CREATE (3024) FY2026 Q3 Earnings Report

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Executive Summary

In addition to higher revenue, the Company kept the increase in SG&A expenses below revenue growth, resulting in profit at and below the operating income level increasing at a faster pace than revenue. Revenue was ¥279.8B (+2.5% YoY), operating income was ¥6.1B (+11.7%), ordinary income was ¥5.8B (+10.1%), and net income was ¥3.6B (+6.2%). The operating margin improved to 2.2% from 2.0% in the same period of the previous year, while the gross margin of 17.5% was broadly unchanged year on year. The primary driver of earnings growth was cost discipline, with the increase in SG&A expenses (approximately 1.5%) kept below the revenue growth rate (2.5%). Progress against the full-year forecast was slightly below the standard Q3 progress rate of 75%, at 74.4% for revenue, 71.8% for operating income, and 70.7% for net income, making the maintenance of profitability in Q4 a key issue.

Factors Affecting Performance

【Revenue】Revenue increased 2.5% YoY to ¥279.8B. The single segment, the PipesAndEngineeringPlastics Business, accounted for ¥277.3B in revenue (approximately 99% of total revenue), with no significant change in the business composition. Progress against the full-year company forecast of ¥376.0B (+2.9% YoY) was 74.4%, broadly in line with the standard Q3 progress rate of 75%.

【Profit and Loss】Operating income was ¥6.1B (+11.7% YoY), ordinary income was ¥5.8B (+10.1%), and net income was ¥3.6B (+6.2%), with all three increasing at a faster pace than the 2.5% revenue growth rate. The gross margin was 17.5%, broadly unchanged from the same period of the previous year, and the primary driver of earnings growth was cost management, with the increase in SG&A expenses kept below revenue growth. The primary factor behind the gap between ordinary income and net income was income taxes of ¥2.2B; no temporary factors such as extraordinary gains or losses were identified. Both revenue and profit exceeded the previous year, resulting in higher revenue and earnings.

Segment Analysis

The Company has a single segment, PipesAndEngineeringPlastics, with revenue of ¥277.3B, operating income of ¥5.0B, and a profit margin of 1.8%. As this segment accounts for approximately 99% of revenue, the performance of this single business effectively determines overall company performance, limiting the scope for analysis based on resource allocation among segments.

Key Financial Indicators

【Profitability】The operating margin was 2.2%, improving from 2.0% in the same period of the previous year, while the net margin rose modestly to 1.3% from 1.2%. The gross margin was 17.5%, broadly in line with the previous year. The improvement in profitability was primarily attributable to SG&A expense management, with no significant change in the gross profit structure observed.【Cash Flow Quality】Cash and deposits were ¥18.6B, up 31.5% from ¥14.2B in the same period of the previous year, and interest coverage was high relative to interest expense of ¥0.1B.【Investment Efficiency】Annualized ROE was 8.6%, supported by the combination of a 1.3% net margin, high total asset turnover, and financial leverage. This indicates that earnings efficiency depends more on asset turnover than on margins.【Financial Soundness】The equity ratio was 29.5%, slightly down from 30.7% in the same period of the previous year. Total assets expanded to ¥189.1B, while total liabilities were ¥133.4B, with trade-related operating liabilities such as accounts payable and electronically recorded obligations accounting for a significant proportion. Long-term borrowings were ¥2.5B, down from ¥4.6B in the same period of the previous year, indicating progress in reducing long-term debt.

Cash Flow Analysis

Although an individual cash flow statement has not been disclosed, changes in the balance sheet provide insight into funding trends. Cash and deposits increased 31.5% to ¥18.6B from ¥14.2B in the same period of the previous year, indicating improved liquidity. Meanwhile, electronically recorded monetary claims increased substantially to ¥44.1B from ¥30.7B in the same period of the previous year, and inventories also increased to ¥26.7B, suggesting that working capital has expanded alongside business growth. Long-term borrowings declined substantially to ¥2.5B from ¥4.6B in the same period of the previous year, while short-term borrowings remained at ¥11.6B, indicating relatively high dependence on short-term funding. Overall, cash accumulation and the reduction of long-term debt have progressed in parallel, while the expansion of operating assets—receivables and inventories—has increased working capital requirements.

Quality of Earnings

The gap between ordinary income of ¥5.8B and net income of ¥3.6B was primarily attributable to income taxes of ¥2.2B, corresponding to an effective tax rate of approximately 38.4%. No temporary factors such as extraordinary gains or losses were identified. Non-operating income of ¥0.4B (0.2% of revenue) consisted mainly of small items such as dividends received and interest received, indicating low dependence on non-core income. Comprehensive income was ¥3.8B, broadly in line with net income of ¥3.6B. The divergence attributable to valuation differences on securities and adjustments related to retirement benefits was limited, indicating a small qualitative difference between net income and comprehensive income. Ordinary income was generally supported by operating income, and the composition of earnings has a strong core-business orientation.

Earnings Forecast and Guidance

The full-year company forecast is revenue of ¥376.0B (+2.9% YoY), operating income of ¥8.5B (+12.0%), ordinary income of ¥8.1B (+8.7%), and EPS of ¥130.97. Q3 cumulative progress was 74.4% for revenue, 71.8% for operating income, 72.2% for ordinary income, and 70.7% for net income, all slightly below the standard Q3 progress rate of 75%. In particular, progress for profit items was below revenue progress, making the maintenance and improvement of profitability in Q4 important to achieving the full-year forecast.

Shareholder Returns

The Q2 dividend was ¥14.00 per share, and the full-year forecast dividend is ¥40.00 per share. Based on forecast full-year EPS of ¥130.97, the forecast payout ratio is approximately 30.5%, a conservative level relative to the current earnings level. No disclosure regarding share repurchases was available, and this report evaluates only the payout ratio. Retained earnings were ¥40.1B, accounting for approximately 72% of net assets. The achievement of the full-year forecast will affect the feasibility of the annual dividend.

Risk Factors

1. Low-Margin Structure Risk: With a gross margin of 17.5% and an operating margin of 2.2%, both below the industry median (operating margin of 3.3% and net margin of 3.1%), even small fluctuations in procurement prices, logistics costs, and selling prices could have a relatively significant impact on profit.

2. Short-Term Liabilities and Refinancing Risk: Dependence on short-term liabilities, including short-term borrowings of ¥11.6B, is relatively high, and the debt-to-equity multiple is approximately 2.4x based on total assets of ¥189.1B and net assets of ¥55.7B. Although the current ratio and quick ratio remain above 100%, ensuring payment capacity at present, the management of operating liabilities requires ongoing monitoring.

3. Working Capital Expansion Risk: Electronically recorded monetary claims increased 43.5% YoY to ¥44.1B, while inventories also increased to ¥26.7B. Changes in demand or collection terms could affect funding requirements.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (trading)

Profitability and Returns

Both the operating margin and net margin are below the industry median, placing profitability relatively low within the industry.

Growth and Capital Efficiency

The revenue growth rate was also below the industry median, representing a growth pace positioned around the middle of the IQR.

※Source: Company analysis

Key Takeaways from the Results

1. Operating income increased +11.7% against revenue growth of 2.5%, with cost management that kept the increase in SG&A expenses below revenue growth contributing to earnings growth. It is important to assess whether this structure is sustainable, together with trends in the gross margin.

2. Q3 progress against the full-year forecast was 71.8% for operating income and 70.7% for net income, slightly below the standard progress rate of 75%. Profitability trends in Q4 will be the key determinant of whether the full-year forecast is achieved.

3. Cash and deposits increased +31.5% YoY, while long-term borrowings decreased -46.4%, indicating parallel progress in improving funding capacity and reducing long-term debt. At the same time, working capital expanded due to increases in electronically recorded monetary claims and inventories, warranting attention as a change in capital efficiency.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,341–¥1,418 at ±1% for the cost of equity, and ¥1,377–¥1,380 at ±0.1 for ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value will be below book value per share.
• Net assets as of the quarter-end have been used (there is a timing difference from the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data; it 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 a professional advisor as necessary.

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