OVAL Corporation Q4 FY2025 earnings call

• Completed Mid-Term Management Plan "Imagination2025" (2022–2025)

  • All performance targets, including the upward revised targets set in 2023, were fully achieved. Total orders and sales significantly outperformed the prior mid-term plan period, and profitability improved substantially driven by growth in high-margin products.
  • Key achievements by strategic pillar: Sensor business hit sales targets ahead of schedule with strong growth in semiconductor and battery-related markets, and multiple innovative new products were launched; Service business exceeded sales targets after expanding its business domain via M&A; System business greatly outperformed sales targets and improved profitability through stronger management; Two new ventures were launched under a new internal venture scheme: chemical substance survey agency business and the Lock‘nLorry tanker manhole lock system; Manufacturing base reforms reduced cost of sales via increased in-house production, and construction of a new factory at the Chinese subsidiary began to expand production capacity; Digital transformation initiatives established a dedicated DX structure and earned the Japanese government's DX Certified Business designation, with digital marketing and customer data collection deployed to improve sales effectiveness; Sustainability initiatives identified core material issues and earned Gold-level Healthy Company certification for employee well-being promotion.

• Launched New Mid-Term Management Plan "Imagination2028" (2025–2028, Phase 2 Growth Period)

  • This plan follows the completed Phase 1 structural reform period, continues the 8 core strategies from Imagination2025, and sets a new mission of accelerating sustainable initiatives with reliable measurement technology. The long-term vision remains to become Asia's No.1 sensing and solution company, with upwardly revised medium- and long-term targets: 17 billion yen in sales by 2028, 20 billion yen in sales by 2032, and ROE of 10% or higher by 2032.
  • Core growth strategies:
    • Sensor business: Target 30% sales growth for new and refreshed products vs. 2025 levels, and 50% sales growth for hydrogen and ammonia-related flow meters vs. 2025 levels; continue product updates for flagship models, adding AI-powered self-diagnosis functionality.
    • Service business: Expand hydrogen and ammonia-related services; a hydrogen live gas calibration facility is under construction at the Yokohama site, which will allow the company to offer calibration services for third-party hydrogen flow meters, a capability rarely available domestically.
    • System business: Leverage existing expertise to contribute to energy security, targeting 15% sales growth in the Asian market vs. 2025 levels via global supply of high-precision oil and natural gas measurement control systems.
    • New business: Target 1.7 billion yen in total new business sales by 2028, scaling up the two new ventures launched under Imagination2025.

• Capital Strategy and Shareholder Returns

  • Management prioritizes capital cost and stock price awareness, targeting ROE of 10% or higher and PBR of 1x or higher by 2032. For Imagination2028, the company targets 7% ROE by 2028, an average total payout ratio of 70% or higher over the plan period, and DOE of 2.7% or higher, with planned flexible share buybacks.
  • Dividend targets: 20 yen per share for the 2026 March fiscal year (up 4 yen from the prior year, a new record high), 28 yen per share by 2028, and 40 yen per share by 2032.
  • Capital allocation policy maintains a balance between growth investment, shareholder returns, and balance sheet health, with a focus on asset optimization and capital structure improvement to drive sustainable enterprise value growth.

Total consolidated sales for the 2025 March fiscal year reached 15.048 billion yen, a 4.9% increase year-over-year, hitting a record high. Operating income was 1.422 billion yen, a 3.6% decrease year-over-year, which primarily reflected the absence of the one-time license fee from Anton Paar that was recorded in the prior year; excluding this one-time factor, the result showed an increasing profit trend. There are three operating segments:

1. Sensor Segment: This segment manufactures and sells flow meters and other measurement equipment, holding a 63.1% revenue contribution share. Sales decreased 4.5% year-over-year due to a slowdown in semiconductor-related domestic demand and weak battery-related demand in China and South Korea, though demand from chemical and petroleum industries remained solid.
2. System Segment: This segment designs and constructs fluid measurement and control systems centered on flow meters, holding a 17.1% revenue contribution share. Sales increased 49.5% year-over-year, driven by large domestic orders including projects for the National Institute of Advanced Industrial Science and Technology and food industry clients, as well as large orders for the petroleum sector tied to national resilience and energy security initiatives. The segment saw substantial improvements in profitability from strict cost management and was the key driver of overall full-year performance.
3. Service Segment: This segment provides product repair, maintenance, and calibration services, holding a 19.8% revenue contribution share. Sales increased 11% year-over-year, supported by a shift from reactive to proactive service expansion, implementation of selective price increases to offset rising labor and material costs, and growing demand for third-party product calibration services.

• For the 2026 March fiscal year (first year of Imagination2028), management forecasts a new record high total sales, driven by the one-time license fee from Anton Paar and large received orders in the System segment. Despite expected headwinds from rising raw material and labor costs and ongoing slowdown in the semiconductor market, operating and ordinary income are projected to increase year-over-year.
• Medium-term guidance for Imagination2028 has upwardly revised original long-term targets, setting 17 billion yen in total sales and 7% ROE to be achieved by 2028.
• Long-term guidance (by 2032) targets total sales of 20 billion yen, ROE of 10% or higher, PBR of 1x or higher, and an annual dividend of 40 yen per share.

• Global economic uncertainty, including tariff issues and market slowdowns in key end markets (semiconductors, batteries in China and South Korea), creates unpredictable headwinds for sensor segment demand.
• Rising raw material costs and labor costs exert ongoing downward pressure on profitability across all segments.
• Geopolitical and market volatility in key Asian overseas markets, particularly China and South Korea which account for 74.9% of the company's overseas sales, presents operational and demand risks.

Q: What is the company's plan for expanding its global/overseas strategy? / A: The company's long-term vision targets becoming Asia's No.1 sensing solution company, with a core focus on expanding in Asian markets. 74.9% of current overseas sales come from China, South Korea, and Singapore, and the company is continuing to grow production capacity in China via new factory construction to support regional demand expansion. The company prioritizes incremental, focused expansion in high-potential Asian markets aligned with its core flow measurement expertise.

Q: How much of the 170 billion yen 2028 sales target is expected to come from M&A? / A: The current 17 billion yen total sales target for 2028 is primarily built on organic growth of existing core businesses and newly launched ventures. While the company will actively evaluate opportunistic M&A that can expand its business domain (similar to the service sector acquisition under Imagination2025), M&A contributions are not baked into the official baseline sales target at this time.

Q: What is the current status of the collaboration with Anton Paar? / A: The one-time license fee from the Anton Paar partnership will be recorded in the 2026 March fiscal year, as reflected in the full-year guidance. The collaboration is progressing per the original agreement, with the partnership expanding the company's product and technical capabilities to support growth in high-precision measurement end markets.