DaikyoNishikawa Corporation FY2027 Q1 Earnings Report

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Executive Summary

Although revenue declined slightly in Q1, the results were effectively solid, with Ordinary Income and Net Income increasing due to higher non-operating income and improved SG&A efficiency. Revenue was ¥41.77B (-0.8% YoY), while Operating Income was ¥2.68B (-1.4% YoY), both remaining largely flat. Meanwhile, Ordinary Income was ¥3.02B (+5.2% YoY), and Net Income attributable to owners of the parent was ¥2.32B (+16.2% YoY), securing double-digit growth. The primary causes of the revenue decline were lower sales in North America (-10.4%) and ASEAN (-11.9%), while Japan (+1.9%) and China and Korea (+31.7%) provided support. Although the gross profit margin declined to 13.7% (down -0.2pt from 13.9% in the prior year), this was offset by an improvement in the SG&A ratio (7.3%, down -0.2pt YoY), allowing Operating Income to remain nearly at the prior-year level.

Factors Affecting Performance

【Revenue】Revenue was ¥41.77B, a decline of -0.8% YoY. By segment, Japan, the largest segment by composition (approximately 59% of revenue), grew +1.9%, while China and Korea grew +31.7%. In contrast, North America declined -10.4% and ASEAN declined -11.9%, weighing on overall results. Despite the revenue decline, North America maintained the highest company-wide Operating Income margin at 12.5% and remains the largest contributor to profits.

【Profit and Loss】Operating Income was ¥2.68B (-1.4%), remaining nearly flat. Although the gross profit margin declined to 13.7% (down -0.2pt from 13.9% in the prior year), the SG&A ratio improved to 7.3% (down -0.2pt from 7.5% in the prior year), offsetting the decline. Non-operating items included foreign exchange gains of ¥0.21B, interest income of ¥0.13B, and government subsidies, resulting in Ordinary Income of ¥3.02B (+5.2%). Extraordinary losses were limited to a ¥0.03B loss on disposal and sale of fixed assets, and the impact of temporary factors was minor. After deducting income taxes of ¥0.62B (effective tax rate of approximately 20.8%), Net Income attributable to owners of the parent was ¥2.32B (+16.2%). Although revenue declined slightly, profit increased at each level, making this a decline-in-revenue, increase-in-profit result.

Segment Analysis

There are significant differences in profitability among segments. While North America maintained high profitability, deterioration in ASEAN’s profitability was notable. Japan recorded revenue of ¥25.17B (58.9% composition, +1.9%), Operating Income of ¥0.91B (+127.4%), and a profit margin of 3.6% (an improvement of +2.0pt from 1.6% in the prior year), indicating a substantial improvement in profitability. North America recorded revenue of ¥12.52B (29.4% composition, -10.4%), Operating Income of ¥1.57B (-2.7%), and a profit margin of 12.5% (an improvement of +1.0pt from 11.5% in the prior year), enhancing profitability despite the revenue decline. ASEAN recorded revenue of ¥2.51B (5.9% composition, -11.9%), Operating Income of ¥0.12B (-49.4%), and a profit margin of 5.0% (a deterioration of -3.7pt from 8.7% in the prior year), showing a pronounced decline in both revenue and profit. China and Korea recorded revenue of ¥2.43B (5.7% composition, +31.7%), Operating Income of ¥0.05B (+65.6%), and a profit margin of 2.2% (an improvement of +0.5pt from 1.7% in the prior year), expanding their profitability despite remaining at a low level.

Key Financial Indicators

【Profitability】The Operating Income margin was 6.4%, remaining nearly flat from 6.4% in the prior year. The improvement in the SG&A ratio to 7.3% (from 7.5% in the prior year) offset the decline in the gross profit margin to 13.7% (from 13.9% in the prior year). The Net Profit margin, based on income attributable to owners of the parent, improved to 5.5% from 4.7% in the prior year.【Cash Flow Quality】Trade receivables were ¥30.88B, up from ¥28.71B in the prior year, and inventories increased slightly to ¥8.19B from ¥7.90B, while trade payables declined to ¥19.95B from ¥21.29B in the prior year, indicating an increase in working capital.【Investment Efficiency】ROE was 2.6% (quarterly actual), consistent with a DuPont decomposition of a 5.5% Net Profit margin, 0.265 total asset turnover, and 1.79x financial leverage. The low total asset turnover is a relative constraint on capital efficiency. EPS was ¥35.37 (¥28.20 in the prior year, +25.4%), exceeding Net Income growth (+16.2%), with progress in share repurchases pushing up per-share metrics.【Financial Soundness】The Equity Ratio was 57.1% (approximately 57.0% in the prior year), remaining nearly flat and maintaining its level. Short-term borrowings were ¥1.09B, down -30.4% from ¥1.57B in the prior year, while cash and deposits of ¥32.37B substantially exceeded total short-term interest-bearing liabilities (the total of short-term borrowings, current portion of long-term borrowings, and short-term lease liabilities, approximately ¥9.92B).

Cash Flow Analysis

Cash and deposits were ¥32.37B, down ¥4.75B (-12.8%) from ¥37.12B in the prior year, indicating a need to monitor capital efficiency. Against this backdrop, trade receivables increased to ¥30.88B (up ¥2.17B from ¥28.71B in the prior year) and inventories increased to ¥8.19B (up ¥0.29B from ¥7.90B), while trade payables declined to ¥19.95B (down ¥1.34B from ¥21.29B), potentially placing pressure on the cash position through an increase in working capital. Meanwhile, with respect to interest-bearing debt, short-term borrowings were reduced to ¥1.09B (down -30.4% from ¥1.57B in the prior year), while long-term borrowings remained nearly flat at ¥22.07B (¥22.35B in the prior year). Dependence on external financing has therefore not increased. Overall, the company appears to be adopting a more conservative financial posture, while growth in working capital is weighing on cash generation.

Earnings Quality

The increase in Ordinary Income was supported not only by broadly flat Operating Income but also by non-operating income, including foreign exchange gains of ¥0.21B and interest income of ¥0.13B, totaling ¥0.55B. The contribution of these non-operating items may fluctuate depending on market conditions and should therefore be monitored. Extraordinary items consisted solely of an extraordinary loss of ¥0.03B (loss on disposal and sale of fixed assets), with a minor net impact that did not materially distort recurring earning power. Comprehensive Income was ¥2.71B (¥2.65B attributable to owners of the parent). The difference from Net Income attributable to owners of the parent of ¥2.32B was primarily due to foreign currency translation adjustments of +¥0.45B, representing a significant improvement from the -¥2.60B foreign currency translation adjustment in the same period of the prior year. This divergence reflects translation differences related to overseas subsidiaries and should be distinguished from recurring earning power.

Earnings Forecast and Guidance

Progress against the full-year plan was 25.0% for Revenue, 30.4% for Operating Income, 33.2% for Ordinary Income, and 23.2% for Net Income attributable to owners of the parent, indicating that progress at the profit levels is running ahead of revenue. However, the full-year plan itself is conservative, forecasting Operating Income of ¥8.80B (-14.2% YoY) and Ordinary Income of ¥9.10B (-15.0% YoY), both representing declines from the prior-year results. This differs in direction from the growth trend in Q1 and will be a factor to monitor going forward. During the quarter, both the earnings forecast and dividend forecast were revised. Forecast EPS is ¥153.32, and the dividend forecast is ¥58.

Shareholder Returns

The full-year dividend forecast is ¥58, implying a Payout Ratio of approximately 37.8% based on forecast EPS of ¥153.32. Treasury shares amounted to ¥5.65B on a monetary basis, up +¥0.83B from ¥4.82B in the same period of the prior year, indicating continued progress in share repurchases. EPS of ¥35.37 (+25.4%) exceeded Net Income growth (+16.2%), partly reflecting the reduction in the number of shares outstanding resulting from share repurchases. Given cash and deposits of ¥32.37B and a conservative level of interest-bearing debt, the sustainability of the dividend policy appears broadly stable.

Risk Factors

1. Widening regional profitability disparities: ASEAN recorded revenue of ¥2.51B (-11.9%) and Operating Income of ¥0.12B (-49.4%), representing declines in both revenue and profit. Its profit margin declined to 5.0% (down -3.7pt from 8.7% in the prior year). A deterioration in the regional mix could weigh on the company-wide gross profit margin.

2. Foreign exchange risk: Foreign exchange gains, a factor supporting Ordinary Income, amounted to ¥0.21B and represented part of total non-operating income of ¥0.55B. In the same period of the prior year, foreign currency translation adjustments were significantly negative at -¥2.60B. Depending on foreign exchange trends, the impact on profit and loss and Comprehensive Income could reverse.

3. Impact of increased working capital on cash generation: Trade receivables increased ¥2.17B YoY and inventories increased ¥0.29B, while trade payables declined ¥1.34B. Cash and deposits decreased ¥4.75B from the prior year. If the upward trend in working capital continues, its impact on cash generation should be monitored.

Industry Benchmarks (Reference; Compiled by the Company)

Industry Benchmarks (manufacturing)

Profitability and Returns

The company’s profitability metrics, including both the Operating Income margin and Net Profit margin, are below the industry median, placing its profitability somewhat toward the lower end of the industry.

Growth and Capital Efficiency

The Revenue growth rate is significantly below the industry median and is positioned near the lower bound of the industry IQR.

Source: Compiled by the Company

Key Points from the Earnings Results

1. Although Ordinary Income and Net Income increased despite a slight decline in Revenue, this growth was also supported by non-operating income such as foreign exchange gains and interest income. Accordingly, the weighting of these non-operating items should be monitored continuously when assessing earnings quality.

2. By segment, the maintenance of high margins in North America and the substantial improvement in Japan’s profitability (profit margin +2.0pt) drove overall profits, while profitability in ASEAN deteriorated (profit margin -3.7pt), indicating widening regional disparities.

3. The full-year plan assumes declines in both Operating Income and Ordinary Income YoY, but Q1 progress was ahead of plan at 30.4% for Operating Income and 33.2% for Ordinary Income. The consistency between the assumptions underlying the full-year plan and actual performance trends will therefore be an important point to monitor.

Theoretical Share 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 period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,428–¥1,511 at ±1% for the Cost of Equity, and ¥1,467–¥1,472 at ±0.1 for ω.

Notes:

• 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 / Interest Rate Reference Month: 2026-07 / This value does not forecast or guarantee the future share price)

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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. The 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.

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