TAKARA STANDARD CO.,LTD. Q3 FY2026 earnings call

• Overall Third Quarter Performance

  • The third quarter (cumulative 9 months) achieved all-time record highs for both revenue and all profit metrics. Total cumulative revenue hit 192.6 billion yen, a 4.5% year-over-year increase, with an even larger 25.4% year-over-year increase in operating profit to 16.1 billion yen, driven by sales growth, improved gross margin, and expense control.
  • Net profit increased 40.4% year-over-year, supported by both strong operating performance and continued progress selling non-operating assets, primarily policy-held shares.
  • Even though year-over-year growth rates appear lower than prior quarters this fiscal year, management notes the third quarter has inherently higher seasonality with larger absolute sales and profit, and the prior year third quarter already had atypically strong results from rush demand ahead of the 2025 Building Standard Law revision, so achieving growth against this high comparison base is a positive result.

• Operational and Market Share Trends

  • Takara Standard's shipment volume has consistently outperformed the overall industry across periods, leading to a continuing trend of expanding market share. The company aims to maintain its number 1 share for kitchens while further growing share for system bathrooms and vanities.
  • The 2025 April revision of the Building Standard Law mandated stricter energy efficiency standards for new construction, leading to a rush of permit applications and strong new construction starts through March 2025, followed by a post-rush decline in starts after April 2025. Because Takara Standard's products are delivered later in the construction process, positive residual impact from the rush demand continued through the first half of this fiscal year, supporting strong new construction detached sales.
  • New construction detached housing has seen growing average product prices driven by upscaling of properties and expanded sales of add-on options, alongside expanding company market share, leading to solid performance despite the post-rush decline in starts.
  • New construction condominiums have seen steady demand centered in the Tokyo metropolitan area, with upscaling of projects pushing average product prices higher, leveraging the company's very high 80% share for kitchens and vanities in this segment to deliver strong growth.
  • The renovation market, the company's key long-term focus amid declining new construction starts, saw slower growth than new construction at 1.6% year-over-year, matching broader industry stagnation. However, strengthened specifications for volume-segment renovation products (the Tressia system kitchen and Granspa system bath) launched in the second half of the prior year, paired with customer-aligned product proposals, allowed the company to deliver positive growth, and the segment moved to a recovery trend in the third quarter after a slow first half.
  • The company was selected as one of the Tokyo Stock Exchange's case studies of corporate initiatives to address cost of capital awareness in December 2025, recognizing the company's ongoing work on this front.

• Profit Driver Breakdown

  • The largest contributor to the 3.2 billion yen year-over-year operating profit increase was the 5.4 billion yen positive impact from sales volume and sales mix, driven by strong new construction sales and rising average product prices from property upscaling.
  • Rationalization and cost reduction initiatives including purchasing cost cuts, inventory compression that allowed exiting external warehouses to reduce logistics costs, and production rationalization also supported profits.
  • Partially offsetting these gains were: 1.8 billion yen in profit headwinds from sustained high prices for wood materials and price increases for purchased goods, plus higher costs from human capital investment including wage increases and expanded hiring for growth initiatives and digital transformation (DX).

• Balance Sheet and Cash Flow

  • Cash balances declined from the prior fiscal year end due to 10.1 billion yen in share repurchases completed through the third quarter (out of a full year planned 11.0 billion yen) and increased dividends, leading to ongoing net asset compression. The company continues balance sheet management to improve capital efficiency, as current PBR is around 1x, which management still considers unsatisfactory.
  • Free cash flow increased against the prior year on the back of strong operating performance, with the cash decline from share repurchases and dividends matching planned expectations.

• Capital Expenditure and Shareholder Returns

  • Full year capital expenditure plans remain unchanged from the start of the fiscal year at 12.3 billion yen.
  • In May 2025, the company updated its shareholder return policy to address a gap between management and market perceptions of cost of capital: the target payout ratio was raised from 40% to 50%, and total share repurchases of approximately 22.0 billion yen are planned over this fiscal year and next (fiscal 2026 March year and fiscal 2027 March year).
  • Full year dividend per share is planned at 100 yen (50 yen interim, 50 yen final), a 22 yen increase from the prior year. The company has maintained or increased dividends for 33 consecutive periods prior to this policy update.
  • The total payout ratio including dividends and share repurchases is targeted at 130% for the current two-year return program. The company aims to use these returns to adjust its excess cash position and net assets, improve balance sheet quality, and achieve the target 8% ROE in the 2027 March fiscal year (the final year of the mid-term management plan), with a longer-term target of 10% ROE.

All three core product segments achieved year-over-year revenue growth, with all segments outperforming the prior year period for both new construction and renovation markets:

1. Kitchen: The company holds the number 1 domestic market share position. It has an approximately 80% market share for kitchens in new construction condominiums, representing a key competitive strength. It recorded solid growth aligned with overall strong new construction market performance in the quarter.
2. Bathroom: The company holds the number 3 domestic market share position. Revenue contribution from new construction condominium market is only 7.4%, as the company entered this segment later than competitors. This segment is viewed as a high-growth area with large room for expansion, and the company is making large factory investments to grow sales here. It achieved year-over-year revenue growth in the quarter.
3. Vanity: The company holds the number 3 domestic market share position. It also has an approximately 80% market share for vanities in new construction condominiums. Adoption has increased alongside kitchen sales in new construction projects, leading to higher growth than the other core segments in the quarter. It achieved year-over-year revenue growth.
4. New Businesses: All new business lines are still small in scale at present. The company continues to invest in these segments with the goal of growing them into core business lines in the future.

By end-market (cumulative 9-month / first three quarters):

• New Construction Detached Housing: 58.0 billion yen revenue, +6.1% year-over-year, accounting for ~30.1% of cumulative 9-month revenue
• New Construction Collective Housing (Condominiums): 67.0 billion yen revenue, +7.1% year-over-year, accounting for ~34.8% of cumulative 9-month revenue
• Renovation: 59.5 billion yen revenue, +1.6% year-over-year, accounting for ~30.9% of cumulative 9-month revenue

• The company implemented its second upward revision to the full year 2026 March fiscal year guidance on February 3, 2026, driven by better-than-expected performance from both new construction and renovation markets. The new full year guidance is: 251.0 billion yen in revenue, 17.8 billion yen in operating profit, which is above the initial full year guidance that already called for an all-time record profit and revenue.
• The company expects the fourth quarter to see year-over-year decline in both revenue and profit: New construction collective housing and renovation are projected to remain steady, but new construction detached housing will be weak due to the high comparison base from the 18%+ year-over-year growth in the prior year fourth quarter driven by rush demand, plus the post-rush reaction and some risk of construction delays from labor shortages. Ongoing market share gains and higher product prices are expected to limit the size of the revenue decline.
• Selling, general and administrative expenses are expected to increase in the fourth quarter due to higher personnel costs. Management views this human capital investment as necessary for sustained long-term growth, even though it creates short-term profit pressure.
• After the upward revision, full year operating profit is expected to increase 2.2 billion yen year-over-year. Key drivers are: strong new construction sales and rising product prices (including options), a 1.2 billion yen profit benefit from rationalization and cost cutting, partially offset by higher material costs (wood, resin) and larger than initially planned human capital investment (previously forecast as an 800 million yen profit headwind, now expanded).
• Management targets 7.0% ROE for the current 2026 March fiscal year, with an 8.0% ROE target for the 2027 March fiscal year (the final year of the mid-term management plan), paired with a 20.0 billion yen operating profit target for 2027 March. Management plans to achieve the current fiscal year guidance as a foundation for hitting the 2027 target.
• No changes have been made to the 2027 March fiscal year target at this time, even though current fiscal year guidance already exceeds the original 2027 target. Management will re-evaluate the target based on the business environment and announce an updated target in due course.

• The post-rush decline in new construction starts after the 2025 Building Standard Law revision is expected to have some negative impact on new construction detached housing sales going forward, due to the time lag between construction start and product delivery.
• The renovation market faces ongoing headwinds including sustained high material prices, labor shortages, and intensifying industry competition, which have led to slower-than-expected industry and company growth so far this fiscal year.
• While the company's sales and procurement are overwhelmingly focused on the domestic market, exchange rate and tariff fluctuations could create indirect negative impacts, though direct impacts are expected to be minor.
• The large rush demand ahead of the Building Standard Law revision created a very high comparison base for the prior year fourth quarter, leading to an expected year-over-year revenue decline for new construction detached housing in the current fourth quarter, alongside some risk of construction delays from ongoing labor shortages that could further pressure results.

Q: Please provide a summary of the third quarter 2026 March fiscal year performance.

A: We achieved growth in both revenue and profit, with all revenue and profit metrics hitting all-time records for a third quarter. Even though overall market conditions cannot be called strong, we see this result as deserving of positive assessment. Revenue growth came from strong performance across both new construction detached and collective housing, plus a return to growth in the renovation segment after a slow first half. Digging into details, for new construction detached, the residual rush demand from the Building Standard Law revision was stronger than expected, and we have also expanded market share relative to the industry and competitors. For new construction collective housing, the ongoing strong demand centered on the Tokyo metropolitan area continued this fiscal year, paired with higher average selling prices driven by upscaling of condominium projects and expanded sales of add-on options. For operating profit, we achieved a 25.4% high growth rate driven by sales growth, higher product prices for new construction, and expense control. Against our plan to hit all-time records for full year revenue and operating profit, we view this third quarter result as broadly positive.

Q: With new construction starts performing very poorly, why are sales to both detached and collective new construction still strong?

A: We view the current sharp decline in new construction starts as a temporary reaction to the rush demand ahead of the April 2025 Building Standard Law revision, and we expect it to normalize before long. However, we will continue to closely monitor trends as the weak start environment continues for now. An important point is that we recognize revenue close to construction completion, not at the start of construction, so there is a time lag between start volume changes and our revenue: 1 to 2 years for collective housing, 6 months for detached housing. As a result, current full year results have low correlation to recent start volume for collective housing, and completions continue to be strong in urban centers centered on Tokyo, leading to revenue growth. For detached housing, the rush demand from before the law revision continued to contribute to our revenue in the first half of this fiscal year, paired with steady market share gains, so performance has remained strong.

Q: Your original guidance projected stronger growth for the renovation market, but actual performance has been weaker than expected. What is the reason for this?

A: We originally assumed a stronger overall renovation market, but the market has actually seen stagnant growth, so our sales have also not hit our original targets, though we did achieve positive year-over-year revenue growth through the third quarter, with sales volume up from the prior year. After being overly focused on the high-end segment in the prior year, we shifted our strategy to leverage our full product lineup to address a broader range of customer needs. This shift has delivered improved results, with growing sales volume and a particularly large recovery in the third quarter. We see this improved recovery in a stagnant market as a positive sign. Renovation remains one of the most important strategic priorities for our long-term growth, so we will continue to work on expanding distribution to leading renovation players, growing condominium renovation sales in urban areas, and strengthening renovation-focused products.

Q: Even after the upward full year revision, you still project a year-over-year decline in revenue and profit for the fourth quarter. What changes between the first three quarters and the fourth quarter drive this? Can you explain by market?

A: On the sales side, we expect new construction collective housing and renovation to continue steady performance, but we project weaker results for new construction detached housing, leading to an overall decline in revenue. The main drivers are: the prior year fourth quarter had an extremely high growth rate of 18.3% driven by rush demand for the Building Standard Law revision, creating a very difficult comparison base, and we are now seeing the reaction to that rush demand, plus we have factored in the potential for some construction delays from labor shortages. That said, we have achieved market share gains and higher product prices for detached housing this fiscal year, so we expect the decline in revenue will be limited. Additionally, we expect higher personnel costs from our human capital investment in the fourth quarter. While this creates short-term profit pressure, we believe investment in human capital is essential for sustained long-term growth, so we are expanding investment in line with our performance.

Q: After the upward profit revision, the projected payout ratio will be below the 50% target in your dividend policy. Why are you not increasing the dividend?

A: If we hit our revised full year profit forecast, we expect the payout ratio will come in around 47% to 48%, which we do not see as a large deviation from the 50% target, so there is no material gap. We do not automatically adjust the dividend for small short-term deviations. When we updated our shareholder return policy in May last year, the core goal was to improve our currently low ROE, and balance sheet management including net asset compression is essential to achieve that goal. Dividend increases are also part of our efforts to continuously improve ROE, so we will continue to consider appropriate adjustments going forward.

Q: You have revised the current fiscal year guidance upward, but have not changed the target for the mid-term plan's final year next fiscal year, and on a headline basis revenue is projected to decline from the revised current fiscal year forecast to next year. How should we think about the relationship between current fiscal year guidance and next fiscal year's target?

A: The 2027 March fiscal year target was originally announced in May 2024 as the final target of the Mid-Term Management Plan 2026. Compared to the original assumptions, renovation has underperformed, but new construction (both detached and collective) has significantly outperformed original expectations, so overall company performance is well ahead of the original plan. As a result of upward revising the current fiscal year forecast, current fiscal year is already on track to exceed the original next fiscal year target. The fact that we have not changed the target at this point is just the current state, and we do not believe the original target is still optimal. We will consider an appropriate updated target based on the business environment and announce it in due course.

Q: We are now moving to a higher interest rate world, where required returns for equity investment are higher. Your target of 10% ROE by 2031 may not meet investor required returns at that point. What is the company's thinking on this?

A: We fully understand that as interest rates rise, investor required return on equity increases. We currently have a long-term vision target of 27.0 billion yen in operating profit and 10% ROE for the 2031 March fiscal year. At this point, we do not have any announcements to make regarding changing this target, but as a company we plan to continue strengthening dialogue with the stock market and incorporate investor feedback into our management. We will continue to improve capital return on an ongoing basis, setting appropriate KPIs based on the business environment and financial conditions.