MEIJI ELECTRIC INDUSTRIES CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

The first quarter of FY2027 saw declines in both revenue and earnings, with the sharp 94.3% YoY decline in operating income being the most notable feature. Revenue was ¥142.5B (¥168.8B in the same period of the previous year, YoY -15.6%), operating income was ¥0.3B (¥5.3B, YoY -94.3%), ordinary income was ¥1.5B (¥6.2B, YoY -76.3%), and consolidated net income was ¥1.1B (¥4.5B, YoY -75.9%) (net income attributable to owners of the parent was ¥0.98B, YoY -77.7%). The primary cause of the sharp decline in operating income was the decline in fixed-cost absorption as SG&A expenses remained elevated despite the decrease in revenue. Ordinary income was supported by non-operating income, including dividend income and foreign exchange gains.

Factors Affecting Results

【Revenue】Revenue was ¥142.5B, representing a YoY decline of -15.6%. The Company discloses the sale of control equipment, industrial equipment, measuring instruments, and other products as a single segment, and does not disclose a breakdown by segment. Accounts receivable declined substantially by -30.0% YoY, while accounts payable contracted by -37.3%, consistent with an overall reduction in transaction scale from the previous year and the decline in revenue.

【Profit and Loss】Against cost of sales of ¥119.3B, gross profit was ¥23.2B, and the gross margin was 16.3%, improving by +0.2pt from 16.1% in the previous year. Meanwhile, SG&A expenses were ¥22.9B, and the SG&A ratio rose to 16.1% from 12.9% in the previous year, an increase of +3.2pt, placing significant pressure on operating income and more than offsetting the improvement in gross profit. As a result, operating income was ¥0.3B, and the operating margin contracted by approximately -3.0pt to 0.2% from 3.2% in the previous year. Ordinary income was ¥1.5B, supported by ¥1.2B in non-operating income (including ¥0.7B in dividend income and ¥0.1B in foreign exchange gains), moderating the decline relative to operating income alone. Extraordinary losses were immaterial at ¥0.0B in loss on disposal of fixed assets, and the gap between ordinary income and profit before tax (¥1.5B) was small. Consolidated net income was ¥1.1B, of which net income attributable to owners of the parent, excluding the portion attributable to non-controlling interests, was ¥0.98B. Accordingly, the Company recorded declines in both revenue and earnings in the quarter.

Key Financial Metrics

【Profitability】The operating margin declined significantly to 0.2% from 3.2% in the previous year, while the consolidated net profit margin was also 0.8%, below 2.7% in the previous year. The gross margin improved slightly to 16.3% from 16.1% in the previous year, but the SG&A ratio rose to 16.1% from 12.9%, making it the primary cause of the deterioration in profitability.【Cash Quality】Cash and deposits were ¥137.2B, down -7.2% from ¥147.8B in the previous year. While accounts receivable declined to ¥119.6B (-30.0%) and accounts payable to ¥53.8B (-37.3%), inventories increased to ¥53.0B (+22.6%), suggesting a decline in capital efficiency due to inventory accumulation.【Investment Efficiency】ROE was 0.3%, calculated as net income attributable to owners of the parent of ¥0.98B divided by shareholders’ equity, and remained low, reflecting the sharp decline in operating income.【Financial Soundness】The equity ratio rose to 72.8% from 66.3% in the previous year. The current ratio was approximately 312%, and the quick ratio was approximately 269%, indicating extremely ample liquidity. Total assets were ¥531.8B (¥571.0B in the previous year), while net assets were ¥387.0B (¥383.3B in the previous year). Shareholders’ equity increased slightly despite the reduction in assets, indicating a conservative financial foundation.

Cash Flow Analysis

As the cash flow statement is not disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥137.2B, down -7.2% from ¥147.8B in the previous year. In terms of working capital, accounts receivable declined substantially to ¥119.6B (-30.0%) and accounts payable to ¥53.8B (-37.3%), while inventories increased to ¥53.0B (+22.6%), suggesting that funds tied up in inventory contributed in part to the decline in cash. Investment securities increased to ¥71.3B from ¥54.1B in the previous year, confirming a change in the asset composition alongside the increase in valuation differences. Tangible fixed assets related to capital expenditures were ¥49.4B, showing no significant change from the previous year, suggesting that cash outflows from large-scale investments were limited. Cash of ¥137.2B exceeded current liabilities of ¥122.5B, indicating sufficient short-term funding capacity despite working-capital pressure associated with the increase in inventory.

Earnings Quality

Of ordinary income of ¥1.5B, ¥1.2B in non-operating income, including ¥0.7B in dividend income and ¥0.1B in foreign exchange gains, made a significant contribution, indicating a structure in which the Company could not maintain its ordinary-income level through its core operating income of only ¥0.3B. Extraordinary losses were limited to ¥0.0B in loss on disposal of fixed assets, and there was virtually no difference between profit before tax of ¥1.5B and ordinary income. Meanwhile, comprehensive income was ¥12.8B, and most of the approximately ¥11.7B difference from consolidated net income of ¥1.1B was attributable to ¥11.8B in valuation difference on investment securities. This represents an increase in unrealized gains based on market factors, namely changes in the market value of securities. Accordingly, the expansion in comprehensive income does not signify an improvement in core earnings power; when assessing the quality of earnings for the period, the focus should be placed primarily on the levels of ordinary income and net income.

Earnings Forecast and Guidance

The full-year forecast is revenue of ¥840.0B (YoY +10.0%), operating income of ¥40.7B (+10.9%), ordinary income of ¥43.8B (+7.1%), and net income attributable to owners of the parent of ¥30.6B. There were no revisions to the earnings or dividend forecasts during the quarter. Progress against the full-year forecast in Q1 was 17.0% for revenue, 0.7% for operating income, 3.4% for ordinary income, and 3.2% for net income attributable to owners of the parent. All metrics were substantially below the 25% benchmark implied by simple quarterly equal allocation. Progress in operating income and net income was particularly low, and achieving the full-year plan will require a recovery in revenue and normalization of the SG&A ratio from Q2 onward.

Shareholder Returns

The full-year dividend forecast is ¥96.00 per share, and the payout ratio based on forecast EPS of ¥239.97 is approximately 40.0%, a standard level. Based on 12,766 thousand issued shares (165 thousand treasury shares), the annual total dividend is of a size sufficiently covered by forecast net income of ¥30.6B. The balance of treasury shares increased from ¥0.06B to ¥3.22B, suggesting that share repurchases were conducted during the period. The conservative financial foundation, including cash and deposits of ¥137.2B and an equity ratio of 72.8%, supports the sustainability of dividends.

Risk Factors

1. Demand slowdown and inventory accumulation risk: While revenue declined by -15.6% YoY, inventories increased to ¥53.0B (+22.6%), suggesting a possible mismatch between slowing demand and inventory adjustment.

2. Profitability deterioration and operating leverage risk: The SG&A ratio rose by +3.2pt YoY to 16.1%, substantially exceeding the +0.2pt improvement in the gross margin, resulting in a decline in the operating margin to 0.2%. If the recovery in revenue is delayed, the burden of fixed costs may persist.

3. Increased dependence on non-operating income: Non-operating income, including dividend income of ¥0.7B and foreign exchange gains of ¥0.1B, accounted for a substantial portion of ordinary income of ¥1.5B. Consequently, ordinary income is susceptible to fluctuations in dividend income and foreign exchange trends.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the operating margin and net profit margin were below the industry median, placing the Company in the lower tier of the industry.

Growth and Capital Efficiency

The revenue growth rate was below both the industry median and the lower quartile (-0.6%), representing the lowest level within the industry.

※Source: Compiled by the Company

Key Points from the Results

1. The operating margin fell sharply from 3.2% in the previous year to 0.2%, with the increase in the SG&A ratio (+3.2pt) exceeding the improvement in the gross margin (+0.2pt). This was the central factor behind the deterioration in profitability during the quarter.

2. Progress against the full-year plan was low for Q1, at 17.0% for revenue and 0.7% for operating income. Ordinary income and net income were barely maintained through support from non-operating income, including dividends and foreign exchange gains.

3. The strength of the financial foundation, including an equity ratio of 72.8% and cash and deposits of ¥137.2B, supports a return level with a payout ratio of approximately 40.0% even amid inventory accumulation and deteriorating profitability.

Theoretical Stock Price (Reference Value)

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

Sensitivity: ¥2,857–¥3,023 at ±1% for the cost of equity, and ¥2,934–¥2,941 at ±0.1 for ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used (there is a time gap relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat on the high side.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not predict or guarantee the future stock price)

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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 with professionals as necessary.

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