Godo Steel (5410) FY2026 Q3 Earnings Report

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Executive Summary

For the cumulative Q3 period of the fiscal year ending March 2026, the Company reported lower revenue and lower profit, as increased SG&A expenses against declining revenue created adverse operating leverage that pressured earnings. Revenue was ¥1,423.1B (YoY -7.8%), Operating Income was ¥78.6B (down 15.6%), Ordinary Income was ¥91.2B (down 16.5%), and Net Income attributable to owners of the parent was ¥65.5B (down 17.5%). The primary factors were lower revenue due to slowing demand in the Steel Business and an increase in the SG&A ratio (+130bp) exceeding the improvement in the gross profit margin (+70bp).

Factors Affecting Earnings

【Revenue】Revenue was ¥1,423.1B, down -7.8% YoY. By segment, the Steel Business accounted for 91.8% of total revenue at ¥1,305.8B, representing the majority of the decline at -8.9% from ¥1,432.9B in the previous year. The Agricultural Materials Business increased 5.8% to ¥82.2B, partially offsetting the slowdown in the Steel Business.

【Profit and Loss】Operating Income was ¥78.6B (-15.6%), Ordinary Income was ¥91.2B (-16.5%), and Net Income was ¥65.5B (-17.5%), with the magnitude of the decline in earnings progressively increasing. While the gross profit margin improved to 17.6% (+70bp), the SG&A ratio rose to 12.1% (+130bp), offsetting the improvement in gross profit. The difference between Ordinary Income and Net Income was attributable to extraordinary gains and losses (net gain of +¥1.6B, including a gain on bargain purchase of ¥2.95B) and income taxes of ¥27.2B, with no significant divergence. Equity in earnings of affiliates declined to ¥5.5B from ¥7.9B in the previous year, reducing the contribution from non-operating income. Overall, the Company reported lower revenue and lower profit.

Segment Analysis

The Steel Business reported lower revenue and lower profit, with revenue of ¥1,305.8B (previous year ¥1,432.9B, -8.9%) and segment profit of ¥87.8B (previous year ¥110.6B, -20.6%), leading the decline in consolidated earnings. The Agricultural Materials Business generated revenue of ¥82.2B (+5.8%), while its segment loss narrowed to ¥0.65B (previous year -¥4.28B). The Steel Business continues to account for approximately 96% of total profit, and the structure remains one in which deterioration in the profitability of this business significantly affects overall performance.

Key Financial Metrics

【Profitability】The Operating Income margin was 5.5%, down from the equivalent of 6.0% in the previous year, while the Net Income margin was 4.6%, down from the equivalent of 5.2% in the previous year. The gross profit margin improved to 17.6% from the previous year, but the increase in the SG&A ratio offset this improvement, resulting in a deterioration in the Operating Income margin.【Cash Flow Quality】Extraordinary income included a gain on bargain purchase of ¥2.95B, indicating that part of Net Income depended on non-recurring factors. Equity in earnings of affiliates also declined to ¥5.5B, resulting in a slight deterioration in the quality of non-operating income.【Investment Efficiency】ROE was 4.7%, reflecting the combined effects of a decline in total asset turnover and a lower Net Income margin.【Financial Soundness】The Equity Ratio improved slightly to 53.2% from 52.8% in the previous year, indicating a conservative capital structure. Short-term borrowings of ¥322.6B exceeded cash and cash equivalents of ¥244.6B, placing the Company’s dependence on short-term liabilities at a level requiring monitoring.

Cash Flow Analysis

Although the cash flow statement has not been disclosed, cash flow trends can be inferred from movements in the balance sheet. Cash and deposits were ¥244.6B, a decrease of ¥39.4B from ¥284.0B in the previous year. Meanwhile, accounts receivable increased to ¥599.8B (+¥56.0B), and investment securities increased to ¥313.6B (+¥46.3B), suggesting that funds were allocated to working capital and investments. Accounts payable also increased to ¥315.7B (+¥55.5B), indicating that adjustments to payment terms provided some mitigation to cash management. Long-term borrowings decreased by ¥26.5B to ¥232.8B, indicating progress in reducing long-term liabilities. However, short-term borrowings of ¥322.6B exceeded the cash balance, suggesting a somewhat greater dependence on short-term funding in terms of funding quality.

Earnings Quality

Of Net Income of ¥65.5B, the Company recorded a gain on bargain purchase of ¥2.95B and gains on sales of investment securities of ¥0.37B as extraordinary income, indicating that non-recurring factors unrelated to ordinary business activities made a certain contribution. Equity in earnings of affiliates was ¥5.5B, down from ¥7.9B in the previous year, reducing the contribution from non-operating income. Dividend income was ¥7.4B, remaining broadly in line with the previous year. At the Operating Income level, the improvement in the gross profit margin was offset by the increase in the SG&A ratio, indicating that the profitability of the core business weakened from the previous year. Overall, the fact that a portion of earnings was supported by non-recurring items is a point to consider when assessing earnings quality.

Earnings Forecasts and Guidance

The Company forecasts full-year revenue of ¥1,950.0B (YoY -5.0%), Operating Income of ¥105.0B (-23.6%), and Ordinary Income of ¥120.0B (-22.2%). The cumulative Q3 progress ratios are 73.0% for revenue, 74.8% for Operating Income, and 76.0% for Ordinary Income. While progress is generally on track, the full-year plan assumes a significant year-on-year decline in earnings, presupposing that profitability will continue to deteriorate from Q4 onward. As of this quarter, the Company has not revised its earnings forecasts.

Shareholder Returns

The Company assumes an interim dividend of ¥100 and a year-end dividend of ¥140, for a planned annual dividend of ¥240. The full-year dividend forecast announced by the Company is ¥180, indicating a discrepancy in the figures across materials that warrants attention. Based on the full-year Net Income forecast of ¥85.0B and the EPS forecast of ¥581.24, the Payout Ratio based on a ¥180 dividend is approximately 31%. The previous year’s dividend was an interim dividend of ¥100, and it is difficult to determine the full-year trend in dividend increases or decreases from the current data.

Risk Factors

1. Demand cycle risk: Revenue in the Steel Business declined -8.9% YoY, and slowing demand for structural steel products for construction is weighing on overall performance.

2. SG&A rigidity: While revenue decreased -7.8%, SG&A expenses increased +2.5%, causing the SG&A ratio to rise to 12.1% (+130bp). The fixed-cost burden is depressing profit margins through operating leverage.

3. Dependence on short-term funding: Cash and deposits of ¥244.6B are below short-term borrowings of ¥322.6B. The degree of diversification in the funding structure requires monitoring.

Industry Benchmark (Reference; Compiled by the Company)

Key Points from the Earnings Results

1. The gross profit margin improved to 17.6% (+70bp), but the SG&A ratio increased to 12.1% (+130bp), offsetting the improvement; consequently, the Operating Income margin declined to 5.5% (-51bp). The fixed-cost ratio within the cost structure is amplifying fluctuations in performance.

2. A portion of Net Income of ¥65.5B was supported by non-recurring factors, including a gain on bargain purchase of ¥2.95B. When assessing changes in the profitability of the core business, comparison excluding extraordinary gains and losses is useful.

3. The full-year plan anticipates a double-digit decline in earnings YoY. Although the cumulative Q3 progress ratio for Operating Income of 74.8% appears numerically on track, attention should be paid to the fact that the full-year outlook itself has been set at a conservative level.

Theoretical Share Price (Reference Value)

Sensitivity: ¥8,618–¥9,119 at a ±1% change in the cost of equity, and ¥8,837–¥8,880 at a ±0.1 change in ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value will be 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).
• As 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 earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmark is 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 a professional as necessary.

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