Carlit Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

The key point of this earnings report is that profit declined substantially due to higher SG&A expenses and the impact of loss-making segments, despite revenue remaining at the previous year's level. Revenue was flat at ¥86.5B (YoY ±0.0%), while Operating Income fell significantly to ¥2.5B (YoY -42.7%), Ordinary Income to ¥3.9B (YoY -33.7%), and Net Income attributable to owners of the parent to ¥0.7B (YoY -77.3%). Although the gross margin improved to 22.9% from the previous year, SG&A expenses increased +17.9% from ¥14.7B to ¥17.3B, causing operating leverage to work in reverse. In addition, the high effective tax rate of 84.6% widened the reduction from Ordinary Income to Net Income.

Factors Driving Performance Changes

【Revenue】Revenue was ¥86.5B, approximately in line with the same period of the previous year (±0.0%). By segment, Chemicals increased slightly to ¥54.1B (+1.9%, composition ratio 62.5%), and Metal Processing increased to ¥19.0B (+1.8%). In contrast, Engineering Services declined to ¥10.4B (-13.7%), while Bottling declined to ¥6.6B (-28.7%), resulting in a deterioration in the business mix.

【Profit and Loss】Operating Income declined to ¥2.5B (-42.7%), and the Operating Income margin deteriorated by 2.2pt to 2.9% from 5.1% in the previous year. The primary factors were the continuation of an Operating Loss of -¥3.7B in the Bottling Business and deteriorating profitability in Chemicals, where Operating Income fell to ¥2.0B (-53.1%, margin 3.8%). The weakness of these two segments offset growth in the highly profitable Engineering Services segment, which achieved a margin of 19.8% and profit growth of +29.7%. Ordinary Income was ¥3.9B (-33.7%), supported by Non-operating Income of ¥1.6B, including dividend income of ¥1.4B. However, Net Income was compressed to ¥0.7B (-77.3%) due to the effective tax rate of 84.6% (a sharp increase YoY). Extraordinary Income of ¥0.7B, including gains on the sale of fixed assets and other items, also supported Net Income, but its sustainability is low. As profit contracted substantially while revenue remained flat, the situation can be characterized not as higher revenue with lower profit, but as an actual profit decline under stagnant revenue.

Segment Analysis

Segment earnings showed a clear divergence between Engineering Services and Chemicals, Metal Processing, and Bottling. Engineering Services posted lower revenue of ¥10.4B (-13.7%), but Operating Income increased to ¥2.0B (+29.7%), maintaining the highest margin in the Company at 19.8% and becoming the largest profit-contributing segment. Chemicals generated revenue of ¥54.1B (+1.9%) and had the largest composition ratio, but profitability deteriorated significantly, with Operating Income declining to ¥2.0B (-53.1%) and the margin falling to 3.8%. Metal Processing remained nearly in line with the previous year, with revenue of ¥19.0B (+1.8%), Operating Income of ¥1.8B (+2.3%), and a margin of 9.3%. Bottling continued to post a structural loss, with revenue of ¥6.6B (-28.7%) and an Operating Loss of -¥3.7B (margin -55.3%), making it the largest factor weighing on Company-wide profit.

Key Financial Indicators

【Profitability】The Operating Income margin was 2.9% (5.1% in the previous year), while the Net Profit margin was 0.8% (3.5% in the previous year); both deteriorated from the previous year. ROE remained extremely low at 0.2%. 【Cash Flow Quality】Dividend income of ¥1.4B included in Non-operating Income was equivalent to approximately 53% of Operating Income of ¥2.5B, serving as a supplementary source relative to business earnings. Extraordinary Income of ¥0.7B resulted from temporary factors such as gains on the sale of fixed assets and cannot be considered a sustainable component of Net Income. 【Investment Efficiency】Total assets were ¥575.3B, compared with Net Assets of ¥379.1B. The Equity Ratio declined somewhat to 65.9% from 69.0% in the previous year, but remained at a high level. BPS was ¥1,718.87 (¥1,774.98 in the previous year). 【Financial Soundness】Current assets were ¥209.4B, compared with Current Liabilities of ¥107.7B, indicating no significant concerns regarding short-term liquidity. Long-term borrowings increased to ¥30.9B, while short-term borrowings declined, indicating progress toward lengthening the maturity structure of borrowings.

Cash Flow Analysis

As no cash flow statement has been disclosed, cash trends are analyzed based on changes in the balance sheet. In terms of the borrowing structure, long-term borrowings increased substantially while short-term borrowings declined, suggesting greater stability in the maturity structure through longer-term financing. Cash and deposits were ¥39.9B, remaining approximately at the same level as the previous year's ¥39.9B. Meanwhile, accounts receivable and notes receivable were ¥88.8B, and inventories were ¥34.1B, both at high levels, potentially limiting cash generation from business activities. On the investment side, construction in progress increased to ¥31.7B, suggesting an expansion of the capital investment pipeline. Net Assets declined from ¥397.9B to ¥379.1B, likely reflecting an increase in treasury stock and changes in retained earnings.

Earnings Quality

The recurring earnings structure shows Non-operating Income of ¥1.6B, including dividend income of ¥1.4B, lifting Ordinary Income relative to Operating Income of ¥2.5B. Extraordinary Income of ¥0.7B resulted from gains on the sale of fixed assets and other temporary factors; although it contributed to Net Income, its sustainability is limited. The effective tax rate reached 84.6%, calculated as income taxes of ¥3.8B divided by Profit Before Tax of ¥4.5B, and rose substantially from the previous year. This was a major factor compressing Net Income from Ordinary Income of ¥3.9B to ¥0.7B. The divergence between Ordinary Income and Net Income is attributable largely to persistently high tax expenses rather than to the underlying business earnings themselves. The extent to which the tax burden normalizes from the next fiscal year onward will therefore be an important point to monitor when assessing earnings levels.

Earnings Forecast and Guidance

Progress against the Full-Year plan appears slow, primarily due to the low profit growth rate. Revenue was ¥86.5B in Q1, representing a progress rate of 23.3% against the Full-Year forecast of ¥372.0B (YoY +2.6%), which is broadly on track. In contrast, Operating Income had a progress rate of 8.0% against the Full-Year forecast of ¥32.0B (YoY -7.5%), while Ordinary Income had a progress rate of 11.7% against the Full-Year forecast of ¥33.0B (YoY -12.1%). Both were well below the standard quarterly progress rate of approximately 25%. Net Income also remained at a progress rate of only 2.3% against the Full-Year forecast of ¥30.0B. This pace of progress suggests that the plan may assume a reduction in losses in the Bottling Business and improved profitability in Chemicals during the second half of the fiscal year. Neither the earnings forecast nor the dividend forecast has been revised.

Shareholder Returns

The Company forecasts annual dividends of ¥42.00 based on its plan, implying a Payout Ratio of approximately 31.4% based on the Company’s planned EPS of ¥133.61. Detailed disclosure regarding the distinction between the interim and year-end dividends was not available as of this quarter, and the dividend forecast has not been revised. Meanwhile, treasury stock increased by approximately ¥1.0B from ¥525 million in the previous year to ¥1,524 million, indicating progress in share repurchases. The combination of dividends and share repurchases indicates an active shareholder-return policy. However, given the low Q1 Net Income progress rate of 2.3%, the balance between Full-Year profit levels and the funding available for shareholder returns should be monitored, including progress in subsequent quarters.

Risk Factors

1. Structural losses in the Bottling Business: The Operating Loss in Q1 was -¥3.7B (margin -55.3%). Although the loss narrowed from -¥4.7B in the same period of the previous year, a substantial loss continues and significantly pressures Company-wide Operating Income of ¥2.5B.

2. Deterioration in operating leverage due to higher SG&A expenses: SG&A expenses increased +17.9% to ¥17.3B from ¥14.7B in the previous year. With revenue flat (±0.0%), the cost increase directly compresses profit. The SG&A ratio rose to 20.0% from 16.9% in the previous year.

3. Persistently high effective tax rate: Income taxes of ¥3.8B represented an effective tax rate of 84.6% against Profit Before Tax of ¥4.5B, a substantial increase from the previous year. If this high level continues, there is a risk that the compression of Net Income relative to Ordinary Income will become structural.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Income margin and Net Profit margin are below the industry median, placing the Company’s profitability in the lower range of the industry.

※Source: Company aggregation

Key Points from the Earnings Report

1. The Operating Income margin deteriorated to 2.9% from 5.1% in the previous year despite flat revenue, and the inverse spread in which SG&A expense growth (+17.9%) substantially exceeded revenue growth (±0.0%) is an important point for monitoring the cost structure.

2. By segment, Engineering Services was the largest profit-contributing segment with a margin of 19.8%. The margin gap with Bottling (margin -55.3%) and Chemicals (margin 3.8%) has a significant impact on Company-wide profitability.

3. The impact of the 84.6% effective tax rate on Net Income was substantial. The divergence between Ordinary Income of ¥3.9B and Net Income of ¥0.7B makes it important to determine whether the tax burden is temporary when assessing future earnings levels.

Theoretical Stock Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market price or a recommendation to take any specific investment action.

Sensitivity: ¥1,605–¥1,698 at ±1% for the cost of equity, and ¥1,648–¥1,652 at ±0.1 for ω.

Notes:

• 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 relative to the Full-Year forecast.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value 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 release data. It does not recommend investment in any specific security. The industry benchmarks are reference information aggregated by the Company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, with consultation with a professional as necessary.

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