YAMATO KOGYO CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

This quarter was characterized by a significant change in the earnings structure: while Revenue remained essentially flat, Operating Income fell from a profit in the previous year into the red, whereas Ordinary Income and Net Income increased substantially due to the sharp expansion of non-operating income, including equity-method investment gains. Revenue was ¥391.9B (YoY +0.0%), Operating Income was ¥-4.5B (deteriorating from ¥11.2B in the previous year), Ordinary Income was ¥221.5B (up +112.3%), and consolidated Net Income, including non-controlling interests, was ¥126.6B (up +108.1%; on an attributable-to-owners-of-the-parent basis, ¥122.9B, up +107.9%). The primary driver of the increase was the sharp expansion of equity-method investment gains to ¥205.9B (YoY +179.3%), resulting in a structure in which non-operating income offset the decline in core business profitability.

Factors Affecting Performance

【Revenue】Revenue was ¥391.9B, essentially flat year on year (YoY +0.0%), although the magnitude of changes varied significantly by segment. The Thailand Steel Business was the largest segment, with Revenue of ¥202.5B (up +21.5%), accounting for 51.6% of total Revenue. The Indonesia Steel Business also grew to ¥66.1B (up +15.6%). In contrast, the Japan Steel Business declined substantially to ¥93.2B (down -33.1%), offsetting the growth of the overseas segments. The Rail Products Business was essentially flat at ¥21.2B.

【Profit and Loss】The gross profit margin declined to 9.9% from 14.0% in the previous year, a decrease of approximately 410bp, mainly due to deteriorating profitability in the Japan segment. SG&A expenses were ¥43.2B, essentially flat from ¥43.7B in the previous year. Consequently, the decline in the gross profit margin flowed directly through to the operating level, and Operating Income fell into the red at ¥-4.5B, compared with ¥11.2B in the previous year. The Operating Income margin deteriorated by approximately 390bp to -1.1%, compared with +2.8% in the previous year. Meanwhile, non-operating income was exceptionally large at ¥233.6B, comprising equity-method investment gains of ¥205.9B, interest income of ¥14.8B, and foreign exchange gains of ¥8.7B. As a result, Ordinary Income doubled to ¥221.5B (up +112.3%). After recording extraordinary losses of ¥33.3B, including losses on disposal of fixed assets, as temporary factors, Profit Before Tax was ¥188.2B. After deducting income taxes of ¥61.5B and profit attributable to non-controlling interests of ¥3.7B, Net Income attributable to owners of the parent was ¥122.9B (up +107.9%). In conclusion, this was a results period in which operating earnings declined, resulting in a loss, while Ordinary Income and Net Income increased substantially due to the expansion of non-operating income, primarily equity-method investment gains.

Segment Analysis

By segment operating performance, the Thailand Steel Business led the overall results with Operating Income of ¥22.3B (¥6.5B in the previous year, up +244.9%), while maintaining a high Operating Income margin of 11.0%. The Japan Steel Business fell into a loss of ¥-18.6B, compared with a profit of +¥9.0B in the previous year, and its margin deteriorated to -20.0%. The Indonesia Steel Business remained profitable at ¥0.8B, but declined -61.1% year on year, with a margin of only 1.3%. The Rail Products Business posted ¥1.8B (down -43.7%), while Other Businesses posted ¥0.3B (down -75.9%); both recorded declines in earnings. Deducting unallocated corporate expenses of ¥-11.0B from total segment profit of ¥6.5B resulted in consolidated Operating Loss of ¥-4.5B, clearly illustrating that the high profitability of Thailand was insufficient to absorb the losses in Japan.

Key Financial Indicators

【Profitability】The Operating Income margin deteriorated by approximately 390bp to -1.1% from +2.8% in the previous year. In contrast, the Ordinary Income margin rose substantially to 56.5% from 26.6%, while the Net Income margin, on an attributable-to-owners-of-the-parent basis, rose to 31.4% from 15.1%. This was driven by equity-method investment gains and financial income recorded outside the operating level, in contrast to the deterioration in core business profitability. ROE was 2.2%. Despite the high Net Income margin, the total asset turnover ratio was low at 0.06x, while leverage was conservative at approximately 1.1x, keeping the effective ROE level subdued.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥373.6B, approximately 3.0 times Net Income attributable to owners of the parent of ¥122.9B, indicating solid cash-generation capacity. However, the subtotal before changes in working capital was only ¥14.9B, and receipts of interest and dividends of ¥366.1B were the primary driver of OCF. Accordingly, recurring cash-generation capacity from the core business itself remains limited.【Investment Efficiency】Capital expenditures were ¥33.1B, exceeding depreciation and amortization of ¥28.1B, indicating that investment above maintenance levels has continued. Although Free Cash Flow was ample at ¥883.0B, the increase in investing cash flow was significantly affected by fund movements resulting from the excess withdrawal of time deposits over deposits made.【Financial Soundness】The Equity Ratio remained high at 84.6% (85.5% in the previous year), while cash and deposits were ¥2433.0B, accounting for 37.6% of total assets. Current assets of ¥3368.4B far exceeded current liabilities of ¥306.1B, resulting in an extremely high current ratio and a strong financial foundation.

Cash Flow Analysis

Operating Cash Flow was ¥373.6B (up +15.6% year on year), remaining above Net Income attributable to owners of the parent of ¥122.9B. However, the subtotal before working capital adjustments was only ¥14.9B, and it should be noted that receipts of interest and dividends of ¥366.1B accounted for the majority of OCF. Investing Cash Flow was positive at +¥509.4B. Excluding capital expenditures of -¥33.1B, this was primarily due to fund movements resulting from time-deposit withdrawals of ¥1005.6B exceeding deposits of ¥461.7B, rather than an expansion of business investment. Financing Cash Flow was ¥-115.8B, mainly reflecting dividend payments of ¥109.5B. Free Cash Flow (OCF + Investing Cash Flow) was ample at ¥883.0B, sufficient to cover dividends and capital expenditures.

Quality of Earnings

The earnings structure for the quarter was characterized by a significant divergence between recurring operating profit and non-recurring or non-operating factors. While Operating Income was a loss of ¥-4.5B, non-operating income reached ¥233.6B, equivalent to 59.6% of Revenue, with equity-method investment gains of ¥205.9B representing the largest component. This lifted Ordinary Income to ¥221.5B, but the majority of its source was not the Company’s core sales activities; rather, it depended on the performance of equity-method affiliates and financial income. Extraordinary losses of ¥33.3B, including losses on disposal of fixed assets, were classified as temporary factors. After deducting income taxes of ¥61.5B and profit attributable to non-controlling interests of ¥3.7B from Profit Before Tax of ¥188.2B, Net Income attributable to owners of the parent was ¥122.9B. The fact that OCF exceeded Net Income indicates high earnings quality from an accrual perspective. However, because the substance of OCF depends on the receipt of financial income, the sustainability of earnings is readily affected by the performance of equity-method investees and foreign exchange trends.

Earnings Forecast and Guidance

Progress against the full-year Company forecast was generally favorable, with Revenue at 22.0% against the forecast of ¥1780.0B and Ordinary Income at 25.5% against the forecast of ¥870.0B. In contrast, Operating Income was substantially behind schedule, with the current-quarter loss of ¥-4.5B compared with the full-year forecast of ¥32.0B. Net Income attributable to owners of the parent was also only 21.4% against the forecast of ¥575.0B, below the approximately 25% quarterly average pace for the full year. The full-year forecast assumes Revenue of +11.0%, Ordinary Income of +33.4%, and Operating Income of -28.8% year on year. As of the current quarter, the increase in earnings at the Ordinary Income level is generally in line with expectations, while a return to profitability at the operating level will be key to achieving the full-year forecast. The earnings forecast was revised during the current quarter.

Shareholder Returns

The full-year dividend forecast remains unchanged at ¥400 per share, with no revision to the dividend forecast as of the current quarter. Based on the full-year forecast of Net Income attributable to owners of the parent of ¥575.0B and forecast EPS of ¥962.30, the Payout Ratio is approximately 41.6% (¥400 ÷ ¥962.30), which can be considered sustainable. Dividend payments during the current quarter were ¥109.5B, but were fully covered by Free Cash Flow of ¥883.0B. Together with cash on hand of ¥2433.0B, this provides substantial financial capacity to support continued dividends.

Risk Factors

1. Segment concentration risk: The Thailand Steel Business accounts for 51.6% of Revenue (¥202.5B) and generates the majority of total segment profit of ¥6.5B. Changes in supply and demand, foreign exchange rates, and local policy in this business are likely to directly affect consolidated performance.

2. Deterioration in profitability of the Japan segment: Revenue in the Japan Steel Business declined to ¥93.2B (down -33.1% year on year), while Operating Income fell into a loss of ¥-18.6B, compared with +¥9.0B in the previous year. Declining volumes and deteriorating profitability are occurring simultaneously, making the timing of a return to profitability a key focus going forward.

3. Dependence on equity-method investment gains: Equity-method investment gains of ¥205.9B accounted for the majority of Ordinary Income of ¥221.5B and were the primary source of non-operating income. These gains are inherently subject to fluctuation due to changes in the performance of investees, resource prices, and foreign exchange rates.

Industry Benchmark (For Reference; Compiled by the Company)

The Operating Income margin was 10.0pt below the industry median and in negative territory, while the consolidated Net Income margin was 25.1pt above the industry median due to the impact of equity-method investment gains and other factors.

※Source: Compiled by the Company

Key Points from the Results

1. While Operating Income fell into the red, Ordinary Income and Net Income increased substantially due to non-operating income, including equity-method investment gains. The shift in the source of earnings from the core business toward investment and financial income is the defining feature of these results.

2. By segment, the high profitability of the Thailand Steel Business (Operating Income margin of 11.0%) absorbed the loss in the Japan Steel Business (margin of -20.0%), indicating that the disparity in profitability between regions has widened.

3. Progress toward the full-year forecast was solid for Ordinary Income at 25.5%, while Operating Income and Net Income were behind their respective full-year forecasts. The turnaround of the Japan segment and recovery in the gross profit margin are expected to determine progress from the second half onward.

Theoretical Share Price (Reference Value)

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

Sensitivity: ¥10,183–¥10,778 at ±1% for the Cost of Equity, and ¥10,458–¥10,497 at ±0.1 for ω.

Notes:

• Normalized EPS calculated from Ordinary Income and other figures is used to exclude the impact of temporary profit and loss items (Company forecast EPS is ¥962.3).
• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• Because non-controlling interests are included in net assets, the theoretical value may be calculated somewhat higher.

(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 release data. 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 discretion and responsibility, after consulting with professionals as necessary.

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