| Metric | Current Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥3151.1B | ¥3228.5B | -2.4% |
| Operating Income | ¥169.7B | ¥153.3B | +10.7% |
| Ordinary Income | ¥162.1B | ¥157.4B | +3.0% |
| Net Income | ¥77.4B | ¥58.6B | +31.9% |
| ROE | 3.5% | 2.8% | - |
For the fiscal year ended March 2026, revenue was ¥3,151.1B (YoY -¥77.4B, -2.4%) showing a decline, while Operating Income was ¥169.7B (YoY +¥16.4B, +10.7%), Ordinary Income was ¥162.1B (YoY +¥4.7B, +3.0%), and Net Income attributable to owners of the parent was ¥98.6B (YoY -¥12.2B, -11.3%). The outcome of lower revenue with higher profits was driven by a substantial turnaround to profitability in the overseas steel business and improvement in gross margin, resulting in an Operating Margin improvement to 5.4% (+0.6pt YoY). Conversely, Net Income declined double-digits despite improvement at the ordinary income level due to deterioration in special gains/losses (net from +¥5.4B prior year to -¥10.7B current) and a reduction in equity-method investment income (¥12.0B → ¥2.6B).
Revenue: Revenue was ¥3,151.1B (YoY -2.4%), a slight decrease. By segment, Overseas Steel Business grew to ¥1,790.6B (+5.9%) and accounted for 56.8% of consolidated sales, while Domestic Steel Business declined to ¥1,255.3B (-12.0%) due to weaker demand and price adjustments. Environmental & Recycling was ¥64.6B (-4.5%) and Other was ¥54.8B (-9.7%), both contracting. Slowing domestic construction and civil engineering demand pressured domestic operations, but increased sales from overseas sites supported consolidated top-line.
Profitability: Gross margin improved to 12.7% (from 11.9% prior year, +0.8pt) while SG&A ratio was 7.3% (from 7.1% prior year, +0.2pt), resulting in Operating Margin improving to 5.4% (+0.6pt) and Operating Income reaching ¥169.7B (+10.7%). Overseas Steel Business Operating Income was ¥61.4B (from ¥1.1B prior year, +458.6%), marking a large turnaround and rapid expansion. Domestic Steel Business Operating Income was ¥112.6B (-35.2%) but maintained a relatively high margin of 9.0%. Non-operating income/expense was net -¥7.6B (prior year +¥4.1B), with interest expense burden of ¥23.9B and equity-method investment income shrinking to ¥2.6B (from ¥12.0B). Ordinary Income rose slightly to ¥162.1B (+3.0%). Special gains/losses were net -¥10.7B (prior year +¥5.4B), including impairment losses ¥1.9B, loss on disposal of fixed assets ¥3.0B, valuation losses on investment securities ¥2.7B, and a negative swing from prior year insurance proceeds of ¥27.7B, leading to significant deterioration. Profit before tax was ¥151.4B (-7.0%); with an effective tax rate of 27.0%, Net Income attributable to owners of the parent was ¥98.6B (-11.3%), reflecting the lower-revenue-higher-profit dynamic.
Domestic Steel Business: Revenue ¥1,255.3B (-12.0%), Operating Income ¥112.6B (-35.2%), margin 9.0%. Declines in civil engineering and construction demand and price adjustments led to lower sales and profits, but it remains a high-margin pillar contributing roughly 66% of consolidated Operating Income.
Overseas Steel Business: Revenue ¥1,790.6B (+5.9%), Operating Income ¥61.4B (from ¥1.1B prior year, +458.6%), margin 3.4%. Achieved turnaround from large prior-year loss to profit, supported by improved overseas market conditions and cost efficiencies. It has grown to a core business with a 56.8% sales mix and sufficiently complemented the domestic business' profit decline.
Environmental & Recycling Business: Revenue ¥64.6B (-4.5%), Operating Income ¥5.5B (-18.9%), margin 8.5%.
Other Business: Revenue ¥54.8B (-9.7%), Operating Income ¥4.3B (-5.1%), margin 7.7%.
Concentration risk exists due to high overseas sales ratio of 56.8%, increasing sensitivity to FX and overseas market fluctuations.
Profitability: Operating Margin 5.4% (from 4.8% prior year, +0.6pt), Net Margin 3.1% (from 3.3% prior year, -0.2pt), ROE 3.5% (from 5.4%) indicating deteriorated capital efficiency. The ROE decline reflects a combination of lower Net Income (¥98.6B → ¥107.9B prior year) and increased equity (¥2,116.6B → ¥2,029.9B prior year). While operating-level profitability improved, non-operating and special items depressed Net Income.
Cash Quality: Operating Cash Flow / Net Income is 2.51x, indicating very strong cash backing of earnings. Operating CF was ¥247.3B (from ¥394.1B prior year, -37.2%), but relative to Net Income of ¥77.4B it maintains sufficient generation. Depreciation was ¥78.8B and Capital Expenditure was ¥179.4B (2.28x depreciation), reflecting an aggressive growth investment stance.
Investment Efficiency: Total Asset Turnover 0.84x (from 0.91x prior year), slightly lower. Inventory Days Outstanding 93 days, with inventories ¥36,45B (note: presented as 364.5億円 in source) weighing on working capital. Receivable days 58, payable days 32, resulting in Cash Conversion Cycle (CCC) of 119 days (93+58-32) and a lengthening trend.
Financial Soundness: Equity Ratio 58.6% (from 57.5%), D/E ratio 0.71x, Debt/Capital 24.1%, indicating a conservative capital structure. Current Ratio 215.3%, Quick Ratio 179.8% show strong short-term liquidity. Short-term debt ratio 58.8% is somewhat high, but cash & equivalents ¥629.5B exceed short-term interest-bearing debt ¥605.6B (short-term borrowings ¥409.6B + bonds maturing within 1 year ¥100B + long-term borrowings due within 1 year ¥50.0B), limiting refinancing risk. Long-term borrowings increased to ¥286.7B (from ¥180.5B prior year, +58.8%), and combined with ¥100B bonds, long-term interest-bearing debt totals ¥386.7B with improved maturity dispersion.
Operating CF was ¥247.3B (from ¥394.1B prior year, -37.2%). Pre-tax profit before adjustments was ¥151.4B, with depreciation ¥78.8B, decrease in trade receivables ¥48.0B, and increase in trade payables ¥39.6B contributing positively, while inventory increase ¥20.9B and income taxes paid ¥59.8B were headwinds. Operating CF / Net Income is 2.51x, and OCF/EBITDA is 1.00x (EBITDA ¥248.4B = Operating Income ¥169.7B + Depreciation ¥78.8B), indicating solid cash generation. Investing CF was -¥154.3B, led by Capital Expenditure ¥179.4B (2.28x depreciation). Includes purchases of short-term investment securities ¥80B and investment securities ¥0.8B; disposal proceeds were small (fixed asset sales ¥0.9B). Free Cash Flow was ¥93.0B (Operating CF ¥247.3B + Investing CF -¥154.3B), remaining positive and preserving autonomous funding despite active investments. Financing CF was -¥13.0B, reflecting net repayment of short-term borrowings ¥75.4B, long-term borrowings repayments ¥50.6B, bond redemption ¥100B, partially offset by long-term borrowings procured ¥57.3B and bond issuance ¥99.5B. Dividend payments ¥39.1B led to a slight net decrease. Cash and cash equivalents rose from ¥380.5B at the beginning of the period to ¥463.6B at the end (+¥83.1B), including FX impact +¥3.1B, maintaining financial flexibility.
Of Ordinary Income ¥162.1B, Operating Income ¥169.7B constitutes the majority, indicating an operating-driven earnings structure. Net non-operating items were -¥7.6B; non-operating income totaled ¥20.6B (interest income ¥7.8B, dividend income ¥3.2B, equity-method investment income ¥2.6B, etc.) vs. non-operating expenses totaling ¥28.1B including interest expense ¥23.9B. Non-operating income is small at 0.7% of sales, so core business dependence is high. Special gains/losses were net -¥10.7B: special gains ¥3.6B (insurance proceeds, etc.) vs. special losses ¥14.2B (impairment losses ¥1.9B, loss on disposal of fixed assets ¥3.0B, settlement of litigation ¥2.4B, valuation losses on investment securities ¥2.7B, etc.), with one-off charges weighing on Net Income. Prior year included special gains of ¥35.2B (including insurance proceeds ¥27.7B), resulting in net +¥5.4B, so the negative swing was large.
Operating CF ¥247.3B / Net Income ¥77.4B = 3.19x indicates very high cash backing of profits. Accrual ratio -4.0% (change in operating working capital / average total assets) is negative, meaning cash generation exceeded accounting profits, a healthy condition. Comprehensive Income was ¥136.2B (Net Income ¥77.4B + Other Comprehensive Income ¥25.6B), with major OCI items being foreign currency translation adjustments ¥11.0B, valuation differences on available-for-sale securities ¥1.6B, and actuarial gains/losses on retirement benefits ¥13.9B. The divergence between Ordinary Income and Net Income is -52.1% (Net Income ¥77.4B / Ordinary Income ¥162.1B - 1), primarily due to taxes ¥40.8B, non-controlling interests ¥12.0B, and net special losses -¥10.7B deductions. Ordinary earnings show high sustainability, but volatility in special items undermines Net Income stability.
Full Year guidance: Revenue ¥3,600B (YoY +14.2%), Operating Income ¥160B (-5.7%), Ordinary Income ¥140B (-13.6%), Net Income attributable to owners of the parent ¥90B (-8.8%). Progress rates are Sales 87.5%, Operating Income 106.1%, Ordinary Income 115.8%, Net Income 109.6%, indicating profit items have already exceeded full-year forecasts. The sales plan assumes large accumulation in Q4, but Operating Income already reached ¥169.7B versus full-year forecast ¥160B, suggesting conservative assumptions that incorporate raw material price increases and market deterioration. Implied Operating Margin is 4.4% (¥160B/¥3,600B), a -1.0pt decline from the current 5.4%. EPS forecast ¥207.09 (actual ¥226.98), dividend forecast ¥30 (actual annual ¥90 comprised of interim ¥30 + year-end ¥60), so guidance implies an annual dividend of ¥60. The full-year outlook is set conservatively to reflect fuels cost increases, overseas market volatility, and FX effects; if inventory efficiency improvements and cost control proceed as planned, upside is possible, while deterioration in external environment would justify maintaining the forecast. ROE of 3.5% is low and improving capital efficiency through higher inventory turnover and margin expansion is a medium-term challenge.
Year-end dividend ¥60 and interim dividend ¥30, totaling annual dividend ¥90 (prior year ¥30, +¥60). Against Net Income ¥98.6B, total dividend payments were ¥39.1B, giving a payout ratio of 39.6% (on a standalone net income basis 36.2%). Against FCF ¥93.0B, dividend payments ¥39.1B yield an FCF coverage of 2.38x, indicating high sustainability. No share buyback was announced; total shareholder returns are dividend-focused. The +200% increase from prior year dividend ¥30 likely reflects that prior year was a normal dividend of ¥30 without a special commemorative payout, with current period returning to a regular level. With BPS ¥4,870.38 and dividend ¥90, dividend yield is approximately 1.8% (dependent on share price). Given payout ratio just under 40%, strong FCF generation, and cash & equivalents ¥629.5B, continuation of a stable dividend policy is feasible. Next fiscal year guidance dividend ¥30 is a conservative initial indication with potential for increase over the full year.
Steel market & raw material price volatility: Although gross margin improved to 12.7% (+0.8pt YoY), the absolute level is low and rises in scrap prices or electricity costs can quickly compress margins. Overseas Steel Business margin of 3.4% is market-sensitive, posing significant downside risk if steel spreads narrow. Raw material inventories of ¥339.3B expose the company to valuation loss risk in price downturns.
Excess inventory and working capital pressure: Inventories ¥364.5B (DIO 93 days) represent 11.6% of sales and are high, raising risks of stock obsolescence during demand weakness. Working capital increases (inventory +¥20.9B) are squeezing Operating CF, and delayed improvement in inventory turnover could tighten liquidity. CCC of 119 days prolongation reduces capital efficiency.
Short-term debt dependence and interest rate risk: Short-term interest-bearing debt ¥605.6B accounts for 61% of total interest-bearing debt ¥992.3B, with short-term debt ratio 58.8% being high. Although cash can cover refinancing risk currently, rising interest rates would increase interest expense (currently ¥23.9B) and pressure Ordinary Income. Although maturity dispersion has progressed, concentrated maturities are not fully resolved.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 5.4% | 7.8% (4.6%–12.3%) | -2.4pt |
| Net Margin | 2.5% | 5.2% (2.3%–8.2%) | -2.7pt |
Both Operating and Net Margins are below industry medians, indicating relatively low profitability within the manufacturing sector. Low gross margin of 12.7% and short-term debt dependence constrain profitability.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | -2.4% | 3.7% (-0.4%–9.3%) | -6.1pt |
Growth lags industry median significantly, mainly due to domestic demand declines. Expansion of overseas operations is key to consolidated growth.
※ Source: Company compilation
The establishment of profitability and Operating Margin improvement in overseas operations represents structural progress and diversifies the portfolio to offset long-term domestic demand weakness. Overseas sales ratio of 56.8% increases FX and market sensitivity but also raises expectations as a growth driver. Operating Margin of 5.4% remains below the industry median of 7.8%, but the +0.6pt YoY improvement is a trend to monitor.
Cash generation capacity (OCF/Net Income 2.51x, FCF +¥93.0B) and dividend sustainability (FCF coverage 2.38x) are high, enabling aggressive CapEx (CapEx/Depreciation 2.28x) funded internally while maintaining shareholder returns. Cash & equivalents ¥629.5B and Current Ratio 215% provide a stable base for dividends, though high inventory levels (DIO 93 days) and short-term debt bias (58.8%) should be focal points for next-period working capital and refinancing management.
The conservatism of full-year guidance (Operating Income -5.7%) vs. current period progress (Operating Income 106%) suggests cautious assumptions incorporating raw material and market risks. If inventory efficiency and cost control proceed, upside is possible; however, in adverse external conditions, volatility in special gains/losses (net -¥10.7B) could drive Net Income variability. Low ROE of 3.5% highlights the need for medium-term improvements in inventory turnover and profitability to enhance capital efficiency.
This report is an earnings analysis document automatically generated by AI analyzing XBRL earnings release data. It does not constitute a recommendation to invest in any particular security. Industry benchmarks are reference information compiled by the Company based on public financial statements. Investment decisions are your responsibility; please consult professionals as necessary before making any investment decision.