MORIROKU COMPANY (4249) FY2026 Q3 Earnings Report

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Executive Summary

Despite a 9.7% decline in revenue, the Company secured higher operating income, with the results characterized by an improved earnings structure driven by an improved gross margin and controlled SG&A expenses. Revenue was ¥974.8B (-9.7% YoY), operating income was ¥20.6B (+8.5%), ordinary income was ¥18.9B (+141.1%), and net income was ¥9.4B (+730.1%). The substantial increase in ordinary income was primarily attributable to the reduction in foreign exchange losses, recorded at ¥8.1B in the same period of the previous year versus ¥0.7B in the current period. The sharp increase in net income also includes a comparison effect from extraordinary income recorded in the same period of the previous year, including a gain on the sale of fixed assets of ¥8.6B; therefore, caution is warranted in making a straightforward comparison.

Factors Affecting Performance

【Revenue】Revenue was ¥974.8B, down 9.7% YoY. By segment, the core Resin Processing Products Business (80.7% of total revenue) recorded ¥786.8B (-10.7%), while the Chemicals Business (19.3% of total revenue) recorded ¥198.0B (-5.1%); both businesses experienced revenue declines.

【Profit and Loss】The gross margin improved to 16.9% (up from approximately 16.0% in the previous year), while SG&A expenses declined 1.4% YoY to ¥144.5B. As cost reductions progressed, operating income increased 8.5% YoY to ¥20.6B. Ordinary income rose sharply by 141.1% YoY to ¥18.9B, owing to the reduction in foreign exchange losses included in non-operating expenses. Extraordinary income and losses resulted in a net gain of ¥1.85B, contributing to net income of ¥9.4B (+730.1% YoY); however, the effective tax rate remained high at approximately 54.7%, limiting the conversion of operating improvements into bottom-line earnings. Overall, the results represent a decline in revenue but an increase in profit.

Segment Analysis

The Resin Processing Products Business posted a substantial increase in segment profit to ¥2.44B (+44.6% YoY), despite revenue of ¥78.68B (-10.7% YoY), with its profit margin improving from 1.9% to 3.1%. The primary driver of the improvement in consolidated operating income was the margin improvement in this business. Meanwhile, the Chemicals Business posted revenue of ¥19.80B (-5.1% YoY) and segment profit of ¥1.19B (-22.4% YoY), resulting in lower revenue and profit; its profit margin also declined from 7.5% to 6.2%. The deterioration in the profitability of the relatively high-margin Chemicals Business is a point to note when assessing the quality of consolidated earnings. Adjustments, including company-wide expenses, expanded from -¥1.32B in the same period of the previous year to -¥1.56B, confirming that the growth in total segment profit has not been fully reflected in consolidated operating income.

Key Financial Metrics

【Profitability】The operating margin improved to 2.1% from 1.8% in the same period of the previous year, but remains thin in absolute terms, while the net profit margin was only 0.9%. Annualized ROE was low at 1.9%, primarily due to the low net profit margin.【Cash Flow Quality】Annualized DSO was relatively long at 82 days. Accounts receivable declined to ¥29.08B (-11.3% YoY), reflecting the decline in revenue, but there remains room to improve collection efficiency. Work in process increased to ¥6.19B (+51.1% YoY), requiring close monitoring of production progress and inventory valuation trends.【Investment Efficiency】Construction in progress expanded to ¥4.897B (+84.3% YoY), suggesting an expanding capital expenditure pipeline. Annualized ROIC was 2.1%, a level indicating room for improvement in capital efficiency.【Financial Soundness】The equity ratio was 54.2% and the current ratio was approximately 143.7%, indicating a stable financial base. However, short-term borrowings accounted for ¥15.55B of interest-bearing debt of ¥17.98B, representing the majority of total interest-bearing debt and indicating a high degree of reliance on short-term funding. Interest coverage was 3.76x against interest expenses of ¥0.55B, below the generally regarded safety level of 5x.

Cash Flow Analysis

Although the cash flow statement is not directly disclosed, an analysis of fund movements based on changes in the balance sheet indicates that cash and deposits were ¥16.50B, down ¥3.47B from ¥19.97B in the same period of the previous year. While accounts receivable declined to ¥29.08B (-¥3.72B YoY), work in process increased to ¥6.19B (+¥2.09B YoY), and construction in progress increased to ¥4.897B (+¥2.24B YoY), suggesting that investment in production and capital expenditure activities was one factor behind the decline in cash balances. Short-term borrowings remained high at ¥15.55B, indicating a situation in which declining cash and continued reliance on borrowings coexist. Treasury stock declined from -¥0.518B in the same period of the previous year to -¥0.181B, reducing the deduction from shareholders’ equity.

Earnings Quality

The sharp increase in ordinary income in the current period (+141.1% YoY) was primarily attributable to the substantial reduction in foreign exchange losses included in non-operating expenses, from ¥0.81B in the same period of the previous year to ¥0.07B. It therefore has a strong character of a rebound driven by foreign exchange factors rather than an improvement in recurring business earnings power. Extraordinary income of ¥0.233B, including a gain on the sale of fixed assets of ¥0.09B, and extraordinary losses of ¥0.048B were recorded, resulting in a net contribution of ¥0.185B. However, extraordinary income of ¥0.947B, including a gain on the sale of fixed assets of ¥0.856B, was recorded in the same period of the previous year, and caution is required because one-off factors related to this rebound had a significant impact on the year-on-year comparison of net income (+730.1%). Of non-operating income of ¥0.56B, dividend income of ¥0.23B was the main component, providing a certain degree of support as stable non-business income. The effective tax rate was high at approximately 54.7%, indicating that operating improvements have not been sufficiently reflected in net income; this is an important consideration in assessing earnings quality.

Earnings Forecast and Guidance

The full-year company forecast is revenue of ¥131.20B (-10.2% YoY), operating income of ¥3.50B (-15.4%), and ordinary income of ¥2.80B (+27.0%). The Q3 cumulative progress rate for revenue was 74.3%, close to the standard 75%, while operating income progress was 58.9%, below the standard level, requiring approximately ¥1.38B in additional operating income in Q4. Ordinary income progress was 67.4%, while progress toward profit attributable to owners of the parent was 49.8%; achieving the full-year net income plan of ¥1.80B will require profit of approximately ¥0.90B to be recorded in Q4. Achievement of the full-year plan will depend on the sustainability of margin improvements in the Resin Processing Products Business, a recovery in the profitability of the Chemicals Business, and trends in the effective tax rate.

Shareholder Returns

The Q2 dividend was ¥57.50 per share, and the full-year company forecast for the annual dividend is ¥115.00. Based on forecast full-year net income of ¥1.80B and average shares outstanding during the period of 14.335M shares, the payout ratio is estimated at approximately 91.6%, above the generally regarded sustainability benchmark of 60%. Cumulative Q3 profit attributable to owners of the parent was only ¥0.896B and, based solely on cumulative profit at this point, does not cover the planned annual dividend total of approximately ¥1.65B. Maintaining the annual dividend of ¥115 depends on generating profit as planned in Q4, while the delay in operating income progress and the high effective tax rate are points to note regarding the securing of funds for dividends.

Risk Factors

1. Deterioration in the profitability of the Chemicals Business: Segment profit declined 22.4% YoY, while the profit margin fell by approximately 137bp from 7.5% to 6.2%. Changes in raw material prices, supply and demand trends, and pricing power may lead to a decline in the profit contribution of this high-margin business.

2. Reliance on short-term funding and declining interest coverage: Short-term borrowings accounted for ¥15.55B, or 86.5% of interest-bearing debt of ¥17.98B, while interest coverage against interest expenses of ¥0.55B was 3.76x, below the generally regarded safety level of 5x. Rising interest rates or changes in refinancing terms could increase financial expenses.

3. Risk of failure to achieve the full-year plan and vulnerability of dividend funding: Operating income progress of 58.9% and net income progress of 49.8% were both below standard progress levels, requiring a substantial buildup of profit in Q4. With an estimated payout ratio of approximately 91.6%, dividend capacity could decline rapidly if the plan is not achieved.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the operating margin and net profit margin were substantially below the industry median, placing profitability at a low level within the industry.

Growth and Capital Efficiency

The revenue growth rate was also substantially below the industry median, indicating that top-line growth is lagging within the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The increase in operating income despite declining revenue was primarily attributable to the improvement in the segment profit margin of the Resin Processing Products Business from 1.9% to 3.1%, confirming an improvement in the earnings structure accompanied by fixed-cost reductions. The sustainability of this improvement will be the focus going forward.

2. The decline in the Chemicals Business profit margin (7.5%→6.2%) indicates deteriorating profitability in a relatively high-margin business. The widening variation among businesses behind the improvement in consolidated earnings should be noted when assessing earnings quality.

3. The combination of delayed progress toward the full-year operating income and net income plans and the high forecast payout ratio of approximately 91.6% indicates that profit generation in Q4 will be directly linked to the sustainability of shareholder returns.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥3,650–¥3,850 at ±1% for the cost of equity, and ¥3,724–¥3,763 at ±0.1 for ω.

Notes:

• Net income is substantially compressed relative to operating income due to tax burden, acquisition-related expenses, non-controlling interests, and other factors (net income ÷ operating income 51%). This value reflects that compression at face value; if these factors are temporary, underlying value may be higher than this.
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end 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 / This is a mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market stock price or a recommendation of any specific investment action, and does not predict 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 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, and you should consult a professional as necessary.

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