Ryoyo Ryosan Holdings,Inc. FY2027 Q1 Earnings Report

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Executive Summary

The key point for the quarter was that, in addition to higher revenue and earnings, operating leverage was achieved through an improvement in the SG&A expense ratio. Revenue rose to ¥986.6B (+19.8% YoY), operating income increased to ¥38.7B (+161.3%), and ordinary income grew substantially to ¥36.6B (+203.5%). Net income increased to ¥27.9B (+16.9%), a relatively modest increase primarily due to the absence of the ¥21.7B gain on the sale of investment securities recorded in the previous year. A recovery in volumes in the core A0Device Business, together with improvements in both the gross margin and SG&A expense ratio, supported the expansion of core earnings power.

Factors Affecting Earnings

【Revenue】Revenue was ¥986.6B, up +19.8% YoY, with both segments recording higher sales. The A0Device Business led performance as the core business, with revenue of ¥798.0B (80.9% of total, YoY +22.6%), while the A0Solution Business was on a recovery trend, with revenue of ¥188.5B (19.1% of total, YoY +9.4%). By region, Japan generated ¥506.9B (51.4% of total, YoY +15.5%), China ¥245.7B (24.9% of total, YoY +13.3%), Asia ¥196.2B (19.9% of total, YoY +41.2%), and other regions ¥38.2B (3.9% of total, YoY +34.6%), with the Asia region showing the strongest growth.

【Profit and Loss】The gross margin improved to 10.8% from 10.1% in the previous year, an improvement of +69bp, while the SG&A expense ratio declined to 6.8% from 8.3%, a decrease of -143bp. As a result, the operating margin expanded by +213bp to 3.9% from 1.8% in the previous year. Non-operating income and expenses were limited to a net expense of ▲¥2.1B, including ¥2.5B in interest expenses, and ordinary income increased substantially to ¥36.6B (+203.5% YoY). Extraordinary income fell to ¥3.4B in the current period following the absence of the ¥21.7B gain on the sale of investment securities recorded in the previous year, restraining net income growth to ¥27.9B (+16.9% YoY), below the growth rate at the ordinary income level. In conclusion, the Company achieved higher revenue and earnings, with a structural shift from earnings dependent on the previous year's one-time extraordinary gain toward earnings driven by core operating profitability.

Segment Analysis

The A0Device Business led both revenue and profit growth as the core business, with revenue of ¥798.0B (80.9% of total, YoY +22.6%), operating income of ¥30.2B (YoY +172.6%), and a 3.8% operating margin. The A0Solution Business was on a recovery trend and demonstrated higher profitability than the Device Business, with revenue of ¥188.5B (19.1% of total, YoY +9.4%), operating income of ¥8.5B (YoY +128.0%), and a 4.5% operating margin. Both businesses achieved higher revenue and earnings, with the Device Business's profit growth rate in particular driving the overall expansion in operating income (+161.3%).

Key Financial Indicators

【Profitability】The operating margin improved by +213bp to 3.9% from 1.8% in the previous year, while the net profit margin remained broadly unchanged at 2.8% versus 2.9% in the previous year. Both the gross margin, at 10.8% (10.1% in the previous year), and the SG&A expense ratio, at 6.8% (8.3% in the previous year), improved, generating operating leverage. 【Cash Quality】Accounts receivable and notes receivable totaled ¥1131.0B, while inventories totaled ¥607.9B, indicating a substantial asset base and an increase in working capital accompanying revenue expansion. 【Investment Efficiency】ROE was 2.0%, basic EPS was ¥69.52 (¥59.52 in the previous year, YoY +16.8%), and BPS was ¥3,450.49 (¥3,413.06 in the previous year). 【Financial Soundness】The equity ratio declined slightly to 52.4% from 54.6% in the previous year but remained above 50%. Against cash and deposits of ¥386.6B, interest-bearing debt consisted of ¥245.2B in short-term borrowings and ¥22.0B in long-term borrowings, indicating a conservative capital structure.

Cash Flow Analysis

Although a standalone cash flow statement has not been disclosed, fund movements can be analyzed based on changes in the balance sheet. Cash and deposits increased to ¥386.6B from the equivalent of ¥355.5B in the previous year, indicating that liquidity on hand has been maintained. Meanwhile, accounts receivable and notes receivable totaled ¥1131.0B and inventories totaled ¥607.9B, with both accumulating at a pace exceeding revenue growth, creating a situation in which the expansion of working capital could affect capital efficiency. Accounts payable and notes payable also increased to ¥571.9B, providing a certain balance in procurement-related cash management; however, rising working capital requirements accompanying revenue growth will be a factor affecting future cash-generating capacity.

Earnings Quality

The increase in earnings for the current period was primarily attributable to improved operating profitability. Improvements in both the gross margin and SG&A expense ratio supported operating income growth and can be evaluated as an improvement in recurring earnings power. In contrast, the same period of the previous year included a one-time extraordinary gain of ¥21.7B on the sale of investment securities, whereas extraordinary income in the current period was limited to ¥3.4B. This reversal restrained net income growth (+16.9%) relative to ordinary income growth (+203.5%). Comprehensive income was ¥43.1B, exceeding net income of ¥27.9B, with valuation-related increases such as the ¥8.3B foreign currency translation adjustment and the ¥6.8B valuation difference on securities contributing to the result. These items therefore need to be distinguished from realized earnings.

Earnings Forecast and Guidance

Progress against the full-year Company plan was 26.7% for revenue (¥986.6B/¥3700.0B), 32.3% for operating income (¥38.7B/¥120.0B), and 33.3% for ordinary income (¥36.6B/¥110.0B). Compared with a simple quarterly allocation benchmark of 25%, progress on profit indicators exceeded revenue progress, confirming that profit progress was ahead as of Q1. Although the earnings forecast was revised during the quarter, there was no revision to the dividend forecast.

Shareholder Returns

The Company's full-year EPS plan is ¥187.03, and the annual dividend forecast is ¥140.00, implying a payout ratio of approximately 74.9%. There was no revision to the dividend forecast during the quarter. Given an equity ratio of 52.4% and a net cash position—cash of ¥386.6B versus interest-bearing debt of ¥267.2B—there appear to be no major constraints on dividend sustainability for the time being. However, the payout ratio itself is high, making monitoring of working capital trends useful.

Risk Factors

1. Segment concentration risk: The A0Device Business accounts for 80.9% of revenue and approximately 78% of operating income, indicating a high degree of dependence on a single business. Demand fluctuations in this business could have a significant impact on overall performance.

2. Working capital expansion: Accounts receivable and notes receivable of ¥1131.0B and inventories of ¥607.9B have accumulated at a pace exceeding revenue growth (+19.8%), potentially delaying the timing of cash generation.

3. Dependence on short-term financing: Short-term borrowings of ¥245.2B significantly exceed long-term borrowings of ¥22.0B, meaning that most interest-bearing debt is concentrated in the short term. Changes in the interest-rate environment could affect refinancing costs.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (trading)

Profitability and Returns

The Company's profitability is slightly below the industry median.

Growth and Capital Efficiency

The revenue growth rate significantly exceeds the industry median, indicating a high level of growth within the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The Company achieved earnings growth accompanied by improvements in both the gross margin and SG&A expense ratio, indicating progress toward a structure led by core operating profitability rather than dependence on the previous year's extraordinary gain. The fact that net income growth was below ordinary income growth reflects the reversal of this one-time factor.

2. Progress against the full-year plan was 32.3% for operating income and 33.3% for ordinary income, exceeding revenue progress of 26.7%; profit progress was therefore ahead as of Q1.

3. Accounts receivable and inventories expanded at a pace exceeding revenue growth, making working capital efficiency a key area for future monitoring. At the same time, the concentration of revenue and profit in the A0Device Business is high, warranting close attention to changes in the business mix.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥3,020–¥3,187 at a ±1% change in the cost of equity, and ¥3,091–¥3,109 at a ±0.1 change in ω.

Notes:

• As progress of net income against the full-year forecast (37%) exceeds the standard benchmark (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies whose progress is ahead tend to exceed forecasts; the adjustment may be excessive for businesses with strong seasonality).
• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used, creating a timing gap relative to the full-year forecast.

(Calculation model: Residual income model / Interest-rate reference month: 2026-07 / This figure does not predict or guarantee future share prices)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional advisor as necessary.

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