SEIKA CORPORATION Q4 FY2025 earnings call

• Core Financial Performance

  • Total transaction value was 290.44 billion yen, consolidated revenue was 93.73 billion yen, both increasing year-over-year. Consolidated operating profit was 6.48 billion yen, up 0.9 billion yen year-over-year.
  • Consolidated net income was 7.79 billion yen, up 3.31 billion yen year-over-year, boosted by negative goodwill from equity-method accounting for Nihon Fenol and gains from sales of cross-held shares.
  • Operating cash flow was 8.07 billion yen, with a large year-over-year improvement. Free cash flow was 8.88 billion yen, also improving significantly year-over-year despite an 1.8 billion yen cash outflow for the acquisition of Nihon Fenol shares.
  • A full-year dividend of 220 yen per share is planned, an increase of 70 yen year-over-year, to be approved at the June shareholder meeting.

• Strategic Plan Updates

  • Management upward revised long-term and mid-term plan targets: the mid-term plan target for FY2026 (final year of VIORB2030 Phase1) is 120 billion yen revenue, 7 billion yen operating profit, 7.6 billion yen ordinary profit; the long-term vision target for FY2030 is 180 billion yen revenue, 12 billion yen operating profit, 12.5 billion yen ordinary profit, with 8.5 billion yen from organic growth and 3.5 billion yen from inorganic growth (M&A/investment).
  • Additional mid-term plan initiatives: expand in high-growth segments (Energy and Product businesses), implement structural reform for low-growth/low-profit businesses, strengthen group company resilience, improve capital allocation efficiency, and advance advanced human capital management to boost corporate value.
  • For the next mid-term phase (VIORB2030 Phase2), the company plans to allocate cash to build new revenue bases, with a focus on inorganic investment that maintains sound financial health and leverages debt.

• Capital Strategy and Shareholder Initiatives

  • The company achieved its target of reducing cross-held shares to below 20% of consolidated net assets, reaching 19.88% as of March 2025. It has set a new target of 10% by March 2028, and proceeds from share sales will be allocated to new business strategies.
  • The company maintains a 45% total payout ratio target, has introduced a shareholder benefit program, and will continue this policy for the foreseeable future.
  • Active IR efforts include 88 annual investor meetings (53 domestic institutional, 35 international, including the first ever overseas IR meetings in Taiwan), and increased engagement with individual investors. As a result, the number of individual shareholders increased ~25% to nearly 13,000, and average daily trading volume doubled to over 300 million yen.
  • The company conducted a secondary offering of over 630,000 shares in fall 2024 to increase free float for TOPIX retention, which attracted new institutional investors to the top shareholder base. It will continue initiatives to boost corporate value and IR activity ahead of the August 2026 TOPIX rebalancing that determines retention based on market capitalization.

• Business Highlights

  • The company became an agent for Mitsubishi Heavy Industries' nuclear power business in 2023, completed equity-method conversion of TVE and Nihon Fenol by 2024, and is already seeing incremental synergies. Japan's 7th Basic Energy Plan prioritizes maximum utilization of nuclear power, which acts as a tailwind for the company's Energy business, with roughly 1 billion yen of the 1 billion yen segment profit growth in Energy coming from nuclear power related activities. The company expects continued steady growth from nuclear-related equipment upgrades, maintenance, and spent fuel recycling projects.
  • The company hit its original 2030 target of 200 billion yen in sales of green innovation related products early due to the expansion of the nuclear business, and is currently working to set a new higher KPI to be announced once finalized.
  • In April 2025, the company acquired shares of Tokyo Sangyo Co., Ltd. The acquisition is initially for investment return purposes, aligns with the mid-term plan's strategy of using complementary M&A to strengthen profitability, and the company is exploring potential collaboration and may convert the holding to a strategic cross-holding in the future.

1. Energy Business: Revenue increased 18.4% year-over-year, segment profit increased 65.7% year-over-year. Strong performance driven by steady delivery of disaster prevention/security equipment upgrades for nuclear power plants and major equipment upgrades for thermal power plants in western Japan, plus revenue and profit growth from equity-method affiliates TVE and Nihon Fenol due to operating synergies. It is the largest contributor to segment profit, with segment profit reaching ~3 billion yen this fiscal year. 2. Industrial Machinery Business: Revenue and segment profit declined year-over-year. Weak performance at German and Chinese local subsidiaries offset strong results at US and Thai local subsidiaries, and fewer large project deliveries offset expanded orders at the parent company. The segment swung from three consecutive quarters of losses to a profit in Q4, showing recovery signs. Total segment order backlog increased 45.1% year-over-year, the largest growth among all three segments, indicating strong future earnings potential. 3. Product Business: Achieved steady revenue and profit growth. Growth was driven by expanded plant inspection business using UT drones and growing semiconductor-related business at the parent company, plus continued strong performance from consolidated subsidiary Tsurumi (Europe) GmbH. All three segments recorded increased order backlog, with total group order backlog increasing 9.5 billion yen year-over-year to 66.76 billion yen.

• For FY2026 (ending March 2026), Seika Sangyo guides consolidated revenue of 105 billion yen, operating profit of 6.6 billion yen, ordinary profit of 7.15 billion yen, and net income attributable to parent shareholders of 6.05 billion yen.
• Starting in FY2026, segment profit will be redefined as operating profit plus equity-method investment gain/loss.
• Under the new segment calculation, the company guides a year-over-year profit decrease for the Energy business (reflecting equity-method affiliate performance projections), a year-over-year profit increase for the Industrial Machinery business (driven by delivery of the accumulated large order backlog), and a slight year-over-year profit decrease for the Product business.
• The company reaffirms its long-term 2030 target of 12 billion yen operating profit, split between 8.5 billion yen from organic growth of existing segments and 3.5 billion yen from inorganic investments and M&A, after upward revising its mid-term and long-term plan targets.

• The Industrial Machinery business faces ongoing performance weakness at its German and Chinese local subsidiaries, which has dragged down the segment's full-year results despite strong performance in other regions and recovering parent orders.
• The company faces uncertainty around meeting the market capitalization threshold for TOPIX retention in the August 2026 rebalancing, requiring continued efforts to boost corporate value and market perception.
• Future inorganic growth and M&A activity carries inherent execution and integration risk, and the contribution of potential acquisitions like Tokyo Sangyo to the 2030 profit target is still uncertain. The incomplete Q&A transcript means additional risks may not have been fully disclosed.

Q: The April 2025 acquisition of Tokyo Sangyo shares was unexpected. Does this acquisition count toward the 3.5 billion yen inorganic profit contribution for the 2030 long-term operating profit target? / A: The Tokyo Sangyo share acquisition was initially made for investment return purposes, which aligns with the company's stated mid-term plan to use complementary M&A to strengthen profitability. Management is currently exploring potential collaboration and synergy opportunities with Tokyo Sangyo, and will consider converting the holding to a strategic cross-holding in the future. Any material developments will be disclosed promptly as required. The transaction is part of the company's inorganic growth strategy that contributes to the 2030 target, but specific profit contributions have not been finalized at this stage.