TORAY INDUSTRIES (3402) FY2027 Q1 Earnings Report

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Executive Summary

In Q1 of the fiscal year ending March 2027, Toray achieved higher revenue and profit, with improved margins and operating leverage. Revenue was ¥6,789.7B (+14.0% YoY), Operating Income was ¥473.3B (+72.1%), Profit Before Tax was ¥490.7B (+73.8%), and Net Income attributable to owners of the parent was ¥312.6B (+82.3%). The substantially higher rate of profit growth than revenue growth was driven by a lower cost-of-sales ratio and restrained growth in SG&A expenses, with the gross profit margin improving to 21.7%. Significant profit growth in the Performance Chemicals Business and Carbon Fiber Composite Materials Business led overall performance.

Factors Affecting Results

【Revenue】Revenue was ¥6,789.7B, representing a +14.0% increase YoY. All segments posted revenue growth: the Fibers Business (+8.3%), Performance Chemicals Business (+14.1%), Carbon Fiber Composite Materials Business (+34.1%), and Water Treatment & Healthcare Business (+13.8%). In particular, the Carbon Fiber Composite Materials Business recorded outstanding growth.

【Profit and Loss】Operating Income was ¥473.3B (+72.1% YoY). The gross profit margin improved from 20.3% to 21.7%, while the SG&A ratio declined from 15.4% to 14.8%, reflecting the simultaneous benefits of revenue growth and cost improvements. Business profit excluding non-recurring items (losses on disposal of property, plant and equipment of ¥18.3B and impairment losses of ¥3.1B exceeding gains on sales of ¥10.4B) was ¥484.3B (+66.6% YoY), indicating that the profit increase was driven by core operations rather than temporary factors. Equity-method investment income was ¥41.1B (+34.3% YoY), supporting Profit Before Tax. Net Income attributable to owners of the parent reached ¥312.6B (+82.3% YoY), resulting in higher revenue and profit.

Segment Analysis

The Performance Chemicals Business generated revenue of ¥2,510.9B (+14.1%), business profit of ¥230.5B (+69.4%), and a profit margin of 9.2%, making the largest profit contribution among the reported segments and demonstrating the most significant improvement in profitability. The Carbon Fiber Composite Materials Business recorded the highest growth rate, with revenue of ¥896.6B (+34.1%), business profit of ¥79.3B (+71.3%), and a profit margin of 8.8%. The Fibers Business was the largest segment by scale, with revenue of ¥2,599.0B (+8.3%), but its growth was relatively moderate, with business profit of ¥179.7B (+18.3%) and a profit margin of 6.9%. The Water Treatment & Healthcare Business posted revenue of ¥407.4B (+13.8%) and business profit of ¥31.4B (+126.6%), showing a notable improvement from a low base. The adjustment for corporate-wide R&D expenses and other items was negative ¥60.9B, improving from negative ¥65.0B in the same period of the previous year. From the current period, the businesses have been reorganized and consolidated under the Water Treatment & Healthcare Business, and the previous-year figures have also been reclassified for comparability.

Key Financial Indicators

【Profitability】The Operating Income margin was 7.0%, improving by 2.3pt from 4.6% in the same period of the previous year, while the gross profit margin also increased to 21.7% from 20.3%. The SG&A ratio declined to 14.8% from 15.4%, reflecting the simultaneous benefits of fixed-cost absorption from revenue growth and improvements in the cost ratio. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥541.3B, or 1.73 times Net Income attributable to owners of the parent of ¥312.6B, indicating strong cash support for earnings. 【Investment Efficiency】Annualized ROE was 7.0%, and basic EPS was ¥21.47 (¥11.16 in the previous year, +92.4%). Net assets of ¥19,479.4B corresponded to total assets of ¥34,920.9B, and capital efficiency was constrained by the low total asset turnover ratio. 【Financial Soundness】The Equity Ratio remained broadly flat at 52.0% (51.8% in the previous year). Current assets of ¥15,882.5B compared with current liabilities of ¥8,506.6B resulted in a current ratio of 186.7%, indicating a stable financial foundation.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥541.3B, an increase of +8.6% YoY, and remained above Net Income attributable to owners of the parent of ¥312.6B. A ¥215.0B decrease in trade receivables and a ¥120.8B increase in trade payables supported cash flow, while a ¥379.1B increase in inventories was the primary source of cash outflow. Investing Cash Flow was negative ¥331.9B, mainly reflecting capital expenditures of ¥327.5B, which remained at a level commensurate with maintenance investment. As a result, Free Cash Flow was ¥209.4B, with approximately 39% of OCF remaining after investment. Financing Cash Flow was negative ¥250.1B, with dividend payments of ¥141.4B representing the primary outflow. Cash and cash equivalents stood at ¥2,596.3B at period-end, while a positive foreign exchange translation adjustment of ¥26.9B also increased the balance. The continuing increase in inventories warrants monitoring as a working capital burden.

Earnings Quality

The increase in profit during the period was largely attributable to growth in core operating profit, indicating good earnings quality. Business profit excluding gains on sales of property, plant and equipment of ¥10.4B, losses on disposal of property, plant and equipment of ¥18.3B, and impairment losses of ¥3.1B was ¥484.3B (+66.6% YoY), and there was no significant difference in the profit growth trend before and after excluding non-recurring items. The difference between Operating Income and business profit was negative ¥11.0B, narrowing from negative ¥15.7B in the same period of the previous year. Net financial income was negative ¥23.7B, comprising financial income of ¥27.5B and financial expenses of ¥51.2B; however, equity-method investment income of ¥41.1B (+34.3% YoY) supplemented Profit Before Tax. OCF exceeded Net Income attributable to owners of the parent, indicating limited accruals—the gap between accrual-basis and cash-basis earnings—and confirming strong cash support for earnings. However, continued inventory growth could put pressure on future earnings quality.

Earnings Forecast and Guidance

The full-year company forecast is revenue of ¥28,300B, EPS of ¥61.80, and annual dividends of ¥26.00, and the earnings forecast was revised during the quarter. Q1 revenue progress was 24.0%, broadly consistent with the standard 25% progress level. Meanwhile, against the full-year forecast of ¥900B for Net Income attributable to owners of the parent (+13.2% YoY), Q1 actual Net Income of ¥312.6B represented a substantial +82.3% YoY increase. The full-year plan appears to incorporate normalization from Q1’s high growth rate. Going forward, the sustainability of margin improvements and inventory trends will be key factors determining full-year progress.

Shareholder Returns

Dividend payments during the quarter were ¥141.4B, equivalent to approximately 67.5% of Free Cash Flow of ¥209.4B, indicating that dividends are covered by Free Cash Flow. No share repurchases were recorded during the quarter. The dividend forecast for the end of Q2 of the fiscal year ending March 2027 is ¥13, consisting of an ordinary dividend of ¥10.00 plus a commemorative dividend of ¥3.00. The full-year dividend forecast of ¥26.00 includes the commemorative dividend. Based on the full-year forecast EPS of ¥61.80 and the full-year dividend forecast of ¥26.00, the Payout Ratio is 42.1%, leaving a certain level of capacity even including the commemorative dividend.

Risk Factors

1. Inventory and working capital cash constraints: Inventories increased by ¥374.8B from the beginning of the period to ¥5,760.6B. On an annualized basis, inventory turnover days and the cash conversion cycle are in warning territory, raising concerns about potential valuation losses during demand fluctuations and declining capital efficiency.

2. Raw material and fuel prices and spread fluctuations: The Performance Chemicals Business was the largest profit-contributing segment, with business profit of ¥230.5B. Fluctuations in raw material and fuel prices and the ability to pass through prices could significantly affect consolidated profitability.

3. Foreign exchange fluctuations: The translation adjustment for overseas operations was positive ¥209.3B. The yen-denominated value of overseas business earnings and assets, as well as comprehensive income, is affected by foreign exchange movements.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The company’s profitability is slightly below the industry median.

Growth and Capital Efficiency

The revenue growth rate is significantly above the industry median and is near the upper limit of the IQR.

※Source: Compiled by the company

Key Takeaways from the Earnings Results

1. The Operating Income margin improved by 2.3pt YoY to 7.0%, with simultaneous improvements in the gross profit margin and reductions in the SG&A ratio. Increased profits from the Performance Chemicals and Carbon Fiber Composite Materials businesses made significant contributions, resulting in a profit growth rate exceeding revenue growth.

2. OCF was ¥541.3B, exceeding Net Income attributable to owners of the parent and confirming strong cash support for earnings. However, inventories increased by ¥374.8B, and working capital trends could affect future cash flow generation.

3. The full-year plan anticipates a +13.2% YoY increase in Net Income attributable to owners of the parent, compared with Q1 profit growth of +82.3% YoY. The key focus for full-year progress will be how much of the quarter’s high profit growth rate can be sustained going forward.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,058–¥1,119 at ±1% for the cost of equity, and ¥1,082–¥1,091 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 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 for 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 responsibility, after consulting professionals as necessary.

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