Godo Steel,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

The quarter resulted in higher revenue but lower earnings, with the most significant factor being the delay in passing on rising raw material and electricity costs in the steel business, which put pressure on spreads. Revenue increased to ¥497.9B (+3.9% YoY), while Operating Income declined substantially to ¥4.5B (-84.7%), Ordinary Income to ¥9.8B (-73.4%), and Net Income attributable to owners of the parent to ¥6.7B (-77.3%). The gross margin fell to 12.4%, down approximately 570bt from 18.1% in the same period of the previous year. As SG&A expenses were largely flat at ¥57.2B, the contraction in gross profit directly translated into lower Operating Income. Non-operating income, including dividend income of ¥4.2B, and gains on sales of investment securities of ¥2.4B recorded as extraordinary income provided some support to earnings, but were insufficient to offset the decline in core earnings power.

Factors Affecting Earnings

【Revenue】Revenue was ¥497.9B, up +3.9% YoY. Steel (Metal), which accounted for 91.1% of the revenue mix, led the increase with revenue of ¥454.1B (+2.7%). The Agricultural Materials Business posted strong growth of ¥33.9B (+31.6%), while Other Businesses declined to ¥10.7B (-11.5%). Overall, the Company’s results are structurally driven by volume and pricing trends in its core steel business.

【Profit and Loss】The gross margin was 12.4%, deteriorating from 18.1% in the same period of the previous year by approximately 570bt. The primary factor was the contraction in spreads, apparently due to delays in passing on increases in raw material and electricity costs. SG&A expenses were ¥57.2B, essentially in line with the previous year (¥57.3B). Although expense controls progressed, they were unable to absorb the contraction in gross profit, causing Operating Income to fall to ¥4.5B (-84.7%; Operating Margin: 0.9%). Ordinary Income was supported by ¥7.7B in non-operating income, including dividend income of ¥4.2B, but remained at ¥9.8B (-73.4%). Extraordinary items included a gain on sales of investment securities of ¥2.4B (temporary factor) and a loss on disposal of fixed assets of ¥1.5B (temporary factor). Profit before tax was ¥10.7B, and following an effective tax rate of 37.7%, Net Income attributable to owners of the parent was ¥6.7B (-77.3%). The results represent higher revenue but lower earnings.

Segment Analysis

Steel (Metal) recorded revenue of ¥454.1B (+2.7%) and segment profit, on an Ordinary Income basis, of ¥9.7B (¥36.5B in the same period of the previous year, -73.3%). Its margin declined substantially to 2.1% from 8.3% in the same period of the previous year. The deterioration in profitability of this business, which accounts for more than 90% of revenue, was the primary cause of the Company-wide earnings decline. The Agricultural Materials Business recorded revenue of ¥33.9B (+31.6%) and segment profit of ¥0.3B (¥-0.9B in the same period of the previous year), turning profitable, although its margin remained at 0.8%. Other Businesses recorded revenue of ¥10.7B (-11.5%) and segment profit of ¥0.9B (margin: 8.1%), maintaining relatively high profitability despite their small scale. Overall profit fluctuations are strongly linked to spread trends in the steel business.

Key Financial Indicators

【Profitability】Operating Margin was 0.9% (6.2% in the same period of the previous year) and Net Profit Margin was 1.3% (6.1% in the same period of the previous year), both declining substantially year on year, as deterioration in the gross margin weighed on overall profitability.【Cash Flow Quality】Although no cash flow statement has been disclosed, Comprehensive Income was ¥-11.7B, a ¥18.4B divergence from Net Income of ¥6.7B, primarily due to a ¥-18.5B valuation difference on other securities.【Investment Efficiency】ROE was 0.5% and the total asset turnover ratio was 0.194x, with both asset efficiency and profitability weighing on returns on equity.【Financial Soundness】The Equity Ratio was 55.4% (56.3% in the same period of the previous year), while the current ratio was 177.3% and the quick ratio was 109.8%, indicating that the financial base is generally stable.

Cash Flow Analysis

As no cash flow statement has been disclosed, cash trends are assessed based on changes in the balance sheet. Cash and deposits were ¥267.2B, essentially flat at +¥2.2B from ¥265.0B in the same period of the previous year. Inventories were ¥467.2B, increasing by +¥23.6B from ¥443.7B in the same period of the previous year, indicating that the buildup of inventories is placing pressure on working capital. Trade receivables were ¥481.5B, a slight decrease from ¥484.9B in the same period of the previous year, while trade payables increased by +¥30.8B to ¥309.1B from ¥278.3B. Adjustments to payment terms appear to have partially offset the funding burden from the inventory increase. Overall, elevated inventory levels remain a point of caution from a cash efficiency perspective.

Quality of Earnings

Core earnings power remains low, with an EBIT margin of 0.9%, while non-operating income of ¥7.7B, including dividend income of ¥4.2B, supported Ordinary Income. A gain on sales of investment securities of ¥2.4B was recorded as extraordinary income, while a loss on disposal of fixed assets of ¥1.5B was recorded as an extraordinary loss; both were temporary factors. Against Ordinary Income of ¥9.8B, Net Income attributable to owners of the parent was ¥6.7B, with the tax burden resulting from the effective tax rate of 37.7% compressing earnings. Comprehensive Income was ¥-11.7B, substantially diverging from Net Income of ¥6.7B, primarily due to the ¥-18.5B valuation difference on other securities. Accordingly, attention should be paid to the fact that changes in the market value of held shares are widening the gap between profit reported on the income statement and the underlying state of net assets.

Earnings Forecast and Guidance

Against the Full-Year plan (Revenue: ¥2000.0B, Operating Income: ¥65.0B, Ordinary Income: ¥70.0B, Net Income: ¥43.0B), Q1 progress was 24.9% for Revenue, roughly in line with the simple progress benchmark of 25%. However, progress was slower on the earnings side, at 7.0% for Operating Income, 14.0% for Ordinary Income, and 15.6% for Net Income. The deviation in Operating Income progress is particularly large, and achieving the Full-Year plan will depend on price revisions and progress in passing on costs in the second half, as well as a recovery in the gross margin through inventory reduction. Although the earnings forecast was revised during the quarter, there was no revision to the dividend forecast.

Shareholder Returns

The dividend forecast is ¥100 per share, unchanged from the previous fiscal year’s actual dividend of ¥100. Based on the Company’s planned EPS of ¥299.31, the Payout Ratio is approximately 33.4%, a reasonable level. Given the conservative financial structure, reflected in an Equity Ratio of 55.4%, the Company retains a certain degree of dividend capacity. However, both Operating Income and Net Income declined substantially during the quarter, and full-year earnings and cash flow trends will be factors in assessing the sustainability of future dividends.

Risk Factors

1. Spread contraction risk: The gross margin fell to 12.4%, down approximately 570bt from 18.1% in the same period of the previous year, and delays in passing on increases in raw material and electricity costs are putting pressure on the profitability of the steel business.

2. Working capital expansion risk: Inventories increased to ¥467.2B (+¥23.6B YoY), creating risks of valuation losses and discount sales associated with prolonged inventory accumulation.

3. Business concentration risk: The Steel (Metal) Business accounts for 91.1% of Revenue, and spread trends and demand fluctuations in this business have a significant impact on Company-wide results.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both Operating Margin and Net Profit Margin are substantially below the manufacturing industry median, placing the Company’s profitability at the lower end of the industry.

Growth and Capital Efficiency

Although the Revenue Growth Rate is below the industry median, it remains within the IQR range, indicating that growth is somewhat modest relative to the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. While Revenue increased by +3.9%, Operating Income declined sharply by -84.7% as the gross margin deteriorated by approximately 570bt from the previous year. The fact that higher revenue did not translate into earnings growth is a key point when evaluating the cost structure and pricing power.

2. Operating Income progress against the Full-Year plan was only 7.0%, a significant deviation from Revenue progress of 24.9%. The ability to execute price revisions and inventory reduction in the second half will be the focus for achieving the plan.

3. Comprehensive Income was ¥-11.7B, substantially diverging from Net Income of ¥6.7B, while deterioration in the valuation difference on other securities weighed on net assets. The impact of market value fluctuations in held shares on the financial structure will remain subject to ongoing monitoring.

Theoretical Share Price (For Reference)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥7,874–¥8,330 at ±1% for the Cost of Equity, and ¥8,044–¥8,131 at ±0.1 for ω.

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).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not forecast or guarantee the future share 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. Industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, consulting professionals as necessary.

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