KOGI (5603) FY2026 Q3 Earnings Report

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Executive Summary

Cumulative results for Q3 of FY2026 declined in both revenue and earnings. The most important point is that the decline in Operating Income significantly exceeded the rate of revenue decline. Revenue was ¥191.2B (-2.2% YoY), Operating Income was ¥5.3B (-44.4%), Ordinary Income was ¥5.9B (-40.1%), and Net Income was ¥4.6B (-36.5%). Deteriorating profitability in the core Casting Field Business is weighing on the overall profit margin.

Factors Affecting Earnings

【Revenue】Revenue was ¥191.2B, representing a nearly flat decline of -2.2% YoY. By segment, the core Casting Field was ¥173.0B (90.5% composition ratio, YoY -1.7%), Environment Field・Environmental Engineering was ¥11.8B (-10.8%), and Functional Materials was ¥6.1B (+2.0%). While the decline in revenue in the Environmental Engineering field was notable, Functional Materials secured a modest increase in revenue.

【Profit and Loss】Operating Income declined significantly more than revenue, falling to ¥5.3B (YoY -44.4%). The gross margin deteriorated to 16.1% from approximately 17.1% in the previous year (estimated), indicating challenges in absorbing raw material and manufacturing costs. On a segment profit basis (using Ordinary Income), Casting Field recorded ¥7.5B (YoY -31.8%, profit margin 4.3%), while Environmental Engineering recorded a loss of ¥0.9B, a significant deterioration from the ¥+0.6B profit in the same period of the previous year. Ordinary Income was ¥5.9B (down 40.1%) after receiving a ¥0.6B boost from non-operating income and expenses, while Net Income was ¥4.6B (down 36.5%), despite including a ¥0.3B gain on the sale of investment securities. In conclusion, both revenue and earnings declined, and the fact that the rate of earnings decline substantially exceeded the rate of revenue decline indicates deterioration in core operating profitability.

Segment Analysis

Casting Field generated revenue of ¥173.0B (90.5% composition ratio) and is the core of company-wide revenue. However, segment profit declined substantially to ¥7.5B (YoY -31.8%, profit margin 4.3%), making it the primary cause of the deterioration in company-wide earnings. Environment Field・Environmental Engineering generated revenue of ¥11.8B (YoY -10.8%), while profit was -¥0.9B, representing a shift to a loss from the ¥+0.6B profit in the same period of the previous year. The business became loss-making on a standalone basis. Functional Materials recorded revenue of ¥6.1B (YoY +2.0%) and profit of ¥0.3B (down 30.0%, profit margin 4.6%); despite a modest increase in revenue, its profit margin declined. Company-wide adjustments were -¥0.9B, with head-office administrative expenses and other items weighing on Ordinary Income.

Key Financial Indicators

【Profitability】The Operating Margin of 2.8% and Net Profit Margin of 2.4% both deteriorated from the same period of the previous year. The gross margin of 16.1% also indicates difficulty absorbing raw material and manufacturing costs. Annualized ROE was 3.3%; under DuPont analysis, the low Net Profit Margin is the largest constraint. 【Cash Flow Quality】Accounts receivable of ¥111.2B accounted for 31.6% of total assets, and including electronically recorded monetary claims of ¥27.5B, the long collection cycle is constraining capital efficiency. Work in process of ¥14.6B accounted for approximately 35.8% of total inventories, raising concerns about lengthening production processes. 【Investment Efficiency】ROIC remains low, and the business structure makes it difficult for growth utilizing assets and borrowings to directly translate into improved capital efficiency. 【Financial Soundness】The Equity Ratio of 52.4% is generally stable; however, cash and deposits were limited to ¥24.9B against short-term borrowings of ¥76.2B, indicating a high degree of dependence on the refinancing environment for short-term funding. Long-term borrowings were ¥20.0B, and the high proportion of short-term debt within total interest-bearing debt is a point to monitor.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is not available, an analysis of funding trends based on changes in the balance sheet shows that cash and deposits declined to ¥24.9B from ¥31.7B in the previous year, while short-term borrowings increased to ¥76.2B. Accounts receivable increased to ¥111.2B from ¥107.1B in the previous year, indicating that the structure requiring time to collect funds remains in place. Inventories were ¥14.2B, slightly down from ¥14.6B in the previous year, while work in process increased to ¥14.6B. Although total assets increased to ¥352.4B, earnings reflecting cash-generation capacity declined, suggesting that operating funds are primarily supported by dependence on short-term borrowings.

Quality of Earnings

Ordinary Income of ¥5.9B exceeded Operating Income of ¥5.3B by ¥0.6B in non-operating income and expenses. Non-operating income of ¥2.2B, including interest and dividend income, provided a certain degree of support to core operating profit. Net Income of ¥4.6B included the temporary factor of a ¥0.3B gain on the sale of investment securities; excluding this temporary gain, underlying earnings power would be even lower. Comprehensive Income was ¥5.9B, comprising ¥6.5B attributable to owners of the parent and -¥0.6B attributable to non-controlling interests, creating a divergence from Net Income. Foreign currency translation adjustments of -¥2.7B reduced Comprehensive Income, while valuation differences on securities of +¥4.8B offset this decline. Overall, dependence on non-operating and extraordinary factors is high, and the decline in earnings power on a core business (Operating Income) basis reflects the actual condition this fiscal period.

Earnings Forecast and Guidance

The full-year forecast remains unchanged for both earnings and dividends: Revenue of ¥257.6B (down 2.1% YoY), Operating Income of ¥7.8B (down 30.2%), and Ordinary Income of ¥7.4B (down 34.7%). The cumulative Q3 progress rates are 74.2% for Revenue, 67.8% for Operating Income, 79.3% for Ordinary Income, and 76.4% for Net Income. Revenue, Ordinary Income, and Net Income are progressing broadly in line with the standard pace (around 75%), while Operating Income is somewhat behind the pace required to achieve the full-year forecast. Recovery in core operating profitability during the final quarter will be the key to achieving the full-year plan.

Shareholder Returns

The Q2 dividend was ¥0, while the full-year dividend forecast is ¥50 per share. The Payout Ratio is approximately 32.8% (¥50 ÷ ¥152.65) against full-year forecast EPS of ¥152.65, a sustainable level below 60%. Against forecast full-year Net Income of ¥5.0B, total dividends are approximately ¥1.7B based on the number of shares issued. Although there is dividend capacity from an earnings perspective, confirming cash-generation capacity will be important for dividend sustainability given the dependence on short-term borrowings and the funding tied up in working capital. As earnings are expected to decline year on year, scope for a significant dividend increase appears limited.

Risk Factors

1. Profitability deterioration risk: The gross margin of 16.1% and Operating Margin of 2.8% are both low. If increases in raw material, energy, and manufacturing costs cannot be passed through to prices, Operating Income may come under further pressure. High operating leverage is evident, with revenue declining by 2.2% compared with a 44.4% decline in Operating Income.

2. Refinancing risk: Cash and deposits were limited to ¥24.9B against short-term borrowings of ¥76.2B, resulting in a low cash/short-term liabilities ratio of 0.33x. As most liabilities are short-term in nature, the company is vulnerable to changes in refinancing conditions.

3. Collection and working capital risk: Accounts receivable of ¥111.2B accounted for 31.6% of total assets, and the long collection cycle, including electronically recorded monetary claims, is constraining capital efficiency. Work in process also accounted for approximately 35.8% of inventories, potentially amplifying the funds tied up by lengthening production processes.

Industry Benchmark (Reference・Prepared by the Company)

Industry Benchmark (manufacturing)

Profitability・Returns

Both the Operating Margin and Net Profit Margin are substantially below the industry median, placing profitability at a low level within the industry.

Growth・Capital Efficiency

The Revenue Growth Rate is also below the industry median and is near the lower bound of the IQR.

※Source: Prepared by the Company

Key Points from the Financial Results

1. The decline in Revenue (-2.2%) was limited, but the decline in Operating Income (-44.4%) substantially exceeded it. Deterioration in the core earnings structure is the central feature of the financial results for this fiscal period. The narrowing profit margin of the core Casting Field segment (4.3%, down 31.8% YoY) is driving company-wide performance.

2. Progress toward the full-year forecast is broadly standard at around 75% for Revenue, Ordinary Income, and Net Income, while Operating Income is somewhat behind at 67.8%. Recovery in core operating profitability during the final quarter will be the key to achieving the full-year plan.

3. The funding structure of ¥24.9B in cash and deposits against ¥76.2B in short-term borrowings, together with the working capital position centered on accounts receivable and work in process, will be important areas of observation when evaluating future cash flow trends.

Theoretical Share Price (Reference Value)

Sensitivity: ¥3,591–¥3,795 at Cost of Equity ±1%, and ¥3,665–¥3,708 at ω ±0.1.

Notes:

• As 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 (Ohlson type・explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings summary data. It does not recommend investment in any specific security. 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 professionals as necessary.

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