7719.T

Company Overview

• Founded in 1923, 103 years old as of 2026, with 196 consolidated employees (approx. 200 total). Operates across three core subsidiaries: Tokyo Keiki Testing Equipment, Tokyo Keiki Engineering, and Advanced Dynamic Simulation Research Institute (ASTOM).
• Positioning: The group provides technologies that underpin safety and security across industrial sectors.

Business Overview by Segment

• Testing Equipment Business: Focuses on material testing and dynamic testing (does not compete in environmental testing, which is dominated by other players). Manufactures testing equipment that measures the strength and durability of materials for energy, steel, automotive, and public research clients. Over 80% of customers are in energy-focused heavy industry, steel, automotive, and government research institutions, with iron and steel machinery and transportation equipment making up the majority of delivery volumes between 2020 and 2024.
• Engineering Business: Produces the company's proprietary anti-loosening Smart Hyper Load Nut, which features a unique spring-based design that tightens further under vibration. The product meets the strict NAS3350 U.S. standard (passes 30,000 vibration cycles over 20 minutes without loosening) and is used in major projects including the New National Stadium, metropolitan expressways, seismic retrofitting, power transmission towers, railways, and residential construction. It is a differentiated, patent-protected technology with room for future growth.
• Digital Business (ASTOM): ASTOM, acquired last year, provides CAE (computer-aided engineering) simulation technology, with the goal of fusing physical testing equipment and CAE software to deliver digital twin solutions. The company currently focuses on organizing testing data management for clients as a first step, with the long-term goal of reducing customer product development timelines by combining physical testing and digital simulation. ASTOM is integrating AI to improve simulation accuracy, and the combined hard/soft offering creates a unique competitive moat, as standard system integrators lack the deep testing industry knowledge required for this work. The business model has recurring revenue potential from ongoing software and data services, complementing the long 20-year replacement cycle of physical testing equipment.

Operational Highlights

• Demand growth is driven by two major long-term trends: (1) Surging energy demand from generative AI servers (3-5x higher power use than standard servers) and EV adoption, which requires new power generation infrastructure (including next-generation nuclear power) that needs new, specialized testing equipment; (2) Growing new material development for environmental compliance, which creates constant demand for strength and durability testing. Management expects test demand to continue expanding over the medium to long term.
• The company has shifted to a profitability-focused strategy: it now prioritizes high-margin projects, ensures sufficient gross margin buffers to account for rising labor and raw material costs, and can turn away low-profitability projects thanks to its record order backlog. This strategy has already driven significant gross margin improvement.
• Group synergy: The company is moving toward becoming a full solution provider combining hardware, software, and data services. It is collaborating with the University of Tokyo on drone performance evaluation research, a new growth area focused on safety certification for the emerging drone industry.
• Listing status: The company met all Tokyo Stock Exchange listing maintenance criteria after resolving past issues, and no compliance issues remain outstanding.

• Full-year 2026 February term consolidated revenue is projected at 4.77 billion yen, approaching 5 billion yen, with this term marked as the first year of V-shaped recovery after three years of restructuring. The 3rd quarter operating profit through September is 177 million yen, with full-year results expected to meet guidance due to heavy concentration of deliveries and profit recognition in the 4th quarter, as most customers have March fiscal year ends that align with Tokyo Keiki's 4th quarter.
• The medium-term management plan targets 6 billion yen in consolidated revenue by the final year of the plan (FY2028 February term), with a 10.3% operating margin target. The plan is backed by the current record order backlog of 3.5 billion yen in the testing equipment segment, with early pipeline already building for 2028 fiscal year projects.
• ASTOM is expected to achieve full profitability contribution starting in the 2027 February term, with its current 8% operating margin expected to improve over time as synergies with the testing business materialize.
• The 2027 February term consensus forecast in Shikiho (Japanese equity quarterly guide) of 5 billion yen in revenue, 200 million yen in operating profit, 190 million yen in recurring profit, and 170 million yen in net income is noted as an external projection, with the company focused on delivering its stated medium-term plan.
• Dividend resumption is currently targeted for the 2029 February term, as the company must first eliminate accumulated deficit carryforward. If medium-term performance exceeds plan, dividend resumption could happen earlier.

1. Testing Equipment Segment: This is the largest revenue contributor to the group. As of the 3rd quarter of the 2026 February term, the segment holds an order backlog of 3.5 billion yen (peaking at 4 billion yen in April 2025), up from 2 billion yen when CEO Kozuka took office. Growth is driven by higher average order values and improved gross margins: the base gross margin target has been raised from the 20% range to approximately 35%. Full-year 2026 February term consolidated revenue is projected at 4.77 billion yen, with the testing equipment segment accounting for the majority of this total.
2. Engineering Segment: The segment faced difficult operating conditions in the 3rd quarter of the 2026 February term. Headwinds included the emergence of competing products that pressured sales to key customers, plus one-time costs related to past management misconduct by former executives. The company completed internal system overhauls and cost accounting framework improvements during the term, laying a foundation for future expansion, and no further large misconduct-related costs are expected going forward. It is a small-scale segment focused on the company's proprietary Smart Hyper Load Nut (anti-loosening nut product).
3. Digital Segment (ASTOM): The segment was consolidated as a subsidiary in February 2025, and the 3rd quarter 2026 February term reflects only 9 months of results due to accounting alignment. Full annual results for ASTOM (calendar 2026) are projected at 819 million yen in revenue and 67 million yen in operating profit, representing an 8% operating margin consistent with its 3-year historical average. Revenue is concentrated in deliveries from January to March due to seasonal customer patterns, so full profit contribution will be seen in the 2027 February term onward, with planned V-shaped recovery to profitability. Around 10 combined ASTOM/testing equipment projects are currently in progress, though no large near-term profit contribution is expected.

• Testing equipment projects have long lead times (6 months to 2 years from order to delivery), which creates exposure to raw material and labor cost volatility over the project lifecycle that could erode projected margins if not properly managed. The company mitigates this by building sufficient margin buffers into initial quotes and conducting ongoing cost reduction throughout project execution.
• The engineering segment faced pricing pressure from new competitors in the current term, which impacted near-term performance.
• Past misconduct by former management required one-time remediation costs in the current term, though the company has completed system overhauls to prevent recurrence and no further large costs are expected.

Q1: When will ASTOM's profit contributions be reflected in consolidated results, and what percentage of operating/recurring profit will it eventually account for? A1: ASTOM is a long-term strategic business focused on fusing hardware and software, so the priority is on advancing the integration properly rather than chasing near-term profit. The foundational work will take time, and no specific near-term profit share target was provided.

Q2: Is the company committed to the 2027 February term profit forecast published in Shikiho that calls for profit doubling? A2: The company is focused on delivering its own published medium-term management plan, and the Shikiho forecast is an external projection, not an official company commitment.

Q3: Can dividend resumption happen earlier than the targeted 2029 February term if performance exceeds expectations? A3: Eliminating the accumulated carried-forward deficit requires a fixed amount of time, but if the medium-term plan outperforms expectations, an earlier resumption is possible.

Q4: Why do large major companies outsource testing equipment production to Tokyo Keiki rather than manufacturing in-house? Is it required by regulation to use a third-party provider? A4: It comes down to Tokyo Keiki's track record and technical expertise. Custom-order testing equipment requires highly experienced engineers to design correctly, and even seemingly simple projects often have unexpected difficulty. Large companies have much higher indirect overhead than our 200-person group, so it is cheaper for them to outsource to us than produce in-house, even after our margin is added. We are a testing equipment manufacturer, not a third-party testing service provider: we sell the physical testing equipment to clients for their own in-house use.

Q5: What governance changes have been implemented to prevent recurrence of past misconduct, and will remediation costs continue into future terms? A5: The lifting of the special attention listing designation confirms that our governance framework is now assessed as adequate by the exchange, and we will continue to maintain and strengthen this framework. The past misconduct involved kickbacks from suppliers to former executives, which was enabled by mismatched invoicing between the company and suppliers. We implemented a new system that reconciles supplier invoices automatically to eliminate this risk. Almost all remediation costs have already been recognized in the current term, and almost no further such costs are expected going forward.

Q6: What is driving the growth in testing equipment orders: new customers, or higher order values per customer? A6: The main driver is higher average order amounts per customer/entity. This comes from increased orders from individual sites within large client companies (as major steel and heavy industry firms have multiple sites, each with their own budget and testing equipment needs), plus expansion of testing equipment fleets at existing sites. New customers are also growing, but the main growth driver is higher average order size.

Q7: What is the current size of the drone-related business, and how is it positioned within the group? A7: It is not large enough to impact consolidated profit and loss at this point. It is focused on the safety testing and certification segment, which aligns with the group's core mission of supporting safety. It is mostly positioned within the digital segment, for example combining testing equipment with VR to simulate drone flight for performance evaluation. It is a long-term growth area, not a near-term profit contributor.

Q8: How will the company improve ROE and maintain capital efficiency during the period before dividends resume? A8: The first priority is ensuring adequate gross margin on every project, which is the largest driver of profitability, more impactful than expense cutting. We are also taking advantage of current low interest rates to fund growth (including the ASTOM acquisition, which was fully funded by a bank loan with no equity issuance) to avoid diluting existing shareholders and improve capital efficiency. All major banks have supported our financing needs on favorable terms.

Q9: Are there other competitors in the testing equipment industry, and what is Tokyo Keiki's competitive position? A9: Yes, competitors include Shimadzu Corporation and Sokken Testing. However, Tokyo Keiki believes it is the most advanced player in pursuing an integrated strategy combining hardware testing equipment and digital/CAE capabilities, which is a unique competitive position.

Q10: What is driving the increase in average testing equipment order values? Is it tighter pricing and gross margin management? A10: Average order values were lower historically than the current approximate 100 million yen per custom order. The main drivers are twofold: (1) improved pricing discipline, where we now build in sufficient gross margin (targeting a 35% base gross margin, up from 20-25% historically); (2) our factory is operating near capacity due to the large order backlog, so we can afford to decline low-margin projects and select higher-value, higher-margin orders. The key improvement is in gross margin per order, not just nominal order value.

Q11: Does the unchanged full-year guidance despite a slow 3rd quarter mean large profit is expected in the 4th quarter? A11: Yes, this is due to business characteristics: we use inspection-based revenue recognition, where revenue and profit are only recognized after delivery and customer acceptance. Most of our customers have March fiscal year ends, so they require delivery before March, which falls in our 4th quarter. Full-year guidance is based on current project progress and delivery plans, so no change is needed.

Q12: Which specific business is leading the shift to solution/service-oriented business? A12: The shift is driven by synergy between the core testing equipment business and the digital (ASTOM) business. We are working to integrate three components: physical testing with hardware, CAE simulation with software, and testing data analysis/activation as a service, to deliver end-to-end solutions that improve customer development efficiency and add more value.

Q13: Which business will contribute most to hitting the 10%+ operating margin target? A13: The testing equipment business is the core profit base, so improvements in order quality and cost reduction in this segment will be the largest contributor to margin expansion. In the medium to long term, synergy between testing and digital that creates higher-value integrated projects will also contribute to margin improvement.

Q14: What is the core purpose of the ASTOM acquisition? A14: The core goal is to combine testing equipment hardware with ASTOM's CAE simulation technology to deliver higher-value solutions that include data analysis and software services to customers. This also creates recurring, stable long-term revenue streams that complement the long replacement cycle of physical testing equipment, driving medium-term stable growth.

Q15: How do you manage the risk of margin erosion on long-lead projects due to cost changes between ordering and delivery? A15: We manage this by ensuring adequate projected profitability at the time of order, then conducting ongoing cost reduction efforts across every project phase to maintain margins. Additionally, our current record order backlog allows us to prioritize high-margin projects and turn away low-profit opportunities, which helps protect overall profitability.