KANSAI PAINT CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

The current period was characterized by higher revenue but lower earnings, with cost increases absorbing revenue growth being the most important point. Revenue expanded to ¥157.85B (+9.1% year on year), while Operating Income declined to ¥10.49B (-14.3%), Ordinary Income to ¥13.65B (-5.1%), and Net Income attributable to owners of the parent to ¥6.48B (-23.6%). Although the gross margin improved to 32.3% from the previous year, the primary cause was an increase in the SG&A ratio to 25.7%, which put pressure on Operating Income.

Factors Affecting Performance

【Revenue】Revenue was ¥157.85B, representing a 9.1% year-on-year increase. By region, Africa (+19.6%), Europe (+12.6%), and India (+9.1%) drove growth, while Japan (+4.8%) and Asia (+2.1%) grew relatively slowly. The revenue composition was Japan 28.6%, India 25.6%, Europe 27.0%, Asia 11.2%, and Africa 8.7%, indicating a structure in which Japan and Europe account for more than half of revenue.

【Profit and Loss】Operating Income was ¥10.49B, a 14.3% year-on-year decline. The gross margin improved slightly to 32.3% (32.1% in the previous year), but the SG&A ratio increased by +2.0pt to 25.7% (23.7% in the previous year), causing the Operating Income margin to decline to 6.6%. Ordinary Income was ¥13.65B (-5.1%), with the decline being smaller than at the operating level, supported by equity-method income of ¥2.95B (¥1.49B in the previous year) and foreign exchange gains of ¥0.72B. Net Income was ¥6.48B (-23.6%), as an increase in income taxes and other taxes to ¥5.51B and net income attributable to non-controlling interests of ¥1.71B compressed bottom-line earnings. Extraordinary income and losses were minor, consisting of extraordinary income of ¥0.13B and extraordinary losses of ¥0.07B, with a limited impact on recurring earnings. Accordingly, the current period was one of higher revenue but lower earnings.

Segment Analysis

By segment, margin disparities between regions have widened. Japan recorded revenue of ¥45.16B (+4.8%) and Operating Income of ¥1.49B (-67.4%), with a profit margin of 3.3%, representing a substantial earnings decline and the largest drag on company-wide profit. Europe returned to earnings growth, with revenue of ¥42.69B (+12.6%) and Operating Income of ¥0.72B (+110.2%), although its profit margin remained low at 1.7%. Meanwhile, India was the largest profit-contributing segment, with revenue of ¥40.35B (+9.1%), Operating Income of ¥4.62B (+3.9%), and a profit margin of 11.5%. Asia (profit margin of 11.2%, Operating Income +27.3%) and Africa (profit margin of 9.4%, Operating Income +24.5%) also maintained high profitability. The two-tier structure continues, with emerging-market segments driving earnings while low profitability in Japan and Europe dilutes the company-wide Operating Income margin.

Key Financial Indicators

【Profitability】The Operating Income margin declined to 6.6% from the previous year, while the Net Income margin also deteriorated to approximately 4.1%. The gross margin improved slightly to 32.3% from 32.1% in the previous year, indicating some improvement in the cost structure; however, the increase in the SG&A ratio more than offset this improvement.【Cash Flow Quality】Accounts receivable increased to ¥141.23B (¥129.54B in the previous year), while inventories increased to ¥59.77B (¥56.00B in the previous year), highlighting the accumulation of receivables and inventory relative to revenue growth.【Investment Efficiency】ROE remained low at 2.2%. Given total assets of ¥845.37B and Net Income of ¥6.48B, there remains room to improve capital efficiency.【Financial Soundness】The Equity Ratio declined from the previous year to 45.0%, but remained at a high level. Cash and deposits stood at ¥90.16B, ensuring sufficient liquidity.

Cash Flow Analysis

As this document does not provide explicit data from the statement of cash flows, cash flow trends are analyzed based on balance sheet movements. Cash and deposits increased from the previous year to ¥90.16B, maintaining a liquidity buffer. On the other hand, accounts receivable and notes receivable were ¥141.23B, while inventories were ¥59.77B, both accumulating alongside revenue growth. The expansion of working capital may be constraining cash generation from operating activities. In addition, short-term bonds doubled from ¥29.97B to ¥59.95B, suggesting that funding and liquidity management through short-term financing has progressed. Accounts payable were ¥88.38B, representing only a modest increase from the previous year and growing relatively more slowly than accounts receivable and inventories.

Earnings Quality

Non-operating income was ¥5.44B, approximately 3.4% of revenue, consisting primarily of dividend income of ¥0.33B, foreign exchange gains of ¥0.72B, and equity-method income of ¥2.95B, thereby supplementing business-derived profitability. Extraordinary income and losses were minor, consisting of extraordinary income of ¥0.13B and extraordinary losses of ¥0.07B, with no temporary factors that materially distorted the current period’s recurring earnings level. Ordinary Income of ¥13.65B declined to Net Income attributable to owners of the parent of ¥6.48B, primarily due to the high tax burden from income taxes and other taxes of ¥5.51B and net income attributable to non-controlling interests of ¥1.71B. From an accrual perspective, accounts receivable and inventories have increased at a pace exceeding revenue growth, requiring monitoring of the risk of delayed cash conversion in the future. Comprehensive Income was ¥9.99B, exceeding consolidated Net Income of ¥0.82B, primarily due to a positive contribution of ¥1.43B from foreign currency translation adjustments.

Earnings Forecast and Guidance

Against the full-year plan, the Revenue progress rate was 25.1% (¥157.85B/¥630.00B), representing generally standard progress. Meanwhile, Operating Income was 19.1% (¥10.49B/¥55.00B) and Ordinary Income was 23.9% (¥13.65B/¥57.00B), indicating that earnings progress was somewhat slower than revenue progress. This appears to reflect the continued low profitability of Japan and Europe and the higher SG&A ratio. Growth in highly profitable regions and progress in cost management toward the second half of the fiscal year will be key to achieving the plan. During the current quarter, revisions were made to the earnings forecast and dividend forecast.

Shareholder Returns

The company’s full-year dividend forecast is ¥116, an increase from the previous year’s actual dividend of ¥55 (an annualized figure, not a comparison based on the interim period). The Payout Ratio against the full-year EPS forecast of ¥159.05 is approximately 72.9%, indicating a high level of shareholder returns compared with the historical Payout Ratio. As full-year Operating Income progress is somewhat slow at 19.1%, the degree of earnings achievement in the second half of the fiscal year should be monitored because it may affect the feasibility of the dividend plan. During the current quarter, a revision to the dividend forecast was announced.

Risk Factors

1. Deterioration in profitability of the Japan and Europe segments: Japan’s Operating Income declined sharply by 67.4% year on year to ¥1.49B, and its profit margin fell to 3.3%. Europe also remained at a low profit margin of 1.7%, with both regions putting downward pressure on the company-wide Operating Income margin.

2. Accumulation of working capital: Accounts receivable increased to ¥141.23B (¥129.54B in the previous year), while inventories increased to ¥59.77B (¥56.00B in the previous year), expanding at a pace exceeding revenue growth. Accounts payable grew relatively slowly, raising concerns about declining cash conversion efficiency.

3. Pressure on profitability from higher SG&A expenses: SG&A expenses increased to ¥40.57B (¥34.29B in the previous year), and the SG&A ratio rose to 25.7% (23.7% in the previous year). Cost increases exceeding the improvement in the gross margin are putting pressure on Operating Income, making cost management in the second half of the fiscal year a key issue.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

The company’s profitability indicators are below the industry median, with both its Operating Income margin and Net Income margin ranking in the lower tier among peers.

Growth and Capital Efficiency

The Revenue growth rate exceeds the industry median, positioning the company’s revenue growth pace relatively high among peers.

Source: Company compilation

Key Points from the Earnings Results

1. Despite higher revenue, both Operating Income and Net Income declined due to the increase in the SG&A ratio and the high tax burden, which are defining features of the current-period results. The gross margin improved by +21bp, providing some evidence of the effects of price revisions and mix improvement.

2. By region, India, Asia, and Africa are driving company-wide earnings with profit margins near double-digit levels, while Japan’s profit margin fell sharply to 3.3% and Europe continued to show low profitability at 1.7%. The two-tier nature of the regional earnings structure is clear.

3. Progress against the full-year plan was standard for Revenue at 25.1%, but Operating Income lagged at 19.1%. Growth in highly profitable regions and the execution of cost management in the second half of the fiscal year will be key points to monitor in assessing plan achievement.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed 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: ¥2,026–¥2,140 at ±1% for the cost of equity, and ¥2,079–¥2,083 at ±0.1 for ω.

Notes:

• Net Income is substantially compressed relative to Operating Income due to the tax burden, acquisition-related expenses, and non-controlling interests, among other factors (Net Income ÷ Operating Income 51%). This value reflects that compression at face value; if these factors are temporary, underlying earnings power may be higher.
• 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, resulting in a time lag relative to 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 predict 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 release 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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