TAKASAGO INTERNATIONAL CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

Revenue increased by double digits in Q1, but Operating Income declined slightly, indicating that the expansion of the top line did not sufficiently translate into operating-stage profit. Revenue was ¥661.6B (+14.2% YoY), Operating Income was ¥38.7B (-2.0%), Ordinary Income was ¥42.4B (+5.6%), and Net Income attributable to owners of the parent was ¥32.5B (+14.6%). The decline in Operating Income was mainly attributable to the gross margin falling to 32.4%, down 127bp from the previous year, which was not fully offset by an improvement in the SG&A ratio to 26.5% (-31bp). Meanwhile, Ordinary Income and Net Income were boosted by the shift to foreign exchange gains, an increase in dividend income, and the recognition of extraordinary gains, resulting in earnings with contrasting trends between operating-stage profit and final profit.

Factors Affecting Business Performance

【Revenue】Revenue increased in all regions, with growth rates differing among segments: Europe +26.4%, Asia +15.9%, the Americas +12.9%, and Japan +2.6%. While expansion in Europe and Asia drove company-wide revenue growth (+14.2%), Japan, the core market, recorded relatively low growth.

【Profit and Loss】Operating Income declined to ¥38.7B (-2.0%). The gross margin fell to 32.4%, down 127bp from the previous year, creating downward pressure that exceeded the improvement in the SG&A ratio to 26.5% (-31bp). In non-operating income and expenses, the previous year's foreign exchange loss of ¥2.8B shifted to a foreign exchange gain of ¥1.4B in the current period, while dividend income increased to ¥2.9B (¥2.7B in the previous year). As a result, net non-operating income and expenses improved by +¥3.8B, and Ordinary Income increased by +5.6%. Net extraordinary income and expenses amounted to +¥1.5B (including a ¥0.6B gain on sales of investment securities and a ¥0.9B gain on sales of fixed assets), providing a temporary boost to final profit. Net Income attributable to owners of the parent was ¥32.5B (+14.6%). The earnings structure was one of higher revenue but lower profit on an Operating Income basis, and higher revenue and higher profit on an Ordinary Income and Net Income basis. Overall, the results can be characterized as higher revenue but lower operating profit, with the weakening profitability of the core business being offset by non-operating and extraordinary factors.

Segment Analysis

Asia led as a core source of company-wide profit, with Operating Income of ¥21.7B (+25.7%) and a profit margin of 14.6% (13.5% in the previous year), making it the only segment to achieve higher revenue, higher profit, and improved margins. Japan secured a profit increase exceeding its revenue growth rate, with revenue of ¥249.2B (+2.6%), Operating Income of ¥10.8B (+21.2%), and a profit margin of 4.3% (3.7% in the previous year). Europe recorded strong revenue growth to ¥139.3B (+26.4%), but Operating Income declined to ¥6.5B (-13.9%), and the profit margin fell to 4.7% (6.9% in the previous year), resulting in higher revenue but lower profit. In the Americas, Revenue was ¥170.9B (+12.9%), while Operating Income fell to ¥1.5B (-72.8%) and the profit margin deteriorated sharply to 0.9% (3.6% in the previous year), making this the primary factor weighing on the company-wide gross margin and Operating Income margin. By region, cases of growth without accompanying profitability were notable, and changes in the regional mix affected overall company profitability.

Key Financial Indicators

【Profitability】The Operating Income margin was 5.8%, down 96bp from 6.8% in the previous year, while the gross margin also declined by 127bp to 32.4% (33.6% in the previous year). In contrast, the SG&A ratio improved by 31bp to 26.5% (26.8% in the previous year). The Net Income margin, based on income attributable to owners of the parent, was 4.9%, nearly unchanged from 4.9% in the previous year, indicating that non-operating and extraordinary factors offset the decline in operating-stage profit.【Cash Flow Quality】Accounts receivable increased to ¥637.3B (+19.2%) and inventories to ¥365.4B (+4.3%), both accumulating at growth rates higher than or comparable to the revenue growth rate (+14.2%). The increase in accounts payable to ¥247.5B (+32.7%) partially offset the working capital burden.【Investment Efficiency】ROE was 2.2% (quarterly actual), equivalent to Net Income attributable to owners of the parent of ¥32.5B divided by equity (approximately ¥155.3B average during the period), with low asset turnover weighing on capital efficiency.【Financial Soundness】The Equity Ratio declined slightly to 56.0% (56.6% in the previous year) but remained at a high level. Short-term liquidity was favorable, with a current ratio of 179.4% and a quick ratio of 138.4% after deducting inventories. Interest-bearing debt was ¥639.7B (short-term borrowings ¥372.8B, current portion of long-term borrowings ¥80.0B, and long-term borrowings ¥186.9B), up from ¥599.4B in the previous year, with short-term borrowings accounting for 58.3%.

Cash Flow Analysis

As the cash flow statement has not been disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits declined 11.6% to ¥173.1B from ¥195.8B in the previous year, while accounts receivable increased to ¥637.3B (+19.2%) and inventories to ¥365.4B (+4.3%), indicating that working capital accumulated alongside revenue growth (+14.2%). Meanwhile, accounts payable increased substantially to ¥247.5B (+32.7%), with the use of trade payables partially absorbing the working capital burden. On the investment side, investment securities increased to ¥269.0B (¥237.5B in the previous year, +13.3%), while property, plant and equipment remained nearly flat at ¥841.3B (¥845.4B in the previous year), indicating limited large-scale investment activity. On the financing side, short-term borrowings increased to ¥372.8B (¥323.4B in the previous year, +15.3%), while long-term borrowings declined to ¥186.9B (¥196.0B in the previous year, -4.6%), indicating a slight increase in reliance on short-term funding.

Earnings Quality

Recurring earnings consisted of Operating Income of ¥38.7B and net non-operating income of ¥3.8B (non-operating income of ¥7.2B and non-operating expenses of ¥3.4B). The contribution of net extraordinary income and expenses (+¥1.5B) to Profit Before Tax of ¥43.9B was limited to approximately 3.4%, indicating limited dependence on temporary factors. Non-operating income mainly comprised dividend income of ¥2.9B and foreign exchange gains of ¥1.4B. The shift from the previous year's foreign exchange loss of ¥2.8B contributed to the increase in Ordinary Income, while also indicating sensitivity to market conditions and foreign exchange fluctuations. Consolidated Net Income, including income attributable to non-controlling interests, was ¥34.5B, compared with Net Income attributable to owners of the parent of ¥32.5B. The difference of ¥2.0B corresponds to income attributable to non-controlling interests. Comprehensive income was ¥68.3B (including ¥65.5B attributable to owners of the parent), substantially exceeding consolidated Net Income of ¥34.5B. The main factors behind this divergence were valuation differences on other securities of +¥20.9B and foreign currency translation adjustments of +¥12.5B. Although comprehensive income improved significantly from negative ¥6.6B in the same period of the previous year, this difference was largely driven by market factors, namely securities valuation and foreign exchange valuation, and should be viewed separately from the recurring earning power of the business.

Earnings Forecast and Guidance

Progress against the full-year plan in Q1 was 27.6% for Revenue (¥661.6B/¥2,400B), 35.2% for Operating Income (¥38.7B/¥110.0B), 36.9% for Ordinary Income (¥42.4B/¥115.0B), and 34.5% for Net Income attributable to owners of the parent (¥32.5B/¥94.0B). Compared with a simple seasonal allocation of Q1=25%, all profit indicators were progressing ahead of schedule, particularly Operating Income and Ordinary Income. No revisions to the earnings forecast or dividend forecast had been made as of the end of the quarter.

Shareholder Returns

The dividend at the end of Q2 of the fiscal year ending March 2026 is scheduled to be ¥24, calculated after taking into account the five-for-one stock split effective October 1, 2025. This is at the same level as the equivalent dividend of ¥24 for the same period of the previous year after adjusting for the split. The full-year dividend forecast is ¥52 (a year-on-year comparison is not disclosed because simple aggregation before and after the split is not possible), and the Payout Ratio based on the full-year EPS forecast of ¥96.43 is approximately 53.9%. As of Q1, Net Income attributable to owners of the parent was progressing ahead of the dividend plan at 34.5%, indicating that dividend coverage on an earnings basis was secured.

Risk Factors

1. Deterioration in profitability of the Americas segment: Against Revenue of ¥170.9B (+12.9%), Operating Income declined to ¥1.5B (-72.8%), and the profit margin fell to 0.9% (3.6% in the previous year). The deterioration in profitability despite revenue growth is weighing on the company-wide profit margin.

2. Accumulation of working capital: Accounts receivable of ¥637.3B (+19.2%) and inventories of ¥365.4B (+4.3%) remained at high levels relative to revenue growth (+14.2%). Although this was partially offset by the increase in accounts payable to ¥247.5B (+32.7%), the working capital burden if purchasing terms normalize warrants monitoring.

3. Reliance on short-term funding: Short-term borrowings of ¥372.8B accounted for 58.3% of total interest-bearing debt of ¥639.7B, while cash and deposits of ¥173.1B represented only 46.4% of short-term borrowings, indicating relatively high sensitivity in funding and cash management to changes in the interest-rate environment.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both profitability indicators were below the industry median, with the Operating Income margin and Net Income margin ranking in the lower range of the industry.

Growth and Capital Efficiency

The Revenue growth rate was substantially above the industry median and represented a high growth rate close to the upper bound of the IQR.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The decline in Operating Income (-2.0%) was mainly attributable to the decline in the gross margin (-127bp). The fact that the 14.2% increase in Revenue did not sufficiently translate into operating-stage profit growth is an important point when evaluating the quality of the earnings structure.

2. The increases in Ordinary Income and Net Income attributable to owners of the parent were largely driven by non-operating factors, such as the shift to foreign exchange gains and the increase in dividend income, as well as the recognition of extraordinary gains. These are separate from an improvement in the earning power of the core business.

3. Progress against the full-year plan was 35.2% for Operating Income and 34.5% for Net Income attributable to owners of the parent, both progressing ahead of the seasonal allocation benchmark of 25%. Profitability trends in the Americas segment and changes in working capital will be factors influencing future progress.

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). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥1,445–¥1,527 at ±1% for the cost of equity, and ¥1,480–¥1,488 at ±0.1 for ω.

Notes:

• As 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 at a somewhat high level.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not 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 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, and after consulting a professional as necessary.

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