Chugoku Marine Paints,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

In addition to revenue and profit growth, the most important point this quarter was that the profit growth rate significantly exceeded the revenue growth rate. Revenue was ¥378.0B (+16.0% YoY), Operating Income was ¥56.8B (+44.8%), Ordinary Income was ¥61.8B (+55.7%), and Net Income attributable to owners of the parent was ¥38.1B (+50.7%). The Operating Margin improved to 15.0%, from 12.0% in the same period of the previous year, an improvement of approximately 3.0pt. Growth in highly profitable regions such as Japan and Southeast Asia, together with improved cost ratios, drove the increase in profit.

Factors Affecting Business Performance

【Revenue】Revenue of ¥378.0B (+16.0%) was driven by increased revenue in Japan at ¥156.1B (41.3% of total, +22.7%), China at ¥85.6B (22.6%, +20.7%), and Southeast Asia at ¥67.4B (17.8%, +17.2%). Meanwhile, revenue declined in Europe and the Americas at ¥81.7B (21.6%, -3.0%) and South Korea at ¥44.3B (11.7%, -11.7%), respectively, resulting in differences in momentum across regions.

【Profit and Loss】The gross margin improved to 35.7%, from 33.5% in the same period of the previous year, an improvement of +2.2pt. The SG&A ratio also declined to 20.6%, from 21.4%, a decrease of -0.8pt, resulting in an increase in the Operating Margin to 15.0%, compared with 12.0% in the same period of the previous year. Segment profit increased substantially in Japan to ¥24.1B (+260.1%) and Southeast Asia to ¥11.8B (+37.7%), while Europe and the Americas declined sharply to ¥0.7B (-86.2%), with the profit margin falling to 0.8%. Non-operating income and expenses resulted in a net surplus of ¥4.9B, due to dividend income of ¥2.2B, foreign exchange gains of ¥1.9B, and other factors, supporting the +55.7% growth in Ordinary Income. Extraordinary income and expenses were effectively zero in both the previous year and the current period. After deducting income taxes and other taxes of ¥17.5B (effective tax rate: 28.3%) from Ordinary Income, consolidated Net Income was ¥44.3B. After deducting ¥6.1B attributable to non-controlling interests, Net Income attributable to owners of the parent was ¥38.1B (+50.7%). Overall, the results were characterized by revenue and profit growth, with a structural improvement in profitability driven by better pricing and product mix.

Segment Analysis

Japan was the core contributor to segment profit, with Operating Income of ¥24.1B (the largest share among segments, +260.1%) and a profit margin of 15.4%, representing the most pronounced improvement in profitability. Southeast Asia maintained the highest profitability across the Company, with Operating Income of ¥11.8B (+37.7%) and a profit margin of 17.5%. China posted Operating Income of ¥7.1B (+2.3%) and a profit margin of 8.3%; profit growth was modest relative to revenue growth. South Korea secured nearly flat results, with Operating Income of ¥6.6B (+0.8%) despite a revenue decline of -11.7%. Europe and the Americas deteriorated significantly, with Operating Income of ¥0.7B (-86.2%) and a profit margin of 0.8%, standing out as a challenge in the Company’s regional mix. While expansion of the highly profitable Japan and Southeast Asia segments is raising the Company-wide profit margin, improving profitability in Europe and the Americas will be a key focus going forward.

Key Financial Indicators

【Profitability】The Operating Margin improved to 15.0%, from 12.0% in the same period of the previous year, while the gross margin also increased to 35.7%, from 33.5%. Net Income attributable to owners of the parent as a percentage of revenue was 10.1%, compared with 7.8% in the previous year, indicating that the profit structure improved more than revenue growth. 【Cash Flow Quality】Operating Cash Flow (OCF) was -¥29.2B, significantly below Net Income attributable to owners of the parent of ¥38.1B, indicating a delay in cash conversion of earnings. 【Investment Efficiency】ROE was 4.3% (based on consolidated Net Income), EPS was ¥76.89 (¥51.06 in the previous year, +50.6%), and BPS was ¥1,950.49 (¥1,924.33 in the previous year). 【Financial Soundness】The Equity Ratio was 60.4%, nearly unchanged from 60.6% in the previous year and remaining at a high level, while the current ratio of 271.4% indicated substantial short-term payment capacity.

Cash Flow Analysis

Operating Cash Flow (OCF) deteriorated to -¥29.2B, from -¥5.1B in the same period of the previous year. The primary factors were increases in working capital, including a +¥52.0B increase in trade receivables and a +¥31.6B increase in inventories. These increases were not fully offset by a +¥19.5B increase in trade payables and income taxes and other taxes paid of ¥23.5B. Investing Cash Flow was -¥3.5B, compared with +¥11.5B in the previous year, while Financing Cash Flow was -¥41.1B, compared with -¥47.8B, due mainly to dividend payments and other factors. Consequently, free cash flow (Operating Cash Flow + Investing Cash Flow) was -¥32.8B. As a result, cash and cash equivalents at the end of the period declined by ¥68.3B from the beginning of the period to ¥312.3B. However, this remained above short-term borrowings of ¥132.1B, and no significant concern has arisen regarding funding in the near term. The fact that increases in revenue and inventories are placing pressure on cash ahead of profit growth indicates that normalization of working capital turnover will be a key focus going forward.

Quality of Earnings

Extraordinary income and expenses were effectively zero in both the previous year and the current period, and growth in Operating Income and Ordinary Income was attributable to recurring business activities. Of non-operating income of ¥6.4B (1.7% of revenue), dividend income of ¥2.2B is highly recurring, whereas foreign exchange gains of ¥1.9B are highly market-dependent and non-recurring in nature. After deducting income taxes and other taxes of ¥17.5B (effective tax rate: 28.3%) from Ordinary Income of ¥61.8B, consolidated Net Income was ¥44.3B. After deducting ¥6.1B attributable to non-controlling interests, Net Income attributable to owners of the parent was ¥38.1B. Comprehensive income was ¥48.9B, including ¥44.2B attributable to owners of the parent, exceeding Net Income attributable to owners of the parent due to factors including foreign currency translation adjustments of +¥6.1B. Meanwhile, the substantial gap between OCF of -¥29.2B and accrual-based earnings, together with the increase in accruals resulting from higher trade receivables and inventories, requires monitoring from the perspective of earnings quality.

Earnings Forecast and Guidance

Progress against the full-year forecast was 23.6% for revenue (¥378.0B/¥1,600B), 32.5% for Operating Income (¥56.8B/¥175.0B), 34.3% for Ordinary Income (¥61.8B/¥180.0B), and 34.7% for Net Income (¥38.1B/¥110.0B). While revenue is progressing broadly in line with the plan, profit progress is significantly above the standard quarterly level of approximately 25%. The full-year plan calls for modest YoY growth of +0.4% in Operating Income and +0.9% in Ordinary Income, whereas Q1 achieved substantial YoY growth of +44.8% and +55.7%, respectively. This may indicate that the initial full-year plan was conservatively set or incorporates an anticipated slowdown in the second half. No revisions to the earnings forecast or dividend forecast were made during the current quarter.

Shareholder Returns

The Company’s full-year dividend forecast is ¥100 per share, implying a Payout Ratio of approximately 45.1% against forecast EPS of ¥221.71. Compared with the dividend paid in the same period of the previous year of ¥48 per share, the forecast suggests an increase in dividends. No share repurchases were identified, so shareholder returns will primarily be evaluated based on the Payout Ratio. Free cash flow during Q1 was -¥32.8B, indicating that dividends and investments could not be fully funded through internal funds; however, cash and deposits of ¥348.2B provide support through ample liquidity.

Risk Factors

1. Deterioration in profitability of the Europe and Americas segment: Against revenue of ¥81.7B (-3.0%), Operating Income declined sharply to ¥0.7B (-86.2%), and the profit margin fell to 0.8%. This is a factor diluting the Company-wide profit margin from the perspective of regional mix.

2. Decline in cash-generating capacity due to increased working capital: Trade receivables increased by +¥52.0B and inventories by +¥31.6B, resulting in OCF of -¥29.2B and a substantial gap relative to Net Income attributable to owners of the parent of ¥38.1B. Optimization of collections and inventory levels will be a key focus going forward.

3. Dependence on short-term funding: Of interest-bearing debt of ¥159.4B, short-term borrowings account for the majority at ¥132.1B. Although cash and deposits of ¥348.2B exceed this amount and near-term liquidity risk is limited, monitoring of refinancing trends is necessary.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Growth and Capital Efficiency

※Source: Compiled by the Company

Key Takeaways from the Results

1. The Operating Margin improved from 12.0% in the same period of the previous year to 15.0%, while the gross margin also increased by +2.2pt. This suggests a structural change in the profit profile resulting from price revisions and improved product mix; its sustainability will be a key point to verify in subsequent quarters.

2. Progress rates for Operating Income and Net Income are around 34% against the full-year plan, exceeding the revenue progress rate of 23.6%. Compared with the full-year Operating Income plan of YoY+0.4%, first-half growth is substantial, and changes in the pace of progress from the second half onward will be closely watched.

3. OCF was -¥29.2B against Net Income attributable to owners of the parent of ¥38.1B, as increases in working capital, including trade receivables and inventories, delayed cash conversion of earnings. The extent to which this gap is resolved will be an important factor in evaluating earnings quality.

Theoretical Share 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 share price or a recommendation of any specific investment action.

Sensitivity: ¥2,035–¥2,153 at Cost of Equity ±1%; ¥2,089–¥2,098 at ω±0.1.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference relative to the full-year forecast).

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not forecast 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 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 responsibility, after consulting with a professional as necessary.

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