BOURBON (2208) FY2026 Q3 Earnings Report

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Executive Summary

Although the Company secured a 5.9% increase in revenue, operating income declined due to higher costs and an increase in SG&A expenses, resulting in higher revenue but lower profit. Revenue was ¥87.70B (¥82.82B in the previous year, +5.9%), operating income was ¥4.37B (¥4.93B in the previous year, -11.3%), ordinary income was ¥4.78B (¥5.20B in the previous year, -8.1%), and net income was ¥3.42B (¥3.68B in the previous year, -7.0%). The 7.3% increase in cost of sales exceeded the revenue growth rate, causing the gross margin to decline to 24.3% (25.4% in the previous year), which was the primary reason for the decline in profit.

Factors Affecting Business Performance

【Revenue】Revenue was ¥87.70B, representing a 5.9% year-on-year increase. The revenue growth rate exceeded the industry median of 3.4%, apparently reflecting expanded demand and a certain degree of pass-through to selling prices.

【Profit and Loss】Cost of sales increased to ¥66.43B (+7.3% year-on-year), outpacing revenue growth, and the gross margin declined to 24.3% from 25.4% in the previous year. SG&A expenses were ¥16.90B (+5.0%), an increase broadly in line with the increase in revenue. However, against a ¥0.24B increase in gross profit, the increase in SG&A expenses reached ¥0.80B, resulting in operating income of ¥4.37B (-11.3%). Below operating income, foreign exchange gains of ¥0.22B and other factors contributed to ordinary income of ¥4.78B (-8.1%), slightly mitigating the decline in operating income, while net income remained at ¥3.42B (-7.0%). In conclusion, the Company achieved higher revenue but lower profit.

Key Financial Indicators

【Profitability】The operating margin was 5.0%, down from 6.0% in the previous year, while the net profit margin also contracted to 3.9% (4.4% in the previous year). The primary factor was the decline in gross margin to 24.3% (25.4% in the previous year), with the increase in the cost ratio placing greater pressure on core operating profitability than the increase in SG&A expenses.【Cash Flow Quality】Operating cash flow (OCF) was ¥3.19B, equivalent to 0.93x net income of ¥3.42B. Although the cash backing of accounting profit was broadly maintained, the OCF-to-EBITDA ratio was low at 0.38x, as increases in accounts receivable and inventories weakened cash efficiency.【Investment Efficiency】Annualized ROE was 7.1%, indicating limited profit-generation capacity relative to net assets of ¥64.50B. The constraint on ROE lies not in financial leverage but in the low net profit margin.【Financial Soundness】The equity ratio remained high at 64.7% (64.2% in the previous year), interest-bearing debt was minimal, and current assets of ¥50.09B substantially exceeded current liabilities of ¥26.87B. The financial foundation is conservative, providing high resilience to short-term fluctuations in business performance.

Cash Flow Analysis

Operating cash flow was ¥3.19B, an increase of +19.2% from ¥2.68B in the previous year. However, accounts receivable and inventories increased by ¥2.57B and ¥2.51B, respectively, and the ¥2.09B increase in accounts payable was insufficient to offset these increases, placing pressure on operating cash as working capital accumulated. Investing cash flow was negative ¥3.32B, of which capital expenditures accounted for ¥3.14B. Although capital expenditures remained within depreciation and amortization of ¥4.04B, they did not result in sufficient cash generation to match the investment. Financing cash flow was negative ¥1.36B, primarily reflecting outflows related to dividend payments and other items. As a result, free cash flow was negative ¥0.13B, and cash and cash equivalents declined. Cash and deposits of ¥15.96B remain ample, and there are no concerns regarding funding for the time being; however, normalization of working capital will be a key issue for improving cash conversion efficiency.

Earnings Quality

Ordinary income of ¥4.78B exceeded operating income of ¥4.37B by ¥0.40B, with ¥0.45B in non-operating income, including foreign exchange gains of ¥0.22B and dividend income of ¥0.09B, partially offsetting the decline in core operating profit. Extraordinary gains and losses, including a gain on the sale of investment securities of ¥0.06B and an impairment loss of ¥0.04B, largely offset each other, resulting in a limited net contribution of approximately ¥0.02B. The gap between ordinary income and net income was primarily attributable to income taxes of ¥1.38B, with the effective tax rate in approximately the 28% range and no unusual tax factors evident. OCF was 0.93x net income, indicating that the cash backing of accounting profit was maintained. However, the increase in working capital weakened cash conversion efficiency. While earnings quality shows limited dependence on one-time factors, the delay in cash conversion warrants attention.

Earnings Forecast and Guidance

The full-year forecast is revenue of ¥119.70B (+5.5%), operating income of ¥7.30B (-2.3%), and ordinary income of ¥7.70B (+1.5%). The Q3 cumulative progress rate for revenue was 73.3%, only slightly below the standard 75%, whereas operating income was substantially lower at 59.9%, requiring ¥2.93B in operating income to be recorded in Q4. The fact that profit progress is lagging revenue growth indicates potential for improvement in the cost and expense structure.

Shareholder Returns

The Q2 dividend was ¥20.00 per share, and the full-year dividend forecast is ¥42.00. Based on Q3 cumulative net income of ¥3.42B, the payout ratio is approximately 16.2%; based on the full-year net income forecast of ¥5.70B, the forecast payout ratio is approximately 17.8%. The profit level indicates sufficient capacity to pay dividends. However, Q3 cumulative free cash flow was negative ¥0.13B, meaning that dividends and capital expenditures could not be covered simultaneously by OCF alone. Cash and deposits of ¥15.96B and low interest-bearing debt provide support for dividend payments for the time being.

Risk Factors

1. Rising costs and delays in price pass-through: Cost of sales increased by +7.3% year-on-year, exceeding the +5.9% revenue growth rate, and the gross margin declined to 24.3%. The operating margin of 5.0%, close to the lower end of the industry median range (4.5%–7.6%), indicates challenges in the Company’s pricing power.

2. Declining cash conversion efficiency due to higher working capital: Increases in accounts receivable of +¥2.57B and inventories (including +¥2.18B in raw materials, among other items) placed pressure on OCF, leaving the OCF/EBITDA ratio at 0.38x. Free cash flow was negative ¥0.13B.

3. Delayed progress toward the full-year earnings forecast: The operating income progress rate of 59.9% was substantially below the revenue progress rate of 73.3%, requiring ¥2.93B in operating income to be recorded in Q4. Improvement in the cost and expense structure will be key to achieving the forecast.

Industry Benchmark (For Reference; Company Analysis)

Profitability and Returns

Both the operating margin and net profit margin were approximately in line with the industry median, placing the Company’s profitability in the middle range of the industry.

Growth and Capital Efficiency

The revenue growth rate exceeded the industry median, indicating that top-line expansion ranked relatively high within the industry.

※Source: Company analysis

Key Takeaways from the Financial Results

1. The divergence between revenue growth and profit growth has widened. Revenue increased by +5.9%, whereas operating income declined by -11.3%, primarily due to an approximately 1.1-point decline in gross margin. The pace of recovery in the ability to pass through cost increases will be a structural factor determining the future trend in profit margins.

2. OCF/net income was 0.93x, indicating that the cash backing of profit was maintained. However, the OCF/EBITDA ratio of 0.38x and negative free cash flow of ¥0.13B indicate lower funding efficiency due to increases in accounts receivable and inventories.

3. The financial foundation is conservative, reflected in an equity ratio of 64.7% and low levels of interest-bearing debt. The full-year operating income progress rate of 59.9% is below the revenue progress rate, making recovery in Q4 profitability the key focus for achieving the full-year forecast.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,500–¥2,646 at ±1% cost of equity, and ¥2,568–¥2,574 at ω±0.1.

Notes:

• Goodwill amortization of ¥4.7 per share has been added back to earnings (to account for a non-cash expense and comparability with IFRS companies).
• Since forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end have been used (there is a timing difference relative to the full-year forecast).

(Calculation model: Residual income model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and 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 professionals as necessary.

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