FURUKAWA CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

In addition to higher revenue centered on the Metals segment, improved gross margin resulted in higher revenue and earnings. Revenue was ¥602.2B (+23.9% YoY), Operating Income was ¥39.0B (+58.5%), Ordinary Income was ¥46.1B (+17.9%), and Net Income attributable to owners of the parent was ¥40.4B (+68.2%). Gross margin improved to 17.3% from 15.4% in the same period of the previous year, absorbing the increase in SG&A expenses and expanding the Operating Income margin to 6.5%. Meanwhile, the smaller increase in Ordinary Income than in Operating Income was due to the negative impact of the reversal of the significant non-operating income recorded in the same period of the previous year.

Factors Affecting Earnings

【Revenue】Revenue increased 23.9% YoY to ¥602.2B. By segment, Metals increased 19.4% YoY to ¥285.4B, accounting for 47.4% of consolidated revenue and representing the largest contributor to revenue growth. Rock Drill at ¥93.1B (+17.4%), Chemicals at ¥35.2B (+32.7%), and Electronic Materials at ¥20.4B (+34.5%) also contributed to the increase, while Industrial Machinery declined 13.1% to ¥44.0B.

【Profit and Loss】Operating Income increased 58.5% YoY to ¥39.0B. Segment profit in Metals doubled to ¥17.2B (+99.0%), while Electronic Materials (+1100.0%), Chemicals (+157.8%), and UNIC Machinery (+230.0%) also posted substantial earnings growth. In contrast, Industrial Machinery (-51.8%) and Rock Drill (-21.2%) recorded lower earnings. Ordinary Income increased 17.9% to ¥46.1B, held back by the reversal of ¥19.4B in non-operating income recorded in the same period of the previous year. Extraordinary gains and losses were minor, with a limited impact on Net Income. Net Income attributable to owners of the parent was ¥40.4B (+68.2%), also supported by a decline in income taxes and other taxes (effective tax rate of 10.3%). In conclusion, the Company achieved higher revenue and earnings.

Segment Analysis

Metals generated revenue of ¥285.4B (+19.4% YoY), profit of ¥17.2B (+99.0%), and a profit margin of 6.0%, making it the largest contributor to consolidated profit. Real Estate is small in scale, with revenue of ¥6.4B, but demonstrated outstanding profitability with a profit margin of 43.5%. Chemicals (14.1% profit margin) and Electronic Materials (13.0%) also delivered high profitability. In contrast, Industrial Machinery generated revenue of ¥34.5B (-13.1% YoY) and had a low profit margin of 3.7%, while Earth Technica, newly established during the current period, recorded a profit margin of only 3.3%. Rock Drill posted higher revenue (+17.4%) but lower profit (-21.2%), indicating a change in project composition.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 6.5% from 5.1% in the same period of the previous year, while the Net Income margin also rose to 6.7%. Gross margin improved to 17.3% (15.4% in the previous year), but remained below 20%.【Cash Flow Quality】Comprehensive Income was ¥154.0B, substantially exceeding Net Income of ¥41.3B, primarily due to ¥114.7B in valuation differences on investment securities and other items.【Investment Efficiency】Annualized ROE was 9.9%, while the total asset turnover ratio remained below 1x, reflecting a capital-intensive business structure.【Financial Soundness】The Equity Ratio declined slightly to 51.6% from 54.1% in the same period of the previous year, but remained above 50%. Short-term borrowings increased 178.4% YoY to ¥306.5B, indicating a change in the financial structure.

Cash Flow Analysis

Although the statement of cash flows has not been disclosed, funding trends can be assessed from changes in the balance sheet. Total assets increased by ¥526.0B YoY, primarily due to increases of ¥181.8B in investment securities, ¥67.5B in accounts receivable, and ¥37.7B in property, plant and equipment. Short-term borrowings increased by ¥196.4B, suggesting that part of the asset expansion was financed through borrowings. Cash and deposits totaled ¥201.9B, slightly down from ¥210.5B in the same period of the previous year, indicating that funds are being deployed into working capital and investments accompanying business expansion. The increase in accounts receivable (+27.3%) exceeded the revenue growth rate (+23.9%), potentially affecting capital efficiency through a lengthening cash collection cycle.

Quality of Earnings

The earnings increase for the current period had limited reliance on extraordinary gains and losses, with extraordinary income and extraordinary losses both minor at ¥0.1B, respectively; the primary driver was improvement in recurring operating results. Non-operating income was ¥12.8B, including ¥3.4B in dividend income received and ¥7.1B in equity-method investment profit, equivalent to 2.1% of revenue. The decline from ¥19.4B in non-operating income in the same period of the previous year was a factor limiting the growth of Ordinary Income relative to Operating Income. The effective tax rate was low at 10.3%, contributing to the increase in Net Income, but its sustainability over the full year requires confirmation. Comprehensive Income of ¥154.0B significantly exceeded Net Income of ¥41.3B, and because the difference was primarily attributable to valuation differences on investment securities, market-related factors separate from business earnings affected changes in net assets.

Earnings Forecasts and Guidance

The full-year forecasts are revenue of ¥259.0B (+22.7% YoY), Operating Income of ¥100.0B (-11.5%), and Ordinary Income of ¥97.0B (-29.4%). The Q1 progress rates were 23.3% for revenue, 39.0% for Operating Income, and 47.6% for Ordinary Income, all exceeding the standard quarterly progress rate of 25%. Although profit-related indicators are progressing ahead of schedule, the full-year plan itself assumes lower earnings YoY, suggesting that management has conservatively factored in a decline in profit margins and changes in market conditions toward the second half of the fiscal year. The earnings forecast was revised during the current quarter.

Shareholder Returns

The full-year dividend forecast is ¥80 per share, an increase from the previous year's dividend of ¥30. Based on the average number of shares outstanding during the period, the annual total dividend is estimated at approximately ¥25.9B, resulting in a Payout Ratio of approximately 17.9% against the full-year forecast Net Income attributable to owners of the parent of ¥145.0B. This Payout Ratio is based solely on dividends and does not take share repurchases into account. The dividend forecast was not revised during the current quarter.

Risk Factors

1. Surge in short-term borrowings and maturity structure: Short-term borrowings increased 178.4% YoY to ¥306.5B, and the short-term liabilities ratio was 41.3%. The ratio to cash and deposits of ¥201.9B was 0.66x, making trends in refinancing and extension of maturities a point requiring attention from a financial perspective.

2. Inventory and working capital accumulation: Inventories consisted of raw materials of ¥320.0B, work in process of ¥144.3B, and finished goods of ¥246.2B. Accounts receivable increased to ¥314.6B (+27.3% YoY), expanding at a faster pace than revenue. Increases in inventories and receivables may affect capital efficiency.

3. Differences in profitability by segment: Industrial Machinery (revenue -13.1%, profit -51.8%) and Rock Drill (profit -21.2%) recorded lower earnings, resulting in a structure with a high dependence on the Metals segment for profit. Fluctuations in market conditions for Metals could have a significant impact on consolidated earnings.

Industry Benchmark (Reference; Compiled by the Company)

Key Points from the Earnings Report

1. Gross margin improved to 17.3% from 15.4% in the same period of the previous year, an improvement of 186bp, and exceeded the increase in the SG&A ratio (+35bp), resulting in a 142bp expansion in the Operating Income margin. Whether this improvement in gross margin can be sustained will determine future trends in profitability.

2. The full-year Operating Income forecast assumes a decline of -11.5% YoY, but the progress rate as of Q1 was 39.0%, significantly exceeding the standard level. A key point to assess from the earnings data is whether the strong performance of the Metals segment was concentrated in Q1 or will continue throughout the full year.

3. The fact that the increase in short-term borrowings and the growth in accounts receivable exceeded the revenue growth rate indicates that asset expansion has been accompanied by changes in capital efficiency. This should be monitored as a change in the financial and capital structure.

Theoretical Share Price (Reference Value)

Sensitivity: ¥5,049–¥5,350 at Cost of Equity ±1%, and ¥5,196–¥5,197 at ω±0.1.

Notes:

• 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; it 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 based on 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 a professional as necessary.

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