THE PACK (3950) FY2026 Q2 Earnings Report

Quick View

Executive Summary

The key takeaway from these results is that, although the Company maintained revenue and operating income growth in its core business, the final profit growth rate turned negative due to the reversal of gains on the sale of investment securities recorded in the previous year. Revenue was ¥50.13B (+5.8% year on year), Operating Income was ¥2.97B (+3.9%), and Ordinary Income was ¥3.08B (+1.2%), while Net Income remained at ¥2.04B (-16.1%). The slowdown in profit growth was primarily attributable to a decline in the gross margin (24.4%, compared with 24.7% in the previous year), although the SG&A ratio improved to 18.5%, indicating that cost controls are functioning. The decline in Net Income was due to the reversal of the ¥0.49B gain on the sale of investment securities recorded in the previous year and does not solely indicate deterioration in operating performance.

Factors Affecting Performance

【Revenue】Revenue increased 5.8% year on year to ¥50.13B. The core Paper-Processed Products Business grew to ¥36.77B (+5.4%), including a significant increase in corrugated cardboard to ¥8.40B (+24.6%), while printing declined to ¥0.72B (-23.7%), indicating variation across product categories. The Chemical Products Business was nearly flat at ¥6.36B (+0.4%), while Other Businesses expanded to ¥7.00B (+13.6%).

【Profit and Loss】Operating Income increased 3.9% year on year to ¥2.97B, and Ordinary Income increased 1.2% to ¥3.08B, securing profit growth. However, the gross margin declined to 24.4% from 24.7% in the same period of the previous year, resulting in a slower profit growth rate relative to revenue growth. Net Income was ¥2.04B (-16.1%), with downward pressure from the reversal of the ¥0.49B gain on the sale of investment securities recorded in the same period of the previous year, special losses of ¥0.07B in the current period (including disaster-related losses of ¥0.04B), and foreign exchange losses of ¥0.04B. The Company achieved revenue and profit growth at the operating and ordinary income levels, while final profit declined due to temporary factors; overall, the results can be characterized as revenue and profit growth in the core business.

Segment Analysis

The core Paper-Processed Products Business, which accounted for 76.3% of total segment profit before adjustments, achieved revenue growth and profit growth, with Revenue of ¥36.77B (+5.4% year on year), segment profit of ¥2.78B (+11.8%), and a profit margin of 7.6%. The Chemical Products Business was nearly flat in terms of Revenue at ¥6.36B (+0.4%), but segment profit improved 16.4% to ¥0.33B, with the profit margin improving to 5.2%. Other Businesses recorded the highest growth, with Revenue of ¥7.00B (+13.6%), segment profit of ¥0.53B (+36.0%), and a profit margin of 7.6%. Meanwhile, adjustments consisting of inter-segment transaction eliminations and corporate expenses amounted to negative ¥0.67B, deteriorating from negative ¥0.30B in the same period of the previous year. The increase in corporate expenses has prevented the profit growth of each business from being sufficiently reflected in consolidated Operating Income.

Key Financial Indicators

【Profitability】The Operating Income margin was 5.9%, slightly down from 6.0% in the same period of the previous year, while the Net Income margin declined to 4.1% from 5.1%. The gross margin was 24.4% (24.7% in the previous year), indicating that cost inflationary pressures are weighing on margins.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥3.65B, approximately 1.8 times Net Income of ¥2.04B, indicating solid cash backing for earnings. Annualized DSO was 67 days, exceeding the general benchmark of 45–60 days; therefore, trends in the collection period require continued monitoring.【Investment Efficiency】Annualized ROE was 5.3%, decomposed into a Net Income margin of 4.1%, total asset turnover of approximately 1.0x, and financial leverage of 1.27x. While low leverage constrains ROE, it contributes to capital stability.【Financial Soundness】The Equity Ratio was 78.7%, and interest-bearing debt was negligible. Current assets of ¥53.52B substantially exceeded current liabilities of ¥19.83B, indicating a robust financial foundation.

Cash Flow Analysis

Operating Cash Flow was ¥3.65B, down 32.9% from ¥5.44B in the same period of the previous year. The main factors behind the decline were the reduction in cash inflows from changes in trade receivables, from ¥7.81B in the previous year to ¥6.54B in the current period, and the decrease in trade payables (-¥5.03B), which placed pressure on cash flows. Investing Cash Flow was negative ¥4.65B, as capital expenditures continued, primarily reflecting capital investment of ¥5.11B. CapEx reached 3.6 times depreciation and amortization expense of ¥1.40B. Financing Cash Flow was negative ¥3.24B, including share repurchases of ¥0.50B and dividend payments. As a result, free cash flow was negative ¥1.00B. However, cash and deposits of ¥19.50B and low interest-bearing debt limit concerns regarding near-term liquidity. Going forward, the key focus will be whether aggressive investment translates into higher Operating Cash Flow.

Earnings Quality

The gap between Ordinary Income of ¥3.08B and Net Income of ¥2.04B was substantial, primarily due to the reversal of the ¥0.49B gain on the sale of investment securities recorded in the same period of the previous year and special losses of ¥0.07B in the current period (disaster-related losses of ¥0.04B, impairment losses on investment securities of ¥0.02B, etc.). Non-operating income and expenses were relatively small, with non-operating income of ¥0.17B (including dividend income of ¥0.07B, etc.) versus non-operating expenses of ¥0.06B (including foreign exchange losses of ¥0.04B, etc.), suggesting that the quality of Ordinary Income was broadly derived from the core business. Operating Cash Flow was ¥3.65B, approximately 1.8 times Net Income, indicating that accruals—the difference between accounting profit and cash—were small and that earnings conversion into cash was favorable. Comprehensive Income was ¥2.18B, and the difference from Net Income of ¥2.04B was attributable to foreign currency translation adjustments of ¥0.23B, among other factors; no significant divergence was observed. Overall, the decline in profit for the current period was primarily due to the reversal of temporary factors and does not indicate a deterioration in recurring earnings power.

Earnings Forecasts and Guidance

First-half progress against the full-year Company plan was 47.3% for Revenue, 39.7% for Operating Income, 39.9% for Ordinary Income, and 38.5% for Net Income, all below the standard first-half progress benchmark of 50%. Operating Income was particularly 10.3pt below that benchmark, indicating that the plan assumes a back-end-loaded second half. The Company has not revised either its earnings forecast or dividend forecast, and expects profitability to improve in the second half through a recovery in the gross margin and an increase in sales volume. The full-year forecasts are Revenue of ¥106.0B (+2.8% year on year), Operating Income of ¥7.50B (+4.1%), and Ordinary Income of ¥7.70B (+2.2%).

Shareholder Returns

The Q2 dividend was ¥17.00 per share, and the full-year dividend forecast is ¥42.00 (no revision from the previous year). The dividend-only Payout Ratio, calculated based on dividend payments of ¥1.22B against Net Income of ¥2.04B for the current period, is approximately 59.9%. Based on the forecast dividend of ¥42.00 against full-year forecast EPS of ¥95.35, the forecast Payout Ratio is approximately 44.0%. Operating Cash Flow of ¥3.65B exceeds and covers dividend payments of ¥1.22B; however, free cash flow after capital expenditures was negative ¥1.00B, meaning that dividends and investment were not simultaneously funded solely through free cash flow. Including share repurchases of ¥0.50B, the Total Return Ratio was approximately 84.5%, calculated as total dividends and share repurchases of ¥1.72B divided by Net Income of ¥2.04B. This level should be evaluated separately from the Payout Ratio. Given the low level of interest-bearing debt and substantial equity capital, financial constraints on maintaining shareholder returns in the near term are considered limited.

Risk Factors

1. Raw Material and Energy Prices and Gross Margin: The gross profit margin was 24.4%, down from 24.7% in the same period of the previous year. Fluctuations in input costs for paper, resins, and other materials, together with the success or failure of passing costs through to prices, will affect future margins.

2. Failure to Translate Segment Profit Growth into Consolidated Results Due to Higher Corporate Expenses: Segment adjustments were negative ¥0.67B, deteriorating from negative ¥0.30B in the same period of the previous year. As a result, profit growth in each business has become less likely to be fully reflected in consolidated Operating Income.

3. Monetization of Capital Investment and FCF: Capital investment of ¥5.11B exceeded Operating Cash Flow of ¥3.65B, resulting in negative FCF of ¥1.00B. If utilization rates or demand fall short of expectations, delays in recovering the investment could place pressure on ROE and capital efficiency.

Industry Benchmarks (Reference; Company Analysis)

Industry Benchmarks (manufacturing)

Profitability and Returns

Profitability is below the industry median, with both the Operating Income margin and Net Income margin positioned in the lower tier of the industry.

Growth and Capital Efficiency

The Revenue growth rate is also below the industry median but exceeds the lower bound of the IQR (-3.4%), placing the Company from the lower to middle range within the industry.

※Source: Company analysis

Key Takeaways from the Results

1. Revenue increased 5.8% year on year and Operating Income increased 3.9%, indicating that the core business maintained revenue and profit growth. Meanwhile, the 16.1% decline in Net Income was primarily attributable to the temporary reversal of the gain on the sale of investment securities recorded in the previous year and should be distinguished from deterioration in operating performance.

2. First-half progress for Operating Income against the full-year plan was 39.7%, 10.3pt below the standard 50% level. Achieving a recovery in the gross margin and an increase in sales volume in the second half will be critical to meeting the plan.

3. Capital investment of ¥5.11B represents an aggressive investment phase, with CapEx at 3.6 times depreciation and amortization, resulting in negative FCF of ¥1.00B. Strong equity capital (78.7%) and low interest-bearing debt provide financial resilience, but the pace at which the investment is monetized will be a structural point of observation affecting future capital efficiency.

Theoretical Share Price (Reference Value)

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

Notes:

• Amortization of goodwill of ¥0.3 per share is added back to earnings (due to its non-cash nature and to improve comparability with IFRS companies).
• As 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 relative to the full-year forecast).
• As 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 value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee future share prices.)

---

This report is an earnings analysis document automatically generated by AI through analysis of 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 responsibility, after consulting with a professional as necessary.

---End of Report---