SHINTO PAINT (4615) FY2026 Q3 Earnings Report

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Executive Summary

Although cumulative results for Q3 recorded increases in both revenue and operating income, the decline in ordinary income and the shift to a net loss attributable to owners of the parent are the key points of focus. Revenue was ¥166.8B (¥161.1B in the same period of the previous year, +3.5%), while operating income was ¥2.9B (¥2.8B in the previous year, +2.2%), securing modest profit growth. Meanwhile, ordinary income was ¥3.0B (¥4.9B in the previous year, -38.7%), and consolidated net income was ¥1.1B (¥3.9B in the previous year). The primary reasons for the decline in ordinary income were the sharp increase in commission fees, an operating expense, from ¥0.03B to ¥1.8B, as well as the absence of the ¥0.7B gain on sales of investment securities recorded in the previous year. In addition, profit attributable to non-controlling interests of ¥1.3B exceeded consolidated net income, resulting in a ¥0.2B loss in profit or loss attributable to owners of the parent.

Factors Affecting Results

【Revenue】Revenue increased 3.5% year on year to ¥166.8B. Cost of sales increased 4.7% year on year to ¥138.6B, expanding at a faster pace than revenue. As a result, gross profit declined to ¥2.82B (¥2.88B in the previous year), and the gross margin decreased by approximately 1pt to 16.9% from 17.9% in the previous year. This suggests that price pass-through may not have kept pace with increases in raw material and energy costs.

【Profit and Loss】Although gross profit contracted, SG&A expenses decreased 2.4% year on year to ¥2.53B. Cost controls offset the deterioration in profitability, enabling operating income to increase modestly to ¥2.9B (+2.2%). However, at the non-operating level, commission fees increased sharply from ¥0.03B to ¥1.8B, while the ¥0.7B gain on sales of investment securities recorded in the previous year did not recur in the current period. Consequently, ordinary income declined significantly to ¥3.0B (-38.7%). Income taxes and other taxes amounted to ¥1.8B against profit before tax of ¥2.9B, resulting in a high effective tax rate of 62.5%. Furthermore, because profit attributable to non-controlling interests of ¥1.3B accounted for most of consolidated net income of ¥1.1B, the amount attributable to owners of the parent was a net loss of ¥0.2B. In summary, the increase in revenue and operating income at the operating level was offset by non-operating items, taxes, and non-controlling interests, making the results substantively closer to an increase in revenue but a decline in profit.

Key Financial Indicators

【Profitability】The operating margin was 1.7%, virtually unchanged from 1.7% in the same period of the previous year, while the gross margin declined to 16.9% from 17.9%, indicating pressure on the cost structure. The consolidated net profit margin remained at 0.7%.【Cash Flow Quality】Operating receivables (notes and accounts receivable and electronically recorded monetary claims) have increased from the previous year, expanding at a faster pace than revenue. Accounts receivable increased significantly to ¥44.5B (¥39.4B in the previous year), while electronically recorded monetary claims increased to ¥22.4B (¥15.0B in the previous year).【Investment Efficiency】ROE (annualized) was low at 1.0%, and asset efficiency relative to total assets of ¥330.3B was also limited.【Financial Soundness】The equity ratio improved to 44.1% (42.5% in the previous year), while short-term borrowings of ¥50.7B accounted for most interest-bearing debt. Compared with cash and deposits of ¥29.7B, this indicates a high degree of dependence on short-term funding. Current assets of ¥131.6B versus current liabilities of ¥126.0B resulted in a current ratio of approximately 104%, only slightly above 1x.

Cash Flow Analysis

Although detailed disclosure of the statement of cash flows is not available, cash trends can be inferred from changes in the balance sheet. Cash and deposits increased to ¥29.7B from ¥27.2B in the previous year. Meanwhile, operating receivables (accounts receivable and electronically recorded monetary claims) increased substantially year on year in aggregate, suggesting that funds may have been tied up in operating receivables at a faster pace than revenue growth. Accounts payable and electronically recorded obligations also increased, indicating expansion in both purchasing- and sales-related receivables and payables. Short-term borrowings increased slightly to ¥50.7B (¥49.9B in the previous year), suggesting that a portion of operating funds is being financed through short-term borrowings.

Earnings Quality

The current period’s earnings structure was significantly affected by temporary factors. In the same period of the previous year, a ¥0.7B gain on sales of investment securities was recorded as extraordinary income; however, no corresponding extraordinary income was recorded in the current period, lowering the comparative levels of ordinary income and net income. In addition, the sharp increase in commission fees within non-operating expenses, from ¥0.03B to ¥1.8B, substantially pressured ordinary income as a factor separate from recurring operating business performance. A ¥0.1B loss on disposal of fixed assets was recorded as an extraordinary loss, but the amount was small. Income taxes and other taxes amounted to ¥1.8B against profit before tax of ¥2.9B, producing a high effective tax rate of 62.5%; the heavy tax burden was one of the primary factors driving profit attributable to owners of the parent into the red. In addition, because profit attributable to non-controlling interests of ¥1.3B accounted for most of consolidated net income, the fact that consolidated earning power is not sufficiently reflected in the portion attributable to shareholders of the parent warrants attention when evaluating earnings quality.

Earnings Forecast and Guidance

Against the full-year plan, revenue reached ¥166.8B on a forecast of ¥200.0B, representing progress of 83.4% and exceeding the standard 75% pace. Operating income reached ¥2.9B against a full-year forecast of ¥2.0B, representing progress of 143.0% and already exceeding the plan. Ordinary income, meanwhile, was at 86.6% of the full-year forecast of ¥3.5B. Profit attributable to owners of the parent was forecast at ¥1.0B for the full year, but cumulative results showed a ¥0.2B loss, implying a plan that anticipates substantial profit improvement in Q4. Despite operating income already exceeding the plan, profit attributable to owners of the parent has not reached the plan, indicating that trends in the tax burden and profit attributable to non-controlling interests will determine the achievability of full-year results. The dividend forecast is ¥0 per share.

Shareholder Returns

The Q2 dividend was ¥0 per share, and the full-year dividend forecast is also ¥0; no shareholder returns through dividends are currently planned. Because profit or loss attributable to owners of the parent was a cumulative net loss for the current period, the payout ratio cannot be evaluated because there is no profit available for calculation. Given the low operating margin, dependence on short-term borrowings, and limited liquidity headroom, the no-dividend policy can be viewed as prioritizing the retention of funds internally.

Risk Factors

1. Profitability vulnerability: The gross margin declined to 16.9% from 17.9% in the previous year, while the operating margin remained at a thin level of 1.7%. If increases in raw material and energy costs or delays in price pass-through continue, the operating profit or loss structure is susceptible to deterioration from even a slight cost overrun.

2. Dependence on short-term funding: Short-term borrowings of ¥50.7B account for most interest-bearing debt, and compared with cash and deposits of ¥29.7B, changes in refinancing conditions could affect cash management. The current ratio is approximately 104%, and the difference between current assets and current liabilities is small at ¥5.6B, indicating limited financial flexibility.

3. Volatility in non-operating income and expenses and the tax burden: Fluctuations in non-operating income and expenses, including the sharp increase in commission fees and the absence of gains on sales of investment securities, significantly affected ordinary income. The effective tax rate was also high at 62.5%, and given the large proportion of profit attributable to non-controlling interests, profit attributable to owners of the parent has high sensitivity to taxes and minority shareholder factors.

Industry Benchmark (For Reference; Compiled by the Company)

Key Points from the Financial Results

1. Revenue and operating income increased at the operating level, but ordinary income declined 38.7%, and profit or loss attributable to owners of the parent became a net loss. The primary factors were the sharp increase in non-operating expenses and the absence of extraordinary income, and a defining feature of the current results is that the improvement in operating profit or loss was not reflected in profit attributable to shareholders.

2. Operating income has already exceeded the full-year plan, with progress of 143.0%, but profit attributable to owners of the parent will require substantial improvement in Q4 to reach the plan. The achievability of full-year results depends on trends in the tax burden and profit attributable to non-controlling interests, making these developments key points to monitor in future results.

3. Dependence on short-term borrowings is high, and the current ratio remains only slightly above 1x. The fact that operating receivables are increasing faster than revenue is also an item requiring continuous monitoring from the perspective of funding efficiency.

Theoretical Share Price (Reference Value)

Sensitivity: ¥307–¥325 at ±1% for the cost of equity, and ¥312–¥318 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 50%). This value reflects that compression at face value; if these factors are temporary, normalized 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 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 / This is a mechanically calculated value based solely on publicly disclosed data and is not a forecast of the market share price or a recommendation of any specific investment action, nor does it predict or guarantee future share prices.)

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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. 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 professionals as necessary.

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