| Metric | Current Period | Prior Year | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥5781.3B | ¥5749.4B | +0.6% |
| Operating Income / Operating Profit | ¥420.8B | ¥394.1B | +6.8% |
| Pre-tax Profit | ¥447.6B | ¥426.5B | +4.9% |
| Net Income / Net Profit | ¥348.8B | ¥305.6B | +14.1% |
| ROE | 6.8% | 6.5% | - |
For the fiscal year ended March 2026, Revenue was ¥5781.3B (YoY +¥31.8B +0.6%), Operating Income was ¥420.8B (YoY +¥26.7B +6.8%), Ordinary Income was ¥297.4B (YoY -¥69.3B -18.9%), and Net Income attributable to owners of the parent was ¥326.1B (YoY +¥42.9B +15.2%). Revenues were flat while operating-stage profitability improved, but Ordinary Income declined year-on-year due to a temporary impairment at an equity-method investee and reduced financial income. Final-period profit increased double-digit due to a ¥53.4B gain on negative goodwill and a lower effective tax burden, improving the net margin to 6.0% (up +0.8pt from 5.2%). Operating margin rose to 7.3% (up +0.4pt from 6.9%), with SG&A increases absorbed by gross margin improvement and higher other income.
[Revenue] Revenue of ¥5781.3B (+0.6%) showed only a slight increase. By segment, Functional Materials & Magnetic Materials was ¥1997.5B (-0.6%) and Special Steel Materials ¥2077.8B (-1.1%) (both down); Automotive Parts & Industrial Machinery Parts ¥1179.4B (+4.3%) and Engineering ¥266.2B (+10.6%) (both up); Distribution & Services ¥260.3B (-2.9%) was down. The increase in Automotive Parts & Industrial Machinery Parts was aided by recovery in die-forging demand, while Special Steel Materials and Functional Materials & Magnetic Materials were weighed down by customer inventory adjustments and product price declines.
[Profitability] Operating Income of ¥420.8B (+6.8%) increased despite flat sales. Gross Profit was ¥1013.0B with a gross margin of 17.5% (down -0.6pt from 18.1%), but an increase in SG&A to ¥647.9B (SG&A ratio 11.2%, up +0.5pt from 10.7%) was offset by a large increase in Other Income to ¥63.0B (¥10.0B prior year). Other Income includes a ¥53.4B gain on negative goodwill, which was a temporary uplift. By segment, Functional Materials & Magnetic Materials contributed most with Operating Income of ¥148.8B (+35.0%) due to margin improvement and a shift to higher-value products. Conversely, Automotive Parts & Industrial Machinery Parts Operating Income was ¥81.6B (-28.0%) due to delayed price pass-through and reduced fixed-cost absorption. Ordinary Income of ¥297.4B (-18.9%) decreased as Financial Income fell to ¥24.5B (prior ¥31.1B) and equity-method investment income of ¥12.8B remained roughly flat. Net Income attributable to owners of the parent of ¥326.1B (+15.2%) resulted from Pre-tax Profit of ¥447.6B less income taxes of ¥98.8B (effective tax rate 22.1%, down -6.3pt from 28.4%), with temporary tax effects and the gain on negative goodwill contributing to the final increase. In summary: revenue and operating profit increased, Ordinary Income decreased due to one-offs, and final profit increased partly due to one-time gain on negative goodwill and lower tax burden.
Special Steel Materials: Revenue ¥2077.8B (-1.1%), Operating Income ¥133.8B (+10.7%), margin 6.4% (improved +0.9pt from 5.5%). The increase in profit despite lower sales was driven by a shift to higher-grade steel types and cost reductions. Functional Materials & Magnetic Materials: Revenue ¥1997.5B (-0.6%), Operating Income ¥148.8B (+35.0%), margin 7.5% (improved +2.5pt from 5.0%)—highest profitability, supported by margin improvement in stainless/high-alloy products and steady demand for magnetic materials. Automotive Parts & Industrial Machinery Parts: Revenue ¥1179.4B (+4.3%), Operating Income ¥81.6B (-28.0%), margin 6.9% (down -3.1pt from 10.0%)—revenue up but profit down due to delayed price pass-through in die-forging and higher raw material costs. Engineering: Revenue ¥266.2B (+10.6%), Operating Income ¥26.2B (+19.1%), margin 9.8%, supported by increased demand for industrial furnace maintenance. Distribution & Services: Revenue ¥260.3B (-2.9%), Operating Income ¥30.2B (+9.1%), margin 11.6%—highest margin, underpinned by stable cash flows from real estate operations.
[Profitability] ROE 7.2% (up +0.5pt from 6.7%) benefited from improved net margin; Operating Margin 7.3% (up +0.4pt from 6.9%), Net Margin 6.0% (up +0.8pt from 5.2%). [Cash Quality] Operating Cash Flow (OCF) ¥661.0B is 1.90x Net Income ¥348.8B, indicating strong cash realization. OCF/EBITDA ratio is 0.90x (EBITDA ¥732.1B = Operating Income ¥420.8B + D&A ¥311.3B), showing high cash conversion. [Investment Efficiency] CapEx ¥531.5B is 1.71x D&A ¥311.3B, and CapEx/Sales is 9.2%, reflecting continued aggressive investment. Total Asset Turnover is 0.68x (Revenue ¥5,781.3B ÷ Total Assets ¥8,563.8B), roughly flat. [Financial Soundness] Equity Ratio 55.2% (down -0.3pt from 55.5%), interest-bearing debt ¥1,736.1B (short-term ¥717.5B + long-term ¥1,018.6B), Debt/EBITDA 2.37x, Interest Coverage 40.1x (Operating Income ¥420.8B ÷ Financial Expense ¥10.5B), indicating very high financial safety. Current Ratio 224% (Current Assets ¥4,472.9B ÷ Current Liabilities ¥1,997.0B) shows ample short-term liquidity. Working capital efficiency is stretched: DSO 100 days, DIO 162 days, CCC 207 days, leaving substantial room for improvement.
OCF was ¥661.0B (YoY +23.5%), adding D&A ¥311.3B to Pre-tax Profit ¥447.6B and absorbing working capital deterioration: inventories +¥8.0B, trade receivables +¥25.8B, trade payables -¥6.8B. Contract liabilities increased ¥123.3B, reflecting growth in advance receipts and providing short-term liquidity support. Income taxes paid were ¥167.4B (down from ¥254.0B prior year), with lower tax burden boosting CF. Investing CF was -¥482.5B, driven by acquisition of tangible/intangible assets ¥525.6B and acquisitions of subsidiaries ¥101.9B, resulting in 3.1x year-on-year investment scale. Proceeds from sale of strategic financial instruments ¥142.9B contributed to cash inflows. Financing CF was -¥184.6B: net increase in short-term borrowings ¥75.3B and inflows from long-term borrowings ¥406.6B were outweighed by long-term borrowings repayments ¥459.4B, dividend payments ¥97.7B, and share repurchases ¥66.0B. Free Cash Flow was ¥178.5B (OCF ¥661.0B - Investing CF ¥482.5B), comfortably covering combined dividends and share buybacks totaling ¥163.7B. Cash and cash equivalents increased to ¥630.7B (up ¥18.5B from ¥612.2B), with foreign exchange translation effects contributing ¥24.6B.
The divergence between Ordinary Income ¥297.4B and Net Income ¥348.8B is primarily due to a ¥53.4B gain on negative goodwill and a reduction in the effective tax rate (22.1%), indicating dependence on one-off factors. Non-operating income saw Financial Income fall to ¥24.5B (prior ¥31.1B), with dividend income ¥21.1B as a main component. Other Income of ¥63.0B includes the negative goodwill recognition, exceeding ordinary earning power. While OCF is a healthy 1.90x Net Income, working capital deterioration (trade receivables +¥25.8B, inventories +¥8.0B) is tying up cash; from an accrual perspective, attention is needed on inventory valuation and collection risk. Impairment losses were limited at ¥5.2B (prior ¥8.3B), indicating contained asset quality deterioration. Comprehensive Income ¥625.3B far exceeded Net Income ¥348.8B, with Other Comprehensive Income ¥276.5B (mainly remeasurement of defined benefit plans ¥152.8B and foreign operations translation differences ¥50.2B) contributing—these are valuation adjustments rather than realized gains.
Full-year guidance forecasts Revenue ¥6300.0B (from current period ¥5781.3B +9.0%), Operating Income ¥400.0B (from ¥420.8B -4.9%), and Net Income attributable to owners of the parent ¥275.0B (from ¥326.1B -15.7%), projecting revenue growth but profit decline. Since this period is the full-year result, progress rate is 100%, but compared to next fiscal year the guidance assumes Operating Margin 6.3% (from 7.3% -1.0pt) and Net Margin 4.4% (from 6.0% -1.6pt), reflecting lower profitability. Assumptions are conservative: sustained high raw material and fuel prices, delayed price pass-through, higher D&A due to start-up of new equipment, and rising labor costs. Dividend guidance is annual ¥24 (halved from ¥49 in the current period), implying a Payout Ratio of about 17.4% (down sharply from 34.9%), signaling dividend restraint in line with anticipated earnings decline. Guidance is cautious, reflecting the loss of one-time factors (negative goodwill) and pressure on core earnings.
Actual dividends were interim ¥22 and year-end ¥27, annual ¥49, with a Payout Ratio of 34.9% (total dividends ¥98.5B against Net Income attributable to owners of the parent ¥326.1B). Including share buybacks of ¥66.0B, Total Return Ratio was about 50.3% (dividends + buybacks ¥164.5B ÷ Net Income ¥326.1B), delivering balanced shareholder returns. Dividend coverage on an FCF basis was about 1.82x (FCF ¥178.5B ÷ dividends ¥97.7B), indicating sustainability. Next fiscal year dividend guidance is annual ¥24 (interim and year-end assumed ¥12 each), halved, prioritizing funds for working capital improvement and continued CapEx. Treasury stock year-end balance is -¥186.1B (down ¥65.3B from -¥120.8B prior), with 17,390 thousand shares held as treasury stock out of 217,243 thousand shares outstanding (holding ratio 8.0%).
Risk of deterioration in working capital management: With DSO 100 days, DIO 162 days, and CCC 207 days indicating an elongated working capital cycle, any inventory write-downs or collection delays could deteriorate OCF quality and strain liquidity. Inventories of ¥2,115.0B represent 36.6% of Revenue, heightening discounting and obsolescence risk in a demand downturn.
Earnings deterioration in the Automotive Parts & Industrial Machinery Parts segment: Operating Income ¥81.6B (-28.0%), margin 6.9% (down -3.1pt from 10.0%) shows a significant drop in profitability. Continued customer production adjustments and delayed price pass-through could sustain downward pressure, negatively impacting consolidated profits.
Decline in core earnings once one-off factors disappear: The ¥53.4B gain on negative goodwill and the lower effective tax rate boosted final profit this period but are likely to lapse next period. Although operating margin has shown improvement, if the guided margin decline (Operating Margin 6.3%, Net Margin 4.4%) materializes, ROE could fall into the low-5% range, raising concerns about capital efficiency deterioration.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| ROE | 7.2% | 6.3% (3.2%–9.9%) | +0.9pt |
| Operating Margin | 7.3% | 7.8% (4.6%–12.3%) | -0.5pt |
| Net Margin | 6.0% | 5.2% (2.3%–8.2%) | +0.8pt |
ROE exceeds the industry median by 0.9pt and Net Margin also exceeds the median by 0.8pt, while Operating Margin is 0.5pt below the median, placing the company around the middle to slightly upper range within the industry.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | 0.6% | 3.7% (-0.4%–9.3%) | -3.1pt |
Revenue growth trails the industry median by 3.1pt, indicating below-median growth.
※ Source: Company aggregation
Structural improvement in the Functional Materials & Magnetic Materials segment is progressing; Operating Income ¥148.8B (+35.0%), margin 7.5% (up +2.5pt from 5.0%), making it the largest profit-contributing segment. The shift to higher-value products and disciplined margin management have been effective, highlighting this segment as a medium-term earnings pillar.
Significant upside remains from improving working capital efficiency; shortening CCC 207 days (DSO 100 days, DIO 162 days) could boost OCF without additional CapEx. Inventory normalization and strengthened collection management will be key to cash generation in upcoming periods.
Next fiscal year guidance is conservative (Revenue +9.0%, Operating Income -4.9%, Net Income -15.7%), incorporating the loss of one-off items and rising costs. Dividend guidance ¥24 (down from ¥49) reflects profit decline and prioritization of investment; recovery of core earnings and progress on working capital improvement are prerequisites for expanding shareholder returns.
This report is an earnings analysis document automatically generated by AI that analyzed XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information aggregated by the company based on public financial statements. Investment decisions should be made at your own responsibility, and consult a professional advisor as necessary.