DAIKI ALUMINIUM INDUSTRY CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

Driven by expanding demand for the secondary aluminum alloy business and the absorption of costs, the Company posted higher revenue and income, with Operating Income growing substantially faster than Revenue. Revenue was ¥976.1B (+30.6% YoY), Operating Income was ¥37.4B (+146.1%), Ordinary Income was ¥33.7B (+229.5%), and Net Income attributable to owners of the parent was ¥23.6B (+257.6%). In addition to the improvement in gross margin, as the increase in cost of sales (+28.7%) remained below the increase in Revenue, the increase in selling, general and administrative expenses (+11.1%) was contained. These were the primary reasons why the earnings growth rate substantially exceeded the revenue growth rate.

Factors Affecting Business Performance

【Revenue】Revenue increased 30.6% YoY to ¥976.1B. The core Secondary Aluminum Alloy segment led overall performance, with Revenue of ¥963.8B (+31.6%), accounting for 98.7% of consolidated Revenue. Meanwhile, the Other segment (Die-Cast Products and Aluminum Melting Furnace Businesses) recorded a decline in Revenue to ¥12.3B (-18.9%), indicating that dependence on the core business has increased further.

【Profit and Loss】Operating Income was ¥37.4B (+146.1%), and the Operating Income margin improved by approximately 1.8pt to 3.8%, from 2.0% in the same period of the previous year. The gross margin expanded to 6.1%, from 4.8% in the previous year, primarily due to the decline in the cost-of-sales ratio. Ordinary Income was ¥33.7B, and the ¥3.7B gap from Operating Income resulted from non-operating expenses of ¥6.5B, including interest expense of ¥5.3B and foreign exchange losses of ¥1.0B, exceeding non-operating income of ¥2.8B. Extraordinary gains and losses were nearly offset, and Net Income of ¥23.6B was primarily attributable to the expansion of core operating profit. The Company delivered higher revenue and income, with operating leverage evident as the earnings growth rate exceeded the revenue growth rate.

Segment Analysis

The Secondary Aluminum Alloy segment recorded Revenue of ¥963.8B (+31.6%), segment profit of ¥36.6B (+167.5%), and a profit margin of 3.8%, an improvement of approximately 1.9pt from 1.9% in the previous year, accounting for 97.7% of consolidated segment profit. The Other segment posted Revenue of ¥12.3B (-18.9%), segment profit of ¥0.8B (-43.3%), and a profit margin of 6.9%, down approximately 2.9pt from 9.8% in the previous year, resulting in lower revenue and income. Although its profit margin itself is higher than that of the core business, its scale is small and its contribution to consolidated profit is limited. The structure is such that margin trends in the core business determine consolidated performance.

Key Financial Metrics

【Profitability】The Operating Income margin of 3.8% (2.0% in the previous year) and Net Income margin of 2.4% (0.9% in the previous year) both improved, but the business structure remains a low-margin one in absolute terms. Annualized ROE was 12.0%. 【Cash Quality】Accounts receivable were ¥820.0B, representing 41.2% of total assets, while inventories increased substantially to ¥328.1B from the same period of the previous year, indicating that working capital is expanding at a pace exceeding Revenue growth. 【Investment Efficiency】Total assets increased to ¥1992.0B (¥1778.6B in the previous year), with the increase in assets primarily attributable to higher accounts receivable and inventories. 【Financial Soundness】The Equity Ratio was 39.7%, down from 42.9% in the same period of the previous year. Interest-bearing debt increased, primarily due to short-term borrowings of ¥80.5B. The ratio of short-term borrowings to cash and deposits of ¥69.2B is high, indicating a funding structure biased toward short-term financing.

Cash Flow Analysis

As cash flow statement data for the current period has not been disclosed, cash trends are analyzed based on changes in the balance sheet. Accounts receivable increased by ¥75.7B from the end of the same period of the previous year, while inventories increased by ¥101.2B; both expanded at rates exceeding the Revenue growth rate (+30.6%). In contrast, accounts payable increased by only ¥42.1B, meaning that the funding burden from the increase in inventories was not fully absorbed by the increase in trade payables. This difference appears to have been primarily covered by an increase in short-term borrowings (+¥125.8B), indicating that the expansion of working capital accompanying higher Revenue is increasing dependence on short-term financing. Although accounting profits improved substantially, the expansion of working capital may constrain cash-generation capacity and therefore warrants attention.

Earnings Quality

Against Operating Income of ¥37.4B, extraordinary income of ¥0.15B (gain on sale of fixed assets) and extraordinary loss of ¥0.16B (loss on disposal of fixed assets) were nearly offset, and non-recurring factors did not contribute to the increase in Net Income. Ordinary Income of ¥33.7B was ¥3.7B below Operating Income because non-operating expenses of ¥6.5B, including interest expense of ¥5.3B and foreign exchange losses of ¥1.0B, exceeded non-operating income of ¥2.8B, including dividend income of ¥0.8B. The gap between Ordinary Income and Net Income was primarily attributable to the ¥9.8B tax burden. Non-operating income remained at only 0.3% of Revenue, with no dependence on non-operating income sufficient to distort earnings. The increase in income for the current period can therefore be regarded as reflecting an improvement in core earnings power.

Earnings Forecast and Guidance

Q1 progress against the full-year forecast was 22.0% for Revenue (¥976.1B/¥4428.0B), 21.3% for Operating Income (¥37.4B/¥175.5B), 20.9% for Ordinary Income (¥33.7B/¥160.9B), and 19.4% for Net Income (¥23.6B/¥121.5B). Although all figures were below the simple one-quarter progress benchmark (25%), the maximum gap was limited to 5.6pt (Net Income), and there was no significant downside variance. Neither the earnings forecast nor the dividend forecast was revised during the current quarter. The Company expects substantial full-year growth of +33.7% in Revenue, +141.5% in Operating Income, and +186.3% in Ordinary Income. The key point for monitoring progress will be whether margins can be maintained in subsequent quarters.

Shareholder Returns

The full-year dividend forecast is ¥90 per share, an increase from ¥25 per share in the previous year (assuming the interim and year-end dividends are combined). Based on the full-year forecast EPS of ¥307.03, the forecast Payout Ratio is 29.3%, a level indicating ample dividend capacity from the perspective of sustainability, using approximately 60% as a benchmark. The dividend forecast has not been revised. The status of share repurchases is not provided in the present data; accordingly, the Payout Ratio is stated based solely on dividends.

Risk Factors

1. Expansion of working capital and capital efficiency: Accounts receivable were ¥820.0B, representing 41.2% of total assets, while inventories increased +44.6% YoY, outpacing the revenue growth rate. The expansion of working capital accompanying higher Revenue may affect liquidity management.

2. Dependence on short-term financing: Short-term borrowings were ¥805.4B and accounted for the majority of interest-bearing debt, while the ratio to cash and deposits of ¥69.2B was low. Continued refinancing of short-term borrowings is a premise of the funding plan, resulting in relatively high sensitivity to changes in the financial environment.

3. Concentration of the business portfolio: The Secondary Aluminum Alloy segment accounts for 98.7% of consolidated Revenue and 97.7% of segment profit, while the Other segment recorded lower revenue and income. The structure is such that margin fluctuations in the core business directly affect overall consolidated performance.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Income margin and Net Income margin are below the industry median, confirming the Company’s low-margin, processing- and distribution-oriented business structure in the industry comparison.

Growth and Capital Efficiency

The Revenue growth rate substantially exceeds the industry median, positioning the Company among the high-growth companies in the industry.

※Source: Company analysis

Key Takeaways from the Results

1. Operating Income increased +146.1% against Revenue growth of +30.6%, confirming strong operating leverage accompanied by gross margin improvement (+approximately 1.3pt) and control of the SG&A ratio. The primary driver of the earnings increase was the improvement in the profit margin of the Secondary Aluminum Alloy segment (+approximately 1.9pt).

2. Although the Operating Income margin of 3.8% and Net Income margin of 2.4% are improving, they remain low compared with the industry median, indicating a structure with relatively high earnings sensitivity to fluctuations in raw material and selling prices.

3. Accounts receivable and inventories are increasing at a pace exceeding Revenue growth, and dependence on short-term borrowings is rising. Q1 progress against the full-year forecast is slightly below the standard level but generally steady. Maintaining profitability and managing working capital in subsequent quarters will be key points to monitor.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥2,408–¥2,552 for Cost of Equity ±1%, and ¥2,467–¥2,497 for ω ±0.1.

Notes:

• Net assets as of the quarter-end are used (there is a time lag relative to the full-year forecast).
• As 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 / Mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market stock price or a recommendation of any specific investment action, and does not predict or guarantee future stock prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary 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 responsibility, after consulting with a professional as necessary.

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