KYOWA LEATHER CLOTH CO., LTD.

Business Details

The Kyowa Leather Group is a single-segment company whose core business is the manufacture and sale of synthetic leather materials (synthetic leather, artificial leather, etc.). Applications are divided into three categories: for vehicles (approximately 85.7% of net sales), for housing and housing equipment, and for fashion and daily living materials. Its major customers are automakers and their suppliers. The company has manufacturing sites in Japan and overseas, and is composed of three consolidated subsidiaries (Kyowa Life Techno Co., Ltd., Kyowa Support and Service Co., Ltd., and Kyowa Xingsu Plastic (Langfang) Co., Ltd.) and one equity-method affiliate (Nanya Kyowa Plastic (Nantong) Co., Ltd.).

Recent Overview

Operating profit fell sharply by 57% year on year due to a decline in vehicle-related orders and an increase in SG&A expenses

In FY2026 (ending March 2026), net sales were ¥55,816 million (down 1.0% year on year) and operating profit was ¥920 million (down 57.0% year on year), a substantial decline in profit. Sales in the vehicle application fell to ¥47,823 million (down 2.2% year on year) due to reduced orders from major automaker customers. Meanwhile, selling, general and administrative expenses increased to ¥8,282 million (up 4.4% year on year), with R&D expenses of ¥1,083 million and salaries and bonuses of ¥2,756 million squeezing profitability. Construction in progress expanded to ¥3,265 million (from ¥1,740 million in the prior period), as investment in aging equipment renewal and DX under the medium-term management plan began in earnest. For FY2027 (ending March 2027), the company forecasts net sales of ¥55,000 million, an ordinary loss of ¥400 million, and a net loss of ¥500 million. The company intends to maintain an annual dividend of ¥52 per share (based on the DOE standard).

Key Products

Growth Drivers

• Expanding demand for synthetic leather for housing and housing equipment (up 13.6% year on year to ¥3,536 million in FY2026 (ending March 2026))
• Steady growth in synthetic leather for fashion and daily living materials (up 1.9% year on year to ¥4,457 million in FY2026 (ending March 2026))
• Strengthening production capacity through investment in aging equipment renewal and DX under the medium-term management plan (construction in progress rising from ¥1,740 million to ¥3,265 million)
• Absorbing rising raw material costs through the use of price pass-through contract terms with business partners
• Significant reduction in equity-method investment losses (from ¥386 million in the prior period to ¥83 million in the current period), improving contribution to ordinary profit
• Capturing new demand through the development of products addressing the circular economy

Risks

• Decline in demand for vehicle applications due to fluctuations in automaker production (down 2.2% year on year in FY2026 (ending March 2026), accounting for approximately 85.7% of net sales)
• Unexpected surges in raw material prices due to worsening conditions in the Middle East (a factor behind a temporary loss in FY2027 (ending March 2027))
• Increased fixed costs and profit pressure from large-scale capital expenditure under the medium-term management plan (¥4,906 million in acquisition of property, plant and equipment)
• Risk of overseas economic downturn and supply chain disruption due to the impact of U.S. trade policy (tariffs)
• Reduced financial flexibility due to a decline in cash and cash equivalents (from ¥9,244 million to ¥6,145 million)
• Continued elevated selling, general and administrative expenses (¥8,282 million) due to ongoing increases in R&D expenses and personnel costs
• A structural free cash flow deficit, with investment activity expenditure (¥3,233 million) substantially exceeding the low level of operating cash flow (¥799 million)