MORIROKU COMPANY (4249) FY2027 Q1 Earnings Report

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Executive Summary

Revenue and profit increased, primarily due to the consolidation of three newly included companies; however, the sharp expansion in net income is heavily dependent on a one-time gain on the bargain purchase arising from the acquisitions. Revenue was ¥48.19B (+42.5% YoY), Operating Income was ¥2.30B (+113.4%), Ordinary Income was ¥2.30B (+153.6%), and Net Income was ¥3.64B (+581.3%). The increase in Operating Income was attributable to an improvement in the gross profit margin (19.4%, compared with 17.4% in the previous year); however, ¥2.17B of the ¥2.20B in extraordinary gains consisted of a gain on the bargain purchase. Accordingly, it would not be appropriate to evaluate the growth in net income as sustainable earnings power.

Factors Affecting Performance

【Revenue】Revenue increased 42.5% YoY to ¥48.19B. The primary factor was the consolidation of three newly included companies, including Moriroku ReNova, in the Resin Processing Products Business. Revenue in this business increased 50.2% YoY to ¥41.84B, driving overall growth. Revenue in the Chemicals Business grew modestly by 4.5% YoY to ¥6.61B.

【Profit and Loss】Operating Income improved 113.4% YoY to ¥2.30B, while the Operating Income margin improved to 4.8% from 3.2% in the previous year. The primary factor was an improvement in the gross profit margin (+205bp); however, SG&A expenses increased 47.1%, outpacing revenue growth, and the SG&A ratio edged up to 14.6% from 14.2% in the previous year. Ordinary Income was ¥2.30B, nearly the same level as Operating Income, while Net Income significantly exceeded expectations at ¥3.64B, primarily due to the ¥2.17B extraordinary gain on the bargain purchase. Although both revenue and profit increased, the growth in net income is heavily dependent on a temporary factor.

Segment Analysis

The Resin Processing Products Business generated Revenue of ¥41.84B (+50.2% YoY), Segment Profit of ¥2.04B (+65.2%), and a profit margin of 4.9% (4.4% in the previous year), serving as the core of consolidated revenue and profit. Assets increased by ¥49.87B from the end of the previous fiscal year due to the consolidation of three newly included companies, increasing the concentration of assets in this business. The Chemicals Business posted a modest 4.5% increase in Revenue to ¥6.61B, while Segment Profit improved significantly by 157.7% to ¥0.72B, and the profit margin rose to 11.0% from 4.5% in the previous year. Adjustments for head office expenses and other items were negative ¥0.47B, indicating a continuing adjustment burden from total segment profit of ¥2.76B to consolidated Operating Income of ¥2.30B.

Key Financial Indicators

【Profitability】The Operating Income margin of 4.8% and gross profit margin of 19.4% both improved from the previous year; however, the underlying business margin remains thin in absolute terms. The Net Income margin of 7.5% includes the impact of extraordinary gains, so operating-level indicators should be given greater weight.【Cash Flow Quality】Accounts receivable increased 27.7% YoY to ¥38.58B, expanding at a faster pace than revenue, while annualized DSO reached approximately 73 days. Work in process amounted to ¥9.28B, representing 43.1% of inventories, raising concerns about funds being tied up in the production process.【Investment Efficiency】Annualized ROE of 17.5% is a favorable level; however, it depends on net income that includes the gain on the bargain purchase and is therefore highly likely to decline on a normalized earnings basis. Total assets increased 41.4% YoY to ¥174.90B, requiring ongoing verification of asset efficiency.【Financial Soundness】The Equity Ratio declined modestly to 47.6% from 52.9% in the previous year due to increased financing accompanying the expansion of the consolidation scope, but remains at a sound level. Long-term borrowings surged 599.3% YoY to ¥15.50B, while short-term borrowings increased 42.4% to ¥21.49B, resulting in a change in the debt composition.

Cash Flow Analysis

Because figures from the statement of cash flows have not been disclosed, funding trends are assessed based on changes in the balance sheet. Cash and deposits increased 118.2% YoY to ¥34.66B, with on-hand liquidity being accumulated in parallel with an increase in borrowings (approximately ¥19.7B in total long-term and short-term borrowings). Meanwhile, accounts receivable increased 27.7% YoY to ¥38.58B, and work in process expanded to ¥9.28B, representing 43.1% of inventories, indicating that the expansion of working capital accompanying revenue growth could delay cash generation. Accounts payable also increased 29.1% to ¥23.99B, supporting a portion of working capital. Overall, the Company appears to have addressed funding needs associated with business expansion through increased borrowings and the accumulation of cash on hand.

Earnings Quality

Of the ¥4.43B in profit before tax for the current period, extraordinary gains of ¥2.20B—most of which comprised the ¥2.17B gain on the bargain purchase—made a substantial contribution, clearly demonstrating a qualitative difference compared with Ordinary Income of ¥2.30B. The gain on the bargain purchase arose in connection with the acquisition of three newly consolidated subsidiaries; however, the purchase price allocation had not been completed as of the end of the quarter, and the amount remains provisional. Non-operating income and expenses were nearly balanced, with non-operating income of ¥0.33B and non-operating expenses of ¥0.33B, limiting their impact on the recurring earnings structure. Comprehensive income was ¥4.95B, exceeding Net Income of ¥3.64B by ¥1.45B, reflecting increases in valuation differences on securities and foreign currency translation adjustments. From an accrual perspective, accounts receivable and work in process are increasing at a faster pace than earnings growth, potentially indicating a time lag between accounting profit and cash conversion.

Earnings Forecast and Guidance

Q1 progress against the full-year plan was 24.8% for Revenue (plan: ¥194.60B), 35.3% for Operating Income (plan: ¥6.50B), 41.0% for Ordinary Income (plan: ¥5.60B), and 64.8% for Net Income (plan: ¥5.40B). Progress for Operating Income and Ordinary Income is ahead of the simple quarterly benchmark of 25%; however, the high progress rate for Net Income is attributable to the gain on the bargain purchase and does not directly indicate the likelihood of achieving the full-year plan. Although the earnings forecast was revised during the quarter, the dividend forecast was not revised.

Shareholder Returns

The full-year dividend forecast is ¥125.00 per share, unchanged from the previous forecast. Based on the full-year EPS forecast of ¥376.97, the Payout Ratio is approximately 33.2%, below 60%, and no significant sustainability concerns are apparent. The annual total dividend amount calculated using the average number of shares outstanding during the period of 14.32 million shares is approximately ¥1.79B, which is also consistent with the full-year Net Income forecast of ¥5.40B. However, the gain on the bargain purchase that boosted Q1 Net Income cannot be expected to serve as a recurring source of dividends. Accordingly, the allocation of funds should continue to be monitored in light of actual progress toward the Operating Income target and the increase in borrowings.

Risk Factors

1. Acquisition integration risk: Assets increased by ¥49.87B as a result of the three newly consolidated companies in the Resin Processing Products Business. If the integration of production, procurement, and quality control does not proceed as planned, the expected benefits in terms of scale and profitability may not be realized.

2. High short-term debt ratio: The short-term debt ratio is 58.1%, and short-term borrowings have reached ¥21.49B, up 42.4% YoY. Changes in refinancing conditions or rising interest rates could increase funding costs and liquidity-related burdens.

3. Working capital expansion and lengthening collection period: Accounts receivable increased 27.7% YoY to ¥38.58B, and annualized DSO reached approximately 73 days. Work in process also represents 43.1% of inventories, raising concerns about funds being tied up in the production process and the risk of inventory obsolescence.

Industry Benchmark (Reference; Prepared by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Operating Income margin is below the industry median, while the Net Income margin is slightly above the median partly due to the impact of the temporary gain on the bargain purchase.

Growth and Capital Efficiency

The Revenue growth rate is outstanding within the industry, primarily due to the expansion in scale resulting from the newly consolidated companies.

※Source: Prepared by the Company

Key Takeaways from the Financial Results

1. Revenue and Operating Income expanded significantly as a result of the newly consolidated companies, with Q1 progress toward the full-year Operating Income plan at 35.3%, ahead of the standard 25% pace.

2. The increase in Net Income attributable to owners of the parent of ¥3.498B is heavily dependent on the ¥2.172B gain on the bargain purchase, for which the purchase price allocation has not been finalized. Operating Income and Ordinary Income should therefore be the primary focus when assessing the Company’s underlying earnings power.

3. Borrowings surged—long-term borrowings increased 599.3% and short-term borrowings increased 42.4%—while working capital, including accounts receivable and work in process, expanded in parallel. The trends in funding efficiency and debt composition will therefore be key areas of focus going forward.

Theoretical Share Price (Reference Value)

Sensitivity: ¥5,224–¥5,528 for ±1% in the cost of equity capital, and ¥5,358–¥5,382 for ±0.1 in ω.

Notes:

• Because progress of Net Income against the full-year forecast (65%) exceeds the standard level (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies that are ahead of forecast progress tend to exceed their forecasts; however, the adjustment may be excessive for businesses with strong seasonality).
• Because forecast ROE is below the cost of equity capital, 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 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 / Mechanically calculated value based solely on publicly disclosed data; this 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 an automatically generated earnings analysis document produced by AI analyzing 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 discretion and responsibility, after consulting a professional as necessary.

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