Arisawa Mfg.Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

Revenue and income increased due to improved profitability in the core Electronic Materials and Display Materials businesses, as well as foreign exchange gains; however, the progress of Operating Income against the full-year plan is somewhat behind schedule. Revenue was ¥158.3B (¥126.3B in the same period of the previous year, YoY+25.3%), Operating Income was ¥11.8B (同+30.8%), Ordinary Income was ¥13.8B (同+41.7%), and Net Income attributable to owners of the parent was ¥9.1B (同+25.1%). While the gross profit margin improved to 23.1% from 20.8% in the previous year, foreign exchange gains of ¥1.7B included in non-operating income at the Ordinary Income stage boosted growth.

Factors Affecting Results

【Revenue】Revenue was ¥158.3B, an increase of +25.3% from ¥126.3B in the same period of the previous year. The core Electronic Materials segment led growth with ¥104.3B (65.9% of external sales, YoY+24.6%), while Industrial Structural Materials also achieved substantial revenue growth to ¥35.3B (22.3% of external sales, YoY+33.2%). Display Materials at ¥10.9B (6.9% of external sales, YoY+21.1%) and Electrical Insulating Materials at ¥6.8B (4.3% of external sales, YoY+9.1%) also contributed to the increase in revenue.

【Profit and Loss】Operating Income was ¥11.8B (YoY+30.8%), and the gross profit margin improved to 23.1% from 20.8% in the previous year, an improvement of +2.3pt. Meanwhile, the SG&A ratio rose to 15.6% from 13.6% in the previous year, an increase of +2.0pt, limiting the improvement in the Operating Income margin to 7.5% (+0.3pt). Ordinary Income was ¥13.8B (YoY+41.7%), with foreign exchange gains of ¥1.7B out of non-operating income of ¥2.8B contributing to the increase. Extraordinary income and extraordinary losses were both ¥0.0B and immaterial, indicating that the impact of one-time factors was limited. Net Income was ¥9.1B (YoY+25.1%), resulting in increases in both revenue and income.

Segment Analysis

The core Electronic Materials segment generated Operating Income of ¥13.1B (YoY+55.6%, margin 12.6%), driving company-wide profit and representing the largest segment at 65.9% of external sales. Display Materials improved to an Operating Income of ¥2.9B (YoY+110.9%) and a margin of 26.2%, the highest level among all segments. Electrical Insulating Materials also posted a substantial increase in Operating Income to ¥0.8B (YoY+263.3%). In contrast, Industrial Structural Materials achieved revenue growth to ¥35.3B (YoY+33.2%), but Operating Income declined sharply to ¥0.9B (YoY-76.2%), with its margin falling to 2.5%; profitability has deteriorated significantly despite higher revenue. The decline in profitability of this segment, the third-largest by sales composition, is one factor restraining the improvement in the company-wide Operating Income margin.

Key Financial Indicators

【Profitability】ROE was 1.8% (quarterly result), while the Operating Income margin was 7.5%, improving by +0.3pt from 7.1% in the previous year. The Net Income margin was 5.8%, nearly flat from the previous year. The gross profit margin of 23.1% improved from 20.8% in the previous year, but this was offset by the increase in the SG&A ratio to 15.6% (13.6% in the previous year), resulting in a limited improvement at the Operating Income level.【Cash Flow Quality】Cash and deposits were ¥171.7B, an increase of +¥19.3B from ¥152.4B in the previous year, while accounts receivable and notes receivable were ¥222.2B (¥219.1B in the previous year). Inventories also remained at high levels, comprising ¥75.9B of raw materials, ¥31.2B of work in process, and ¥57.0B of finished goods, indicating an accumulation of working capital accompanying the increase in sales.【Investment Efficiency】Basic EPS improved to ¥27.80 (¥21.92 in the previous year, YoY+26.8%), but BPS declined to ¥1,514.80 from ¥1,546.49 in the previous year. Net assets were ¥49.65B, a decrease of ¥1.04B from ¥50.69B in the previous year, indicating that equity contracted despite higher profit.【Financial Soundness】The Equity Ratio was 58.4%, down -4.1pt from 62.5% in the previous year. While total assets increased to ¥84.99B (¥81.04B in the previous year), long-term borrowings increased substantially to ¥6.60B from ¥3.00B in the previous year, representing an increase of +119.9% and indicating progress toward longer-term financing.

Cash Flow Analysis

Cash and deposits were ¥171.7B, an increase of +¥19.3B from ¥152.4B in the same period of the previous year. Long-term borrowings increased by +¥3.6B to ¥6.60B (¥3.00B in the previous year), extending the maturity of financing, while short-term borrowings remained nearly flat at ¥10.77B (¥10.99B in the previous year). Retained earnings were ¥33.58B, down ¥1.65B from ¥35.23B in the previous year, suggesting cash outflows such as dividend payments exceeding quarterly Net Income of ¥9.1B. Accounts receivable and notes receivable increased to ¥22.22B (¥21.91B in the previous year), while inventories remained at high levels, potentially placing a burden on cash generation due to the buildup of working capital accompanying sales expansion. The increase in cash balances appears to have been supported primarily by funds raised through long-term borrowings.

Quality of Earnings

Against Operating Income of ¥11.8B, foreign exchange gains of ¥1.7B were recorded within non-operating income of ¥2.8B, contributing to the increase in Ordinary Income. Foreign exchange gains are subject to market fluctuations and should be distinguished from recurring earnings power. Extraordinary income of ¥0.0B and extraordinary losses of ¥0.0B (including losses on disposal of fixed assets) were both immaterial, and the impact of one-time factors on Net Income was limited. The difference between Net Income of ¥9.1B and Ordinary Income of ¥13.8B was primarily attributable to corporate income taxes and other taxes of ¥4.7B, resulting in an effective tax burden of approximately 33.8% (¥4.7B/¥13.8B). Comprehensive income was ¥15.2B, exceeding Net Income by ¥6.1B, with other comprehensive income items such as valuation difference on securities of +¥4.2B and foreign currency translation adjustments of +¥2.0B contributing to the increase.

Earnings Forecast and Guidance

Against the full-year plan, the progress rate for Revenue was 24.7% (¥158.3B/¥642.0B), broadly in line with the quarterly benchmark of 25%. Meanwhile, the progress rate for Operating Income was 18.2% (¥11.8B/¥65.0B), below the standard level, while Ordinary Income was limited to 21.5% (¥13.8B/¥64.0B). The company’s full-year plan calls for Revenue YoY+13.7%, Operating Income YoY+12.0%, and Ordinary Income YoY+3.9%; during Q1, revisions were made to the earnings forecast and dividend forecast. The delay in Operating Income progress appears to have been affected by deteriorating profitability in the Industrial Structural Materials segment and higher SG&A expenses, making improvement in profitability during the second half of the year the key to achieving the plan.

Shareholder Returns

The annual dividend forecast was revised upward to ¥110 (¥55 interim and ¥55 year-end). Each payment was increased by ¥6 from the previous plan of ¥49 interim and ¥49 year-end. The Payout Ratio against forecast EPS of ¥137.29 is approximately 80.1% (¥110/¥137.29), a high level. There is no disclosure regarding share repurchases, and shareholder returns are centered on dividends. Although cash and deposits are substantial at ¥171.7B and short-term payment capacity is secured, retained earnings have declined by ¥1.65B from the previous year. The sustainability of the high Payout Ratio will need to be monitored based on future profit growth and trends in cash-generation capacity.

Risk Factors

1. Differences in profitability by segment: Industrial Structural Materials recorded revenue of ¥35.3B (YoY+33.2%), while Operating Income declined to ¥0.9B (YoY-76.2%) and its margin fell to 2.5%. Profitability has deteriorated despite higher revenue, making improvement in the cost mix a challenge.

2. Accumulation of working capital: Accounts receivable and notes receivable of ¥22.22B and inventories (raw materials of ¥7.59B, work in process of ¥3.12B, and finished goods of ¥5.70B) remained at high levels. Collection and inventory reduction may not be keeping pace with the expansion in sales.

3. Dependence on non-operating income: Foreign exchange gains of ¥1.7B contributed to Ordinary Income of ¥13.8B and represented a certain proportion relative to Operating Income of ¥11.8B. Ordinary Income growth may slow if foreign exchange rates reverse.

Industry Benchmark (Reference, Company Research)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Income margin and Net Income margin are slightly below the industry median, placing profitability in the lower half of the industry.

Growth and Capital Efficiency

The Revenue growth rate significantly exceeds the industry median, indicating a high growth rate within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Improvement in the margins of the core Electronic Materials and Display Materials segments (12.6% and 26.2%, respectively) drove company-wide profit growth. Whether the sales mix is continuing to shift toward higher-margin segments will be a key focus going forward.

2. Operating Income in Industrial Structural Materials fell sharply by YoY-76.2%, with its margin declining to 2.5% despite higher revenue. This should be closely monitored as a structural change in the segment mix.

3. Against the full-year plan, Revenue progress of 24.7% is ahead of Operating Income progress of 18.2%. Given that the YoY+41.7% growth in Ordinary Income includes the contribution of foreign exchange gains, it is important to confirm trends in core earnings power.

Theoretical Stock Price (Reference Value)

This is a reference range mechanically calculated solely from publicly available data using a residual income model (Ohlson-type model with an explicit five-year fade). It is not a forecast of the market stock price or a recommendation of any specific investment action.

Sensitivity: 1,474円〜1,555円 at cost of equity ±1%, and 1,514円〜1,514円 at ω±0.1.

Notes:

• 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 (there is a timing difference relative to the full-year forecast).

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not forecast or guarantee the future stock 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 available earnings data. Investment decisions should be made at your own discretion and responsibility, and after consulting a professional as necessary.

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