Order backlog +28.5% confirms growth foundation; upgraded shareholder return policy and consideration of JPY 2B capacity expansion investment in Optics business are the focal points of the full-year results

Key Positives From The Results

Orders grew at double-digit percentages YoY across all business segments, with order backlog reaching JPY 6,637M (+28.5% YoY)—the highest level over the past five years. Concrete initiatives on both growth and capital policy fronts were articulated, including the consolidation of Oyo Koken Kogyo as a subsidiary, entry into the Indian market, and an upgraded shareholder return policy.

• Order backlog of JPY 6,637M (+28.5% YoY), with the Optics business standing out at +47.0% YoY. Large-lot optical component orders and multiple new laser equipment orders in Q4 were key contributors
• Operating CF of JPY 1,861M (+42.8% YoY), demonstrating solid core business cash generation. Investing CF came in at +JPY 776M, but this included one-off factors such as time deposit withdrawals, fixed asset sales, and investment securities disposals; recurring business FCF should be evaluated at the operating CF level
• Consolidation of Oyo Koken Kogyo brings radiation measurement equipment and crystal optical components into the fold, establishing a synergy platform across both the Inspection and Optics businesses. Negative goodwill of JPY 64M was recognized
• Shareholder return policy upgraded to a payout ratio of 50%+ and DOE of 3.0%+. Year-end DPS was also revised upward from JPY 50 to JPY 54 versus the prior forecast, and annual DPS of JPY 105 (including JPY 3 special dividend) is guided for next fiscal year, signaling a clear commitment to enhanced total shareholder return
• Commencement of CPC supply in partnership with India's IMS Maco marks tangible progress in the global rollout for the steel and non-ferrous metals segments

Key Concerns From The Results

Operating income declined to JPY 1,701M (−10.8% YoY). Inflationary cost pressures, higher SG&A, and a sales mix headwind from the reversal of high-margin product shipments weighed on margins. That said, order backlog surged to JPY 6,637M (+28.5% YoY), suggesting this is not a demand deterioration story but rather a transitory margin adjustment driven by cost inflation and portfolio transition.

• Gross profit of JPY 4,426M (−1.6% YoY) alongside revenue growth, creating a top-line-up / profit-down dynamic. COGS ratio rose to 59.8% (+1.7pt YoY), which the +2.5% revenue growth was insufficient to absorb, pushing the gross margin down to 40.2% (−1.7pt YoY)
• The Inspection business posted revenue growth of +20.3% but continued to record a segment loss of JPY −30M. The loss did narrow from JPY −89M in the prior year; whether the targeted breakeven in FY03/2027 is achievable is a key checkpoint
• The Optics business saw a modest revenue decline (−1.6%) as laser equipment sales normalized. Keihin Komaku remains in the midst of a turnaround, putting downward pressure on margins. However, order backlog surged +47.0%, pointing to robust demand
• Functional film & flexible packaging revenue fell 8.6% and profit dropped 13.7% due to stalled orders from the secondary battery industry. Order backlog is up +34.8%, hinting at early signs of recovery, but near-term earnings contribution remains limited
• Capital allocation amid the simultaneous pursuit of ~JPY 2B in Optics capacity expansion, enhanced shareholder returns, and an active M&A posture is a medium-term discussion point

Focus Areas / Items To Monitor Going Forward

• Specific timeline and payback plan for the ~JPY 2B Optics capacity expansion investment. Progress toward the targeted operational start in FY03/2029 will be a key determinant of medium-term growth trajectory
• Timing of the Inspection business reaching profitability. Revenue contribution from radiation measurement equipment via collaboration with Oyo Koken Kogyo and order trends for electrode inspection systems targeting perovskite solar cells are critical
• Unpriced risks in next fiscal year's guidance from US tariff policy and Middle East geopolitical tensions. Validation of the order conversion pace underpinning the JPY 12,500M (+13.4%) revenue assumption

Key Financial Highlights

Gross margin declined to 40.2% (vs. 41.8% prior year). Inflationary cost increases were the primary driver, with OPM falling to 15.4% (vs. 17.7% prior year) for the first profit decline in two fiscal years. Meanwhile, extraordinary gains—including JPY 32M on fixed asset sales, JPY 91M on investment securities sales, and JPY 64M in negative goodwill—limited the net income decline to −7.7%.

Performance By Business Segment

Progress Versus Full-Year Guidance

As these are full-year actuals, progress rates are final. Next fiscal year's guidance calls for revenue of JPY 12,500M (+13.4%) and operating income of JPY 1,900M (+11.7%), projecting a return to top- and bottom-line growth. Conversion of the JPY 6,637M order backlog underpins next year's earnings, with continued semiconductor-related demand as a key assumption. Note that the impact of US tariff policy and Middle East geopolitical tensions is not factored in.

• The Control Equipment business is linked to steel manufacturers' capex planning cycles, with a structural H2 skew
• The Optics business is dependent on semiconductor equipment makers' ordering cycles, with large project timing creating significant quarter-to-quarter variability

Next Fiscal Year Guidance

For next fiscal year (FY03/2027), the company projects top- and bottom-line growth, primarily predicated on conversion of the JPY 6,637M order backlog and expanding demand in the Optics business. Net income is expected to grow only +0.6%, reflecting the roll-off of extraordinary gains (JPY 197M booked this fiscal year).

• Revenue: JPY 12,500M (+13.4%)
• Operating Income: JPY 1,900M (+11.7%)
• Recurring Profit: JPY 2,000M (+11.4%)
• Net Income: JPY 1,450M (+0.6%)
• EPS: JPY 202.58 (+2.9%)

Commentary On Shareholder Returns

Year-end DPS was revised upward by JPY 4 from the prior forecast (announced May 14, 2025) of JPY 50 to JPY 54, bringing full-year DPS to JPY 89 (interim JPY 35 + year-end JPY 54). While this represents a JPY 6 decrease from the prior year's JPY 95 (which included a commemorative dividend), it is effectively an increase on an underlying basis after stripping out the special factor. Starting FY03/2027, the shareholder return policy has been upgraded to "consolidated payout ratio of 50%+ and DOE of 3.0%+" (previously: payout ratio 45%+ and DOE 2.5%+). Annual DPS of JPY 105 is guided for next fiscal year (interim JPY 40, year-end JPY 65 = ordinary dividend JPY 62 + special dividend JPY 3), implying a payout ratio of 51.8%. The JPY 3 special dividend is funded by proceeds from cross-shareholding disposals as an additional shareholder return measure. During the fiscal year, the company acquired JPY 513M in treasury shares and cancelled 400,159 shares (5.16% of outstanding).

Financial Position

The equity ratio remained at a robust 82.6%. Against cash and cash equivalents of JPY 4,406M, interest-bearing debt stood at just JPY 548M, maintaining a net cash position. Total assets expanded to JPY 20,588M, driven in part by the consolidation of Oyo Koken Kogyo. Going forward, capital allocation will be in focus, balancing the ~JPY 2B Optics capacity expansion, enhanced shareholder returns, and M&A strategy.

News Released Alongside The Earnings Announcement

Major Announcements During The Quarter

Large-Shareholding Filings / Material Proposals Over The Past Year

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