Daido Steel Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

In Q1, the Company recorded higher revenue and income, with operating income growth substantially exceeding revenue growth, indicating that improved profitability drove performance. Revenue was ¥163.53B (+14.9% YoY), operating income was ¥13.11B (+51.4%), profit before tax was ¥14.28B (+46.9%), and net income attributable to owners of the parent was ¥9.06B (+41.2%; consolidated quarterly profit was ¥9.72B, +40.4%). The gross margin improved to 17.9% (17.3% in the prior year), while the SG&A ratio improved to 10.5% (11.1% in the prior year), resulting in a +1.9pt expansion in the operating margin to 8.0% (6.1% in the prior year). The primary drivers of improvement were higher margins in the Functional Materials and Magnetic Materials segment and a recovery in profitability in the Automotive Parts and Industrial Machinery Parts segment.

Factors Affecting Performance

【Revenue】All segments recorded revenue growth, with Functional Materials and Magnetic Materials serving as the largest driver, accounting for 35.5% of the composition and growing +20.2%. Specialty Steel Products accounted for 36.3% and grew +16.0%, making it the second-largest segment. Automotive Parts and Industrial Machinery Parts accounted for 19.3% and grew +8.0%, while Engineering grew +6.4% and Distribution and Services grew +7.0%. The growth of the two core segments drove overall Company growth.

【Profit and Loss】All segments except Engineering recorded higher income. Operating income in Functional Materials and Magnetic Materials was ¥5.79B (+89.4%, 10.0% margin), while Automotive Parts and Industrial Machinery Parts recorded ¥2.88B (+99.1%, 9.1% margin), demonstrating substantial profitability improvement. Engineering was the only segment to post lower income, with operating income of ¥0.23B (-66.3%, 3.2% margin). On a Company-wide basis, the +0.5pt improvement in gross margin and -0.6pt improvement in the SG&A ratio combined to produce an operating margin of 8.0% (+1.9pt). The Company achieved both revenue and income growth accompanied by margin improvement, indicating good earnings quality.

Segment Analysis

Specialty Steel Products (36.3% composition) recorded revenue of ¥59.40B (+16.0%) and operating income of ¥3.16B (+21.5%, 5.3% margin), representing higher revenue and income, although its margin remained low relative to other segments. Functional Materials and Magnetic Materials (35.5% composition) recorded revenue of ¥58.04B (+20.2%) and operating income of ¥5.79B (+89.4%, 10.0% margin), making the largest profit contribution among all segments, with profit growth continuing to exceed revenue growth. Automotive Parts and Industrial Machinery Parts (19.3% composition) recorded revenue of ¥31.64B (+8.0%) and operating income of ¥2.88B (+99.1%, 9.1% margin), reflecting a notable recovery in profitability. Engineering (4.4% composition) posted revenue of ¥7.25B (+6.4%) but operating income of ¥0.23B (-66.3%, 3.2% margin), resulting in lower income and diluting the Company-wide margin. Distribution and Services (4.4% composition) recorded revenue of ¥7.19B (+7.0%) and operating income of ¥1.05B (+23.9%, 14.7% margin), maintaining the highest margin among all segments.

Key Financial Indicators

【Profitability】The operating margin improved to 8.0% (6.1% in the same period last year, +1.9pt), the profit-before-tax margin improved to 8.7% (6.8% in the same period last year, +1.9pt), and the net margin improved to 5.9% on a consolidated basis (4.9% in the same period last year) and 5.5% on an attributable-to-owners-of-the-parent basis (4.5% in the same period last year). 【Cash Quality】Cash and cash equivalents totaled ¥66.47B, an increase of +¥3.39B from the end of the previous fiscal year, while accounts receivable increased by +¥10.96B and inventories increased by +¥17.23B, indicating an expansion in working capital. DSO was approximately 95 days and DIO approximately 155 days on an estimated basis. 【Capital Efficiency】ROE was 1.8% (based on quarterly results, before annualization), indicating that profit growth has not kept pace with the expansion of total assets. 【Financial Soundness】The equity ratio was 53.4% (55.2% at the end of the previous fiscal year, -1.8pt), the current ratio was approximately 193%, the interest-bearing debt-to-equity ratio was 0.38x against total interest-bearing debt of ¥199.62B, and total liabilities-to-equity was 0.72x. Interest coverage (EBIT/financial expenses) was approximately 91x, indicating a high level of debt-servicing capacity.

Cash Flow Analysis

Cash and cash equivalents totaled ¥66.47B, an increase of +¥3.39B from the end of the previous fiscal year. Accounts receivable increased by +¥10.96B and inventories by +¥17.23B, while the increase in accounts payable was limited to +¥6.50B, suggesting that net working capital expanded by more than ¥20B. This increase in working capital was primarily funded by a +¥39.54B increase in bonds and borrowings under current liabilities, while non-current bonds and borrowings decreased by -¥13.53B, securing on-hand liquidity while increasing reliance on short-term financing. The expansion of working capital could constrain cash generation from operating activities, and trends in inventory and receivables turnover will be key points to monitor future funding efficiency.

Earnings Quality

The improvement in operating income resulted from improvements in the core earnings structure, namely a +0.5pt improvement in gross margin and a -0.6pt improvement in the SG&A ratio, and can therefore be viewed as substantive earnings growth based on business activities rather than a non-recurring effect. In addition, profit before tax benefited from financial income of ¥0.88B, equity-method investment income of ¥0.43B, and other income of ¥1.05B, expanding the profit-before-tax margin to 8.7% (6.8% in the prior year). Meanwhile, comprehensive income for the quarter of ¥17.81B exceeded quarterly profit of ¥9.72B by ¥8.10B, with most of the difference attributable to +¥7.80B in valuation gains on financial assets measured at fair value through other comprehensive income. This is a temporary factor that must be considered separately from business earnings. The substantial difference between net income growth (consolidated +40.4%) and comprehensive income growth (+99.1%) highlights the importance of distinguishing core operating profit improvement from equity growth arising from valuation gains when assessing earnings quality.

Earnings Forecasts and Guidance

Progress against the full-year plan was 26.0% for revenue, 32.8% for operating income, and 32.9% for net income attributable to owners of the parent, all ahead of the 25% benchmark for simple quarterly progress. However, the full-year plan itself anticipates declines of -4.9% in operating income and -15.7% in net income from the previous fiscal year, representing a conservative assumption in contrast to the substantial Q1 operating income growth of +51.4%. Neither the earnings forecast nor the dividend forecast was revised during the quarter. The gap between the strong progress rate and the full-year forecast for lower income may reflect the Company’s cautious assumptions regarding costs and demand trends from the second half onward.

Shareholder Returns

The dividend forecast is ¥24 per share, representing a planned ¥2 increase from the previous fiscal year’s actual dividend of ¥22. Based on forecast EPS of ¥137.6, the payout ratio is 17.4%, indicating a conservative dividend burden relative to earnings. Given the financial foundation represented by an equity ratio of 53.4% and interest coverage of approximately 91x, there are no significant concerns regarding the availability of funds for dividends. The dividend forecast was not revised during the quarter.

Risk Factors

1. Accumulation of working capital: Accounts receivable increased by +¥10.96B and inventories by +¥17.23B, resulting in estimated DSO of approximately 95 days and DIO of approximately 155 days. If the expansion of working capital continues, its impact on cash-generating capacity will need to be monitored.

2. Increased reliance on short-term borrowings: Bonds and borrowings under current liabilities increased by +¥39.54B from ¥71.75B to ¥111.29B, while non-current bonds and borrowings decreased by -¥13.53B to ¥88.33B, indicating a shift toward shorter-term financing. The stable execution of refinancing will remain a key point for monitoring.

3. Profitability disparities among segments: Engineering was the only segment to record lower income, with operating income of ¥0.23B (-66.3%, 3.2% margin), widening the profitability gap with the core segments. Variability in profitability within the business portfolio could become a factor affecting the Company-wide margin.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the operating margin and net margin were slightly below the industry median, placing profitability in the middle to slightly lower range within the industry.

Growth and Capital Efficiency

The revenue growth rate was substantially above the industry median, representing a top-tier revenue growth pace within the industry.

Source: Compiled by the Company

Key Points from the Earnings Results

1. The operating margin improved by +1.9pt YoY to 8.0%, while improved profitability in Functional Materials and Magnetic Materials (10.0% margin) and Automotive Parts and Industrial Machinery Parts (9.1% margin) lifted overall profit. Operating income growth of +51.4%, exceeding revenue growth of +14.9%, indicates the emergence of operating leverage through price revisions and an improved product mix.

2. Comprehensive income for the quarter of ¥17.81B exceeded net income of ¥9.72B by ¥8.10B, but most of the difference resulted from valuation gains on financial assets held by the Company and must be considered separately from core earnings power.

3. In contrast to the income growth trend in Q1, the full-year plan anticipates lower income. Although the progress rate for operating income is high at 32.8%, full-year results could diverge from the plan depending on demand and cost trends 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: ¥2,178–¥2,308 at ±1% for the cost of equity, and ¥2,235–¥2,246 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 from the full-year forecast).

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not forecast or guarantee future share prices.)

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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 disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional adviser as necessary.

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