Fuller (387A) FY2026 Q2 Earnings Report

Quick View

Executive Summary

The Company reported declines in both revenue and earnings rather than increases in both, with deterioration in the profitability of its core business being the most prominent feature. Revenue was ¥9.5B (¥9.8B in the previous year, YoY -2.7%), Operating Income was ¥0.2B (¥1.2B in the previous year, YoY -82.7%), Ordinary Income was ¥0.7B (¥1.2B in the previous year, YoY -45.1%), and Net Income was ¥0.8B (¥1.2B in the previous year, YoY -28.0%). Operating Income declined significantly more than revenue, due to higher costs and increased SG&A expenses raising the fixed-cost burden. Ordinary Income and Net Income declined less than Operating Income, supported by non-operating income (subsidy income of ¥0.6B) and a reduced tax burden.

Factors Driving Performance Changes

【Revenue】Revenue declined 2.7% year on year to ¥9.5B. Progress against the full-year company plan of ¥20.6B was 46.2%, slightly below the standard Q2 progress level (approximately 50%), but appears to be within the range attributable to timing differences. The Company itself is forecasting only a modest recovery in its full-year plan, with revenue expected to increase YoY +2.3%.

【Profit and Loss】Cost of sales increased 11.6% year on year, while the gross margin declined by 8.6pt from 41.8% in the same period of the previous year to 33.2%. SG&A expenses also increased 3.8% year on year, and the SG&A ratio rose 1.9pt from 29.0% to 30.9%. As a result, the Operating Income margin fell sharply by 10.5pt from 12.7% to 2.2%, and Operating Income declined to ¥0.2B. Ordinary Income was ¥0.7B, supported by non-operating income of ¥0.6B (including subsidy income of ¥0.57B), while Net Income was ¥0.8B due to the reduced tax burden (Net Income of ¥0.8B versus Profit Before Tax of ¥0.7B). The result reflects increases in costs and fixed expenses in addition to the decline in core-business revenue, and is therefore characterized by declines in both revenue and earnings.

Key Financial Indicators

【Profitability】The Operating Income margin declined significantly to 2.2% from 12.7% in the same period of the previous year, while the gross margin also deteriorated to 33.2% (41.8% in the previous year). The Net Income margin was 9.0% (12.1% in the previous year), remaining higher than the Operating Income margin due to the contribution of tax effects and subsidy income.【Cash Flow Quality】Annualized ROE was seemingly favorable at 14.9%; however, Operating Cash Flow (OCF) was negative ¥1.9B, substantially below Net Income of ¥0.8B. The significant divergence between earnings and cash flow warrants attention regarding earnings quality.【Investment Efficiency】The Equity Ratio was 64.0% (53.9% in the previous year), indicating a stronger capital base. This was primarily attributable to an increase in net assets and was not accompanied by an improvement in OCF.【Financial Soundness】Current assets of ¥15.8B compared with current liabilities of ¥3.6B indicate ample short-term liquidity. Cash and deposits were ¥11.6B, representing 64.9% of total assets and substantially exceeding long-term borrowings of ¥2.8B.

Cash Flow Analysis

OCF was negative ¥1.9B, a significant deterioration from positive ¥0.6B in the same period of the previous year. The primary factors were a ¥0.9B increase in accounts receivable and cash outflows resulting from decreases in accrued expenses, accrued taxes, and other items. Subsidy income of ¥0.6B recognized in the income statement had a timing difference from the receipt of cash, and the gap between income recognition and cash conversion reduced OCF. Investing Cash Flow was negative ¥0.1B, with capital investment remaining limited in scale, resulting in Free Cash Flow of negative ¥2.1B. Financing Cash Flow was positively affected by proceeds of slightly less than ¥0.1B from the issuance of shares, although repayments of long-term borrowings were also made. Cash at period-end was ¥11.6B; although it declined by approximately ¥2.0B during the period, short-term liquidity remained sufficient.

Earnings Quality

Ordinary Income and Net Income were structured such that the deterioration in core-business Operating Income was offset by non-operating income and tax effects. Of the ¥0.6B in non-operating income, subsidy income accounted for ¥0.57B, meaning that a substantial portion of Ordinary Income of ¥0.7B depended on this temporary and non-recurring income. In addition, corporate income taxes and other taxes were recognized in an amount exceeding the amount paid, resulting in Net Income of ¥0.8B exceeding Profit Before Tax of ¥0.7B. While OCF was negative ¥1.9B, Net Income was positive ¥0.8B, indicating a significant divergence and expanding accruals (the difference between accounting earnings and cash). The primary factors were the increase in accounts receivable and the decrease in accrued expenses; the lack of progress in cash conversion of earnings is an important consideration when assessing earnings quality.

Earnings Forecast and Guidance

Cumulative Q2 progress against the full-year company plan was 46.2% for revenue, 38.2% for Operating Income, 68.0% for Ordinary Income, and 75.2% for Net Income. Revenue progress was nearly at a standard level, but Operating Income progress was below the level implied by the plan, making a recovery in core-business profitability in the second half necessary. The relatively high progress rates for Ordinary Income and Net Income reflect the uplift from subsidy income and tax effects and should be considered separately from the degree of recovery in the core business. The Company’s full-year plan itself also anticipates a substantial decline in earnings, with revenue at YoY +2.3% versus Operating Income at YoY -71.0%.

Shareholder Returns

The dividend for Q2 was ¥0 per share, and no dividend was paid. The full-year dividend forecast is also ¥0, resulting in a Payout Ratio of 0%. Share repurchases were also minimal at ¥0.0B, and no material cash burden related to shareholder returns arose during the period.

Risk Factors

1. Deterioration in profitability: The gross margin declined by 8.6pt from 41.8% in the same period of the previous year to 33.2%, while the Operating Income margin declined by 10.5pt from 12.7% to 2.2%. Higher costs and increased SG&A expenses occurred simultaneously, making project profitability and fixed-cost management key issues.

2. Increase in accounts receivable and delayed cash conversion: Accounts receivable increased 36.0% from ¥2.5B in the same period of the previous year to ¥3.4B, and OCF was negative ¥1.9B. OCF was substantially below Net Income of ¥0.8B, indicating a delay in cash conversion of earnings.

3. Dependence on non-operating income: Subsidy income accounted for ¥0.57B of Ordinary Income of ¥0.7B, meaning that a substantial portion of Ordinary Income was supported by income outside the core business. If the recovery in core-business profit is delayed, Ordinary Income may fluctuate significantly depending on whether subsidy income is received.

Industry Benchmark (For Reference; Compiled by the Company)

Key Points from the Financial Results

1. The decline in the Operating Income margin to 2.2%, a deterioration of 10.5pt year on year, warrants continued monitoring of cost and SG&A expense management.

2. OCF was negative ¥1.9B and diverged significantly from Net Income, indicating that earnings quality is readily affected by the collection status of accounts receivable and the timing of subsidy receipts.

3. The solid financial foundation, including cash and deposits of ¥11.6B and an Equity Ratio of 64.0%, provides a buffer for near-term liquidity; meanwhile, the delay in Operating Income progress against the full-year plan will be an important factor in assessing the extent of profitability recovery in the second half.

Theoretical Share Price (Reference Value)

Sensitivity: ¥581–¥615 at ±1% for the cost of equity, and ¥595–¥599 at ±0.1 for ω.

Notes:

• Normalized EPS calculated based on Ordinary Income and other items is used to exclude the impact of temporary gains and losses (the Company’s forecast EPS is ¥66.7).
• Since Net Income progress against the full-year forecast (75%) exceeds the standard level (50%), forecast EPS is adjusted upward within a maximum range of +10% (because companies ahead of forecast progress tend to exceed their forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Since forecast ROE is below the cost of equity, the theoretical value is below Book Value per Share.
• Net assets as of the end of the quarter are used (there is a timing gap versus the full-year forecast).
• Since 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 / 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 predict or guarantee future share prices.)

---

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. 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.

---End of Report---