TSUBAKIMOTO KOGYO CO.,LTD. Q4 FY2025 earnings call

• Company Overview & Core Business

  • Tsubakimoto Kogyo is a long-established general machinery and technology trading company based in Osaka, with ~790 employees and over 100 years of operating history.
  • The company has three core business segments, plus high-growth priority overseas and sensing businesses, and maintains a long-term strong partnership with manufacturing firm Tsubakimoto Chain, whose products account for ~30% of the company's consolidated revenue.
  • Core competitive advantages include strong in-house technical capabilities (over 200 certified chief engineers, 80+ certified supervising engineers), extensive engineering and partner networks, and a global sales network with over 100 domestic sales locations.

• FY2025 March Full-Year Results

  • All key metrics (orders, outstanding orders, revenue, all profit metrics) reached all-time record highs; revenue grew 9.5% year-over-year to 124.3 billion yen, operating profit grew 15.1% to 6.0 billion yen, ordinary profit grew 16.8% to 6.5 billion yen, and net profit attributable to parent shareholders grew 17.3% to 4.6 billion yen.
  • Strong demand for labor-saving and automation equipment drove order growth, and strong backlog was recognized as revenue as scheduled, delivering 3 consecutive years of record-high revenue that beat all initial full-year targets.
  • ROE maintained its 10% target, exceeding the company's estimated cost of equity; the company acquired 843 million yen worth of treasury stock, sold 6 holdings of policy-owned shares (primarily financial institution stocks), and targets reducing policy share holdings to under 20% of consolidated net assets by March 2029.
  • Annual dividend per share reached 80 yen, a 20 yen increase year-over-year, including a 10 yen special dividend; the company maintains a target 30% consolidated payout ratio and prioritizes stable, appropriate dividend returns aligned with performance.

• Mid-Term Management Plan (ATOM2025) Progress

  • All financial targets were exceeded after 2 years of plan implementation; the value-added per employee non-financial target was achieved, and growth of certified qualified personnel is on track for the final year target.
  • The company entered new business areas including lithium-ion battery recycling equipment, and delivered the first collaborative robot automation system for central kitchens of the food service industry, leveraging its technical trading strengths to meet growing demand for automation in underpenetrated sectors.
  • Completed free address workspaces at all major locations to advance digital transformation, enhanced human capital investment with 2 consecutive years of starting salary and entry-level wage increases, earned the 2024 Excellent Health Management Corporation certification, and expanded training programs.
  • The company newly established an imported product development division to expand high-quality imported product sourcing, as part of its goal to increase overseas revenue share to 20%.

By product segment:

1. Denden (Power Transmission) Business: Revenue of 57.368 billion yen, grew year-over-year driven by steady sales increase of components to the automotive and general industrial sectors. This segment accounts for approximately 46.15% of total consolidated revenue.
2. Equipment and Facility Business: Revenue of 56.854 billion yen, a 24.1% year-over-year increase, led by sharp growth in equipment sales to the automotive industry. This segment accounts for approximately 45.74% of total consolidated revenue.
3. Industrial Materials Business: Revenue of 10.101 billion yen, declined year-over-year due to weak demand for care and hygiene related products. This segment accounts for approximately 8.13% of total consolidated revenue.

By regional headquarters segment:

1. East Japan Headquarters: Orders increased 12.8% year-over-year; grew revenue and profit driven by higher sales of engineering equipment, automotive power transmission components and facilities from multiple large closed facility projects.
2. West Japan Headquarters: Revenue increased 20.9% year-over-year, driven by higher orders for automotive and general industrial projects and revenue recognition from a large prior-period China project; maintains a high level of outstanding orders.
3. Central Japan Headquarters (Tokai region): Orders increased 18.7% year-over-year; grew revenue and profit driven by strong sales of automotive-related power transmission components and facilities; outstanding orders have recovered.
4. Development Strategy Headquarters (covers Industrial Materials, overseas subsidiaries, and new sensing business): Overall performance was soft, with weak demand for Industrial Materials and negative impacts from China's economic slowdown on overseas subsidiary results.

• For FY2026 March (the final year of the ATOM2025 mid-term plan), management guides 125.0 billion yen in total revenue, 6.9 billion yen in ordinary profit, and 4.85 billion yen in net profit, representing a continued plan for increased revenue and profit following FY2025's record results.
• Management has an indicative long-term target of 150.0 billion yen in total revenue by the final year of the next mid-term management plan, which launches in FY2026 March to mark the company's 110th anniversary.
• The company maintains its target 30% consolidated dividend payout ratio; guides a full-year 80 yen dividend per share for FY2026 March, with 20 yen intermediate and 60 yen end-of-period dividend.
• Management continues to target ROE improvement and pushing PBR above 1.0x as core financial strategy goals.

• Persistent inflation, China's economic slowdown, and potential spillover impacts from US tariff policies increase overall macroeconomic uncertainty for the company's performance.
• Direct exposure to US markets is very low, but secondary macroeconomic impacts from escalating trade tensions on global customer capex plans will be closely monitored.
• The Chinese economic slowdown has already negatively impacted the performance of the company's local overseas subsidiaries.
• Weak demand for care and hygiene products has pressured results in the Industrial Materials business segment.
• Progress on diversity and inclusion initiatives and DX transformation has been slower than planned, and these remain key priority areas for the final year of the mid-term plan.

Q: How will the Trump US tariff policy impact Tsubakimoto Kogyo's performance, and how will the company maintain sales volume amid growing risks of delayed customer capex?

A: Direct exposure to the US market is very small, so the company does not expect material direct impact from the tariffs. Management will closely monitor secondary macroeconomic impacts from escalating trade tensions that could reduce customer capex willingness. The company will leverage its record high backlog to support performance, and continue pursuing targeted sales growth in high-demand automation and environmental sectors to maintain volume.

Q: What is Tsubakimoto Kogyo's differentiation from peer machinery trading companies?

A: The company's core competitive difference is its in-house technical and end-to-end engineering capabilities, which are rare for a Japanese machinery trading firm. It has a large team of certified technical staff that can support everything from design to installation and after-sales service, and has built long-term collaborative partnerships with leading technology providers to deliver custom system solutions. This allows the company to compete for complex, high-value projects that many peers cannot execute.

Q: What is management's approach to human capital investment?

A: Management views human capital investment as a core foundation for long-term growth, and has already implemented consecutive years of wage increases for new and young staff, expanded training programs, and improved health and workplace initiatives. Going forward, the company will continue pushing for DEI promotion to improve employee engagement, and will prioritize hiring experienced technical staff to hit targets for growth in certified qualified personnel.