KODAMA CHEMICAL INDUSTRY (4222) FY2026 Q3 Earnings Report

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Executive Summary

This quarter’s results saw a substantial increase in reported net income, driven by the expansion of the scope of consolidation following the acquisition of Mepro Holdings and the recognition of a significant gain on negative goodwill. Revenue was ¥61.67B (¥11.76B in the same period of the previous year, +424.2%), Operating Income was ¥1.69B (¥0.15B, +29.2%), Ordinary Income was ¥1.84B (¥0.10B, +1106.8%), and Net Income was ¥23.93B (¥0.02B, +140615.3%). The primary driver of the sharp increase in Net Income was the ¥22.06B gain on negative goodwill, while the increase in Operating Income was limited relative to the expansion in Revenue.

Factors Affecting Performance

【Revenue】Revenue of ¥61.67B increased +424.2% year on year, but the primary factor behind the increase was the expansion of the scope of consolidation through the addition of 12 newly consolidated subsidiaries following the acquisition of Mepro Holdings. By segment, the Forging and Casting Business was the largest at ¥36.28B (58.8% of total), followed by the Powder Metallurgy Business at ¥13.05B (21.2%) and the Resin Molding Business at ¥12.35B (20.0%). The existing Resin Molding Business achieved only +4.9% underlying growth from ¥11.76B in the previous year, indicating that most of the Revenue growth resulted from the acquisition.

【Profit and Loss】Operating Income was ¥1.69B (+29.2%), and the Operating Income margin improved to 2.7% from 1.3% in the previous year. However, the gross margin declined to 11.9% from 15.0%, while the reduction in the SG&A expense ratio (13.7%→9.2%) enabled greater absorption of fixed costs and supported the improvement in the profit margin. Ordinary Income was ¥1.84B (+1106.8%), aided by foreign exchange gains of ¥0.43B exceeding interest expenses of ¥0.32B. Extraordinary income of ¥22.53B, including a ¥22.06B gain on negative goodwill, constituted the majority of Profit Before Tax of ¥24.24B and was the primary driver of Net Income of ¥23.93B. Underlying earnings power should be assessed based on Operating Income excluding extraordinary items. In conclusion, the Company achieved higher Revenue and profit, but the majority of the profit increase was attributable to temporary factors.

Segment Analysis

The Forging and Casting Business generated Revenue of ¥36.28B and Operating Income of ¥0.96B (profit margin of 2.6%), making it the largest contributor to both Revenue and profit. The Powder Metallurgy Business generated Revenue of ¥13.05B and Operating Income of ¥0.31B (profit margin of 2.4%). The Resin Molding Business generated Revenue of ¥12.35B and Operating Income of ¥0.82B (profit margin of 6.7%), demonstrating the highest profitability despite being the smallest segment by scale. Against total segment profit of ¥2.097B, an adjustment of △¥0.404B not attributable to reportable segments accounts for the difference from consolidated Operating Income of ¥1.69B, indicating a relatively significant burden from corporate expenses.

Key Financial Indicators

【Profitability】The Operating Income margin was 2.7% (1.3% in the previous year), the gross margin was 11.9% (15.0% in the previous year), and the Net Income margin was 38.8%. Although the Operating Income margin improved, this was accompanied by a decline in the gross margin, indicating that the quality of the profitability improvement depends on SG&A leverage.【Cash Flow Quality】Net extraordinary income of ¥22.41B accounted for the majority of Profit Before Tax of ¥24.24B, creating a significant gap with Operating Income of ¥1.69B. Accordingly, earnings quality is weighted more toward temporary factors than operating factors.【Investment Efficiency】Annualized ROE was 105.0%, but capital efficiency on an operating basis would be substantially lower excluding the gain on negative goodwill. Total asset turnover was approximately 1.2x.【Financial Soundness】The Equity Ratio was 45.0%, the current ratio was 106.8%, and interest-bearing debt was primarily short-term borrowings of ¥10.48B, up +608.7% year on year. Cash and deposits of ¥11.48B remained only slightly above short-term borrowings, indicating a high dependence on short-term liabilities.

Cash Flow Analysis

As no cash flow statement has been disclosed, funding trends are assessed based on changes in the balance sheet. Cash and deposits increased by ¥9.86B year on year to ¥11.48B, primarily attributable to the transfer of assets associated with the acquisition of Mepro Holdings and the procurement of ¥10.50B in short-term borrowings (+609.5% year on year). Accounts receivable increased to ¥8.71B (+254.6% year on year), inventories expanded to the ¥2.62B level, and accounts payable also increased to ¥6.47B (+284.0%), indicating that the expansion of working capital accompanying the broader scope of consolidation has increased funding needs. Property, plant and equipment increased by +307.2% year on year to ¥31.60B, suggesting that the transfer of assets through the acquisition was the primary use of funds in investing activities. Overall, the increase in cash and deposits reflects a funding structure dependent more on borrowings and the transfer of assets through the acquisition than on operating activities. Future liquidity will therefore be influenced by refinancing and working capital management.

Earnings Quality

Of Net Income of ¥23.93B, the ¥22.06B gain on negative goodwill accounted for 92.7%, creating a substantial divergence from Operating Income of ¥1.69B, which represents recurring earnings power. The gain on negative goodwill was recognized as extraordinary income in connection with the acquisition of Mepro Holdings, and it should also be noted that the amount is provisional because the purchase price allocation remains incomplete. Among non-operating income, foreign exchange gains of ¥0.43B were recorded and contributed to the increase in Ordinary Income of ¥1.84B, but this was also a non-recurring fluctuation factor. The effective tax rate was extremely low at 1.3%, apparently because the extraordinary income had a non-taxable-like effect relative to the tax burden. Accordingly, reported Net Income, EPS, and ROE were all significantly affected by temporary factors, and assessment of sustainable earnings power should place greater emphasis on trends in Operating Income and the gross margin.

Earnings Forecast and Guidance

Progress against the full-year Company plan was 77.1% for Revenue (exceeding the standard progress rate of 75%), 120.9% for Operating Income, and 215.9% for Ordinary Income. The significant progress above plan in Operating Income and Ordinary Income includes the effects of foreign exchange gains and the expansion of the scope of consolidation, and the Company may already substantially exceed its full-year forecasts (Revenue of ¥80.00B, Operating Income of ¥1.40B, and Ordinary Income of ¥0.85B). However, foreign exchange gains contributed to the upside in Ordinary Income, requiring caution when assessing the full-year level. No revisions were made to the earnings forecast or dividend forecast during the current quarter.

Shareholder Returns

The full-year dividend forecast is ¥0 per share, and the no-dividend policy remains in place for the current period. As there is no basis for calculating the Payout Ratio, shareholder returns are currently limited to the retention of earnings within equity.

Risk Factors

1. Risk of declining profitability: The gross margin declined by approximately 3.0pt from 15.0% in the previous year to 11.9%, while the Operating Income margin remained at 2.7%. The Company’s operating profit is structurally susceptible to fluctuations in raw material and energy costs and product mix.

2. Risk of excessive short-term funding dependence: Short-term borrowings increased +608.7% year on year to ¥10.48B, nearly equivalent to cash and deposits of ¥11.48B. Together with the expansion of working capital following the acquisition, changes in refinancing and interest rate terms could affect liquidity.

3. Risk regarding finalization of goodwill and purchase price allocation: The ¥22.06B gain on negative goodwill is a provisional amount because the purchase price allocation has not been completed, and the amount may change once fair value measurements are finalized.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Operating Income margin was below the industry median, indicating relatively weak underlying operating profitability, while the Net Income margin substantially exceeded the industry median due to the recognition of extraordinary income.

Growth and Capital Efficiency

The Revenue growth rate substantially exceeded the industry median, primarily due to the expansion of the scope of consolidation through M&A.

※Source: Compiled by the Company

Key Points from the Financial Results

1. Of reported Net Income of ¥23.93B, 92.7% was attributable to the ¥22.06B gain on negative goodwill. Accordingly, it should be noted that EPS of ¥1,524 and annualized ROE of 105.0% do not reflect recurring earnings power.

2. Although the Operating Income margin of 2.7% is improving, the gross margin has declined. Improving the profitability of the Forging and Casting Business and Powder Metallurgy Business (profit margins of 2.4–2.6%) will be key to enhancing consolidated profitability.

3. The sharp increase in short-term borrowings (+608.7%) and the expansion of working capital indicate that post-acquisition liquidity and refinancing management will be important areas of focus from a financial perspective.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,472–¥1,558 at ±1% for the cost of equity, and ¥1,500–¥1,523 at ±0.1 for ω.

Notes:

• To exclude the effects of temporary income and expenses, normalized EPS calculated from Ordinary Income and other figures is used (Company forecast EPS is ¥1,280.5).
• Because Net Income progress against the full-year forecast (119%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies ahead of their forecast progress tend to exceed forecasts. Adjustments may be excessive for businesses with strong seasonality).
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets at 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: 2026-08 / This is a 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 predict or guarantee future share prices.)

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This report is a financial results analysis document automatically generated by AI through analysis of XBRL earnings release data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the Company based on publicly disclosed financial results data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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