HIRAKAWA HEWTECH (5821) FY2027 Q1 Earnings Report

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Executive Summary

The Company recorded increases in both revenue and profit, primarily due to substantial revenue growth in the Wire and Processed Products segment. However, the growth in net income was relatively muted because of the reversal of a one-time gain in the same period of the previous year (gain on bargain purchase of ¥0.443B). Revenue was ¥12.44B (+52.7% YoY), Operating Income was ¥1.33B (+72.6%), Ordinary Income was ¥1.45B (+121.5%), and Net Income was ¥1.05B (+11.1%). The rate of growth in Operating Income exceeded revenue growth, indicating progress in fixed-cost absorption driven by higher revenue. Excluding the one-time gain in the previous year, underlying pre-tax earnings power improved.

Factors Affecting Performance

【Revenue】Revenue increased substantially to ¥12.44B, up +52.7% YoY. The primary factor was 67.5% growth in the Wire and Processed Products segment, which accounts for approximately 90% of total revenue and may include the contribution from the consolidation of Yoshinogawa Electric Wire as a consolidated subsidiary. Meanwhile, the Electronic and Medical Components segment recorded a 16.4% YoY decline in revenue.

【Profitability】Operating Income was ¥1.33B (+72.6%), and the Operating Margin was 10.7%, an improvement of +124bp from 9.5% in the previous year. Although the gross margin declined to 23.1% from 24.8%, a decrease of approximately 170bp, the SG&A ratio fell to 12.3% from 15.3%, a decline of approximately 293bp. Fixed-cost absorption from higher revenue therefore more than offset the decline in the gross margin. Ordinary Income was ¥1.45B (+121.5%), supported by the surplus in non-operating income and expenses, including interest income, dividend income, and foreign exchange gains. Net Income was limited to ¥1.05B (+11.1%), reflecting the reversal of the one-time gain on bargain purchase of ¥0.443B recorded in the same period of the previous year, as well as an increase in the effective tax rate. Overall, the Company can be assessed as having achieved increases in both revenue and profit.

Segment Analysis

The Wire and Processed Products segment generated revenue of ¥11.24B (+67.5%) and segment profit of ¥1.34B (+80.0%), with a profit margin of 11.9%, improved from 11.1% in the previous year, and drove consolidated performance. The Electronic and Medical Components segment recorded revenue of ¥1.20B (-16.4%) and segment profit of ¥0.23B (-12.5%), representing declines in both revenue and profit. However, its profit margin was 19.4%, making it a high-margin business that exceeds the Company-wide average. Company-wide expenses (adjustments) were ¥0.245B, broadly flat compared with ¥0.243B in the previous year, indicating that cost discipline has been maintained during the period of revenue growth. If the segment’s revenue decline continues, it could narrow the scope for improvement in the Company-wide product mix, which warrants attention.

Key Financial Indicators

【Profitability】The Operating Margin improved to 10.7% from 9.5% in the same period of the previous year, an improvement of approximately 124bp, while the Net Profit Margin was 8.2%. The gross profit margin declined to 23.1% from 24.8%, suggesting upward pressure on costs.【Cash Flow Quality】Annualized DSO was 83 days, DIO was 108 days, and CCC was 164 days. All exceeded generally cautionary levels (DSO of 60 days, DIO of 90 days, and CCC of 120 days), indicating that the working capital burden associated with revenue growth has expanded.【Investment Efficiency】Annualized ROE was 9.2%. Decomposed into the three components of net profit margin, total asset turnover, and financial leverage, the degree of reliance on leverage was low (approximately 1.29x), with a favorable net profit margin and asset turnover serving as the primary sources of ROE.【Financial Soundness】The Equity Ratio was 77.6%, while the Current Ratio was approximately 534.7%, calculated as current assets of ¥39.47B divided by current liabilities of ¥7.38B, an extremely high level. Cash and deposits totaled ¥16.09B. Interest-bearing debt totaled approximately ¥4.78B, including short-term and long-term debt, leaving net cash of more than ¥10B and indicating a conservative financial base.

Cash Flow Analysis

Although actual figures from the statement of cash flows are outside the scope of disclosure, cash flow trends are analyzed based on changes in the balance sheet. Accounts receivable increased by ¥1.97B (+21.0%) YoY to ¥11.34B, while inventories also increased by ¥0.26B to ¥3.59B. On an annualized basis, DSO was 83 days, DIO was 108 days, and CCC was 164 days, indicating a long period of working capital commitment. Because the gap with the payment period (estimated DPO of approximately 27 days) is substantial, the structure is such that the cash tied up in working capital accompanying revenue growth is likely to weigh on cash generation. Meanwhile, cash and deposits were substantial at ¥16.09B, and net cash after deducting interest-bearing debt of ¥4.78B exceeded ¥10B, indicating high resilience to increases in working capital. The quality of future Operating Cash Flow will depend on the extent of improvement in accounts receivable collection and inventory turnover.

Quality of Earnings

The current-period Ordinary Income of ¥1.45B comprised Operating Income of ¥1.33B plus a surplus in non-operating income and expenses, including interest income of ¥0.05B, dividend income of ¥0.04B, and foreign exchange gains of ¥0.03B, among others. Dependence on one-time factors was therefore limited. Meanwhile, the previous year’s Net Income included a ¥0.443B extraordinary gain on bargain purchase associated with the consolidation of Yoshinogawa Electric Wire as a consolidated subsidiary, and this one-time factor was absent in the current period. Consequently, the +11.1% YoY increase in Net Income attributable to owners of the parent (on a consolidated net income basis) was modest compared with growth at the Operating Income and Ordinary Income levels (+72.6% and +121.5%, respectively). Comprehensive Income was ¥2.37B, substantially exceeding Net Income of ¥1.05B, with foreign currency translation adjustment of +¥0.60B and valuation difference on available-for-sale securities of +¥0.72B contributing to the result. Attention is therefore required because the increase in net assets includes an accrual-like component arising from market and foreign exchange factors.

Earnings Forecast and Guidance

The full-year Company forecast calls for Revenue of ¥48.00B (+24.9% from the previous fiscal year), Operating Income of ¥5.50B (+24.5%), and Ordinary Income of ¥5.70B (+22.9%). During the current quarter, the Company revised its earnings and dividend forecasts. The Q1 achievement rates were 25.9% for Revenue, 24.3% for Operating Income, and 25.4% for Ordinary Income, all broadly standard levels near the simple 25% benchmark. Q1 YoY growth rates (Revenue +52.7% and Operating Income +72.6%) exceeded the growth rates assumed in the full-year forecast. However, the achievement rates themselves were not exceptional, and no substantial upside or downside relative to the full-year plan can be confirmed at this point.

Shareholder Returns

The full-year dividend forecast is ¥57.0 per share. Based on forecast EPS of ¥263.74, the Payout Ratio is approximately 21.6%, below the commonly cited sustainability benchmark of 60%. Financial capacity, including cash and deposits of ¥16.09B and a Current Ratio of approximately 534.7%, also supports the dividend. In April 2026, a bonus allocation of treasury shares equivalent to 0.05 shares for each common share was implemented. Because the dividend amount forecast for the fiscal year ending March 2027 is presented based on the post-allocation share structure, caution is required when making a simple comparison with the previous fiscal year’s actual results. The amount of share repurchases executed during the current period has not been disclosed; accordingly, this report evaluates only the Payout Ratio.

Risk Factors

1. Business concentration risk: The Wire and Processed Products segment accounts for approximately 90% of consolidated revenue and approximately 85% of segment profit. Consequently, fluctuations in demand for this business and changes in the production plans of major customers could have a significant impact on consolidated performance.

2. Prolonged working capital cycle: Annualized DSO of 83 days, DIO of 108 days, and CCC of 164 days all exceed generally cautionary levels. During periods of revenue growth, funds tied up in accounts receivable and inventory may increase, requiring monitoring of the conversion efficiency of Operating Cash Flow.

3. Decline in Electronic and Medical Components revenue: Revenue declined 16.4% YoY. The segment’s profit margin of 19.4% is higher than the Company-wide average, making it a high-margin business. A continued decline in revenue could create headwinds for improvement in the Company-wide gross margin.

Industry Benchmarks (For Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Margin and Net Profit Margin exceeded the industry median, indicating that profitability was relatively favorable within the industry.

Growth and Capital Efficiency

The Revenue Growth Rate substantially exceeded the industry median, representing an outstanding pace of revenue growth within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The Operating Margin improved by approximately 124bp YoY to 10.7%. While the gross margin declined by approximately 170bp, the SG&A ratio decreased by approximately 293bp. The structural feature of the results was that fixed-cost absorption from revenue growth led the improvement in profitability.

2. The growth in Net Income attributable to owners of the parent (+11.1%) was substantially below the growth in Operating Income and Ordinary Income (+72.6% and +121.5%, respectively). This was due to the reversal of the one-time gain on bargain purchase of ¥0.443B recorded in the same period of the previous year. Underlying earnings power should therefore be assessed based on improvement at the Operating Income and Ordinary Income levels.

3. Annualized CCC was long at 164 days, while DSO of 83 days and DIO of 108 days both exceeded generally cautionary levels. Although financial soundness was strong, with an Equity Ratio of 77.6% and net cash exceeding ¥10B, improving cash conversion efficiency remains an issue for sustaining revenue growth.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,900–¥3,073 for a ±1% change in the Cost of Equity, and ¥2,983–¥2,986 for a change of ±0.1 in ω.

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 / Mechanically calculated solely from 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 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 professionals as necessary.

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