KROSAKI HARIMA (5352) FY2026 Q3 Earnings Report

Quick View

Executive Summary

The cumulative results for Q3 of FY2026 ending March 2026 showed higher profit driven by improved profitability without an increase in revenue. Revenue was ¥1,329.8B (down 0.2% YoY), essentially flat, while Operating Income increased to ¥117.2B (+12.7%) and Ordinary Income to ¥126.9B (+15.9%). Net Income was ¥144.0B (¥104.3B in the previous year), although this figure was significantly supported by extraordinary income of ¥83.8B, including a gain on the sale of fixed assets of ¥76.2B. This is an important consideration in assessing earnings quality. Despite headwinds from declining crude steel production and the appreciation of the yen, cost reductions through productivity improvements and yield enhancement, price pass-through, and expanded sales in India supported profit growth.

Factors Affecting Results

【Revenue】Revenue was ¥1,329.8B, essentially flat, down 0.2% YoY. The core Refractories segment secured higher revenue by offsetting declines in domestic and overseas crude steel production through price pass-through and expanded sales in India. In contrast, Furnace posted lower revenue due to a lull between large-scale construction projects, while Real Estate and Other recorded a significant decline due to the impact of asset sales, resulting in a slight overall decrease.

【Profit and Loss】Operating Income was ¥117.2B (+12.7%), and the Operating Margin improved to 8.8% from 7.8% in the previous year. The primary factor was a decline in the cost of sales ratio, with the gross margin improving to 21.4% (+1.7pt YoY). Cost reductions from productivity improvements and yield enhancement, as well as the pass-through of higher raw material and energy costs into selling prices, contributed to the improvement. Ordinary Income was ¥126.9B (+15.9%), further supported by a surplus in non-operating income and expenses, including a foreign exchange gain of ¥5.8B. Net Income of ¥144.0B exceeded Ordinary Income, largely due to extraordinary income of ¥83.8B, primarily comprising a ¥76.2B gain on the sale of fixed assets, a temporary factor. The gap between Ordinary Income and Net Income is therefore explained by factors outside the core business. Overall, revenue growth was limited, but profit increased; the results represent profitability-led earnings growth rather than a combination of higher revenue and lower profit.

Segment Analysis

Refractories is the core business, accounting for 85.4% of the revenue mix, and drove the majority of company-wide profit with revenue of ¥1,135.3B (+1.3% YoY), Operating Income of ¥98.3B (+12.1%), and a margin of 8.7%. Margin improvement and expanded sales in India were the drivers of profit growth. Furnace recorded lower revenue of ¥135.8B but achieved significant profit growth, with Operating Income of ¥14.5B (+68.1%), supported by differences in the mix of orders and improved personnel efficiency; its margin of 10.7% exceeded the company-wide average. Ceramics generated revenue of ¥60.6B and Operating Income of ¥3.0B, with a relatively low margin of 5.0%; recovery in demand from electronic components supported higher revenue and profit. Real Estate and Other is small in scale but has an exceptionally high margin of 68.9%, although it recorded significant declines in revenue and profit YoY. Overall, profit growth in the core Refractories segment and the substantial improvement in Furnace’s profit growth rate drove the company-wide +12.7% increase in Operating Income.

Key Financial Indicators

Profitability: ROE (annualized) was 16.9%, and the Operating Margin was 8.8% (7.8% in the previous year). The Net Margin rose significantly YoY to 10.8%, although it includes the impact of extraordinary income.
Financial soundness: The Equity Ratio was 60.2% (approximately 54.3% in the previous year), while the Current Ratio was 276.2%, indicating ample liquidity.
Other: Cash and deposits were ¥152.0B, up +82.6% YoY. Interest coverage was at a high level relative to interest-bearing debt of ¥309.8B.

Cash Flow Analysis

As specific figures for Operating Cash Flow (OCF), investing cash flow, and financing cash flow are not disclosed in this report, detailed analysis of the cash flow statement is limited to inferences based on changes in the balance sheet. Cash and deposits increased by ¥68.7B to ¥152.0B from ¥83.2B in the same period of the previous year, presumably reflecting factors such as the monetization of gains from the sale of fixed assets. Accounts receivable and notes receivable of ¥633.3B and inventories of ¥190.3B account for high proportions of total assets, creating a structure in which working capital efficiency influences cash generation capacity.

Earnings Quality

Net Income of ¥144.0B (consolidated Net Income) exceeded Ordinary Income of ¥126.9B because extraordinary income of ¥83.8B—including a ¥76.2B gain on the sale of fixed assets and a ¥7.5B gain on the sale of investment securities—boosted profit before tax. Extraordinary losses were small at ¥4.9B. Foreign exchange gains of ¥5.8B were included in non-operating income of ¥16.3B. This amount was approximately 1.2% of revenue, indicating that non-operating income and expenses remained within a recurring range. Net Income attributable to owners of the parent was ¥136.8B, representing the amount after deducting ¥7.2B attributable to non-controlling interests. Most of the increase in Net Income depended on the temporary gain on the sale of fixed assets. Accordingly, the improvement in recurring earnings power should appropriately be assessed based on the improvements in Operating Income and Ordinary Income, of +12.7% and +15.9%, respectively.

Earnings Forecasts and Guidance

The cumulative Q3 progress rates against the full-year forecasts—Revenue of ¥1,800.0B, Operating Income of ¥150.0B, and Ordinary Income of ¥150.0B—were 73.9%, 78.1%, and 84.6%, respectively. Operating Income and Ordinary Income were above the standard progress level of 75%. The high progress rate for Ordinary Income resulted from improvements in the core business unaffected by extraordinary income, together with contributions from non-operating income and expenses such as foreign exchange gains. The full-year Ordinary Income forecast is expected to decline 2.1% YoY; however, this is a comparison at the ordinary income level excluding extraordinary income and other items recorded in the previous year. Care is therefore required in reconciling this forecast with the fact that cumulative Q3 Ordinary Income has already exceeded the same period of the previous year by +15.9%.

Shareholder Returns

The Q2 dividend was ¥0 per share, and the full-year dividend forecast is also ¥0, resulting in a Payout Ratio of 0%. Compared with the dividend paid in the same period of the previous year (¥45 per share), this represents a significant reduction in dividends. Given the financial capacity indicated by retained earnings of ¥927.8B and cash and deposits of ¥152.0B, there is no immediate constraint on dividend resources; however, a no-dividend policy for the current period has been indicated. Information regarding share repurchases is not included in the disclosed data.

Catalysts

【Short Term】Confirmation of progress toward the full-year earnings forecasts in Q4 (Revenue of ¥1,800B and Operating Income of ¥150B), as well as the recurring earnings level excluding the gain on the sale of fixed assets.

【Long Term】Capturing demand through increased production capacity in India, deeper collaboration with alliance partners in Europe and the United States, and trends in expanding the Ceramics business in anticipation of growth in the semiconductor manufacturing equipment market.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

The Operating Margin is in line with the industry median, while the Net Margin is significantly above the industry median, partly due to the contribution of extraordinary income.

Growth and Capital Efficiency

The Revenue Growth Rate is below the industry median, reflecting the impact of the industry-wide headwind of declining crude steel production.

※Source: Company analysis

Risk Factors

1. Crude Steel Production Decline Risk: Domestic crude steel production (FY2025 April–December) declined △3.6% YoY, while global crude steel production (CY2025 January–December) declined △2.0% YoY. This may affect the demand base of the core Refractories business.

2. Foreign Exchange Risk: The appreciation of the yen has been identified as a risk to yen-denominated earnings. The foreign exchange gain of ¥5.8B included in non-operating income and expenses boosted Ordinary Income, but a further shift toward yen appreciation could reverse this effect.

3. Working Capital and Earnings Temporariness Risk: Accounts receivable and notes receivable of ¥633.3B and inventories of ¥190.3B account for high proportions of total assets. In addition, the increase in Net Income is heavily dependent on the gain on the sale of fixed assets, making it important to assess recurring earnings power excluding this temporary factor.

Key Points in the Earnings Results

1. While Revenue was essentially flat, the Operating Margin improved to 8.8%, primarily due to a +1.7pt improvement in the gross margin, indicating a qualitative improvement in the earnings structure through cost reductions and price pass-through.

2. Most of Net Income of ¥144.0B depended on the gain on the sale of fixed assets. Attention should therefore be paid to the divergence from the core business-based improvement of +15.9% in Ordinary Income.

3. The dividend forecast has shifted to ¥0 per share from ¥45 in the previous year, resulting in no dividend and indicating a change in the shareholder return policy. Meanwhile, the financial foundation has been further strengthened from the previous year, with an Equity Ratio of 60.2% and a Current Ratio of 276.2%.

Theoretical Share Price (Reference Value)

Sensitivity: ¥3,842–¥4,082 at Cost of Equity ±1%; ¥3,944–¥3,983 at ω±0.1.

Notes:

• Net assets as of the quarter-end are used (there is a timing gap relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical values may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / 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.)

---

This report is an earnings analysis document automatically generated through AI integration and analysis of XBRL earnings summary data and PDF earnings presentation materials. 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 responsibility, after consulting professionals as necessary.

---End of Report---