Milbon Co.,Ltd. FY2026 Q2 Earnings Report

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Executive Summary

In addition to higher revenue and earnings, net income increased substantially year on year, making this a quarter in which improved profit margins drove performance. Revenue was ¥26.88B (+8.3% YoY), Operating Income was ¥3.35B (+72.7%), Ordinary Income was ¥3.50B (+88.8%), and Net Income was ¥2.42B (+476.5%, recovering from ¥0.42B in the previous year). In addition to revenue growth, operating leverage resulting from improved gross margins and controlled growth in SG&A expenses, together with the reduction of extraordinary losses recorded in the previous year, led to a sharp increase in net income.

Factors Affecting Performance

【Revenue】Revenue was ¥26.88B, representing an 8.3% year-on-year increase. The Company operates as a single-segment business engaged in the manufacture and sale of cosmetics, and the recovery in volumes, together with an improved product mix toward higher-value-added products, appears to have contributed. The gross margin improved to 63.8% from the previous year, indicating qualitative growth in both pricing and product mix.

【Profit and Loss】Operating Income was ¥3.35B (+72.7% YoY), and the Operating Income margin was 12.5%, as operating leverage took effect through the suppression of the SG&A expense ratio at a pace exceeding revenue growth. Ordinary Income was ¥3.50B (+88.8%), with non-operating income of ¥0.15B, including interest and dividend income and foreign exchange gains, making a modest contribution. Extraordinary losses of ¥0.13B, including impairment losses of ¥0.13B, were temporary factors, and their impact on net income was limited (equivalent to approximately 5% of net income). Net Income was ¥2.42B (+476.5% YoY), clearly demonstrating the pattern of higher revenue and earnings.

Segment Analysis

The Group operates as a single segment engaged in the manufacture and sale of cosmetics and does not disclose information by segment.

Key Financial Indicators

【Profitability】The Operating Income margin improved significantly from the previous year to 12.5%, while the Net Income margin improved to 9.0% (1.7% in the previous year). ROE was 4.8%; under a DuPont decomposition, Net Income margin of 9.0% × total asset turnover of 0.45 × financial leverage of 1.19x indicates that the improvement in the Net Income margin was the primary factor, while total asset turnover lacked momentum due to the accumulation of inventories and accounts receivable. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥3.07B, or 1.27 times Net Income of ¥2.42B, indicating favorable cash conversion; however, OCF/EBITDA remained at a low level, and the increase in inventories constrained asset efficiency. 【Investment Efficiency】Capital expenditures were ¥0.81B, below depreciation and amortization of ¥1.19B, indicating conservative capital allocation centered on replacement investment. 【Financial Soundness】The Equity Ratio was extremely high at 83.9% (84.9% in the previous year). With current assets of ¥30.82B against current liabilities of ¥8.53B, there are no concerns regarding financial safety.

Cash Flow Analysis

Operating Cash Flow was ¥3.07B, a substantial 109.7% increase year on year, demonstrating cash generation exceeding Net Income of ¥2.42B. In terms of working capital, inventories were a cash outflow factor of ¥1.44B, while the collection of trade receivables (+¥0.41B) and an increase in trade payables (+¥0.53B) contributed to cash inflows. Investing Cash Flow was an outflow of ¥0.89B, primarily attributable to capital expenditures of ¥0.81B, representing a conservative level below depreciation and amortization of ¥1.19B. Financing Cash Flow was an outflow of ¥1.52B, primarily due to dividend payments. As a result, free cash flow was ¥2.19B. Although investment and dividends were broadly covered by OCF using internally generated funds, the decline in cash efficiency caused by inventory accumulation is an area that warrants close monitoring going forward.

Earnings Quality

The current period’s earnings were primarily generated by core operations, while non-operating income was modest at ¥0.15B (0.6% of revenue), consisting mainly of dividend income and foreign exchange gains. Extraordinary losses were ¥0.13B, including impairment losses of ¥0.13B, and remained a temporary factor with a limited impact on Net Income. Against Ordinary Income of ¥3.50B (Profit Before Tax of ¥3.37B), Net Income was ¥2.42B; the difference was primarily attributable to corporate income taxes and other taxes of ¥0.96B, with no abnormal divergence observed. The fact that OCF exceeded Net Income is favorable from a cash conversion perspective; however, the increase in inventories reduced OCF, and inventory valuation trends should be monitored from an accrual perspective.

Earnings Forecast and Guidance

Progress against the full-year plan was 48.4% for Revenue (¥26.88B/¥55.60B), 51.1% for Operating Income (¥3.35B/¥6.55B), and 51.9% for Ordinary Income (¥3.50B/¥6.74B), slightly above the standard first-half progress level of 50%. Taking into account that the earnings forecast was revised during the current quarter, the effects of first-half operating leverage became apparent ahead of schedule, and visibility against the Company’s full-year plan is favorable. There was no revision to the dividend forecast, and full-year DPS of ¥88 remains unchanged.

Shareholder Returns

The interim dividend was ¥40 per share, unchanged from the previous year (¥40). The Payout Ratio based on interim Net Income was 53.5%, while the Payout Ratio calculated from the full-year forecast EPS of ¥144.68 and DPS of ¥88 is approximately 61%. There was no mention of share repurchases, and the policy of focusing shareholder returns on dividends remains in place. Dividend payments of ¥1.52B were covered by free cash flow of ¥2.19B, and there are limited concerns regarding the sustainability of dividends funded by internal cash.

Risk Factors

1. Declining working capital efficiency: The increase in inventories (including ¥9.06B of finished products) has been a factor reducing OCF. If the prolonged inventory turnover continues, it may lead to a decline in cash generation capacity.

2. Salon channel demand and product mix fluctuations: Because the cosmetics business has a single-segment structure, fluctuations in salon demand and changes in the mix of higher-value-added products can directly affect the gross margin, currently 63.8%.

3. Potential recurrence of extraordinary losses and impairment: An impairment loss of ¥0.13B was incurred during the current period, and similar temporary losses could recur depending on the profitability assessment of fixed assets.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s profitability exceeds the industry median and places it in the upper group within the manufacturing industry.

Growth and Capital Efficiency

The Revenue growth rate is slightly below the industry median but remains within the IQR.

※Source: Company analysis

Key Points from the Earnings Results

1. Structural improvement in profit margins: The Operating Income margin expanded from approximately 7.2% in the previous year to 12.5%, supported by both gross margin improvement and SG&A discipline. Determining whether this improvement resulted from temporary cost controls or a structural enhancement in profitability will depend on confirming its sustainability in future quarters.

2. Smooth full-year progress: Revenue and earnings both achieved progress rates exceeding 50% as of the first half, and visibility against the Company’s plan is favorable. However, the revision to the earnings forecast during the current quarter suggests changes in the assumptions for the second half.

3. Working capital efficiency challenge: OCF tends to be constrained relative to the growth in Net Income due to the increase in inventories. Improvement in asset turnover (0.45x) will be key to enhancing capital efficiency (ROE of 4.8%).

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,538–¥1,625 at ±1% for the cost of equity, and ¥1,580–¥1,581 at ±0.1 for ω.

Notes:

• 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 / Mechanically calculated using only publicly disclosed data; this does not constitute 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 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 discretion and responsibility, after consulting with a professional as necessary.

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