Sojitz (2768) FY2027 Q1 Earnings Report

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Executive Summary

Sojitz’s FY2027 Q1 recorded higher revenue and profit, driven by revenue expansion combined with cost containment at the operating level. Revenue was ¥834.25B (¥598.90B in the same period of the previous year, YoY +39.3%), Operating Income was ¥28.32B, Profit Before Tax was ¥41.12B (up +64.8% YoY), and quarterly Net Income attributable to owners of the parent was ¥30.22B (¥21.08B in the same period of the previous year, YoY +43.4%). Revenue growth was primarily driven by expansion in the Energy & Social Infrastructure, Metals, Resources & Recycling, and Chemicals segments. Operating leverage was achieved as the revenue growth rate (+39.3%) exceeded the rate of increase in SG&A expenses (+18.2%).

Factors Affecting Results

【Revenue】Revenue was ¥834.25B, up +39.3% YoY. By segment, Energy & Social Infrastructure expanded to ¥191.08B (up +182.5%), Metals, Resources & Recycling to ¥131.81B (up +50.1%), and Chemicals to ¥190.11B (up +32.6%). In contrast, Lifestyle & Agribusiness declined 7.0% YoY to ¥95.06B.

【Profit and Loss】Gross profit less SG&A expenses, corresponding to Operating Income, was ¥28.32B, and the Operating Margin improved to 3.4% from 2.0% in the same period of the previous year. Although the gross margin declined to 13.3% from 13.7%, the SG&A ratio declined from 11.7% to 10.0%, supporting profitability. Equity in earnings of investments accounted for using the equity method increased to ¥14.06B (up +30.1%) and accounted for 34.2% of Profit Before Tax, contributing to Profit Before Tax of ¥41.12B (up +64.8%). However, despite higher revenue, Metals, Resources & Recycling saw Net Income attributable to owners of the parent decline to ¥2.13B (down ▲31.3%), while the Automotive Business recorded a loss of ¥0.34B despite revenue growth of +6.5%. Overall, the company achieved higher revenue and profit, with improved cost efficiency and growth in equity-method investment income contributing in addition to revenue growth.

Segment Analysis

Among the reporting segments, Chemicals recorded revenue of ¥190.11B (up +32.6%) and Net Income attributable to owners of the parent of ¥11.05B, accounting for 36.8% of total reporting-segment profit and making it the largest profit contributor. Energy & Social Infrastructure recorded substantial growth in both revenue, at ¥191.08B (up +182.5%), and Net Income attributable to owners of the parent, at ¥6.86B (up +57.0%). Equity in earnings of investments accounted for using the equity method in Aviation & Transportation Infrastructure surged to ¥3.26B (up +130.1%), contributing to profit of ¥3.39B (up +10.5%). In contrast, Metals, Resources & Recycling recorded profit of ¥2.13B (down ▲31.3%) against revenue of ¥131.81B (up +50.1%), while the Automotive Business recorded a loss of ¥0.34B against revenue of ¥104.15B (up +6.5%), indicating that revenue growth has not translated directly into improved profitability. Retail & Consumer Services recorded revenue of ¥80.49B (up +22.9%) and profit of ¥0.43B, compared with ¥0.91B in the same period of the previous year.

Key Financial Indicators

【Profitability】The Operating Margin improved to 3.4% from 2.0% in the same period of the previous year, while the consolidated Net Profit Margin rose to 3.9% from 3.7%. Although the gross margin declined slightly to 13.3% from 13.7%, the decline in the SG&A ratio to 10.0% from 11.7% led the improvement in profitability.【Cash Flow Quality】Operating Cash Flow (OCF) was ▲¥57.28B, resulting in a negative OCF ratio relative to Net Income attributable to owners of the parent of ¥30.22B. The cash conversion of earnings therefore requires attention. The primary factor was a ¥112.48B decrease in trade payables.【Investment Efficiency】Annualized ROE was 10.7%, with equity-method investment income accounting for 34.2% of Profit Before Tax. Total assets were ¥3,730.42B, while investments in companies accounted for using the equity method were ¥751.05B, representing 20.1% of total assets.【Financial Soundness】The Equity Ratio was 30.7%, improving from 29.9% in the same period of the previous year. Interest-bearing debt (bonds and borrowings) totaled ¥1,420.52B on a combined current and non-current basis, while the current ratio was approximately 157.7%, ensuring a certain level of short-term liquidity.

Cash Flow Analysis

Operating Cash Flow (OCF) was ▲¥57.28B, deteriorating from ▲¥0.73B in the same period of the previous year. The primary factor was a ¥112.48B decrease in operating payables and other payables, which was not fully offset by cash inflows of ¥42.12B from the collection of trade receivables or dividends received of ¥16.09B. Investing Cash Flow was ▲¥41.92B, with major outflows comprising ¥46.95B for acquisitions of investments and ¥5.47B for acquisitions of subsidiaries. Capital expenditures of ¥7.06B were relatively small compared with total Investing Cash Flow. Free Cash Flow, calculated as the sum of Operating Cash Flow and Investing Cash Flow, was ▲¥99.20B. Funding requirements, including dividend payments of ¥17.27B, were covered by Financing Cash Flow of ¥93.57B, including a ¥38.07B increase in short-term borrowings and commercial paper, and net financing from long-term borrowings of ¥402.81B and repayments of ¥327.13B. Cash and cash equivalents totaled ¥242.11B, slightly down from ¥245.15B at the end of the previous fiscal year.

Earnings Quality

The increase in profit for the quarter resulted from cost containment at the operating level and growth in equity-method investment income, while one-off factors related to extraordinary gains and losses were limited. Although an impairment loss on property, plant and equipment of ¥0.695B and a loss on the liquidation of an affiliated company of ¥0.20B were recorded, total other income and expenses were a relatively small ▲¥0.135B, having a limited impact on earnings. Meanwhile, equity-method investment income of ¥14.06B accounted for 34.2% of Profit Before Tax of ¥41.12B, indicating that fluctuations in the performance of investee companies influence the quality of consolidated earnings. Operating Cash Flow was substantially below Net Income attributable to owners of the parent, and the decrease in trade payables as a working-capital factor created a divergence between accrual-based earnings and cash flow. This is an important factor to consider when evaluating earnings quality.

Earnings Forecast and Guidance

The full-year forecast for Net Income attributable to owners of the parent is ¥130.0B, and the progress rate against the current Q1 result of ¥30.22B is 23.2%. Although this is slightly below the standard quarterly progress rate of 25%, neither the earnings forecast nor the dividend forecast has been revised, suggesting that the company views progress as generally in line with its plan. The full-year EPS forecast is ¥622.55, while basic EPS of ¥144.72 for the current Q1 represents a progress rate of 23.3%.

Shareholder Returns

The full-year dividend forecast is ¥180 per share (the previous fiscal year’s actual dividends were disclosed as interim and year-end dividends for part of the year; the dividend paid in the same period of the previous year was ¥82.5). No revision has been made to the dividend forecast. Based on approximately 208.28 million shares, calculated by deducting treasury shares from the number of shares issued, the total full-year forecast dividend is approximately ¥37.45B. The forecast Payout Ratio against the full-year forecast Net Income attributable to owners of the parent of ¥130.0B is approximately 28.8%. Dividend payments during the quarter were ¥17.27B (¥15.91B in the same period of the previous year), while share repurchases were only ¥0.004B. Shareholder returns therefore remain centered on dividends. Although the Payout Ratio leaves room based on earnings, Free Cash Flow was ▲¥99.20B during the quarter. It should be noted that dividend payments were funded through financing activities rather than Operating Cash Flow and Investing Cash Flow.

Risk Factors

1. Risk of fluctuations in the performance of equity-method investees: Equity-method investment income of ¥14.06B accounted for 34.2% of Profit Before Tax of ¥41.12B, while investments in companies accounted for using the equity method of ¥751.05B represented 20.1% of total assets. Changes in resource prices, regional conditions, and currency environments affecting investee companies could have a significant impact on consolidated earnings.

2. Risk to cash-generation capacity from working-capital fluctuations: Operating Cash Flow during the quarter was ▲¥57.28B, primarily due to a ¥112.48B decrease in trade payables. The significant divergence between Operating Cash Flow and Net Income attributable to owners of the parent requires assessment of whether it represents a temporary settlement-timing factor or a structural change.

3. Risk of profitability divergence among segments: Metals, Resources & Recycling recorded revenue growth of +50.1% but a profit decline of ▲31.3%, while the Automotive Business recorded a loss despite revenue growth of +6.5%. Revenue expansion has therefore not translated into improved profitability across all segments.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Growth and Capital Efficiency

※Source: Compiled by the Company

Key Points in the Earnings Results

1. Revenue increased +39.3% YoY and Net Income attributable to owners of the parent increased +43.4%, demonstrating strong momentum. At the same time, Operating Cash Flow was ▲¥57.28B, indicating a substantial divergence between earnings and cash flow. Determining whether this divergence reflects a temporary settlement factor arising from the decrease in trade payables or a structural change is a key point in evaluating earnings quality.

2. Equity-method investment income accounted for 34.2% of Profit Before Tax, while the Chemicals segment accounted for 36.8% of reporting-segment profit. This confirms a relatively high degree of dependence on specific segments and investee companies.

3. Progress toward the full-year profit forecast was 23.2%, broadly in line with the standard 25% progress level. However, Metals, Resources & Recycling and the Automotive Business recorded lower profit and a loss, respectively, despite revenue growth, indicating differences in profitability structures among segments.

Theoretical Share Price (Reference Value)

Sensitivity: ¥5,732–¥6,073 at ±1% for the Cost of Equity, and ¥5,889–¥5,913 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).

(Calculation model: Residual Income Model (Ohlson type, explicit 5-year fade) / Interest-rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast 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 securities. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility and, where necessary, after consulting with a professional advisor.

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