9107.T

• 2025 Fiscal Year Third Quarter Aggregate Results

  • Reported revenue of 767.7 billion yen, a 37.2 billion yen decrease year-over-year; operating profit of 68.7 billion yen, a 23.5 billion yen decrease year-over-year; ordinary profit of 88.6 billion yen, a 200.2 billion yen decrease year-over-year; net profit attributable to parent shareholders of 102.6 billion yen, an 182.1 billion yen decrease year-over-year.
  • Key headwinds for the cumulative period: 3.75 yen average year-over-year appreciation of the yen, higher operating costs from increased vessel count in the automobile carrier business, weak dry bulk market conditions in Q1, and weak container freight rates from new vessel supply.
  • Key balance sheet metrics: Equity of 1.7397 trillion yen, interest-bearing debt of 309 billion yen, D/E ratio of 17.8%, consolidated equity ratio of 76.1%. After including 600 billion to 700 billion yen in off-balance sheet items such as charter hire obligations, the adjusted equity ratio is 58% to 60%.

• Capital Policy and Shareholder Return

  • The mid-term management plan targets total shareholder return of more than 8000 billion yen over the plan period, with a separate 500 billion yen+ flexible additional return allocation separate from base dividends.
  • The 20 yen per share increase for 2026 fiscal year does not require drawdown from the 500 billion yen+ additional return pool or reallocation from the existing 80 billion yen management allocation buffer, as sufficient funding was confirmed via detailed financial review.
  • The 20 yen increase was announced at this time to ensure the 8000 billion yen+ total mid-term return target is achieved, after rolling up cumulative prior return performance.
  • The 500 billion yen+ additional return program remains unchanged, and the company will continue evaluating timing and implementation methods for this return.

• Market Environment Overview

  • The largest uncertainty for the industry is the timing of the resumption of safe transit through the Suez Canal, amid ongoing Red Sea regional tensions.
  • Another major uncertain factor is the October 2026 expiration of the one-year delayed USTR retaliatory tariffs, with no clear outlook for policy changes at this time.
  • The company prioritizes the safety of crew, cargo, and vessels when evaluating Suez Canal transit resumption, and does not expect an immediate resumption early in the 2026 fiscal year.

• Full year 2025 fiscal year ordinary profit guidance is maintained at 100 billion yen, unchanged from the November 5 publication. Full year 2025 guidance: revenue of 1.006 trillion yen (41.9 billion yen decrease year-over-year), operating profit of 84 billion yen (18.8 billion yen decrease year-over-year), ordinary profit of 100 billion yen (208 billion yen decrease year-over-year), net profit attributable to parent shareholders of 115 billion yen (190.3 billion yen decrease year-over-year).
• Full year 2025 net profit is 10 billion yen higher than the prior November guidance, driven by a technical accounting adjustment from a review of deferred tax asset valuation allowances.
• The average full year foreign exchange assumption was revised from 145 yen to 150 yen per USD, reflecting current market conditions. The fuel price assumption is set at 524 USD per unit.
• The 2025 fiscal year full year dividend is maintained at 120 yen per share.
• 2026 fiscal year annual dividend guidance is set at 120 yen per share, a 20 yen increase from the prior planned 100 yen per share.
• The 500 billion yen+ flexible additional shareholder return program remains in place, with continued evaluation of timing and implementation methods.
• For container shipping, the company expects gradual volume growth after Lunar New Year 2026, with freight rates expected to return to a gradual recovery trend, even though no large sharp increase is projected.

1. Dry Bulk Segment:
   Third quarter 2025 performance: After Q2, market conditions improved steadily alongside cargo volume recovery, so Q3 earnings improved quarter-on-quarter. However, cumulatively from Q1 to Q3, poor Q1 market conditions plus prior disruptions from labor strikes at loading ports and a crane collapse led to weak first half performance, resulting in year-over-year decrease in both revenue and profit for the cumulative period.
   Full year 2025 forecast: Lower first half performance from Q1 weakness and special factors leads to a full year forecast of year-over-year decreased revenue and profit, with no change from the November public forecast numbers.

2. Energy Resources Segment:
   Cumulative Q1 to Q3 2025 performance: Most assets (LNG carriers, LPG carriers, thermal coal carriers, VLCCs) operate under stable medium-to-long term contracts, delivering steady earnings. While yen appreciation created a slight headwind to profit, the absence of 2024's one-time loss led to cumulative year-over-year profit growth.
   Full year 2025 forecast: Upwardly revised 1.5 billion yen higher profit compared to the November forecast, reflecting updated foreign exchange assumptions and improved market conditions for tankers and LPG carriers. Full year profit is projected to increase year-over-year due to the absence of 2024's one-time loss.

3. Product Logistics Segment (Automobile Carriers):
   Cumulative Q1 to Q3 2025 performance: Faced headwinds including the expiration of US EV subsidies at end-September 2025, geopolitical trade policy impacts, and production disruptions from semiconductor shipment halts. While global auto sales remained steady and sea transport demand trended upward, yen appreciation and higher operating costs from an increased number of operating vessels after new vessel deliveries led to year-over-year profit decline.
   Full year 2025 forecast: While global auto sales remain steady and transport volume has increased slightly year-over-year compared to 2024, yen appreciation and increased operating/port costs from adding nearly 5 new operating vessels lead to a projected year-over-year profit decline for the full year, with a 35 billion yen downward revision to the profit forecast.

4. Container Shipping Segment:
   Cumulative Q1 to Q3 2025 performance: After front-loaded shipments to North America in H1 (especially Q2), Q3 shipment volume stagnated due to payback. New vessel deliveries loosened market supply-demand, keeping short-term rates at low levels, leading to large year-over-year revenue and profit decline for equity-method investee OCEAN NETWORK EXPRESS (ONE). This resulted in a large drop in equity method income and lower earnings for K Line's container shipping segment.
   Full year 2025 forecast: Q3 performance was weaker than expected, but the December 2025 partial market recovery is expected to flow through to results from January 2026 onward. The full year forecast for ONE is unchanged from the November projection, so K Line maintains its existing container segment full year earnings outlook.

• Ongoing geopolitical uncertainty from Middle East (Red Sea/Suez Canal) tensions and US trade policy creates large ambiguity for future market and operating conditions.
• Container shipping market remains under pressure from new vessel deliveries that have loosened supply-demand balance, keeping short-term freight rates at low levels.
• Yen appreciation creates negative translational and operating impacts across all business segments.
• The DEVON BAY maritime accident: Rescue operations concluded on February 1, 2026, with no impact included in the current earnings forecast. Root cause investigation is ongoing, and no material large impact is expected at this time, but future impacts cannot be fully ruled out.
• Automobile carrier business faces ongoing headwinds from US trade policy and EV subsidy changes that have disrupted cargo volumes in the Atlantic region, alongside rising operating costs from new vessel deliveries and environmental fuel mandates.
• Suez Canal transit remains unsafe as of the call, with elevated marine insurance premiums that will not be adjusted downward until safety of transit is confirmed. Recent Houthi attacks have dampened expectations for near-term resumption of normal transit.

Q: What are the drivers of the 35 billion yen downward profit revision for the automobile carrier business?

A: The revision reflects lower projected transport volume than initial forecasts, including seasonal and one-time factors. Pacific region cargo movement remains steady with slight volume growth, but Atlantic region volumes have declined: European OEM sales to the US have fallen since autumn 2025, and there is softening demand in some Asian markets for return cargo from Europe, leading to volume forecast downgrades. Weaker round-trip cargo balance has also lowered shipping efficiency. Additionally, we have incorporated higher costs including worse winter shipping efficiency and higher winter fuel costs, leading to the 35 billion yen downward adjustment.

Q: What potential impacts should be expected from the DEVON BAY maritime accident?

A: First, we apologize for the concern this has caused. After 10 days of rescue operations led by Chinese and Philippine coast guard authorities, search and rescue concluded on the evening of February 1, with a press release issued February 2. We have not included any impact from the accident in this earnings forecast, as root cause investigation is still pending. We do not expect a material large impact at this time, so no adjustments have been made to current numbers.

Q: Was there internal debate about raising 2026 fiscal year dividends given ongoing operating environment uncertainty, and why was the increase announced now?

A: Our policy has always been to evaluate available cash flow from operations, investment cash outflows, and current cash holdings when setting dividends. Entering February, after reviewing current cash balances and 2026 fiscal year earnings outlooks, we confirmed that the 20 yen increase is fully achievable even amid uncertainty, and that the increase plus the 500 billion yen+ additional return program is fully affordable. This is also consistent with our practice of announcing next year's dividend at this timing in the prior two years, to provide greater predictability to the market, which led to the decision to announce the increase now.

Q: What is K Line's view on near-term container shipping market outlook, particularly for a post-Lunar New Year freight rate increase?

A: We do not think the container market can be viewed optimistically at present. Freight rates are entering a typical seasonal adjustment period ahead of the February 17 Lunar New Year, and industry ability to hold rates steady during this period will be a key test. ONE has already built flexible operations aligned with seasonal demand changes, which helped stabilize and lift rates at the end of 2025. Through flexible operational adjustments, we expect that volume will grow gradually after Lunar New Year, and freight rates will return to a recovery trend, even if a large sharp increase is not expected.

Q: Where does the funding for the 2026 fiscal year 20 yen dividend increase come from, if not from the 500 billion yen additional return pool or management allocation?

A: We previously shared rounded figures for the mid-term plan: 1500 billion yen operating cash flow, 610 billion yen investment cash flow, 800 billion yen+ total shareholder return. In past share buybacks, we sometimes could not complete the full targeted amount because we hit the maximum share count limit before reaching the target monetary amount, leading to cumulative returns coming in below prior rounded projections. As we approach the final year of the mid-term plan, we conducted a detailed granular review of all financials, and found that sufficient surplus exists from the gap between operating cash flow and investment cash flow to fund the 20 yen increase. The underlying source is operating cash flow.

Q: Why is the automobile carrier business seeing a Q3 year-over-year profit decline but a projected Q4 year-over-year profit increase?

A: The projected Q4 year-over-year increase is only because Q4 2024 saw large one-time reductions in volume from customer-driven shipment delays and rescheduling, which led to very low volume that year. Against that low comparison base, Q4 2025 looks like a year-over-year increase. The Q3 2025 profit decline is driven by lower year-over-year volume, lower shipping efficiency, higher overall costs including SG&A, and higher fuel costs (including biofuel for environmental compliance), which are the core drivers of the Q3 decline.

Q: What is K Line's stance on ONE's shareholder return policy going forward, especially regarding maintaining a fixed dividend even amid weak market conditions?

A: As a shareholder, we determine our stance on ONE's shareholder return each year after reviewing ONE's latest performance and business plan, and discussing available dividend capital with ONE management. We do not have a pre-set fixed policy or minimum dividend commitment at this time. We will review ONE's 2026 fiscal year performance and investment plans before holding discussions on return policy.

Q: What impact will the large number of scheduled new vessel deliveries have on future earnings: will they be a positive driver or will near-term depreciation costs pressure results?

A: We only approve new vessel construction after thorough profitability reviews and maintaining strict investment discipline, and nearly all newly delivered vessels already have contracted revenue visibility. While profitability varies by vessel, we expect net positive earnings impact from new vessel deliveries as they enter operation.

Q: What is the current status of contracted automobile carrier rates for 2026, and what is the outlook for utilization and load factors next year? Will higher utilization offset margin pressure from new vessel cost increases?

A: As we have previously shared, more than half of 2026 contracted rates are already locked in, and this trend has not changed. The key to 2026 performance is whether overall demand holds up. We are in ongoing discussions with customers about 2026 plans, and the year will start amid high uncertainty, with the company needing to navigate uncertain conditions. In this environment, the top priority is improving shipping efficiency, specifically by optimizing round-trip voyage balancing based on customer volume and shipment schedules.

Q: What has customer reaction been to the delayed expected resumption of Suez Canal transit?

A: We acknowledge that customers expect transit to resume because it shortens voyage distance and improves economic efficiency and transit speed. However, at present, there are no active customer demands for immediate resumption, as the unsafe situation is widely understood, and we cannot make hasty decisions on resumption before confirming all safety conditions.

Q: When will Suez Canal marine insurance premiums fall: will they drop before or after transit resumption?

A: There has been no announcement of insurance rate changes yet, because transit safety has not been confirmed. Even after some European carriers resumed transit, recent Houthi attacks mean safety is still not guaranteed, and expectations for near-term resumption have faded. It is impossible to definitively say whether premiums will fall before or after resumption, but insurance conditions are definitely a core factor in any decision to resume transit. Any resumption requires thorough preparation, including getting necessary approval from crew unions and confirming insurance coverage terms, with insurance company views heavily influencing our final decision.