Sojitz (2768) FY2026 Q3 Earnings Report

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Executive Summary

Despite higher revenue, operating income declined significantly year on year, making this an earnings period in which the decline in the tax rate boosted net income. Revenue was ¥1,985.80B (+5.6% YoY), while operating income was ¥45.98B (down 25.7% from ¥61.89B in the same period of the previous year). Profit before tax declined 5.5% to ¥92.86B; however, the effective tax rate fell from 19.8% to 10.1% year on year, resulting in a 5.7% increase in net income attributable to owners of the parent to ¥80.42B. Although revenue increased, selling, general and administrative expenses rose at a pace exceeding revenue growth, indicating deterioration in profitability at the operating level.

Factors Affecting Earnings

【Revenue】Revenue increased 5.6% year on year to ¥1,985.80B, maintaining an upward revenue trend including transaction volume, prices, and foreign exchange effects. Cost of sales also increased 5.9% year on year, and the gross profit margin declined slightly from 13.9% in the previous year to 13.6%.

【Profit and Loss】Selling, general and administrative expenses increased 13.0% year on year to ¥224.60B, substantially exceeding the 5.6% revenue growth rate. As a result, the operating margin contracted by approximately 97bp from 3.3% in the previous year to 2.3%, and operating income declined 25.7% year on year to ¥45.98B. Profit before tax also declined 5.5% to ¥92.86B; however, the lower effective tax rate (19.8%→10.1%) resulted in a 5.7% increase in net income attributable to owners of the parent to ¥80.42B. Share of profit of investments accounted for using the equity method was ¥31.18B, representing 33.6% of profit before tax and making a substantial contribution to consolidated earnings. In conclusion, although earnings declined at the operating income and profit-before-tax levels, net income increased due to the tax rate factor, making this an earnings period characterized by higher revenue but qualitatively close to a decline in earnings.

Key Financial Indicators

【Profitability】The operating margin was 2.3%, down approximately 97bp from 3.3% in the previous year, while the gross profit margin also declined slightly to 13.6% from 13.9%. Share of profit of investments accounted for using the equity method of ¥31.18B represented 33.6% of profit before tax, indicating a significant contribution from investee earnings to consolidated revenue.【Cash Flow Quality】Operating cash flow (OCF) was ¥75.01B, equivalent to 0.93 times net income attributable to owners of the parent of ¥80.42B, indicating that the divergence between earnings and cash generation was limited.【Investment Efficiency】ROE (annualized) was 10.1%, maintaining a level consistent with the increases in revenue and earnings for the current period.【Financial Soundness】The equity ratio was 30.8%, slightly down from 31.4% in the previous year, while total assets expanded to ¥3,431.47B. Interest-bearing debt totaled ¥1,172.72B, comprising current liabilities of ¥190.83B and non-current liabilities of ¥981.89B. Net interest-bearing debt, after deducting cash and cash equivalents of ¥206.32B, was ¥966.40B.

Cash Flow Analysis

Operating cash flow was ¥75.01B, a substantial increase from ¥12.24B in the same period of the previous year, reaching 0.93 times net income attributable to owners of the parent of ¥80.42B. The primary factor behind the increase was an ¥89.61B increase in trade payables, which absorbed the ¥49.81B increase in inventories and cash outflows related to trade receivables. Investing cash flow was an outflow of ¥76.65B; in addition to capital expenditures of ¥28.25B, investment activities including the acquisition of subsidiaries placed pressure on cash. Financing cash flow was positive at ¥6.81B, but the Company made shareholder returns totaling ¥43.15B, comprising dividend payments of ¥33.18B and share repurchases of ¥9.97B. Free cash flow, calculated as the sum of operating cash flow and investing cash flow, was negative ¥1.64B. The Company has limited capacity to fund investments and shareholder returns solely through internal funds after capital expenditures, and it is necessary to continue monitoring its dependence on increases in trade payables and trends in working capital.

Earnings Quality

The increase in earnings for the current period resulted from the lower effective tax rate (19.8%→10.1%) offsetting declines at the operating income and profit-before-tax levels, and should be evaluated separately from an improvement in recurring earnings power. Share of profit of investments accounted for using the equity method of ¥31.18B represented 33.6% of profit before tax and was an important component of consolidated earnings, although it is subject to fluctuations in investee performance, resource prices, and foreign exchange rates. Operating cash flow was ¥75.01B, or 0.93 times net income, which was generally sound from an accruals perspective; however, the underlying figure was substantially supported by the ¥89.61B increase in trade payables and was offset by the ¥49.81B increase in inventories. Comprehensive income was ¥144.42B, substantially exceeding net income attributable to owners of the parent of ¥80.42B, with other comprehensive income items such as foreign currency translation adjustments of ¥30.48B making a contribution.

Earnings Forecast and Guidance

The full-year forecast for net income attributable to owners of the parent is ¥115.00B, and the progress rate against Q3 cumulative results of ¥80.42B is 69.9%. This is 5.1pt below the standard progress rate of 75%, requiring profit of ¥34.58B in Q4 alone to achieve the full-year forecast. This exceeds the average quarterly profit for the first three quarters (approximately ¥26.81B), and year-end factors including investee earnings, transaction profitability, and tax rate trends will determine the degree of achievement. The full-year EPS forecast is ¥551.23, and a similar progress profile can be confirmed when compared with cumulative EPS for the current period of ¥385.16.

Shareholder Returns

The full-year dividend forecast is ¥165 per share, with an interim dividend of ¥82.5 already paid and the same level assumed for the year-end dividend. Based on forecast full-year profit of ¥115.00B, the annual payout ratio is approximately 30.0%, indicating a limited burden from dividends alone. During the first three quarters, the Company made share repurchases of ¥9.97B in addition to dividend payments of ¥33.18B. The total return amount of ¥43.15B represents a total return ratio of approximately 53.7% relative to net income attributable to owners of the parent of ¥80.42B. Free cash flow was negative ¥1.64B, and shareholder returns for the current period were implemented using operating cash flow and financing activities.

Risk Factors

1. Decline in Operating Margin: While revenue increased 5.6%, operating income declined 25.7% as selling, general and administrative expenses increased 13.0%. If the expansion of low-margin transactions or deterioration in the transaction mix continues, there is a risk that higher revenue will not translate into earnings growth.

2. Dependence on Share of Profit of Investments Accounted for Using the Equity Method: Share of profit of investments accounted for using the equity method of ¥31.18B represented 33.6% of profit before tax of ¥92.86B. The structure is such that resource prices, foreign exchange rates, and the performance of investees directly affect consolidated earnings, making fluctuations in portfolio earnings a key determinant of results.

3. Working Capital and Leverage Burden: Inventories expanded 28.9% year on year to ¥355.47B, while operating cash flow was supported by an ¥89.61B increase in trade payables. Total interest-bearing debt was ¥1,172.72B, and the equity ratio was 30.8%. If the increase in trade payables reverses or interest rates rise, there may be an impact on liquidity.

Industry Benchmark (For Reference; Company Analysis)

Profitability and Returns

The net income margin exceeds the industry median, indicating a relatively high level of profitability within the industry.

Growth and Capital Efficiency

The revenue growth rate slightly exceeds the industry median but remains within the range of industry dispersion (IQR).

※Source: Company compilation

Key Takeaways from the Earnings

1. The increase in net income attributable to owners of the parent was substantially attributable to the lower effective tax rate (19.8%→10.1%), while operating income and profit before tax declined year on year. This reflects a change in the earnings structure underlying the increases in revenue and net income.

2. Operating cash flow improved substantially to ¥75.01B, but the primary factor was the ¥89.61B increase in trade payables, which was offset by the ¥49.81B increase in inventories. A key characteristic is that cash generation depended on changes in working capital.

3. The Q3 cumulative progress rate against the full-year profit forecast was 69.9%, slightly below the standard level of 75%. The profit level required in Q4 exceeds the average quarterly profit for the first three quarters, and year-end performance will determine whether the full-year plan is achieved.

Theoretical Share Price (Reference Value)

Sensitivity: ¥5,222–¥5,531 at ±1% for the cost of equity, and ¥5,366–¥5,384 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing discrepancy 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 using only 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 release 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 with professionals as necessary.

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