DAIKI ALUMINIUM INDUSTRY (5702) FY2026 Q3 Earnings Report

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Executive Summary

Revenue increased 9.1%, while operating income rose 28.1%, resulting in higher revenue and earnings, with operating leverage driven by SG&A cost control in addition to revenue growth. Revenue was ¥2325.4B (+¥194.1B YoY), while operating income was ¥45.3B (+¥9.9B YoY). Meanwhile, ordinary income was ¥29.9B (+8.5% YoY) and net income was ¥18.0B (+26.8% YoY), as higher interest expenses (¥12.9B, +13.3% YoY) and an expanded foreign exchange loss (¥3.9B) partially offset the increase in operating income and moderated growth at the ordinary income level.

Factors Affecting Business Performance

【Revenue】Revenue was ¥2325.4B, up +9.1% YoY. The core Secondary Aluminum Alloy Business accounted for external revenue of ¥2292.9B (98.6% of total, +9.0% YoY), leading the increase in revenue. This business also recorded high growth in the “Other” category, which includes the die-casting products and aluminum melting furnace businesses (+16.6%). Although small in scale, this contributed to an improved earnings mix.

【Profit and Loss】Operating income was ¥45.3B (+28.1% YoY), significantly exceeding revenue growth. While cost of sales increased to ¥2215.6B (+9.0% YoY), roughly in line with revenue growth, SG&A expenses were ¥64.5B, representing only a +1.2% increase, making cost control the primary driver of operating income growth. The operating margin improved to 1.9% from 1.7% in the previous year. However, non-operating expenses expanded to ¥20.5B from ¥14.4B in the previous year, and higher interest expenses and foreign exchange losses limited the pass-through to ordinary income (¥29.9B, +8.5% YoY). Extraordinary income and losses were largely offsetting (income of ¥0.1B and loss of ¥0.9B), limiting the impact of temporary factors. Net income of ¥18.0B (+26.8% YoY) also benefited from a lower tax burden. In conclusion, the company achieved higher revenue and earnings, and the quality of operating performance supported by cost control was favorable; however, financial and foreign exchange costs slowed the conversion into net income.

Segment Analysis

The Secondary Aluminum Alloy Business recorded external revenue of ¥2292.9B (+9.0% YoY), segment profit of ¥41.3B (+25.3% YoY), and a profit margin of 1.8% (improving from 1.6% in the previous year), leading company-wide earnings growth. As this business accounts for more than 98% of company-wide revenue, the direction of overall performance is structurally dependent almost entirely on the supply-demand and pricing trends of this business.

Key Financial Indicators

【Profitability】The operating margin of 1.9% (1.7% in the previous year) and net profit margin of 0.8% (0.7% in the previous year) both improved slightly, but the absolute levels indicate a low-margin structure. The gross margin of 4.7% (4.6% in the previous year) also indicates limited resilience to fluctuations in raw material and energy prices.【Cash Flow Quality】Comprehensive income of ¥6.7B was below net income of ¥18.0B, primarily due to deterioration in other comprehensive income, centered on foreign currency translation adjustments (-¥20.2B).【Investment Efficiency】Annualized ROE was 3.3%, while ROIC also remained low, indicating limited earnings-generation capability relative to the cost of capital.【Financial Soundness】The equity ratio of 41.9% is within a sound range; however, short-term borrowings of ¥697.5B account for approximately 4/10 of total assets. Compared with cash and deposits of ¥82.2B, flexibility in short-term funding is limited, indicating a high degree of reliance on refinancing.

Cash Flow Analysis

As cash flow statement data have not been disclosed, funding trends are analyzed based on changes in the balance sheet. Cash and deposits increased to ¥82.2B from ¥73.4B in the previous year, while short-term borrowings increased by ¥9.97B (+16.7%) to ¥697.5B from ¥597.7B in the previous year. This suggests that the increase in working capital associated with business expansion (accounts receivable of ¥683.4B, +6.6% YoY, and inventories of ¥235.2B) is being financed through short-term borrowings. Investment securities increased by +28.4% YoY to ¥70.9B, indicating that a certain level of funds was allocated to investment activities. Net assets declined to ¥721.9B from ¥737.1B in the previous year, suggesting that negative other comprehensive income, including deterioration in foreign currency translation adjustments, restrained capital accumulation despite the recognition of profits.

Quality of Earnings

Operating income of ¥45.3B was driven by the recurring factor of SG&A cost control, indicating relatively favorable earnings quality. However, the pass-through to ordinary income (¥29.9B) and net income (¥18.0B) was constrained by the increase in non-operating expenses, including interest expenses of ¥12.9B and foreign exchange losses of ¥3.9B. Extraordinary income and losses were small, at income of ¥0.1B and loss of ¥0.9B, and net income was determined primarily by operating profit and loss and non-operating profit and loss related to finance and foreign exchange, limiting the impact of temporary factors. However, comprehensive income of ¥6.7B was ¥11.7B below net income of ¥18.0B, indicating that accrual-related factors centered on foreign currency translation adjustments should be considered when assessing the underlying business performance.

Earnings Outlook and Guidance

The full-year company forecasts are revenue of ¥3172.0B (+5.8% YoY), operating income of ¥61.1B (+26.4% YoY), and ordinary income of ¥49.2B (+31.2% YoY). The Q3 cumulative progress rates were 73.3% for revenue and 74.1% for operating income, both nearly in line with the standard progress rate of 75%, indicating that core business performance is tracking the plan. In contrast, the ordinary income progress rate was 60.8%, and the net income progress rate also remained at a similar level, significantly below the standard progress rate. In Q4, approximately ¥19.3B in ordinary income, along with a corresponding amount of net income, must be accumulated. Improving non-operating income and expenses, including financial costs and foreign exchange effects, will therefore be a key issue in achieving the full-year plan.

Shareholder Returns

The Q2 dividend was ¥25.00 per share. The full-year forecast dividend is ¥55.00, representing a planned increase from the previous-year dividend (interim dividend of ¥25). Assuming forecast profit attributable to owners of the parent of ¥33.6B and the average number of shares outstanding during the period, the payout ratio will be approximately in the 60% range. Although the dividend is supported by higher net income, given the financial structure’s high reliance on short-term borrowings, the balance between dividend policy and capital allocation requires ongoing monitoring.

Risk Factors

1. Business concentration risk: The Secondary Aluminum Alloy Business accounts for more than 98% of external revenue, creating a structure in which fluctuations in automotive and die-casting demand, as well as fluctuations in aluminum ingot and scrap prices, directly affect overall performance.

2. Low-margin structure risk: With a gross margin of 4.7% and an operating margin of 1.9%, earnings could be rapidly compressed by increases in raw material, energy, and logistics costs or delays in passing costs through to prices.

3. Funding structure risk: Short-term borrowings of ¥697.5B account for approximately 4/10 of total assets, and compared with cash and deposits of ¥82.2B, coverage solely from cash on hand is limited. Interest expenses increased by 13.3% YoY, and changes in the interest-rate environment could affect earnings through financial expenses.

Industry Benchmark (For Reference; Company Research)

Key Takeaways from the Earnings Results

1. Revenue increased 9.1%, while SG&A expenses increased only 1.2%, resulting in operating income growth of 28.1%, significantly exceeding the rate of revenue growth. The emergence of operating leverage accompanied by cost control was a key feature of the current period’s results.

2. There is a gap between the progress rates for operating income and ordinary income. The full-year progress rate for operating income was a standard 74.1%, while ordinary income and net income remained in the 60% range, as non-operating income and expenses, including interest expenses and foreign exchange losses, constrained the increase in net income.

3. Net assets decreased YoY, primarily due to deterioration in other comprehensive income centered on foreign currency translation adjustments. The fact that the direction of change in equity did not align with the increase in net income is an important consideration in understanding the structure of the earnings results.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,566–¥1,654 at ±1% for the cost of equity, and ¥1,602–¥1,613 at ±0.1 for ω.

Notes:

• Net income is significantly compressed relative to operating income due to tax burden, acquisition-related expenses, non-controlling interests, and other factors (net income ÷ operating income 55%). This value reflects that compression at face value; if the factors are temporary, the normalized value may be higher.
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual income model (Ohlson-type, explicit 5-year fade) / Interest-rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data and is not a forecast of the market share price or a recommendation of any specific investment action, nor does it predict 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, and you should consult a professional as necessary.

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