establish a new IR/PR department to increase brand visibility.
  • ESG promotion: Established a Sustainability Committee with material issues and KPIs, and expanded activities via working subgroups.

Capital Strategy & Cash Allocation (2025-2026)

• Prioritize ROE as a core metric, with a medium-term target of 12%+ ROE.
• Increased the target dividend payout ratio from 30% to 40% to strengthen shareholder returns.
• Planned total investment: 1 billion yen for R&D focused on original products, 3.5 billion yen for new business and production capacity upgrades including existing plant equipment replacement and reconstruction, 1.5 billion yen for digital transformation.
• Actively pursue M&A opportunities with synergy potential, and will continue to conduct agile share buybacks when appropriate.

1. Product Segments:
   • Electronic Equipment and Components: Performed broadly well in the quarter. The Green Facility new business line focused on data center UPS secured large new project orders in 2Q, driving significant order growth.
   • Manufacturing Equipment: Revenue increased sharply quarter-over-quarter from 1Q, boosted by front-loaded recognition of previously planned second-half equipment project sales, with strength driven by domestic demand for optical device manufacturing equipment for data center server communications.
2. Geographic Reporting Segments (all year-over-year revenue and operating profit growth):
   • Domestic Sales Business: Modest year-over-year growth, no specific absolute revenue figure provided.
   • Domestic Manufacturing Business: Modest year-over-year growth, no specific absolute revenue figure provided.
   • Overseas Business: Recorded the highest growth rate, with total 2Q overseas revenue contributing 27.4% of total consolidated revenue. Breakdown by region:
     • Europe: Large year-over-year growth, driven by equipment project sales.
     • North America: Steady growth, contributed by the ramp-up of the company's owned harness manufacturing factory for new long-term projects.
     • Asia: Overall growth led by South Korea and Singapore, while China saw a year-over-year revenue decline due to local economic stagnation.
3. Original Products Segment: Original products account for 16.5% of total revenue currently, and all segments excluding power equipment achieve a gross profit margin above 20% due to Daitron's integrated manufacturing and sales model.

• Full-year 2025 consolidated guidance is maintained from the 1Q release, with no upward revision despite a strong 2Q outperformance driven by front-loaded sales:
  • Full-year revenue target: 95 billion yen (101.6% of prior year)
  • Full-year operating profit target: 6.35 billion yen (102.4% of prior year)
  • Full-year ordinary profit target: 6.35 billion yen (100.2% of prior year)
  • Full-year net profit target: 4.4 billion yen (100.4% of prior year)
• Dividend guidance is maintained: an interim dividend of 70 yen per share for 2Q, with a planned year-end dividend of 90 yen per share, for a full-year dividend of 160 yen per share.
• The 11M medium-term plan is on track overall, with all performance KPIs progressing broadly as planned.

• U.S. tariff policy uncertainty creates unclear spillover risks to Daitron's North American customers; while no direct material impact on Daitron's own business is expected, management retains guidance due to ongoing uncertainty about customer impacts.
• European automotive and associated semiconductor markets are currently experiencing weak conditions, creating near-term headwinds for Daitron's regional exposure to these sectors.
• China's ongoing economic stagnation has already caused a year-over-year revenue decline in Daitron's China business, and this weakness may continue in coming quarters.
• Original product and overseas business ratios are still below 11M medium-term targets, requiring continued investment and growth effort.

Q: What is driving the strong performance of North American and European business, and what is the outlook for these regions? / A: In North America, the main growth driver is the ramp-up of the long-term railway vehicle harness manufacturing project, which is already contributing to revenue and will continue for the next 2-3 years. Additional new locomotive replacement projects are also receiving inquiries, and growing semiconductor investment in the region is expected to bring additional equipment-related business opportunities, so management expects the current strong performance to continue. In Europe, 2Q strength came from the completion of a large pre-ordered equipment project. While automotive and semiconductors are weak regionally, Daitron's power supplies for analytical and medical equipment have strong demand potential, and the new Netherlands local subsidiary is starting sales expansion, which should drive future growth.

Q: What is the current status and outlook for Daitron's new businesses? / A: Daitron has two key new businesses. First, the UPS sales and technical service business for data centers under Green Facility is already established and growing rapidly. AI-driven data demand is extending large-scale domestic data center construction projects out to 2030, and Daitron has already secured large orders and strong inquiry flow, so significant continued growth is expected. Second, the new software business is still in the cultivation stage but is starting to build traction. It combines AI software with Daitron's existing hardware products (sensors, components) to target automation system opportunities. Inquiries are growing, and Daitron is expanding the business via partnerships and will increase go-to-market activities, with high expectations for future growth contribution.

Q: How has China's economic slowdown impacted Daitron's semiconductor and FPD manufacturing equipment order backlog? / A: (Paraphrased based on topic focus) China's economic stagnation has driven a decline in local semiconductor and FPD equipment demand, which has contributed to the overall reduction in Daitron's total order backlog for this product category. Management notes that this segment is exposed to cyclical investment waves, and the China-driven weakness is the primary factor behind the current lower backlog.