Meiwa Corporation Q2 FY2026 earnings call

• Company Overview & Core Strengths

  • Founded in 1947 by former employees of Mitsubishi Corporation after zaibatsu dissolution, with 78 years of operating history. 31% of consolidated sales come from China, with deep localized business networks in China and expanding presence in Southeast Asia and India.
  • Core strengths: 78 years of Japanese trading house know-how, China-centered Asian business networks, and expertise in niche eco-friendly products.

• Mid-term Management Plan (Medium-term Management Plan 2025) Progress

  • Overall progress is on track: cumulative net profit and ROE have exceeded initial plan targets, with ROE reaching 8.8% last fiscal year, approaching the medium-term target of 10%+. Cumulative base and growth investment reached 2.97 billion yen as of the 2nd quarter, within the 3-year target range of 3.5 to 4.5 billion yen.
  • Key completed strategic initiatives:
  1. Established a joint venture with Toyota and China Minmetals for used automotive battery reuse and recycling in Changsha, China. Meiwa Sangyo leverages its Chinese network to handle battery collection and sales of reused battery storage systems, building a circular economy value chain.
  2. Acquired a stake in Tianjin Zhizhen Automation Equipment, a Chinese manufacturer of MLCC production equipment (laminators and cutters), and became the exclusive overseas sales agent. The company's equipment improves production efficiency and reduces energy use for MLCC manufacturers.
  3. Acquired plastic recycling firm Takaroku Co., Ltd. as a subsidiary and formed a business partnership with Ecomax for waste sorting technology, to build a full plastic recycling supply chain aligned with growing circular economy demand.

• New Business Development

  • Domestic coffee business, developed through the company's internal entrepreneurship program to address climate change-related coffee cultivation risks, announced a partnership with Gekkeikan (a leading Japanese sake brewer). Gekkeikan's century-old native sake yeast is used in the coffee fermentation process to create a unique deep flavor, with the first limited harvest planned for winter 2025. Coffee seedlings are growing well in Narita, Chiba despite record summer heat.
  • The company will exhibit at Nepcon Japan 2026 in January 2026 to expand demand for MLCC equipment and recycled plastic products.

• Capital Allocation & Shareholder Return

  • Follows a base policy of 50% consolidated payout ratio with flexible additional shareholder returns. The full-year dividend forecast for this fiscal year is 38 yen per share. The company maintains a stable capital base with a 45%+ equity ratio, and targets achieving ROE of 10%+ and PBR of 1x+ to improve shareholder value.

1. First Segment (Resource & Environment Business): Sales increased by 1.066 billion yen (+5.1% YoY), segment profit increased by 463 million yen (+49.1% YoY). Strong performance driven by soaring antimony prices after China implemented export licensing for antimony, though antimony prices have cooled in the most recent period. Rare metals outside of regulated rare earths saw expanded market share, with performance flat YoY in the 2nd quarter.
2. Second Segment (Petroleum & Lubricant Products): Sales decreased by 1.34 billion yen (-6.3% YoY), segment profit increased by 262 million yen (+138.4% YoY). Lower sales volume from reduced exports of base oils/additives and lower Chinese refrigeration oil sales was offset by the reversal of prior-year valuation losses, a shift to higher-margin products, and first contributions from FT synthetic oil sales, leading to strong profit growth.
3. Third Segment (Chemicals & High-performance Materials): Sales increased by 313 million yen (+1.1% YoY), segment profit decreased by 219 million yen (-42.3% YoY). Sales growth from strong inorganic chemical sales was offset by acquisition-related expenses for Takaroku Co., Ltd. and post-boom demand decline for functional films, leading to weaker profit performance.
4. Battery & Automotive Business: Sales decreased by 1.484 billion yen (-22.7% YoY), with a segment loss of 57 million yen. Lower sales from a reversal of prior-year spot transactions, and a sharp cost increase from production issues at Kumi Kasei's North American facility led to the weak result. Chinese automotive anode material trading remained solid.

• Full-year FY2026 March term earnings guidance is maintained unchanged from the initial forecast, despite 50.4% progress on interim net profit vs plan and strong first half performance from the First and Second Segments. Management cited ongoing macro uncertainty, particularly around US-China relations, as the reason for leaving guidance unchanged.
  • Medium-term Management Plan 2025 is on track to meet its targets, with consolidated net profit already significantly exceeding plan, and management continues to push for improved earnings power and capital efficiency to reach the target of double-digit ROE.
  • The next mid-term management plan is currently under development, with core direction focused on: clarifying capital efficiency targets and allocation rules, setting ambitious non-continuous growth targets with selective resource concentration on priority areas, and enhancing shareholder return frameworks (including evaluating introduction of DOE and expanding flexible share buybacks), with full details to be disclosed when finalized.

• Commodity price volatility: Antimony and rare metal prices are subject to Chinese export policy changes and global market fluctuations, which create volatility in First Segment earnings.
• China macro and policy risk: China's prolonged real estate slowdown has weakened domestic demand and increased competitive pressure; policy risks including mutual tariffs, anti-spy law enforcement, and strained Japan-China relations create operational uncertainty.
• Geopolitical risk: US-China trade tensions create unpredictable impacts on the company's Chinese operations and cross-border supply chains, particularly for automotive and battery-related businesses.
• Operational risk: Production issues at Kumi Kasei's North American facility in the Battery & Automotive Segment have led to unexpected sharp cost increases and a segment loss, requiring urgent restructuring of production systems.

Q: Why did progress slow in some segments in the 2nd quarter compared to the first quarter? / A: Two segments saw slower progress: First Segment and Battery & Automotive. In the First Segment, the flame retardant business, which contributed strong profits in Q1, saw moderating earnings as Q1's antimony price surge cooled in Q2. Other First Segment sub-activities stayed solid. Management expects stable demand recovery as lower prices bring back buyers who held off purchases during the price surge. For Battery & Automotive, slower progress came from a production trouble at a North American plant of the group's equity-method affiliate Kumi Kasei, which pushed labor and production costs far over plan. Management is now conducting a full overhaul of the production system to restore profitability as soon as possible.

Q: What impact does China's economic slowdown have on your business, and what is your risk mitigation strategy for issues like potential US tariff changes? / A: The company recognizes the impact of slower Chinese domestic demand from the prolonged real estate slowdown, which has increased competition and pressured some businesses, but the company's core strength areas remain solid. The business model has shifted from importing foreign products into China to selling Chinese-origin products and services to global markets, which helps diversify revenue sources. Examples include expanding refrigeration oil sales to India and scaling up the used vehicle battery reuse business in China. For geopolitical risks, management prepares multiple scenarios for changes in US-China and Japan-China relations, builds risk management frameworks to account for policy changes, and will respond flexibly to changes in regulations, customs, and personnel movement.

Q: Why did you maintain full-year guidance even though first half operating profit progress is a strong 67.8% vs plan? / A: The strong first half progress is mostly driven by the one-time impact of Q1's antimony price surge, which will not repeat in the second half as prices have normalized, so full-year profit will return to more normal levels. In addition, ongoing uncertainty from US-China tensions creates unforeseeable risks for the company's Chinese subsidiaries and automotive business that could impact supply chains and demand. Management judged it appropriate to maintain a cautious full-year outlook given these uncertain factors, and will update guidance promptly if the outlook changes.

Q: When do you expect to see revenue from the Chinese used automotive battery collection and storage system business, and will the current slowdown in global EV sales impact this venture? / A: The joint venture launched after opening in April 2025 and is ramping up gradually, with battery collection as the critical first step. While a slowdown in new EV sales could have some indirect impact, the business collects batteries from existing EVs already on the road, and China already has a large existing fleet of EVs, with 50% of new car sales currently being new energy vehicles. There will be a large and steady supply of used batteries for the foreseeable future, so the near-term slowdown in new EV sales is not expected to materially impact the business.