AWA PAPER & TECHNOLOGICAL COMPANY, Inc.

Business Details

The Awa Paper Group is a manufacturer of functional paper and nonwoven fabrics. It operates three product groups: automotive-related materials (Filter Media for Engines, Base Paper for Clutch Plate Friction Material, Base Paper for Lead-Acid Battery Separators), water treatment-related materials (Nonwoven Fabric for Separation Membrane Support), and general industrial materials (functional paper for food and electric/electronic components). Domestic production sites are concentrated in Tokushima Prefecture, and the company has built a global supply framework through its Thai subsidiary (Thai United Awa Paper Co., Ltd.) and its Chinese equity-method affiliate (Chuzhou Guofeng Awa Filter Media Co., Ltd.).

Recent Overview

Water treatment-related materials drove growth with a 23.8% year-on-year increase, but operating profit fell 86.4% due to a sharp rise in depreciation expenses

In FY2026 (ending March 2026) (consolidated), the Company achieved net sales of ¥18,494 million (up 8.0% year on year). Water treatment-related materials drove high growth, reaching ¥8,799 million (up 23.8% year on year), while automotive-related materials declined to ¥8,189 million (down 6.3% year on year) due to inventory adjustments by customers and delays in switching to substitute materials following production halts by raw material manufacturers. Depreciation and amortization surged to approximately 1.9 times the prior year's level, reaching ¥1,274 million, due to the start of operations at the new plant, and combined with rising raw material prices, labor costs, and transportation costs, operating profit fell to ¥58 million (down 86.4% year on year), and the Company recorded an ordinary loss of ¥95 million. However, the Company recorded ¥1,500 million in subsidy income related to the construction of the new plant as extraordinary income, securing profit attributable to owners of parent of ¥753 million (a substantial increase year on year). A loss of ¥35 million from a wire transfer fraud at an overseas subsidiary was also recorded as an extraordinary loss.

Key Products

Growth Drivers

• Steady expansion in demand for water treatment-related materials (applications in seawater desalination, wastewater treatment, and industrial process water) and increased sales growth for Nonwoven Fabric for Separation Membrane Support
• Strengthening of supply capabilities and increased production capacity for Nonwoven Fabric for Separation Membrane Support through stable operation of the new plant
• Steady demand for automotive-related materials for motorcycles in India and some Southeast Asian markets
• Expansion of exports by capturing demand for automotive-related materials for overseas replacement parts markets
• Efforts to improve profitability through productivity improvements and appropriate pricing of products
• Forecast for FY2027 (ending March 2027): net sales of ¥20,600 million (up 11.4% year on year), with operating profit expected to recover to ¥690 million

Risks

• Continued profit pressure from a sharp increase in depreciation expenses associated with the new plant's operations (approximately 1.9 times year on year to ¥1,274 million in FY2026 (ending March 2026))
• Risk of production halts or supply shortages of raw materials (delays in commercializing substitute products for automotive-related materials directly affect business performance)
• Risk of structural change in demand for automotive-related materials due to the progress of battery electric vehicle (BEV) adoption (the proportion of electrified vehicles is rising even as BEV strategies are being reconsidered)
• Decline in gross profit margin due to rising raw material prices, labor costs, and transportation costs (gross profit margin deteriorated to 13.6% in FY2026 (ending March 2026) from 16.0% in the prior year)
• Risk of fluctuations in raw material and fuel prices and foreign exchange rates due to heightened geopolitical risk, including the situation in the Middle East
• Impact on the supply chain and exports due to uncertainty in trade policy, including US tariff policy
• Internal control risk related to wire transfer fraud and similar incidents at overseas subsidiaries (a loss of ¥35 million was recorded in FY2026 (ending March 2026))
• Risk of natural disasters due to the concentration of domestic production sites in Tokushima Prefecture
• Continued high level of interest-bearing debt (long-term borrowings of ¥9,639 million, short-term borrowings of ¥2,725 million) and risk of rising interest rates