■Future Outlook LeTech <3497> expects an increase in sales and ordinary income of more than 20%, with sales of 2.14 billion yen (+33.8% YoY), operating income of 150 million yen (+7.7% YoY), ordinary income of 100 million yen (+21.7% YoY), and net income of 1.03 billion yen (-11.4% YoY) for the July 2024 term, and has maintained its initial forecast (announced in September 2023).
1. Performance Outlook for March 2025
For the consolidated results of Chubu Steel Plate Co., Ltd. (5461) for the fiscal year ending March 2025, it is planning for revenue of JPY 68 billion (an increase of 0.3% compared to the previous year), operating profit of JPY 950 million (a decrease of 8.9% year-on-year), ordinary profit of JPY 910 million (a decrease of 11.0% year-on-year), and net income attributable to the parent company's shareholders of JPY 610 million (a decrease of 14.5% year-on-year). The revenue is expected to remain the same as the previous year, while profits at each stage are expected to decline. From the second quarter of 2025, there is a plan for large-scale furnace equipment construction, but due to the impact of business shutdown, the planned crude steel production volume is 510,000 tons, which is below the 2024 fiscal year actual of 560,000 tons. Sales volume is also expected to be 530,000 tons, the same as in the 2024 fiscal year. However, regarding the domestic thick plate market, it is expected that the market trend will continue at a high level in the future, as it is expected that demand for civil engineering and construction will be expected due to the national resilience strategy, and major domestic suppliers of blast furnace makers are raising their sales prices continuously, based on the rise in material and logistics costs, despite the impact of rising raw material prices and labor shortages. Our company considers that the revenue forecast is relatively high, and for the profit front, there are various factors such as the high price trends of the main material, iron scrap, from the 2024 fiscal year, the rise in energy and material prices, and the cost increase due to the 2024 logistics problem. In addition, it is expected to reduce profits due to the planned cost of construction-related costs such as equipment depreciation losses, but our company believes that there are no concerns about achieving the planned profit, as this will be addressed by appropriately reflecting the cost increase on sales prices.
Note that the large-scale furnace equipment construction will end in the fiscal year ending March 2025, and the full operation of the new electric furnace is expected to start after the fourth quarter. Until then, the company will continue its operations under the production capacity of the 2024 fiscal year.
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1. Review of the 21-Medium-term Management Plan and Announcements of the 24-Medium-term Management Plan
The "21 Mid-Term Management Plan" formulated in 2021 ended in the fiscal year ending March 2024. It had set a sales target of 700,000 tons, a consolidated operating profit target of JPY 4 billion, and a consolidated dividend payout ratio of 30% as five principles of contribution to a circular society (scrap recycling), promotion of growth strategies, promotion of sustainable infrastructure development, reinforcement of efforts to address ESG/SDGs issues, and promotion of business alliance with Nakayama Steel Works as numerical targets. The results of each target were a sales quantity of 520,000 tons due to the impact of the construction of the new electric furnace facility, which did not meet the target, but the consolidated operating profit exceeded the target from fiscal year 2022 to fiscal year 2024. In addition, the consolidated dividend payout ratio exceeded the target in each fiscal year, and ended up at 35% in the fiscal year ending March 2024. Furthermore, the company listed on the Tokyo Stock Exchange Prime Market in December 2022, and cited it as an achievement of the medium-term plan and preparation for future growth, as well as an increase in production capacity and preparation for decarbonization due to the construction of the new electric furnace.
(2) Overview of the 24-Medium-term Management Plan
In May 2024, the medium-term management plan for three years starting from fiscal year 2024, the "24 Medium-term Management Plan" (hereinafter, the "Plan") was formulated. The basic policy of the Plan is to utilize the business alliance with Nakayama Steel Works to promote the following three points.
1) Sales of 800,000 tons of steel products (thick plates and castings)
In response to the increasing demand for thick plates in the market due to the concentration of facilities resulting from the structural reform of blast furnace manufacturers, and to meet customers' decarbonization needs, efforts are being made to strengthen both production and sales systems to increase the sales volume of steel products to 800,000 tons (700,000 tons of thick plates and 100,000 tons of slabs). On the production side, measures such as utilizing new electric furnaces, introducing a 4-shift 3-rotation system to expand operating hours, increasing casting capacity, securing a proper amount of scrap inventory by expanding the scrap yard, improving shipping capacity by expanding the product yard, reducing fuel consumption in the rolling process, and reducing costs through automation are being implemented to increase production. On the sales side, in response to the decarbonization trend, thick plates with high CO2 reduction effects manufactured in the new electric furnace will be sold as building materials for pillars and beams in office buildings and factories, in addition to strengthening the demand for thick plates in collaboration with trading companies to capture decarbonization needs. The building materials sales team, consisting of sales representatives and technical representatives, will be established to strengthen sales to clients, design offices, general contractors, and steel processing companies, as their proportion of orders across the company is low.
2) Decarbonization measures.
In addition to the energy-saving effect from the operation of new electric furnaces, decarbonization will be promoted by securing renewable energy. According to calculations, when 1 million tons of thick plates and slabs are sold in the fiscal year 2030, the expected amount of CO2 emissions is 357,000 tons-CO2, but decarbonization measures will be taken to aim for a compression to 129,000 tons-CO2. As measures for this, in addition to responding to decarbonization in the manufacturing process by operating the aforementioned new electric furnaces, policies such as securing renewable energy and purchasing CO2-free electricity will be introduced. For securing renewable energy, an “off-site PPA” will be introduced. PPAs are a mechanism for solar power generation operators to supply electricity to their contracted customers by opening a solar power plant, but off-site PPA is a method of installing a power plant outside the contracting party’s premises. The goal is to secure an annual procurement of the equivalent of 13,000 MWh of power, and as the first step, an agreement has been made with Chubu Electric Power Mirai (Ltd.) to use electricity purchased from multiple solar power plants in the Chubu region, securing 5,145 MWh of power per year. This is expected to reduce emissions by 2,400 tons-CO2 annually. As for purchasing CO2-free electricity, they are considering purchasing electricity generated by hydraulic and solar power that power companies have procured, non-fossil certificate-based electricity purchased by power companies from the market, and other PPA electricity, etc. Additionally, they are considering selling “green steel” using their own acquired CO2 reduction amounts as the resources and aiming to start sales in the fiscal year ending March 2026. Green steel is a product that significantly reduces CO2 emissions during steel production compared to conventional products, and allocates the CO2 reduction amount to each steel product, allowing the introducing clients to enjoy the CO2 reduction effect.
Furthermore, in the 21 mid-term management plan, the total amount of CO2 emissions was also disclosed. However, in this mid-term plan, in addition to disclosing the total amount, details of the environmental impact by product unit based on LCA (Life Cycle Assessment: an environmental evaluation throughout the life of a product, from resource extraction to disposal/recycling) will be started.
(Writer: FISCO analyst Tomoichi Murase)