| Metric | This Period | Same Period Last Year | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥1603.9B | ¥1682.7B | -4.7% |
| Operating Income / Operating Profit | ¥45.0B | ¥114.9B | -60.9% |
| Ordinary Income | ¥652.4B | ¥544.0B | +19.9% |
| Net Income / Net Profit | ¥639.3B | ¥339.9B | +88.1% |
| ROE | 11.0% | 5.6% | - |
For the fiscal year ended March 2026, Daiwa Kogyo reported Revenue ¥1603.9B (YoY -¥78.8B -4.7%), Operating Income ¥45.0B (YoY -¥69.9B -60.9%), Ordinary Income ¥652.4B (YoY +¥108.4B +19.9%), and Net Income attributable to owners of the parent ¥623.9B (YoY +¥292.0B +88.1%). Core operating activities suffered a large earnings decline due to weakening steel market conditions and high raw material costs, but non-operating and one-off items—principally Equity-method investment income ¥474.9B (YoY +170.9%), Gain on sale of investment securities ¥168.2B, and Interest income ¥87.8B (YoY -28.0%)—boosted overall profits, resulting in record-high final profits. Operating margin contracted to 2.8% (down 4.0pt from 6.8% a year earlier) and gross margin fell to 13.9% (down 3.7pt from 17.6%), indicating a marked deterioration in profitability; nevertheless, net margin jumped to 39.9% (up 19.7pt from 20.2%). By segment, Steel Business (Thailand) remained the largest earnings source with Revenue ¥687.7B and Operating Income ¥42.4B but recorded a YoY decline in profit of -20.7%; Steel Business (Japan) posted Revenue ¥536.7B and Operating Income ¥14.9B (-74.9% YoY); Steel Business (Indonesia) posted Revenue ¥250.3B and Operating Income ¥10.2B (-72.9% YoY). In contrast, Railway Supplies Business delivered Revenue ¥96.7B and Operating Income ¥17.3B (+21.0% YoY), maintaining high profitability at a 17.9% margin. Progress against full-year guidance was: Revenue 96.3%, Operating Income 99.9%, Ordinary Income 96.0%, Net Income 132.8% — operating performance broadly on plan, with net income materially exceeding guidance due to equity-method and extraordinary gains.
[Revenue] Revenue ¥1603.9B declined -4.7% YoY. By segment, Steel Business (Japan) fell -10.8% and Steel Business (Indonesia) fell -10.5%, both double-digit declines; Steel Business (Thailand) also declined slightly by -0.7%, reflecting softness in steel markets across ASEAN and adjustments to volumes and prices. Conversely, Railway Supplies Business grew +10.9%, and Other segments (counterweights, logistics, medical waste disposal, real estate, etc.) grew +41.9%, partially supporting the portfolio. The combined top three steel segments totaled Revenue ¥1474.7B (91.9% of the company), down -6.7% YoY, which materially pressured overall top-line performance.
[Profitability] Cost of goods sold ratio worsened to 86.1% (up 3.7pt from 82.4%), lowering gross margin to 13.9% (down 3.7pt from 17.6%). SG&A was ¥178.2B, a slight decrease of ¥0.9B YoY (ratio to sales 11.1%, up 0.4pt from 10.7%), but the contraction in gross profit led to Operating Income of ¥45.0B (¥114.9B prior year, -60.9%), with operating margin of 2.8% (down 4.0pt). Non-operating income included Interest income ¥87.8B, Equity-method investment income ¥474.9B (¥277.7B prior year, +71.0%), and Foreign exchange gains ¥29.9B, producing total non-operating income of ¥610.7B (less non-operating expenses ¥3.3B, net ¥607.4B), which substantially exceeded operating income. As a result, Ordinary Income rose to ¥652.4B (+19.9% YoY). Extraordinary items included Gain on sale of investment securities ¥168.2B, leading to extraordinary income net ¥168.3B (¥1.3B prior year), and extraordinary losses ¥15.8B (¥6.5B prior year, mainly disposal loss on fixed assets ¥4.7B). Pre-tax income was ¥804.9B (¥538.8B prior year, +49.4%). After Income taxes ¥165.6B (effective tax rate 20.6%) and Non-controlling interests ¥15.4B, Net Income attributable to owners of the parent was ¥623.9B (+88.1% YoY). Comprehensive income was ¥352.1B, considerably below net income, as Other comprehensive income was -¥287.1B (currency translation adjustments -¥42.0B, OCI share of equity-method affiliates -¥228.3B, unrealized gains/losses on securities -¥22.1B, etc.), reflecting valuation losses from external factors. In summary, the company experienced revenue and operating profit declines in core operations but achieved final profit growth due to large contributions from non-operating and extraordinary gains—an instance of "revenue down, net profit up."
Steel Business (Thailand): Revenue ¥687.7B (¥693.1B prior year, -0.7%), Operating Income ¥42.4B (¥53.5B prior year, -20.7%), margin 6.2%. Remained the group's largest earnings source but profit declined due to weaker market conditions. Steel Business (Japan): Revenue ¥536.7B (¥601.5B prior year, -10.8%), Operating Income ¥14.9B (¥59.6B prior year, -74.9%), margin 2.8%—a significant revenue and profit contraction reflecting domestic market weakness and price adjustment pressures. Steel Business (Indonesia): Revenue ¥250.3B (¥279.7B prior year, -10.5%), Operating Income ¥10.2B (¥37.9B prior year, -72.9%), margin 4.1%—sharp profit decline due to local demand slowdown and high raw material costs. Railway Supplies Business: Revenue ¥96.7B (¥87.2B prior year, +10.9%), Operating Income ¥17.3B (¥14.3B prior year, +21.0%), margin 17.9%—highly profitable and contributed portfolio stability thanks to steady infrastructure demand and product competitiveness. Other segments: Revenue ¥41.8B (¥29.5B prior year, +41.9%), Operating Income ¥3.7B (¥3.0B prior year, +22.9%), margin 8.7%—solid performance. Consolidated operating income after intersegment adjustments was ¥45.0B, derived from segment total ¥88.5B less corporate expenses ¥43.6B (¥53.3B prior year).
[Profitability] Operating margin was 2.8% (down 4.0pt from 6.8%), gross margin 13.9% (down 3.7pt from 17.6%), significantly deteriorated due to soft selling prices, high raw material costs, and inventory valuation burdens. Net margin surged to 39.9% (up 19.7pt from 20.2%), driven by Equity-method investment income ¥474.9B (about 10.6x operating income) and Gain on sale of investment securities ¥168.2B, not by core earnings improvement. ROE rose to 11.0% (from 5.9% prior year, +5.1pt), mainly propelled by higher net margin; asset turnover was 0.25x (0.26x prior year, roughly unchanged) and financial leverage 1.09x (1.09x prior year), indicating capital efficiency and leverage were stable while return on invested capital remained low.
[Cash Quality] Operating Cash Flow (OCF) was ¥520.4B, which is 0.83x of Net Income ¥623.9B, slightly below parity; cash conversion remained high but not complete. Working capital movements included Inventories +¥17.2B (inventory increase), Accounts receivable -¥13.0B (collection progress), Accounts payable -¥11.4B (increased payments), leaving inventory burdens intact. OCF/EBITDA ratio was 3.47x—very high—likely reflecting dividends from equity-method affiliates and substantial depreciation.
[Investment Efficiency] Capital expenditures were ¥111.2B, 1.06x of depreciation ¥105.1B, indicating maintenance and renewal investment focus. Tangible fixed asset turnover was 1.38x (Total assets ¥6335.4B, Revenue ¥1603.9B), relatively low, indicating room to improve asset efficiency. Investment securities amounted to ¥468.8B, down -37.0% from ¥744.3B prior year, reflecting portfolio shrinkage and realized gains (¥168.2B).
[Financial Soundness] Equity Ratio was 91.8% (91.7% prior year, nearly flat), extremely high. Interest-bearing debt totaled ¥7.8B (¥19.6B prior year, -60.2%), substantially reduced, maintaining an effectively debt-free profile. Cash and deposits were ¥2193.8B vs. Total liabilities ¥521.2B (¥545.4B prior year), with Current ratio 1383% and Quick ratio 1275%, indicating no short-term liquidity concerns. Debt/EBITDA was 0.05x (EBITDA approx ¥150.0B = Operating Income ¥45.0B + Depreciation ¥105.1B), extremely low, and interest coverage on an operating income basis was 21.4x (interest expense ¥2.1B), indicating comfortable interest coverage. Total equity including Non-controlling interests ¥396.7B was ¥5814.2B, strong and resilient to rate increases and external shocks.
OCF was ¥520.4B (¥710.3B prior year, -26.7%), representing 0.83x of Net Income ¥623.9B. Reconciliation started from Pre-tax profit ¥804.9B, adding back Depreciation ¥105.1B, Goodwill amortization ¥11.3B, subtracting Equity-method investment gains/losses -¥474.9B, Gain on sale of investment securities -¥168.2B, foreign exchange gains/losses -¥11.7B, etc., yielding subtotal OCF before working capital changes ¥212.0B. Working capital movements: Inventories +¥17.2B (increase), Trade receivables +¥13.0B (decrease in receivables), Trade payables -¥11.4B (decrease in payables), so inventory growth was a cash outflow. Interest/dividend received totaled +¥501.7B (including large receipts from equity-method affiliates), interest paid -¥1.1B, corporate taxes paid -¥192.2B, resulting in OCF. Investing Cash Flow was -¥408.8B (prior year -¥856.8B), comprising Time deposits placed -¥4477.9B, Time deposits withdrawn +¥4045.5B, Capital expenditures -¥111.2B, Acquisition of subsidiary shares -¥50.9B (same as prior year, continuing M&A-related investments), Purchase of investment securities -¥1.1B, Proceeds from sale of investment securities +¥188.3B, etc. Large time deposit flows were part of cash management; core investing activities centered on capex, subsidiary investments, and sale of securities. Free Cash Flow (FCF) = OCF ¥520.4B + Investing CF -¥408.8B = ¥111.6B, turning positive from prior year FCF -¥146.5B, but shareholder returns (Dividends ¥245.3B + Share buybacks ¥253.9B = ¥499.2B) were covered only 0.22x by FCF, funded by drawing down cash balances. Financing CF was -¥577.8B (prior year -¥429.9B), including Dividends paid -¥245.3B (including non-controlling interests -¥8.8B), Purchases of treasury stock -¥256.1B, Repayment of long-term borrowings -¥10.9B, Changes in investments in subsidiaries -¥59.4B, etc. Cash and cash equivalents fell from ¥1240.2B at the beginning of the period to ¥754.6B at period-end (-¥485.6B), including period FX effect -¥19.5B. The OCF/EBITDA ratio of 3.47x is high due to sizeable depreciation and equity-method dividends; improving working capital management and inventory efficiency could further expand FCF.
The period's profit structure featured Operating Income ¥45.0B (operating core) supplemented by Non-operating income net ¥607.4B (mainly Equity-method investment income ¥474.9B, Interest income ¥87.8B, FX gains ¥29.9B) and Net extraordinary income ¥152.5B (Gain on sale of investment securities ¥168.2B minus extraordinary losses ¥15.8B), producing Pre-tax profit ¥804.9B. Equity-method investment income represented about 59% of pre-tax profit, and Gain on sale of investment securities accounted for about 27% of net income, reflecting very high dependence on non-operating and one-off items. Total non-operating income ¥610.7B represented 38% of Revenue ¥1603.9B, far exceeding typical operating activity contributions. Conversely, OCF ¥520.4B was 0.83x of Net Income ¥623.9B, indicating relatively high cash realization and low accounting manipulation. However, cash realization of equity-method income depends on dividend timing from affiliates, introducing potential timing lags. Comprehensive income ¥352.1B was ¥271.8B (43.6%) below net income, with most other comprehensive losses being FX translation adjustments -¥42.0B and OCI share of equity-method affiliates -¥228.3B, reflecting affiliates' FX and valuation losses. The divergence between Ordinary Income ¥652.4B and Net Income ¥623.9B is explained by taxes (Income taxes ¥165.6B) and Non-controlling interests ¥15.4B; extraordinary gains largely offset tax burden. Accrual ratio ((Net Income - OCF) / Total assets) = (¥623.9B - ¥520.4B) / ¥6335.4B = 1.6%, low, indicating solid cash backing for profits. Nevertheless, fragility in operating income and high reliance on equity-method and investment securities gains pose uncertainty for the sustainability of earnings in future periods.
Against the full-year forecast (Revenue ¥1660.0B, Operating Income ¥45.0B, Ordinary Income ¥680.0B, Net Income ¥470.0B, EPS ¥786.58), progress was Revenue 96.3% (1603.9/1660.0), Operating Income 99.9% (45.0/45.0), Ordinary Income 96.0% (652.4/680.0), Net Income 132.8% (623.9/470.0). Operating Income landed essentially on plan, reflecting limited core recovery. Ordinary Income missed guidance by ¥27.6B but Net Income exceeded guidance by ¥153.9B, driven by larger-than-expected Gain on sale of investment securities ¥168.2B and upside in equity-method income. EPS was ¥1024.60, 30.2% above forecast ¥786.58. The forecast YoY assumptions were Revenue +3.5%, Operating Income +0.1%, Ordinary Income +4.2%, assuming modest recovery full-year; performance from Q3 onward will be watched. Dividend guidance remains unchanged at Year-end ¥200 (annual ¥400), consistent with announced policy.
Annual dividend maintained at ¥400 (Interim ¥200, Year-end ¥200, including commemorative dividends of ¥50 each). Based on Net Income attributable to owners of the parent ¥623.9B and total dividend payout (excluding treasury shares; average shares outstanding during the period 60,891,578 shares × ¥400 = approx. ¥243.6B), the payout ratio is about 39.0%. Dividend-only shareholder return measured as DOE is approx. 4.7% (Total dividends / Total equity). The company also executed share buybacks (Treasury stock acquisition in financing CF -¥253.9B), making total shareholder returns Dividends + Buybacks ≈ ¥497.5B, yielding a Total Return Ratio of approximately 79.7% (497.5/623.9). Coverage of total returns by FCF (FCF ¥111.6B) was 0.22x, indicating that most returns were funded from cash balances. However, with cash and deposits ¥2193.8B and an effectively debt-free profile, short-term sustainability is not a concern. Dividend stability is considered sufficiently supported by this period's earnings, but strengthening OCF and reducing inventories to expand FCF are prerequisites for sustainable medium- to long-term returns. The dividend policy notes inclusion of commemorative dividends ¥50 (annual ¥100), implying ordinary dividends are Interim ¥150 / Year-end ¥150, with commemorative payments likely tied to milestones such as founding or mergers.
Steel market and raw material price volatility: With gross margin 13.9% (down 3.7pt) and operating margin 2.8% (down 4.0pt), core business profitability is highly vulnerable to market and cost environments. Continued softening in ASEAN and domestic steel markets or simultaneous surges in scrap or energy prices could push the company into operating losses. Segment margins in Steel Business (Japan) 2.8% and Steel Business (Indonesia) 4.1% are low; without margin improvement, business continuity could be impacted. Limited short-term hedging capability for raw material price swings and potential further deterioration in inventory valuation amplify risk.
Dependence on equity-method investment income: Equity-method investment income ¥474.9B accounted for ~59% of pre-tax profit ¥804.9B, making Ordinary Income highly sensitive to affiliate performance and dividend policies. Affiliates appear to be resource- and steel-related overseas operations subject to resource price, FX, and local demand cycles. Equity-method income surged +71.0% YoY this period, but future sustainability is uncertain; a decline could materially reduce Ordinary Income. Limited disclosure on equity-method investment details, affiliates' financial health, and goodwill transparency also present risks.
FX volatility and comprehensive income volatility: Non-operating FX gains ¥29.9B, other comprehensive income currency translation adjustment -¥42.0B, and OCI share of equity-method affiliates -¥228.3B indicate FX impacts on both profit and equity. FX gains/Operating Income ratio is 66.5% (29.9/45.0), signaling high sensitivity; yen appreciation could reduce non-operating income and pressure Ordinary Income. A comprehensive income shortfall of -43.6% relative to net income implies real erosion of shareholders’ equity, which could hurt market valuation and capital efficiency. The effectiveness and disclosure of FX hedging for ASEAN currencies (Thai Baht, Indonesian Rupiah) and USD will be a focal point.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating margin | 2.8% | 7.8% (4.6%–12.3%) | -4.9pt |
| Net margin | 39.9% | 5.2% (2.3%–8.2%) | +34.7pt |
Operating margin is 4.9pt below the manufacturing median of 7.8%, placing the company in the lower tier due to steel market weakness and raw material cost inflation. Net margin exceeds the median by 34.7pt, but this reflects contributions from equity-method income and sale of investment securities rather than core operational superiority.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue growth (YoY) | -4.7% | 3.7% (-0.4%–9.3%) | -8.4pt |
Revenue growth lags the median (3.7%) by 8.4pt, indicating the company is underperforming peers in a generally gradual growth environment.
※ Source: Company aggregation
Final profit growth was driven by Equity-method investment income (YoY +71.0%) and Gain on sale of investment securities ¥168.2B, while core operating profitability plunged by -60.9%. Operating margin 2.8% and gross margin 13.9% both trail industry medians, highlighting vulnerability to steel market and raw material prices. Segment-wise, Steel Business (Japan) and (Indonesia) posted >70% declines, whereas Railway Supplies Business delivered a stable, high margin of 17.9%. Key near-term focuses are margin recovery (inventory reduction, price pass-through, cost control) and improving utilization and yields at Japan and Indonesia plants.
Financial position is very strong (Equity Ratio 91.8%, Debt/EBITDA 0.05x, Cash and deposits ¥2193.8B), with interest-bearing debt nearly zero and no liquidity risk. Shareholder returns are proactive (payout ratio 39.0%, Total Return Ratio 79.7%), but FCF coverage is low (0.22x), meaning much of returns were funded from cash reserves. The company reduced investment securities by -37.0% and recognized ¥168.2B of gains; future realizable gains will likely diminish. Thus, sustainable returns hinge on strengthening OCF and stable dividends from equity-method affiliates. Deterioration in inventory turnover days and CCC flags a need for improved working capital management to bolster cash generation.
Versus full-year guidance, Operating Income nearly hit plan (progress 99.9%), indicating limited recovery. Net Income exceeded guidance by 132.8%, underscoring dependence on non-operating and one-off gains. Equity-method investment income accounted for ~59% of pre-tax profit, making results sensitive to affiliate performance, FX, and resource price cycles. FX gains/Operating Income ratio 66.5% and comprehensive income shortfall -43.6% due to FX and OCI valuation losses indicate high earnings volatility. Key watch points include timing of steel market trough, signs of demand recovery in ASEAN, stability of affiliate dividend policies, and effectiveness of FX hedging. In the short term, the company may secure earnings via non-operating one-offs, while medium-term goals should focus on normalizing operating margin (target >5%) and improving inventory efficiency to deliver sustainable growth and shareholder value.
This report is an earnings analysis document automatically generated by AI from XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the company from publicly disclosed financial data. Investment decisions are your responsibility; consult a professional advisor as needed.