COTA (4923) FY2027 Q1 Earnings Report

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Executive Summary

In Q1 FY2027, the key point was that operating income turned from a loss to a profit as a result of SG&A expense control, while Revenue increased +4.2% year on year. Revenue was ¥1.66B (¥1.60B in the same period of the previous year, +4.2%), Operating Income was ¥0.01B (¥-0.05B in the previous year), Ordinary Income was ¥0.06B (¥-0.04B in the previous year), and Net Income was ¥0.04B (¥-0.03B in the previous year). In addition to higher Revenue, a 1.5% year-on-year decline in SG&A expenses contributed to the return to operating profitability; however, the Operating Margin remained at 0.5%, and the majority of Ordinary Income depended on non-operating income.

Factors Affecting Earnings

【Revenue】Revenue was ¥1.66B, an increase of +4.2% year on year. Although segment information was not disclosed, growth close to the full-year company forecast of +5.5% was secured, indicating that demand is expanding moderately.

【Profit and Loss】Gross profit was ¥1.19B (gross margin of 71.7%), approximately 50bp below the 72.2% recorded in the same period of the previous year, indicating no improvement in gross margin. Meanwhile, SG&A expenses were ¥1.18B, down 1.5% year on year, and the SG&A ratio declined by approximately 410bp year on year to 71.2%. As a result of this SG&A reduction, operating income improved from ¥-0.05B in the same period of the previous year to ¥0.01B, and the Operating Margin was 0.5% (compared with -3.1% in the previous year). Non-operating income of ¥0.05B (primarily interest income and dividend income) exceeded Operating Income and constituted a major component of Ordinary Income of ¥0.06B. Net Income was ¥0.04B, marking a return to profitability. In conclusion, the Company achieved higher Revenue and higher profit.

Key Financial Metrics

【Profitability】The Operating Margin of 0.5% and Net Profit Margin of 2.2% both improved from negative levels in the same period of the previous year, but remain low in absolute terms. The gross margin was 71.7%, slightly below 72.2% in the same period of the previous year, and the benefit of higher Revenue contributed to earnings improvement primarily through SG&A expense reduction.【Cash Flow Quality】Accounts receivable of ¥1.29B and inventories of ¥1.73B (including ¥1.73B of finished goods, ¥0.68B of raw materials, and ¥0.12B of work in process) suggest working capital retention and indicate room for improvement in inventory turnover.【Investment Efficiency】Annualized ROE was 1.3%, while total asset turnover remained low, indicating limited profit-generation capacity relative to invested capital, including ¥4.72B of property, plant and equipment.【Financial Soundness】With an Equity Ratio of 81.1%, current assets of ¥8.20B, and current liabilities of ¥1.39B, the financial foundation is extremely robust. Cash and deposits were ¥4.23B, down from ¥6.05B in the same period of the previous year, but liquidity remains high.

Cash Flow Analysis

Although the statement of cash flows was not disclosed, fund movements can be assessed based on changes in the balance sheet. Cash and deposits declined by ¥1.82B from ¥6.05B in the same period of the previous year to ¥4.23B, while accounts payable increased from ¥0.17B to ¥0.31B, suggesting that the increase in trade payables partially eased short-term funding pressure. Inventories have been increasing, mainly consisting of finished goods and raw materials, and the resulting funds tied up in inventory may have contributed to the decline in cash. The current ratio was calculated at 587.6% and the quick ratio at 463.9%, indicating that short-term payment capacity remains sufficient despite the decline in cash.

Quality of Earnings

Of the ¥0.06B in Ordinary Income for the current period, non-operating income of ¥0.05B accounted for the majority and exceeded Operating Income of ¥0.01B. Non-operating income primarily consisted of interest income of ¥0.01B and dividend income of ¥0.00B, and appears to represent recurring income backed by abundant cash, deposits, and financial assets; no temporary factors were identified. However, because Operating Income, which reflects the earning power of the core business, remains thin, fluctuations in financial income may amplify volatility in quarterly profit, a point that warrants attention. In addition, given the levels of accounts receivable and inventories, a certain time lag may arise before profit is converted into cash, making it meaningful to monitor the divergence between accounting profit and cash-generation capacity.

Earnings Forecast and Guidance

The full-year company forecast calls for Revenue of ¥10.13B (+5.5%), Operating Income of ¥1.83B (-8.3%), Ordinary Income of ¥1.93B (-6.5%), and Net Income of ¥1.29B (-9.9%), representing a plan for lower profit despite higher Revenue. Q1 progress rates were 16.4% for Revenue, 0.5% for Operating Income, 3.2% for Ordinary Income, and 2.9% for Net Income, all substantially below the simple average benchmark of 25%. In particular, progress toward the Operating Income target was extremely low, and achieving the full-year plan assumes a significant improvement in profitability from Q2 onward. As of the current quarter, no revision has been made to the earnings forecast.

Shareholder Returns

The company’s full-year dividend forecast is ¥20.0 per share, resulting in a Payout Ratio of 45.1% based on forecast EPS of ¥44.38. This is a Payout Ratio based solely on dividends and is not a Total Return Ratio that includes share repurchases. EPS as of Q1 was only ¥1.28, and achievement of the full-year dividend plan is predicated on meeting the full-year profit plan. There has been no revision to the dividend forecast during the current quarter. In addition, a 1.05-for-1 stock split of common shares is scheduled for April 1, 2026, and the impact of the split will need to be considered when comparing per-share indicators going forward.

Risk Factors

1. Deterioration in working capital efficiency: The retention of inventory and accounts receivable is suggested by inventories of ¥1.73B (primarily ¥1.73B of finished goods), creating risks of inventory write-downs and declining selling prices when demand fluctuates.

2. Low core business profitability: The Operating Margin remains at 0.5%, creating a structure in which cost increases for raw materials, labor, logistics, and other expenses can immediately affect operating income and loss.

3. Uncertainty in achieving the full-year profit plan: The progress rate for Operating Income is low at 0.5%, and achieving the full-year forecast of ¥1.83B requires a significant improvement in profitability from Q2 onward.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s profitability is substantially below the industry median, indicating significant room for improvement in margins compared with the manufacturing industry average.

Growth and Capital Efficiency

Although the Revenue growth rate is slightly below the industry median, it remains within the IQR.

Source: Compiled by the Company

Key Points from the Earnings Results

1. Higher Revenue of +4.2% and a 1.5% decline in SG&A expenses caused operating income and loss to turn from a loss in the same period of the previous year to a profit. In addition to the benefit of higher Revenue, fixed-cost control was the primary driver of earnings improvement.

2. The structure in which the Operating Margin is 0.5% and non-operating income accounts for the majority of Ordinary Income indicates that recovery in core business profitability will be the focus going forward.

3. With an Equity Ratio of 81.1% and a current ratio of 587.6%, the financial foundation is extremely robust, providing a substantial financial buffer against low profitability.

Theoretical Share Price (Reference Value)

Sensitivity: ¥409–¥433 at ±1% for the cost of equity, and ¥420–¥422 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing gap relative to the full-year forecast).
• As 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: 2026-08 / Mechanically calculated values based solely on publicly disclosed data; these are not forecasts of market prices or recommendations of specific investment actions, and do 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 securities. 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 professionals as necessary.

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