SAGAMI RUBBER INDUSTRIES (5194) FY2026 Q3 Earnings Report

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Executive Summary

The most important point this quarter is that although improvement progressed at the operating level, profit declined significantly below ordinary income due to the absence of the foreign exchange gain recorded in the previous year. Revenue was ¥45.1B (+2.3% YoY), while operating income increased significantly to ¥1.9B (+¥1.8B YoY), and the operating margin improved to 4.3% from 0.3% in the same period of the previous year. Meanwhile, ordinary income was ¥1.5B (-71.1% YoY), and net income was negative ¥0.6B, deteriorating from ¥3.1B in the previous year. The primary drivers of profit growth were higher revenue in the core Healthcare Business and reductions in selling, general and administrative expenses, while the deterioration in ordinary income and net income was attributable to the absence of the foreign exchange gain recorded in the previous year and the high effective tax rate.

Factors Affecting Results

【Revenue】Revenue was ¥45.1B, an increase of +2.3% YoY. By segment, the Healthcare Business, which accounts for approximately 79% of total revenue, led growth with revenue of ¥35.7B (+7.6%), while segment profit was ¥6.2B (+21.9%), reaching a margin of 17.5%. Meanwhile, the Plastic Products Business continued to post declining revenue at ¥8.9B (-7.7%), resulting in a segment loss of ¥0.2B, although this improved from the ¥0.5B loss in the previous year.

【Profit and Loss】Operating income increased to ¥1.9B (¥0.15B in the previous year), and the operating margin improved significantly to 4.3% from 0.3% in the same period of the previous year. This improvement was led by cost reductions, with SG&A expenses declining 14.3% YoY, despite the gross margin remaining at 26.6%, down from 27.0% in the previous year. However, ordinary income remained at ¥1.5B (-71.1% YoY). In the same period of the previous year, non-operating income totaled ¥6.1B, including approximately ¥5.7B in foreign exchange gains, whereas it amounted to only ¥0.5B in the current period; this difference was the primary cause of the decline in ordinary income. In addition, as the effective tax rate reached 133.6%, pretax income of ¥1.85B ultimately turned into a loss attributable to owners of the parent of ¥0.3B. Special gains and losses, including a ¥1.0B gain on the sale of fixed assets, provided a net boost of ¥0.35B, but this is not indicative of recurring earnings power. In summary, the Company achieved higher revenue and operating income, but declined at the final profit level, turning to a loss due to non-operating and tax-related factors.

Segment Analysis

The core Healthcare Business generated revenue of ¥35.7B (+7.6% YoY), segment profit of ¥6.2B (+21.9% YoY), and a margin of 17.5%, serving as the central source of Company-wide profit. The Plastic Products Business generated revenue of ¥8.9B (-7.7% YoY) and a segment loss of ¥0.2B, narrowing from the ¥0.5B loss in the same period of the previous year. Other Businesses generated revenue of ¥0.4B (-63.3% YoY) and a segment loss of ¥0.4B. The high profitability of the Healthcare Business absorbs the losses of the other segments and Company-wide expenses of ¥3.7B, enabling consolidated operating income of ¥1.9B. The high degree of profit dependence on the Healthcare Business indicates the risk that fluctuations in demand for the core business will directly affect Company-wide performance.

Key Financial Metrics

【Profitability】The operating margin improved to 4.3% from 0.3% in the same period of the previous year, but the gross margin declined slightly to 26.6% from 27.0%, indicating that the improvement in profitability is highly dependent on expense reductions. The net profit margin was negative 1.4%, with the effective tax rate of 133.6% serving as the direct cause of the final loss. 【Cash Flow Quality】A ¥1.0B gain on the sale of fixed assets was recorded as a special gain, meaning that pretax income includes a temporary boost. 【Investment Efficiency】Annualized ROE was negative 0.7%, while the equity ratio was 59.1%, slightly improving from 58.2% in the same period of the previous year. 【Financial Soundness】Current assets of ¥66.0B versus current liabilities of ¥70.4B resulted in a current ratio below 100%, indicating a high degree of dependence on short-term borrowings of ¥56.2B. Cash and deposits were ¥21.0B, providing limited coverage of short-term borrowings.

Cash Flow Analysis

Although the cash flow statement was not disclosed, an analysis of funding trends based on balance sheet changes shows that cash and deposits increased to ¥21.0B from ¥19.3B in the same period of the previous year. Meanwhile, accounts receivable were ¥11.1B, up +27.9% from ¥8.7B in the same period of the previous year, while electronically recorded monetary claims remained at a high level of ¥10.5B, unchanged from ¥10.5B. Short-term borrowings increased from ¥55.2B to ¥56.2B, while long-term borrowings declined significantly from ¥1.4B to ¥0.35B. The reduction in long-term debt is a positive factor for the financial structure, but funding has become further concentrated in short-term borrowings, warranting attention from the perspective of maturity diversification. Investment securities increased +33.8% from ¥9.7B to ¥13.0B, suggesting that some funds flowed out through investment activities.

Quality of Earnings

Current-period earnings reflect a mixture of improvement at the operating level and downward pressure from non-operating items, special gains and losses, and the tax burden, requiring caution in qualitative assessment. Non-operating income was modest at ¥0.5B, primarily consisting of dividend income of ¥0.3B, whereas non-operating income in the same period of the previous year totaled ¥6.1B, including foreign exchange gains of approximately ¥5.7B; this was the primary cause of the 71.1% YoY decline in ordinary income. Special gains and losses included a ¥1.0B gain on the sale of fixed assets and ¥0.7B in losses on the disposal and sale of fixed assets, resulting in a temporary net boost of ¥0.35B. In addition, income taxes of ¥2.5B exceeded pretax income of ¥1.85B, causing the effective tax rate to reach 133.6%. This high tax burden caused pretax income to turn into a loss attributable to owners of the parent, and the fact that the improvement in operating income did not translate directly into an improvement in shareholder profit is an important consideration in assessing earnings quality.

Earnings Forecast and Guidance

The progress rates for cumulative Q3 results against the full-year Company forecasts were 73.9% for revenue (¥45.1B/¥61.0B), 80.9% for operating income (¥1.9B/¥2.4B), and 106.4% for ordinary income (¥1.5B/¥1.4B). Revenue progress was broadly consistent with the standard 75%, while operating income was 5.9 points ahead of the standard pace. Ordinary income had already exceeded the full-year forecast on a cumulative basis, appearing favorable in terms of progress; however, attention is required because it includes temporary factors such as foreign exchange gains that were absent in the previous year. Cumulative profit attributable to owners of the parent was negative ¥0.3B, meaning that a return to profitability in Q4 is necessary to achieve the full-year forecast of ¥0.5B in profit. No revisions were made to the earnings or dividend forecasts.

Shareholder Returns

The full-year dividend forecast is ¥10 per share, unchanged from the previous fiscal year. Based on the average number of shares outstanding during the period of 10,856 thousand shares, the annual dividend payout is estimated at ¥1.1B, resulting in a forecast payout ratio of approximately 217% against the forecast full-year net income attributable to owners of the parent of ¥0.5B. Accordingly, dividends cannot be funded solely from current-period profit and are instead structured to be funded from existing capital, including retained earnings of ¥86.4B. Cumulative Q3 results showed a loss attributable to owners of the parent of ¥0.3B, making dividend coverage from current earnings even weaker. Dividend sustainability depends on continued profit growth in the core Healthcare Business and the establishment of sustainable profitability at the net income level.

Risk Factors

1. Refinancing and Liquidity Risk: The current ratio was 93.7%, below 1.0x, with current assets of ¥66.0B falling ¥4.4B below current liabilities of ¥70.4B. Most of the ¥56.5B in interest-bearing debt, or ¥56.2B, consists of short-term borrowings, while cash and deposits of ¥21.0B represented only 0.37x short-term borrowings.

2. Tax Burden and Earnings Conversion Risk: The effective tax rate reached 133.6%, causing pretax income of ¥1.85B to turn into a loss attributable to owners of the parent of ¥0.3B. Interest expense of ¥0.8B was equivalent to approximately 42% of operating income of ¥1.9B, and interest coverage was low at 2.40x.

3. Profit Concentration Risk in the Healthcare Business: Segment profit of ¥6.2B from the Healthcare Business absorbs the losses of the Plastic Products Business (¥0.2B loss) and Other Businesses (¥0.4B loss), creating a structure in which fluctuations in demand and pricing in the core business directly affect Company-wide performance.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Return

Both the operating margin and net profit margin are below the industry median, placing profitability in the lower tier of the industry.

Growth and Capital Efficiency

The revenue growth rate is slightly below the industry median but remains within the IQR and does not represent a significant divergence.

※Source: Compiled by the Company

Key Points from the Financial Results

1. Although the operating margin improved to 4.3%, it remains below the industry median of 8.6%. The improvement was primarily attributable to SG&A reductions, while the gross margin declined slightly from the previous year. The sustainability of earnings improvement depends not only on the expense structure but also on a recovery in revenue profitability.

2. Ordinary income declined 71.1% due to the absence of the large foreign exchange gain recorded in the previous year. It is appropriate to assess underlying earnings power excluding non-operating factors based on operating income of ¥1.9B.

3. The high effective tax rate of 133.6% caused pretax income of ¥1.85B to ultimately turn into a loss attributable to owners of the parent. Achieving the full-year forecast of ¥0.5B in profit will require normalization of the tax burden and additional profit accumulation in Q4.

Theoretical Share Price (Reference Value)

Sensitivity: ¥737–¥777 at ±1% for the cost of equity, and ¥749–¥761 at ±0.1 for ω.

Notes:

• Net income is significantly compressed relative to operating income due to the tax burden, acquisition-related expenses, and non-controlling interests, among other factors (net income ÷ operating income 21%). This value reflects that compression at face value; if these factors are temporary, underlying earnings power may be higher.
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used, resulting in a timing mismatch with 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 value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an automatically generated earnings analysis document produced 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 you should consult a professional as necessary.

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