Konoike Transport Co.,Ltd. Q4 FY2025 earnings call

Previous Mid-Term Plan (FY2023-FY2025) Review

• Achieved 3 consecutive years of record net profit, with the final year's profit greatly exceeding the original 16 billion yen target, and improved overall ROIC through both revenue growth and better capital efficiency.
• The occupational accident frequency rate target was not achieved, so the company will increase focus on workplace safety to deliver a safe working environment for employees.

Mid-Term Plan 2027 (FY2026-FY2028) Strategic Priorities

• Overseas Business Expansion: Accelerate growth in priority regions India and North-Central America. In India, develop new customers for acquired steel slag processing firm FSNL, stabilize railway logistics profitability, and enter new logistics segments. In North America, expand the high-margin Los Angeles temperature-controlled warehouse to target 10 billion yen in revenue, and integrate the acquired packaging business with existing logistics/engineering to build a cross-functional solutions model.
• Domestic Business Growth: Strengthen high-growth medical and airport service segments: expand sterilization services for medical institutions and school screenings, and maintenance services for medical device manufacturers; expand services at existing 7 domestic airports and pursue new entry at regional airports with growing inbound demand. Restructure domestic logistics into 3 focused segments (temperature-controlled, general, strategic account logistics) to optimize resource allocation and deliver higher-value solutions.
• Business Structure Reform: Expand maintenance services across all existing business segments to meet growing demand from automation/mechanization across manufacturing and service industries. Scale the KOMBO initiative, which combines on-ground operational expertise with new technology (e.g., the KonoMap app for real-time worksite visibility and safety) to deliver productivity improvements, and roll out these solutions company-wide. Implement a uniform business continuity evaluation framework to identify low-profit sites across the entire group, make clear continue/restructure/withdraw decisions, and lift the overall group profit level, expecting 0.9 billion yen in cumulative profit improvement over the 3-year plan.

Financial and Capital Policy

• Target sustained ROE of 10% or above, exceeding the 8-9% cost of equity.
• Allocate 20 billion yen or more over 3 years to employee compensation improvement, with a total of 73 billion yen in operating cash flow plus 18 billion yen in cash/debt supporting planned investment: 48 billion yen for growth investment (including a 20 billion yen M&A budget focused on airport, medical, engineering, India and North-Central America), 24 billion yen for maintenance investment, and dedicated investment for DX/AI and technology/ICT to improve long-term competitiveness.
• Raise the target payout ratio from 30% or above to 40% or above, and will flexibly consider share buybacks based on business and financial conditions.

Governance and Base Strengthening

• Established three new committees (Human Resources Strategy, Technology Strategy, Internal Control) to address key challenges: coordinate cross-functional human resource solutions, unify company-wide technology and system roadmap rollout, and proactively manage internal control risks as the business expands globally.

1. Integrated Solutions Business: Revenue of 216.6 billion yen (62.8% of total consolidated revenue), up 7.2% year-over-year; segment profit of 20.589 billion yen, up 18.4% YoY. Growth was driven by increased unit prices and volume at airport services from resumption of international flights, large engineering project wins, and higher volume from new food products facilities. 2. Domestic Logistics Business: Revenue of 56.7 billion yen (16.5% of total consolidated revenue), up 5.2% YoY; segment profit of 3.807 billion yen, up 23.6% YoY. Growth came from increased volume in temperature-controlled food logistics and e-commerce-related general logistics, plus improved pricing and efficiency. 3. International Logistics Business: Revenue of 71.6 billion yen (20.8% of total consolidated revenue), up 21.1% YoY; segment profit of 4.726 billion yen, up 57% YoY. Growth was fueled by recovering air cargo market rates, higher volume at US cold storage facilities, and consolidation of new subsidiaries in Mexico and Canada.

• FY2026 (March 2026) Consolidated Guidance: Expects 367 billion yen in revenue (+6.4% YoY), 22 billion yen in operating profit (+2.9% YoY), 21.5 billion yen in ordinary profit (+1.0% YoY), and 14.5 billion yen in net income attributable to parent shareholders (+3.2% YoY). Guidance assumes an exchange rate of 145 JPY/USD and a ~10 JPY per liter increase in light oil prices relative to the Q4 2024 average. This guidance anticipates a new record high annual profit, driven by volume growth from airport services recovery and India business expansion, partially offset by the impact of a blast furnace shutdown at the Kashima site.
• FY2026 Segment Guidance: Integrated Solutions Business expects 231.5 billion yen revenue (+6.9% YoY) and 21.4 billion yen profit (+3.0% YoY); Domestic Logistics Business expects 57.8 billion yen revenue (+1.9% YoY) and 3.7 billion yen profit (+2.1% YoY); International Logistics Business expects 77.6 billion yen revenue (+8.4% YoY) and 4.8 billion yen profit (+1.6% YoY).
• Long-Term Guidance: Revised the 2030 Vision operating profit target from 25 billion yen to 30 billion yen, adding operating margin and overseas business revenue/profit as core target metrics. The 2027 Mid-Term Plan expects 0.9 billion yen in cumulative profit improvement from business restructuring over the 3-year plan period.

• Geopolitical risk and associated market disruptions, rising environmental regulatory risks from climate change, rapid technological change, and rising interest rates have created high external uncertainty.
• Persistent and accelerating labor shortage across Japan increases hiring costs and requires reliance on foreign skilled workers to meet staffing needs.
• Country risk for overseas operations, particularly in emerging markets like India, which adds uncertainty to international growth targets.
• US tariff increases may impact North American operations, requiring flexible adaptive responses.
• The occupational accident frequency rate target was not achieved in the previous mid-term plan, creating ongoing operational and safety risk that requires additional mitigation.

Q: Kansai International and Narita Airports plan future expansion of takeoff/landing slots. Can airport business grow as an extension of existing operations, and what is the expansion potential at regional airports amid shared ground handling arrangements? / A: Management expects solid growth aligned with slot expansion at core hubs Narita, Haneda, and Kansai. Meeting growing demand requires proactive staffing, which the company is addressing by actively hiring foreign skilled workers, an industry-wide trend that will continue. For regional airports, the company is exploring opportunities including shared operations at Naha, but will pursue new entry cautiously given limited daily flight volumes at small regional airports and existing competition from established local ground handling firms that already face staffing challenges.

Q: What assumptions underpin the FY2026 airport business earnings forecast? / A: Management assumes Haneda and Narita will exceed pre-pandemic flight volumes, while Kansai International will recover to 80% of pre-pandemic levels for Konoike's contracted routes, due to the high share of Chinese services at Kansai. The company expects revenue growth from capturing growing ground handling demand across all airports and continuing appropriate price adjustments. The forecast reflects higher costs from expanding headcount from ~4,350 to ~4,600 employees, plus additional training and dual-staffing costs.

Q: Airport business profit is forecast to be flat in FY2026, but planned to grow ~1.6 billion yen over the 3-year mid-term plan. Is FY2026 focused on capacity building that will deliver returns starting in year 2? / A: Yes, management confirms that FY2026 will incur upfront costs for hiring additional staff and training. Once training is complete, employees will be able to handle multiple airline clients, driving operational efficiency gains. Over the medium term, a fully built response capacity aligned with airport expansion will deliver sustained profit growth.

Q: How much does India business contribute to the mid-term profit target, and what is the outlook for the acquired Indian steel sector firm FSNL? / A: The official mid-term target includes all overseas business profit, including Indian operations. While a specific breakdown is not provided, management expects FSNL to eventually grow larger than existing Indian railway logistics subsidiary JKTI, which currently accounts for the majority of India profit. FSNL operates the same type of business Konoike runs in Japan, so applying Konoike's operational expertise is expected to deliver significant productivity improvements, which FSNL's management supports. While upfront investment and hiring costs will be incurred near term, strong long-term growth is expected.