S.T.CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

Although the Company secured revenue growth in Q1, the results marked a significant deterioration in earnings quality, as the operating loss was recorded due to a higher cost ratio and increased SG&A expenses. Revenue was ¥111.55B (¥109.61B in the same period last year, YoY +1.8%), while operating income was ¥-0.47B (¥4.37B in the same period last year), resulting in a shift from profitability to an operating loss. Ordinary income remained at ¥1.12B (down 81.0% YoY). Profit attributable to owners of the parent for the quarter turned negative at ¥-0.13B (¥3.52B in the same period last year), partly because profit allocated to non-controlling interests (¥0.50B) exceeded consolidated net income (¥0.37B). Non-operating income, including dividend income of ¥0.91B, partially offset the operating loss, suggesting a structure in which the sources of earnings are skewed toward activities outside the core business.

Factors Affecting Business Performance

【Revenue】Revenue increased 1.8% YoY to ¥111.55B. As the Company operates as a single segment, the Household Daily Necessities Business, the breakdown of changes by business is not disclosed. However, the pace of revenue growth was more moderate than in the previous year, and details of the volume and price mix cannot be determined from the materials.

【Profit and Loss】Gross profit was ¥40.87B, and the gross margin was 36.6%, down -2.2pt from 38.8% in the previous year. SG&A expenses increased 8.3% YoY to ¥41.34B, expanding at a pace significantly exceeding revenue growth (+1.8%), resulting in negative operating leverage. Consequently, operating income declined into the red at ¥-0.47B (¥4.37B in the previous year), and the operating margin deteriorated significantly to -0.4% (4.0% in the previous year). Non-operating income of ¥1.65B, including dividend income of ¥0.91B, offset the operating loss in part, allowing the Company to secure ordinary income of ¥1.12B; however, this represented a substantial 81.0% decline YoY. Extraordinary losses were limited to a loss on disposal and sale of fixed assets of ¥0.03B, and their impact as a temporary factor was limited. After tax, ¥0.50B of profit was allocated to non-controlling interests, resulting in profit attributable to owners of the parent for the quarter of ¥-0.13B (¥3.52B in the previous year), turning negative. Overall, the Company recorded higher revenue but lower profit, with the decline in profitability at the operating level directly leading to the shift into a net loss.

Key Financial Indicators

【Profitability】The operating margin was -0.4%, deteriorating -4.4pt from 4.0% in the previous year, while the ordinary income margin was 1.0%, down -4.4pt from 5.4% in the previous year. The margin for profit attributable to owners of the parent for the quarter was -0.1%, deteriorating -3.3pt from 3.2% in the previous year. The decline in gross margin and increase in SG&A expenses weighed on profitability overall. 【Cash Quality】Inventories increased 19.2% to ¥71.29B from ¥59.82B in the previous year, while trade receivables decreased 16.6% to ¥61.22B, indicating that inventory accumulation had a negative effect on the quality of working capital. 【Investment Efficiency】ROE remained at 0.1% (based on consolidated net income and not annualized from quarterly results), while it was effectively in negative territory based on profit attributable to owners of the parent, representing a significant decline from the same period last year. 【Financial Soundness】The equity ratio (parent shareholders’ equity/total assets) rose +1.4pt to 74.5% from 73.1% in the previous year. With cash and deposits of ¥91.66B and only ¥3.90B in interest-bearing debt (short-term borrowings), the financial foundation remains robust.

Cash Flow Analysis

Although a cash flow statement is not disclosed, cash trends can be confirmed from changes in the balance sheet. Cash and deposits decreased 10.0% to ¥91.66B from ¥101.98B in the previous year, while inventories increased 19.2% to ¥71.29B from ¥59.82B, suggesting that inventory accumulation placed pressure on cash resources. Trade receivables decreased 16.6% to ¥61.22B from ¥73.41B in the previous year, contributing positively from a cash perspective. However, accounts payable also increased 39.4% to ¥31.50B from ¥22.59B, potentially absorbing part of the decline in cash through the use of extended payment terms. Investment securities increased 11.5% to ¥70.72B from ¥63.40B in the previous year, but this was primarily attributable to the recognition of an unrealized valuation gain on securities of +¥4.95B in OCI and differs in nature from an expansion of investment activities themselves. Short-term borrowings were ¥3.90B, nearly unchanged from ¥3.97B in the previous year, and there was no change in the number of treasury shares, indicating no significant movement in financing activities.

Quality of Earnings

Ordinary income of ¥1.12B was secured through the addition of non-operating income of ¥1.65B, including dividend income of ¥0.91B, to operating income of ¥-0.47B. Accordingly, earnings quality is not high, given that the sources of earnings depend on non-operating income rather than the core business. Extraordinary losses were minimal at ¥0.03B from the disposal and sale of fixed assets, and the impact of temporary factors was limited. After tax, ¥0.50B of profit was allocated to non-controlling interests against consolidated net income of ¥0.37B, resulting in profit attributable to owners of the parent for the quarter turning negative at ¥-0.13B. The significant gap between consolidated net income and profit attributable to owners of the parent warrants attention when evaluating the earnings structure. Comprehensive income was ¥5.16B, including ¥4.65B attributable to owners of the parent, representing a significant divergence from net income. The primary factor was the recognition of an unrealized valuation gain on securities of +¥4.95B arising from the fair-value measurement of investment securities, which was attributable to market conditions rather than business operations.

Earnings Forecast and Guidance

The full-year earnings forecasts are revenue of ¥520.0B (YoY +7.2%), operating income of ¥25.0B (YoY +25.8%), and ordinary income of ¥27.0B (YoY +11.7%). There has been no revision to either the earnings forecasts or the dividend forecast. Revenue progress toward the full-year forecast was 111.55/520.0=21.5%, slightly below the quarterly linear allocation benchmark of 25%. Operating income was a loss of ¥-0.47B as of Q1, meaning that progress toward the full-year forecast of ¥25.0B started from a negative position. Achieving the full-year forecast assumes normalization of operating leverage through a recovery in gross margin and control of SG&A expense growth toward the second half of the fiscal year.

Shareholder Returns

The annual dividend forecast is ¥46.00, and the payout ratio calculated from forecast EPS of ¥86.25 is approximately 53.3% (¥46.00/¥86.25). There has been no revision to the dividend forecast. With cash and deposits of ¥91.66B against only ¥3.90B in interest-bearing debt (short-term borrowings), the Company has substantial financial capacity, and there is little concern regarding the availability of dividend funding in the short term. However, profit attributable to owners of the parent for Q1 was a loss of ¥-0.13B, meaning that a full-year payout ratio of approximately 53% requires a recovery in profit toward the second half of the fiscal year. The number of treasury shares was unchanged from the previous year, and there was no indication that share repurchases were conducted during Q1.

Risk Factors

1. Deterioration in profitability and negative operating leverage: The gross margin declined -2.2pt to 36.6% from 38.8% in the previous year, while SG&A expenses increased +8.3%, exceeding the revenue growth rate (+1.8%). As a result, the operating margin deteriorated to -0.4% (4.0% in the previous year). If this is not corrected toward the second half of the fiscal year, achievement of the full-year guidance may be affected.

2. Inventory accumulation risk: Inventories increased 19.2% to ¥71.29B from ¥59.82B in the previous year, accumulating at a pace significantly exceeding revenue growth (+1.8%). Sustained high inventory levels could lead to future discounting, inventory valuation losses, and lower capital efficiency.

3. Dependence of earnings composition on non-core activities and attribution structure: Ordinary income of ¥1.12B was supported by non-operating income of ¥1.65B, including dividend income of ¥0.91B, while profitability in the core business was negative. In addition, because profit attributable to non-controlling interests (¥0.50B) exceeded consolidated net income (¥0.37B), profit attributable to owners of the parent was negative at ¥-0.13B. The structure of profit attribution therefore also warrants attention.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Company’s operating margin and net profit margin were significantly below the industry median, placing its profitability at the lower end of the industry.

Growth and Capital Efficiency

The revenue growth rate was also below the industry median, with revenue growth remaining relatively moderate within the industry.

※Source: Compiled by the Company

Key Takeaways from the Earnings

1. The shift into an operating loss was caused by a -2.2pt decline in gross margin and an increase of +8.3% in SG&A expenses, resulting in negative operating leverage. Achieving the full-year guidance of ¥25.0B in operating income assumes a substantial improvement in profitability toward the second half of the fiscal year.

2. Profit attributable to owners of the parent for the quarter was negative at ¥-0.13B because profit allocated to non-controlling interests (¥0.50B) exceeded consolidated net income (¥0.37B). The profit attribution structure, including the gap between consolidated net income and profit attributable to owners of the parent, warrants attention.

3. The 19.2% YoY increase in inventories is an important point to monitor when assessing future gross margin trends and cash flow impacts.

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 five-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: 1,398円〜1,477円 at ±1% in the cost of equity, and 1,431円〜1,440円 at ±0.1 in ω.

Notes:

• 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).

（Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / 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 discretion and responsibility, after consulting professionals as necessary.

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