THE PACK CORPORATION FY2026 Q2 Earnings Report

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Executive Summary

Although revenue and operating income increased during the quarter, net income declined due to the absence of a one-time profit recorded in the previous year, making it necessary to assess the quality of earnings. Revenue increased to ¥501.3B (+5.8% YoY), while operating income rose to ¥29.7B (+3.9% YoY), indicating steady expansion in the core business. However, net income decreased by double digits to ¥20.4B (-16.1% YoY). The primary factors behind the decline in net income were the absence of the ¥4.9B gain on the sale of investment securities recorded in the same period of the previous year and the recognition of ¥0.7B in extraordinary losses, including disaster-related losses, during the current period.

Factors Affecting Performance

【Revenue】Revenue increased to ¥501.3B (+5.8% YoY), with higher revenue in all three segments. The Paper-Processed Products Business, the core business, was the largest growth driver, increasing to ¥367.7B (+5.4%, 73.3% of total revenue), with notable growth in corrugated cardboard. The Synthetic Resin Products Business was nearly flat at ¥63.6B (+0.4%), while the Other Businesses grew strongly to ¥70.0B (+13.6%).

【Profit and Loss】Operating income increased to ¥29.7B (+3.9%), resulting in higher revenue and operating income. The gross profit margin declined by approximately 30 bp to 24.4% from 24.7% in the previous year, but the SG&A ratio improved by approximately 20 bp to 18.5% from 18.7%, keeping the operating margin nearly flat at 5.9% versus 6.0% in the previous year. Ordinary income was limited to ¥30.8B (+1.2%), affected by the recognition of ¥0.4B in foreign exchange losses. Net income was ¥20.4B (-16.1%), primarily due to the absence of the ¥4.9B gain on the sale of investment securities recorded in the previous year and the ¥0.7B in extraordinary losses during the current period, including disaster-related losses. In summary, the company achieved higher revenue and operating income at the operating and ordinary income levels, but net income declined due to extraordinary income and loss factors.

Segment Analysis

The Paper-Processed Products Business recorded revenue of ¥367.7B (+5.4%) and segment income of ¥27.8B (+11.8%), with a margin of 7.6%, driving company-wide profit through a rate of profit growth exceeding its revenue growth. The Synthetic Resin Products Business was nearly flat in revenue at ¥63.6B (+0.4%), but segment income improved to ¥3.3B (+16.4%), with the margin rising to 5.2% as cost efficiency improved. The Other Businesses, including supplies, achieved strong growth and higher profitability, with revenue of ¥70.0B (+13.6%) and segment income of ¥5.3B (+36.0%), contributing to the increase in company-wide profit. The adjustment for company-wide expenses and other items expanded to ▲¥6.7B from ▲¥3.0B in the previous year. Accordingly, operating income after adjustments was ¥29.7B, compared with total reportable segment income of ¥36.5B.

Key Financial Indicators

【Profitability】The operating margin was 5.9%, nearly flat from 6.0% in the previous year, while the net profit margin declined to 4.1% from 5.1%, reflecting the impact of extraordinary income and loss factors. ROE was 2.6%, which can be explained as the product of a 4.1% net profit margin, 0.51x total asset turnover, and 1.27x financial leverage. Low asset efficiency is constraining ROE.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥36.5B, or 1.79x net income of ¥20.4B, indicating good earnings cash conversion. However, OCF/EBITDA was 0.83x, as an increase in inventories and a decrease in accounts payable put pressure on working capital.【Investment Efficiency】Capital expenditures were ¥51.1B, or 3.6x depreciation and amortization of ¥14.0B, indicating an active investment phase. However, free cash flow turned negative at -¥10.0B.【Financial Soundness】The equity ratio was extremely high at 78.7%, while interest-bearing debt was negligible, with long-term borrowings of only ¥2.6B. The current ratio also remained high, indicating a conservative and robust financial foundation.

Cash Flow Analysis

Operating Cash Flow was ¥36.5B, down -32.9% YoY, while investing cash flow was -¥46.5B, including -¥51.1B in capital expenditures, and financing cash flow was -¥32.4B, including -¥5.0B in share repurchases and dividend payments. As a result, free cash flow (OCF + investing cash flow) turned negative at -¥10.0B. In terms of working capital, the decrease in trade receivables generated a cash inflow of ¥65.4B, while the decrease in trade payables resulted in a cash outflow of -¥50.3B, and the increase in inventories also resulted in an outflow of -¥11.0B. These were the primary reasons for the sluggish growth in OCF. Capital expenditures were 3.6x depreciation and amortization of ¥14.0B, indicating an active investment phase. Given the substantial cash and deposits balance of ¥195.0B, concerns regarding short-term liquidity are limited. However, improving the inventory and accounts payable cycles will be key to restoring cash generation capacity going forward.

Quality of Earnings

Operating income of ¥29.7B from the core business constitutes the earnings base. Non-operating income and expenses remained modest, with income of ¥1.7B, including ¥0.7B in dividend income, largely offset by expenses of ¥0.6B, including ¥0.4B in foreign exchange losses. In extraordinary income and losses, the current period recorded ¥0.7B in extraordinary losses, comprising the aggregate of losses on disposal of fixed assets, disaster-related losses, and impairment losses on investment securities. By contrast, the same period of the previous year recorded a ¥4.9B gain on the sale of investment securities as extraordinary income. This reversal was the primary reason for the divergence between ordinary income and net income: ordinary income was ¥30.8B versus net income of ¥20.4B, representing an approximately -34% contraction when combined with the effective tax rate of 32.2%. OCF was 1.79x net income, indicating good cash conversion of earnings. Comprehensive income of ¥21.8B exceeded net income of ¥20.4B, driven by a +¥2.3B foreign currency translation adjustment. Thus, current-period earnings reflect both the resilience of the core business and the reversal of temporary factors.

Earnings Forecast and Guidance

The first-half progress rates against the full-year plan—revenue of ¥1,060B, operating income of ¥75.0B, ordinary income of ¥77.0B, and net income of ¥53.0B—were 47.3% for revenue, 39.7% for operating income, 40.0% for ordinary income, and 38.4% for net income. Compared with standard first-half progress of 50%, revenue was behind by -2.7pt, while each profit level was approximately -10pt behind, making a recovery in the second half a prerequisite. The earnings forecast and dividend forecast were not revised during the quarter, and the full-year dividend plan of ¥42 remains unchanged.

Shareholder Returns

The interim dividend was ¥17 per share, equivalent to ¥19.33 after taking the stock split into account. The payout ratio based solely on dividends was approximately 49.8% relative to net income of ¥20.4B. The company also conducted ¥5.0B in share repurchases during the period, and total shareholder returns, including dividends, were covered by funds generated from OCF and cash on hand. Since free cash flow was negative at -¥10.0B during the period, total returns comprising dividends and share repurchases were not fully financed by current-period cash flow alone, with the ¥195.0B cash and deposits balance serving as a buffer. Although the full-year dividend forecast of ¥42 remains unchanged, the first-half net income progress rate of 38.4% warrants monitoring together with profit and cash generation trends in the second half.

Risk Factors

1. Deterioration in working capital efficiency: Inventories increased to ¥80.5B, while trade payables declined to ¥113.8B from ¥135.9B in the previous year, putting pressure on OCF. Progress in improving the inventory and collection cycles will affect future cash generation capacity.

2. Business concentration risk: The Paper-Processed Products Business accounts for 73.3% of revenue, resulting in a high degree of dependence on supply-demand conditions and pricing trends in this business. Fluctuations in corrugated cardboard demand and paper raw material prices are likely to have a relatively significant impact on performance.

3. Volatility in foreign exchange- and investment-related gains and losses: The company recorded ¥0.4B in foreign exchange losses and ¥0.2B in impairment losses on investment securities during the current period. The business has a structure in which non-recurring items, such as the ¥4.9B gain on the sale of investment securities in the previous year, can readily become drivers of fluctuations in net income.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

The company’s profitability is below the industry median, with both its operating margin and net profit margin below the manufacturing industry average.

Growth and Capital Efficiency

The revenue growth rate is also below the industry median, although it exceeds the lower bound of the IQR (-3.4%), placing the company in the lower half of the industry in terms of growth pace.

※Source: Company analysis

Key Takeaways from the Earnings

1. Net income declined by -16.1% despite a +3.9% increase in operating income. This difference was attributable to the temporary reversal of the previous year’s ¥4.9B gain on the sale of investment securities. Separating the core business’s higher revenue and operating income trend from net income trends is important for understanding the results.

2. Capital expenditures reached 3.6x depreciation and amortization, or ¥51.1B versus ¥14.0B, indicating an active investment phase. As a result, free cash flow turned negative at -¥10.0B. How the benefits of these investments are reflected in profit and cash flow over the medium term will be an important area to monitor.

3. First-half profit progress against the full-year plan was in the 38–40% range, below the standard 50% progress level. Achieving the unchanged full-year forecast of ¥1,060B in revenue and ¥75.0B in operating income will require an acceleration in profit growth during the second half.

Theoretical Stock Price (Reference Value)

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

Sensitivity: ¥1,273–¥1,346 at ±1% for the cost of equity, and ¥1,305–¥1,311 at ±0.1 for ω.

Notes:

• ¥0.3 per share in goodwill amortization is added back to earnings (to account for a non-cash expense and comparability with IFRS companies).
• 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, resulting in 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 / Interest Rate Reference Month: 2026-07 / This value is not intended to forecast 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 release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the company based on publicly available earnings data. Investment decisions should be made at your own responsibility, and, where necessary, after consulting with a professional advisor.

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