| Metric | This Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥336.6B | ¥326.1B | +3.2% |
| Operating Income / Operating Profit | ¥13.5B | ¥25.4B | -46.7% |
| Ordinary Income | ¥16.7B | ¥24.0B | -30.4% |
| Net Income / Net Profit | ¥10.4B | ¥16.2B | -36.1% |
| ROE | 0.5% | 0.8% | - |
FY2026 Q1 results: Revenue ¥336.6B (YoY +¥10.6B, +3.2%), Operating Income ¥13.5B (YoY -¥11.9B, -46.7%), Ordinary Income ¥16.7B (YoY -¥7.3B, -30.4%), Net Income ¥10.4B (YoY -¥5.9B, -36.1%). Revenue recorded a modest increase supported by both the Domestic Business and International Business, but Operating Income contracted nearly by half due to a significant rise in SG&A expenses (YoY +13.7%, +¥19.4B). Gross margin improved to 51.8% (YoY +0.6pp), while operating margin deteriorated to 4.0% (vs. 7.8% prior year, -3.8pp); the increase in SG&A ratio to 47.8% (from 43.4%, +4.4pp) was the main driver of the profitability decline. Progress against the full-year guidance (Revenue ¥1730.0B, Operating Income ¥125.0B) stands at about 19.5% for Revenue and about 10.8% for Operating Income, materially below the standard Q1 progress of 25% on Operating Income, implying a heavy back-end weighting to the plan.
[Revenue] Revenue ¥336.6B (YoY +3.2%) maintained an upward trend. By region: Japan ¥234.6B (prior year ¥228.9B, +2.5%), US ¥44.0B (prior year ¥48.3B, -8.9%), China ¥26.6B (prior year ¥19.9B, +33.7%), Southeast Asia ¥20.1B (prior year ¥20.4B, -1.5%), Other ¥11.2B (prior year ¥8.4B, +33.3%); growth in China and Other regions was notable. By segment: Domestic Business ¥244.4B (+3.8%), International Business ¥105.6B (+4.6%), Other ¥16.4B (+15.3%) — all segments achieved revenue growth. Gross margin improved to 51.8% (from 51.2%, +0.6pp), potentially reflecting price revisions and product mix. Note that the decline in US sales affects the composition of International Business.
[Profitability] Operating Income ¥13.5B (YoY -46.7%) declined sharply. Despite gross profit increasing to ¥174.4B (+4.6%), SG&A rose to ¥160.9B (+13.7%) at a pace well above revenue growth, pushing operating margin down to 4.0%. Domestic Business Operating Income was ¥16.8B (YoY -33.7%), margin deteriorated to 6.9%. International Business turned to an operating loss of ¥3.4B (margin -3.2%). Non-operating items improved to +¥3.2B (prior year -¥1.3B), aided by +¥1.4B in interest income and elimination of prior year foreign exchange losses (¥2.7B → ¥0.0B). Extraordinary items netted +¥0.7B (extraordinary gains ¥4.7B including ¥4.6B gain on sale of available-for-sale securities, extraordinary losses ¥4.0B), contributing only modestly to Net Income. Ordinary Income ¥16.7B (-30.4%), Income before Income Taxes ¥17.4B (-0.3%), Income Taxes ¥7.0B (effective tax rate 40.2%) resulted in Net Income ¥10.4B (-36.1%). In conclusion, the company is in a revenue-up, profit-down phase; cost control and improving International Business profitability are key issues.
Domestic Business: Revenue ¥244.4B (YoY +3.8%), Operating Income ¥16.8B (YoY -33.7%), margin 6.9%. Sales were steady, but margin declined from 10.8% last year to 6.9% due to higher SG&A. International Business: Revenue ¥105.6B (YoY +4.6%), but turned to an operating loss of ¥3.4B (margin -3.2%). Last year it was near breakeven (¥0.0B) but increases in SG&A and margin deterioration produced a loss. Other segment: Revenue ¥16.4B (YoY +15.3%), Operating Income ¥0.9B (+163.9%), margin 5.8%, showing high growth and margin improvement. The company-level operating profit decline was mainly due to margin compression in Domestic Business and the International Business turning loss-making; International Business recovery is key to achieving full-year targets.
[Profitability] Operating margin was 4.0% (prior year 7.8%, -3.8pp), reflecting a deterioration despite gross margin improving to 51.8% (prior year 51.2%, +0.6pp) being offset by SG&A ratio rising to 47.8% (prior year 43.4%, +4.4pp). Net margin fell to 3.1% (prior year 5.0%, -1.9pp) and ROE was 0.5% (prior year ROE calculation data limited but notably low), indicating very poor capital efficiency. [Cash Quality] Inventories increased to ¥177.0B (prior year ¥147.1B, +20.3%) composed of Finished Goods ¥177.0B, Raw Materials ¥65.7B, Work-in-Process ¥22.3B. Receivables fell sharply to ¥334.4B (prior year ¥521.8B, -35.9%), materially changing working capital composition. The inventory buildup may reflect demand assumptions or new product preparation but poses deterioration risk in turnover. [Investment Efficiency] Construction in progress stood at ¥182.2B, accounting for 26.7% of tangible fixed assets of ¥683.4B, indicating ongoing CAPEX progress. Goodwill ¥75.0B (3.6% of shareholders’ equity), intangible assets ¥169.1B (6.6% of total assets) are relatively modest. [Financial Soundness] Equity Ratio 82.0% (prior year 76.3%, +5.7pp), Current Ratio 304.4%, Quick Ratio 262.2% — all very high; interest-bearing debt is effectively near zero, and liquidity is ample with Cash and Deposits ¥567.3B and Short-term Securities ¥83.0B.
Non-operating income was ¥4.0B, including interest income ¥1.4B, subsidy income ¥1.1B, and other ¥0.8B; elimination of prior year foreign exchange losses of ¥2.7B improved non-operating results to +¥3.2B. Extraordinary items netted +¥0.7B (extraordinary gains ¥4.7B mainly from sale of available-for-sale securities, extraordinary losses ¥4.0B), representing about 6% of Net Income ¥10.4B and thus a limited one-off contribution. The gap between Ordinary Income ¥16.7B and Net Income ¥10.4B is mainly due to Income Taxes ¥7.0B (effective tax rate 40.2%), not extraordinary items. On working capital, inventories increased by +¥29.9B, receivables decreased by -¥187.4B, and payables/accrued expenses decreased by -¥147.7B, causing major compositional changes. The simultaneous inventory buildup and DSO shortening create mixed effects on working capital efficiency but signal potential CCC deterioration; normalizing the Cash Conversion Cycle is a future priority. With dividend guidance of ¥45 and liquidity of ¥650.3B (cash + short-term securities) and low leverage, short-term cash generation capacity is high, but inventory reduction and recovery in Operating Income are key to sustainable free cash flow generation.
Earnings quality is primarily driven by core operations: Non-operating income +¥3.2B (about 23.7% of Operating Income) reflects improvements from interest income and elimination of FX losses and is recurring in nature. Extraordinary net +¥0.7B (about 6% of Net Income) stems from one-off items like gains on sale of securities and is small. The divergence between Ordinary Income ¥16.7B and Net Income ¥10.4B is mainly due to Income Taxes ¥7.0B and not anomalous items. Comprehensive Income ¥23.6B significantly exceeded Net Income ¥10.4B; Other Comprehensive Income ¥13.2B consisted of Foreign Currency Translation Adjustment ¥12.7B, Valuation Difference on Available-for-Sale Securities ¥0.3B, and Retirement Benefit Adjustments ¥0.2B, indicating FX effects are dominant. From an accrual perspective, the sharp rise in inventories (+20.3%) and sharp fall in receivables (-35.9%) show large working capital volatility; conversion to operating cash flow requires caution. While gross profit improvement may be due to price/mix, the large SG&A increase has degraded earnings quality at the operating stage. Sustained earnings growth requires SG&A control and profit recovery in International Business.
Full-year guidance: Revenue ¥1730.0B (YoY +4.4%), Operating Income ¥125.0B (YoY -16.2%), Ordinary Income ¥130.0B (YoY -23.5%), Net Income ¥100.0B (EPS forecast ¥134.52), Dividend forecast ¥45. Q1 progress rates: Revenue 19.5%, Operating Income 10.8%, Ordinary Income 12.8%, Net Income 10.4% — notably well below the typical 25% for Operating Income. This appears driven by front-loaded SG&A, International Business losses, and inventory buildup reducing fixed-cost absorption. The full-year plan assumes back-end weighting (contribution from new equipment start-ups, price/mix improvement, profit correction in International Business); Q2 and beyond progress will determine achievability. As of Q1 close there have been no revisions to earnings or dividend guidance; the company maintains the full-year plan. Key monitoring points: recovery in Domestic Business margins, progress to profitability in International Business, and normalization of inventory turnover.
Full-year dividend guidance is ¥45 (prior year ¥44, +¥1), implying a payout ratio of about 33.5% on forecast EPS ¥134.52. This is a slight increase from prior year dividend ¥44 and signals continued shareholder return policy despite limited profit growth. With Cash and Deposits ¥567.3B and Short-term Securities ¥83.0B totaling ¥650.3B, Equity Ratio 82.0%, and effectively zero interest-bearing debt, the balance sheet supports short-term dividend sustainability. However, given weak Operating Income progress (10.8% of full-year forecast), the plan assumes performance improvement in H2. The payout ratio of 33.5% is below a common benchmark of 60% and shows room, but if achieving full-year Net Income ¥100.0B becomes uncertain, the company may prioritize business investment and inventory correction over dividend increases. No share buyback has been disclosed; current shareholder returns are dividend-centric.
Continued losses in International Business: Q1 International Business recorded an operating loss of ¥3.4B (margin -3.2%). Last year it was near breakeven, but SG&A increases and margin deterioration emerged. International Business accounts for ¥105.6B (31.4% of total) of revenue, so continued losses materially dilute company margins. The YoY -8.9% decline in US sales also suggests structural challenges; failure to correct International Business profitability would make achieving Operating Income ¥125.0B difficult.
Persistently high SG&A and worsening operating leverage: SG&A totaled ¥160.9B (YoY +13.7%, +¥19.4B), rising much faster than revenue growth (+3.2%), with SG&A ratio at 47.8% (prior year 43.4%, +4.4pp). Increases in advertising, personnel, and logistics costs—potentially front-loaded investments—have outpaced sales, compressing operating margin to 4.0% (prior year 7.8%). If SG&A growth is not contained, profitability risk will increase.
Deterioration in working capital efficiency and cash flow pressure: Inventories rose sharply to ¥177.0B (YoY +20.3%), Receivables fell to ¥334.4B (YoY -35.9%), and Payables/Accrued Expenses also decreased substantially, indicating large shifts in working capital composition. Inventory accumulation could reflect demand assumptions or new-product readiness, but heightens risks of obsolescence, discounting, or disposal, and prolongation of the Cash Conversion Cycle (CCC) may constrain operating cash flow generation. Delays in commissioning Construction in Progress ¥182.2B (26.7% of tangible fixed assets) also pose investment recovery risk.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 4.0% | 6.8% (2.9%–9.0%) | -2.8pp |
| Net Margin | 3.1% | 5.9% (3.3%–7.7%) | -2.8pp |
The company’s operating and net margins are each 2.8pp below industry medians, indicating profitability below the manufacturing sector average.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 3.2% | 13.2% (2.5%–28.5%) | -10.0pp |
Revenue growth is 10.0pp below the industry median, indicating a slower growth pace compared to manufacturing peers.
※ Source: Company compilation
Confirming the trough and recovery path of Operating Margin is the top priority. Q1 Operating Margin at 4.0% is down significantly from 7.8% and below the industry median of 6.8%. The sharp rise in SG&A ratio to 47.8% (prior year 43.4%, +4.4pp) is the main cause; cost controls on advertising, personnel, and logistics, along with further gross margin improvement via pricing/product mix, are key. Achieving full-year Operating Income ¥125.0B requires margin improvement from Q2 onward, with the recovery of Domestic margins and International Business profitability as focal points.
Normalizing working capital management and shortening the Cash Conversion Cycle are conditions for improving capital efficiency. The +20.3% rise in inventories and -35.9% decline in receivables indicate major changes to working capital composition, suggesting potential inventory turnover deterioration and seasonality/structural change in receivables. Even if inventory buildup is demand-driven, risks of stagnation and discounting remain; inventory reduction pace and DIO normalization from Q2 onward will determine cash flow sustainability. Progress in putting Construction in Progress ¥182.2B into operation and its productivity contribution are also monitoring points.
Financial safety is very high and dividend sustainability is solid in the short term, but profit growth and ROE improvement are prerequisites for long-term shareholder value enhancement. With Equity Ratio 82.0%, cash + short-term securities ¥650.3B, and effectively zero interest-bearing debt, the financial base is robust and the payout ratio 33.5% is accommodative. However, ROE at 0.5% is extremely low; achieving full-year guidance, improving International Business margins, and enhancing working capital efficiency to drive profit growth are essential for sustainable shareholder returns and value creation.
This report is an earnings analysis document automatically generated by AI analyzing XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the company based on public financial statements. Investment decisions are your responsibility; please consult professionals as appropriate before making investment decisions.