THE PACK (3950) FY2026 Q1 Earnings Report

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Executive Summary

For Q1 of the fiscal year ending December 2026, the Company posted higher revenue but lower earnings, as the increase in the cost ratio and the absence of a one-time gain recorded in the previous year weighed on profits. Revenue increased to ¥24.04B (+4.7% YoY), while Operating Income declined to ¥1.26B (-1.1%), Ordinary Income to ¥1.28B (-3.0%), and Net Income to ¥0.86B (-13.1%). The primary factors were the decline in the gross margin to 24.1% from 24.8% in the previous-year period, as the cost of sales increased at a faster pace than revenue, and the ¥0.09B reversal of the investment securities sale gain recorded in the previous-year period, which widened the decline in Net Income.

Factors Affecting Results

【Revenue】Revenue increased 4.7% YoY to ¥24.04B. By segment, the Paper-Processed Products Business accounted for the largest share at 73.0%, with revenue of ¥17.55B (+3.9% YoY); within this segment, corrugated cardboard grew +17.9%, while printing declined -25.1%. Revenue in the Chemical Products Business decreased to ¥2.99B (-6.3% YoY), while Other Businesses grew significantly to ¥3.50B (+22.1% YoY).

【Profit and Loss】The cost of sales increased +5.7% YoY, exceeding the growth in revenue, and the gross margin declined to 24.1% from 24.8% in the previous-year period. Selling, general and administrative expenses increased to ¥4.54B (+2.7% YoY), below the revenue growth rate, helping to limit the decline in Operating Income. Ordinary Income was ¥1.28B (-3.0% YoY), reflecting non-operating expenses including a foreign exchange loss of ¥0.03B. Net Income was ¥0.86B (-13.1% YoY), with the decline exceeding that at the operating level due to the reversal of the ¥0.09B investment securities sale gain recorded in the previous-year period and a ¥0.01B loss on disposal of fixed assets in the current period. Overall, the results can be characterized as higher revenue but lower earnings.

Segment Analysis

The Paper-Processed Products Business posted revenue of ¥17.55B (+3.9% YoY) and Operating Income of ¥1.17B (-7.1% YoY), resulting in higher revenue but lower earnings and a profit margin of 6.6%. Although corrugated cardboard drove growth, higher costs pressured profitability. The Chemical Products Business recorded revenue of ¥2.99B (-6.3% YoY) and Operating Income of ¥0.11B (-22.3% YoY), with a profit margin of 3.8%, reflecting weaker demand and a challenging competitive environment. Other Businesses generated revenue of ¥3.50B (+22.1% YoY) and Operating Income of ¥0.26B (+53.6% YoY), achieving the highest profitability among the three businesses with a margin of 7.4% and supporting consolidated revenue growth. Adjustments for corporate expenses and other items were -¥0.28B, representing a slight improvement from the previous year, but this was insufficient to offset the earnings declines in the reported segments.

Key Financial Indicators

【Profitability】The Operating Income margin was 5.3% and the Net Income margin was 3.6%, both down from the previous-year period (5.6% and 4.3%, respectively). The gross margin was 24.1% (24.8% in the previous-year period), with higher costs being the primary factor behind the decline in profitability.【Cash Quality】Cash and deposits were ¥22.36B, accounting for 23.2% of total assets, while interest-bearing debt was extremely small at ¥0.30B in long-term borrowings. Accounts receivable were ¥18.29B, representing a significant reduction from the previous year and indicating reduced funds tied up in receivables.【Investment Efficiency】Annualized ROE was 4.5%. Both total asset turnover and financial leverage remained low, making improvement in business profitability the central challenge.【Financial Soundness】The Equity Ratio increased to 79.6% from 73.9% in the previous year, and current assets of ¥53.75B substantially exceeded current liabilities of ¥18.46B. The Company maintained a conservative capital structure with extremely low reliance on borrowings.

Cash Flow Analysis

Although the scope of disclosure in the cash flow statement is limited, fund movements can be assessed based on changes in the balance sheet. Cash and deposits were ¥22.36B, down ¥1.71B from ¥24.06B in the previous-year period, while accounts receivable were ¥18.29B, a ¥6.52B reduction from the previous year. Accounts payable and electronically recorded obligations also decreased by a combined ¥5.69B. Both assets and liabilities contracted, and progress in the collection of trade receivables may have contributed to the reduction in working capital, while the decline in trade payables suggests changes in funding requirements. Interest-bearing debt was extremely small at ¥0.30B, indicating low reliance on financing through financing activities.

Earnings Quality

Profit before tax for the current period of ¥1.28B includes a ¥0.01B loss on disposal of fixed assets recorded as an extraordinary loss, while the previous-year period included a ¥0.09B gain on the sale of investment securities recorded as an extraordinary gain. The absence of this one-time gain was the primary factor behind the substantial 13.1% YoY decline in Net Income. Since the decline in Operating Income was limited to -1.1%, deterioration in recurring business earnings was limited, and caution is required before interpreting the decline in Net Income as a corresponding impairment of underlying earnings power. Non-operating income and expenses mainly comprised dividend income of ¥0.01B and a foreign exchange loss of ¥0.03B, with limited quantitative impact. Comprehensive Income was ¥1.02B, exceeding Net Income of ¥0.86B, supported by positive factors including foreign currency translation adjustments of ¥0.12B; the divergence between Net Income and Comprehensive Income was limited.

Earnings Forecasts and Guidance

The full-year earnings forecasts are revenue of ¥106.00B (+2.8% YoY), Operating Income of ¥7.50B (+4.1% YoY), and Ordinary Income of ¥7.70B (+2.2% YoY), with no revisions to the forecasts during the quarter. Q1 progress rates were 22.7% for revenue and 16.8% for Operating Income, both below the 25% level implied by simple equal quarterly allocation. The full-year Operating Income margin target of 7.1% exceeds the Q1 result of 5.3%, making improvement in profit margins toward the second half a prerequisite for achieving the full-year plan.

Shareholder Returns

The full-year dividend forecast is ¥42.00 per share. Based on forecast full-year EPS of ¥95.35, the forecast Payout Ratio is 44.0%, and no revision to the dividend forecast was made during the quarter. Compared with the previous fiscal year's annual dividend of ¥41.33, adjusted for the stock split, the current forecast of ¥42.00 represents a planned dividend increase of approximately 1.6%. Treasury shares totaled 4.097 million shares, equivalent to 6.9% of the 59.70 million issued shares. Given retained earnings of ¥72.58B and cash and deposits of ¥22.36B, the 44.0% Payout Ratio is considered to be within the Company's capacity for shareholder returns.

Risk Factors

1. Cost Pass-Through Risk: While revenue increased +4.7% YoY, the cost of sales increased at a faster pace of +5.7%, causing the gross margin to decline to 24.1%. The key issue is whether increases in raw material, energy, and other costs can be passed through to prices.

2. Profitability Deterioration Risk in the Core Business: The Paper-Processed Products Business, which accounts for 73.0% of consolidated revenue, posted higher revenue of +3.9% but lower Operating Income of -7.1%, resulting in a significant impact on consolidated earnings.

3. Demand Risk in the Chemical Products Business: The Chemical Products Business posted lower revenue of -6.3% and lower Operating Income of -22.3%, with its profit margin also declining to 3.8%, as changes in demand and the competitive environment pressured profitability.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company's profitability is below the industry median, confirming the relative impact of the increase in the cost ratio.

Growth and Capital Efficiency

The revenue growth rate is slightly below the industry median but exceeds the lower bound of the IQR.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Although revenue growth was maintained, Operating Income declined -1.1% YoY due to the increase in the cost ratio. The decline in the gross margin to 24.1% (24.8% in the previous-year period) confirms profitability as a key issue.

2. The -13.1% decline in Net Income exceeded the decline in Operating Income, but this was due to the reversal of the ¥0.09B investment securities sale gain recorded in the previous-year period. Changes in recurring business earnings therefore need to be assessed based on Operating Income.

3. The Company maintained a strong financial foundation, with a high current ratio and a Debt/Capital ratio of approximately 0.4%. Given the 16.8% progress rate toward the full-year Operating Income forecast of ¥7.50B, improvement in profit margins during the second half will be a key area to monitor.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,257–¥1,329 for ±1% in the cost of equity, and ¥1,289–¥1,294 for ±0.1 in ω.

Notes:

• Because 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 difference from the full-year forecast).
• Because 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 does not constitute 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 report 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 a professional as necessary.

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