Kioxia Holdings Corporation FY2027 Q1 Earnings Report

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Executive Summary

Against the backdrop of an upturn in NAND memory market conditions and an improved product mix, the Company recorded substantial increases in both revenue and profit. Revenue was ¥17,671.2B, up +415.5% year on year, while operating income was ¥12,700.2B, up +2,728.6%, demonstrating high operating leverage through profit growth substantially exceeding revenue growth. Profit before tax was ¥12,347.2B, and net income attributable to owners of the parent was ¥8,421.6B, up +4,506.0% year on year. The gross profit margin expanded significantly to 78.1% (20.8% in the previous year), while the operating margin increased to 71.9% (13.1% in the previous year), primarily due to a lower cost ratio and the relative containment of SG&A expenses. Progress against the full-year forecast was also 42.5% for revenue and 40.2% for operating income, substantially exceeding the 25% implied by simple pro rata allocation, indicating that supply and demand conditions exceeded the assumptions made at the beginning of the fiscal year.

Factors Affecting Results

【Revenue】By application, SSD & Storage formed the core business at ¥1 trillion 1,747.2B (66.5% of the total, +440.2% year on year), while Smart Devices generated ¥5,256.6B (29.8% of the total, +565.2%) and Other generated ¥667.4B (3.8% of the total, +44.0%). The simultaneous recovery in demand for SSDs for data centers and PCs and demand for smart devices appears to have driven growth, with both higher unit prices and increased bit shipments contributing.

【Profit and Loss】The cost of sales ratio declined significantly to 21.9% (78.9% in the previous year), while the SG&A ratio also declined to 4.1% (8.7% in the previous year), expanding the operating margin to 71.9% (13.1% in the previous year). The increase in SG&A expenses was limited to +140.4%, substantially below the +415.5% increase in revenue, which was the source of operating leverage. Other expenses increased sharply to ¥388.5B from ¥3.5B in the previous year, and non-current provisions also increased to ¥583.4B (¥128.4B in the previous year), suggesting that some temporary expenses may have been recognized. After absorbing financial expenses of ¥528.0B, the Company secured profit before tax of ¥12,347.2B and net income attributable to owners of the parent of ¥8,421.6B. In conclusion, the Company achieved higher revenue and higher profit.

Segment Analysis

As the Company operates as a single Memory Business segment, it does not disclose operating income or loss by reportable segment. In terms of revenue by application, SSD & Storage represented the largest component at ¥1 trillion 1,747.2B (66.5% of the total, +440.2% year on year), followed by Smart Devices at ¥5,256.6B (29.8% of the total, +565.2%) and Other at ¥667.4B (3.8% of the total, +44.0%). Growth in demand for SSDs for data centers drove overall growth, while demand for smart devices also followed with a high growth rate.

Key Financial Indicators

【Profitability】The operating margin was 71.9% (13.1% in the previous year), and the net profit margin was 47.7% (5.3% in the previous year), with both showing substantial improvement. ROE was 35.0%, primarily due to the sharp expansion in the net profit margin.【Cash Flow Quality】Operating cash flow (OCF) of ¥8,663.4B exceeded net income of ¥8,421.6B (OCF/NI ratio of 1.03x), indicating generally sound cash conversion quality. However, the ratio to EBITDA (approximately ¥13,461.0B) was limited to 64.4%, suggesting that the absolute increase in working capital restrained cash generation to a certain extent.【Investment Efficiency】Capital expenditures of ¥511.8B exceeded quarterly depreciation and amortization expense of ¥76.1B, indicating continued capacity investment during the upcycle. The ratio of quarterly revenue to total assets was 0.374x, while the sharp expansion in accounts receivable and inventories somewhat reduced asset efficiency.【Financial Soundness】The equity ratio improved to 50.8% (37.9% in the previous year), while total interest-bearing debt was ¥6,345.5B and the interest-bearing debt-to-equity ratio was approximately 0.26x, indicating a conservative position. Interest coverage, measured as EBIT divided by financial expenses, was approximately 24.1x, demonstrating high resilience to interest burdens.

Cash Flow Analysis

Operating cash flow was ¥8,663.4B, a substantial increase from ¥611.1B in the same period of the previous year, and slightly exceeded net income of ¥8,421.6B. Against OCF before working capital changes of ¥9,723.2B, the increase in accounts receivable (-¥4,720.5B) and the increase in inventories (-¥230.0B) were deducted, followed by corporate income tax payments of ¥1,005.3B, resulting in final OCF. This indicates that the buildup of working capital accompanying rapid business expansion somewhat restrained cash generation. Nevertheless, accounts receivable as a percentage of revenue declined significantly to 65.2% (192.7% in the previous year), while inventory as a percentage of revenue declined to 24.8% (120.4% in the previous year). Thus, although absolute amounts increased, relative working capital efficiency actually improved. Investing cash flow was -¥1,173.2B, reflecting capital expenditures for the acquisition of property, plant and equipment of ¥511.8B as well as the acquisition of other financial assets of ¥782.2B, resulting in an expanded level of investment. Financing cash flow was -¥4,303.6B, primarily due to repayments of long-term borrowings of ¥4,332.3B, indicating ongoing efforts to reduce interest-bearing debt. Free cash flow (OCF + investing cash flow) was positive at ¥7,490.2B, sufficient to cover capital expenditures, debt repayments, and share repurchases (-¥0.2B).

Earnings Quality

The effective tax rate on profit before tax of ¥12,347.2B was 31.8% (33.1% in the previous year), with no abnormal tax burden observed and earnings quality remaining stable. Meanwhile, other expenses increased sharply to ¥388.5B from ¥3.5B in the previous year, and non-current provisions increased from ¥128.4B to ¥583.4B, suggesting that some non-recurring expenses may have been recognized separately from ordinary business activities. Comprehensive income was ¥9,958.0B, exceeding net income of ¥8,421.7B. The primary reason for the difference was a valuation gain of ¥1,486.2B on financial assets measured at fair value through other comprehensive income; this is a valuation item that may reverse depending on market conditions and should therefore be noted. Although OCF slightly exceeded net income, the absolute increase in working capital somewhat restrained cash generation, indicating a modest divergence between accrual-based earnings and cash earnings.

Earnings Forecast and Guidance

Q1 progress against the full-year forecast was 42.5% for revenue (¥17,671.2B/¥41,571.2B), 40.2% for operating income (¥12,700.2B/¥31,600.2B), and 39.9% for net income attributable to owners of the parent (¥8,421.6B/¥21,121.7B). This pace substantially exceeds the 25% implied by simple pro rata allocation, indicating that supply and demand conditions had progressed ahead of expectations as of Q1. No revision was made to the dividend forecast as of the current quarter.

Shareholder Returns

No revision was made to the dividend forecast for the current quarter, and no data concerning interim dividend payments was identified. Share repurchases remained small at ¥0.2B, leaving shareholder returns at a limited level for the time being. Free cash flow was ¥7,490.2B, and cash and cash equivalents reached ¥7,910.1B, securing financial capacity for shareholder returns.

Risk Factors

1. Risk of a reversal in memory market conditions: The operating margin of 71.9% in the current period expanded substantially from 13.1% in the same period of the previous year, indicating high sensitivity to market conditions, including pricing and supply and demand. In a market reversal, the current high margins could contract rapidly, reflecting the structural characteristics of the business.

2. Restraint on cash generation from the absolute increase in working capital: Accounts receivable increased by +¥4,910.0B from the end of the previous fiscal year, while inventories increased by +¥230.0B, and OCF was limited to 64.4% of EBITDA. Although efficiency relative to revenue improved, the collection of funds and inventory management on an absolute-value basis will remain focal points.

3. Increase in temporary expenses and provisions: Other expenses increased to ¥388.5B (¥3.5B in the previous year), while non-current provisions increased to ¥583.4B (¥128.4B in the previous year). The continuity and recurrence of these items require monitoring.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the operating margin and net profit margin substantially exceeded the industry median, representing outstanding levels within the industry.

Growth and Capital Efficiency

Revenue growth substantially exceeded the industry median, reflecting the sharp expansion characteristic of an upturn in memory market conditions.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The operating margin of 71.9% exceeded the industry median of 8.8% by 63.1pt. However, as the margin was 13.1% in the same period of the previous year, this level is highly dependent on an upturn in memory market conditions, highlighting the Company’s sensitivity to market fluctuations.

2. Full-year progress substantially exceeded simple pro rata allocation (25%), with revenue at 42.5% and operating income at 40.2%, indicating that supply and demand conditions as of Q1 had progressed ahead of the assumptions made at the beginning of the fiscal year.

3. Although accounts receivable and inventories increased in absolute terms and restrained OCF to a certain extent, their levels relative to revenue declined significantly from the previous year. The simultaneous occurrence of a temporary increase in working capital accompanying business expansion and relative efficiency improvement is an important point in understanding the quality of the earnings results.

Theoretical Share Price (Reference Value)

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

Sensitivity: ¥11,191–¥11,919 at ±1% for the cost of equity, and ¥11,308–¥11,912 at ±0.1 for ω.

Notes:

• Because progress in net income against the full-year forecast (40%) exceeds the standard level (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies progressing ahead of plan tend to exceed forecasts; adjustments may be excessive for businesses with strong seasonality).
• Because forecast ROE is high, ROE is capped at 50.0% for calculation purposes (differences between scenarios may appear small).
• Net assets as of the end of the quarter are used (there is a timing mismatch with the full-year forecast).

(Calculation model: Residual income model / Interest rate reference month: 2026-06 / This value does not predict or guarantee the future share price)

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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 responsibility, after consulting with professionals as necessary.

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