JPY 2B Capacity Expansion Investment in Optics and Launch of Centennial Vision; Order Backlog +29% Signals an Accelerating Growth Trajectory

Summary

In FY2026/3, revenue reached JPY 11,022M (a record high), broadly in line with the plan. However, a JPY 184M increase in COGS and a JPY 133M rise in SG&A weighed on profitability, with operating income declining 11% YoY to JPY 1,701M. On the other hand, orders grew double digits across all segments, reaching JPY 12,496M (+19% YoY), while order backlog hit a record JPY 6,637M (+29% YoY). At the briefing, management explicitly committed to a ~JPY 2B capacity expansion investment in the Optics business with a target start of operations in FY2029/3. The medium-term plan targets revenue of JPY 14B and operating income of JPY 2.5B by FY2029/3. Shareholder returns have been enhanced to a payout ratio of 50%+ and DOE of 3%+, with a record-high dividend of JPY 105 per share (including a special dividend) planned for FY2027/3.

Key Points (Earnings Takeaways and Growth Actions)

• Business Strategy and Market Positioning
  • Clear strategic shift of revenue base from mature industries (steel) to growth sectors such as semiconductors
  • Positioned to capture both high-grade steel investment and CO2 reduction capex from steelmakers
  • Developing new power-generation device markets—perovskite solar cells, all-solid-state batteries—on both the inspection equipment and control equipment fronts
• Current Business Progress and Drivers
  • The primary drag on operating income was a reversal from high-margin product mix in the prior year, compounded by revenue decline in functional films and flexible packaging
  • The Optics business booked multiple laser system orders and a large optical components order in Q4, driving order backlog up +47% YoY
  • The Inspection Equipment business posted a segment loss of JPY 30M due to sluggish H1 orders, though orders for blank inspection systems and food inspection equipment recovered in H2
• Strategic Initiatives and Inflection Points
  • Oyo Kogiken Kogyo was made a subsidiary and consolidated from Q4 (revenue contribution: JPY 409M in Inspection Equipment, JPY 226M in Optics)
  • Transitioned to a function-based organizational structure from April 2026, promoting more efficient allocation of management resources
  • Launched five-year plan "NIRECO-VISION 100" ahead of the company's centennial; specific quantitative targets to be disclosed going forward

Outlook and Strategy

• FY2027/3 plan: Revenue JPY 12,500M (+13%), operating income JPY 1,900M (+12%). Premised on full-year contribution from Oyo Kogiken and drawdown of the elevated order backlog
• The medium-term plan targets revenue of JPY 14,000M and operating income of JPY 2,500M by FY2029/3, with additional upside from M&A earmarked separately
• The JPY 2B Optics capacity expansion investment is to be finalized and commenced this fiscal year, with operations targeted for FY2029/3. Funded through a combination of internal cash and debt
• Accelerating global expansion into growth markets such as the US and India through collaboration with Germany's IMS Group
• In the Inspection Equipment business, advancing surface inspection technology development for next-generation power generation methods including perovskite solar cells
• The medium-term plan is scheduled for review within six months in line with the progress of the NIRECO-VISION 100 project

Positive Factors

• Orders of JPY 12,496M (+19% YoY) and order backlog of JPY 6,637M (+29% YoY), with double-digit growth across all segments—providing high visibility into next fiscal year's earnings
• The DUV laser market for semiconductor inspection, a key driver for the Optics business, is projected to grow at a CAGR of 10.1% (reaching USD 65M by 2030)
• Kogaku Giken is the only company capable of commercial processing of CLBO crystals; Oyo Kogiken holds the top domestic market share in NaI(Tl) scintillator crystals
• Enhanced shareholder returns with payout ratio raised to 50%+ and DOE to 3%+; FY2027/3 dividend of JPY 105 per share (a record high)
• Domestic market leader in control and marking equipment for the steel sector, as well as in edge position control devices and glue inspection equipment
• Record-high FCF of JPY 2,638M; equity ratio of 82.9% underpins a solid financial foundation

Concerns / Risks

• OPM declined 2.3pp from 17.7% to 15.4%; absorbing rising costs and SG&A remains an ongoing challenge
• The Inspection Equipment business has posted segment losses of JPY 30M for two consecutive years. A return to profitability at JPY 200M is planned for FY2027/3 but requires confirmation through actual results
• The full-year plan does not factor in direct impacts from US tariff policy or Middle East geopolitical developments, leaving downside exposure should these risks materialize
• The JPY 2B Optics capacity expansion investment amount has not been finalized due to construction cost volatility; risk of cost overruns warrants attention
• Stagnation in the secondary battery market could delay a revenue recovery in the functional films and flexible packaging segment
• Semiconductor cycle fluctuations pose order volatility risk for the Optics business

Performance Highlights

FY2026/3 revenue reached a record high of JPY 11,022M (+2% YoY). Operating income declined 11% YoY to JPY 1,701M, though net income attributable to owners of parent company came in at JPY 1,441M—the second-highest level on record. Order backlog of JPY 6,637M (+29% YoY) provides a structural underpinning for top- and bottom-line growth in the coming fiscal year.

Segment Performance

• Orders: JPY 12,496M (+19% YoY)
• Order Backlog: JPY 6,637M (+29% YoY)
• Operating Income Margin: 15.4% (prior year: 17.7%)
• EPS: JPY 196.75 (▲7% YoY)
• Annual Dividend: JPY 89 (prior year: JPY 95; raised JPY 4 from the initial forecast of JPY 85)
• Free Cash Flow: JPY 2,638M (prior year: JPY 978M)
• Consolidated Headcount: 533