Toyokoh’s shares declined by 15% over two days following the release of solid Q1 FY3/26 earnings. This reaction is somewhat surprising given the recent strength in Japanese equities. The only apparent weakness in the results was the sales progression, which came in at 23% of the company’s full-year guidance. However, given the lumpy nature of Toyokoh’s order intake, this may not be a material concern.

A more tangible negative was the cancellation of a CoolLaser sale due to delayed payment collection. The transaction, originally booked in Q1, was reversed and the equipment returned to inventory. The company believes the unit can be resold to another customer and has committed to tightening its credit checks going forward.

While this incident may raise questions about the quality and demand for CoolLaser, it appears to be an isolated case rather than a systemic issue.

Ultimately, the 15% drop likely reflects profit-taking, especially considering the stock’s elevated valuation—trading at 81.3x FY3/26 earnings—and its 280% gain since IPO.

I was constructive on Toyokoh’s defensible business model in my May 25, 2025 note, but struggled to reconcile the valuation. My original view anticipated a 10% downside, which proved incorrect.

The company:

Officially designated by METI as a deep-tech startup, Toyokoh (market cap Y28Bn) provides construction services, operating mainly in two segments: SOSEI and CoolLaser.

The SOSEI business uses a unique method to paint and waterproof the roofs of aging factories and buildings, enhancing durability and insulation to help prevent damage and reduce running costs.

The CoolLaser business manufactures and sells high-powered laser equipment that removes rust and paint from aging social infrastructure such as bridges and steel towers.

Both businesses are tapping into a TAM, thanks to Japan’s pressing need to upgrade its aging infrastructure quickly and safely.

Q1 3/26 results:

Net Sales:

Q1 FY3/26 net sales were ¥685 million, reflecting a 66.4% increase year-over-year.

Sosei: Y488 million, + 19% Y/Y

CoolLaser: Y197 million from Y1 million in Q1 FY3/25 (CoolLaser started to ship in FY3/25)

Operating Profit:Y145 million, 3x from a year ago.

OPM: 21.3%

FY3/26 Guidance:

Net sales: 3,000 million, + 48.1% year-over-year

Operating profit: ¥580 million + 92.5%

Operating margin rising to around 19.3% in FY3/26 from 14.9% in FY3/25.

My 5/27/25 note is available for my clients. If you’re interested in learning more about Toyokoh and its growth potential, I’d like to invite you to experience my service—completely free of charge. I am confident that once you discover the value, convenience, and quality I offer, you’ll be glad you gave me a try.

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