AHRESTY CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

The company’s trend of revenue and profit growth came to an end. Revenue declined slightly, while operating results fell from a profit in the previous year into a loss, resulting in a quarter of rapidly deteriorating profitability. Revenue was ¥424.2B (¥429.1B in the previous year, YoY -1.2%), Operating Income was ¥-4.6B (¥16.2B in the previous year, YoY -128.5%), Ordinary Income was ¥-4.8B (¥12.9B in the previous year, YoY -137.0%), and Net Income attributable to owners of the parent was ¥-6.7B (¥9.8B in the previous year, YoY -168.3%). In addition to the gross profit margin declining from 10.9% to 6.2%, the North American Die Casting Business’s loss (-¥6.5B) was the primary cause of the company-wide loss, while net extraordinary losses of -¥3.2B also expanded the loss before tax.

Factors Affecting Results

【Revenue】Revenue was ¥424.2B, a slight year-on-year decline of -1.2%. By segment, Japan Die Casting generated ¥190.1B (44.8% of total, YoY +7.4%), North America Die Casting generated ¥137.3B (32.3% of total, YoY -2.9%), Asia Die Casting generated ¥88.8B (20.9% of total, YoY -9.7%), Aluminum generated ¥32.5B (7.7% of total, YoY +22.0%), and the Finished Products Business generated ¥4.9B (1.2% of total, YoY -56.3%). Revenue growth in Japan and Aluminum partially offset declines in North America, Asia, and Finished Products.

【Profit and Loss】Cost of sales increased to ¥397.7B (up +4.0% year on year), despite the decline in revenue, causing the gross profit margin to fall by 4.7pt from 10.9% to 6.2%. SG&A expenses were ¥31.1B (SG&A ratio 7.3%, compared with 7.1% in the previous year), remaining largely flat. As a result, SG&A could not absorb the decline in gross profit, and Operating Income deteriorated to ¥-4.6B (¥16.2B in the previous year), while the operating margin deteriorated to -1.1% (3.8% in the previous year). By segment, North America Die Casting was the largest contributor to the company-wide loss, with an operating loss of -¥6.5B. Japan Die Casting also turned to a loss of -¥0.2B, while the Aluminum Business (+¥1.7B, profit margin 5.2%, YoY +165.6%), Asia Die Casting (+¥0.3B), and Finished Products (+¥0.1B) remained profitable and provided support. Below operating income, the burden of interest expense of ¥2.0B continued, resulting in Ordinary Income of ¥-4.8B. Extraordinary income of ¥2.8B was offset by extraordinary losses of ¥5.9B (including ¥0.5B in losses on the disposal and sale of fixed assets), and the difference of -¥3.2B, as a temporary factor, expanded the loss before tax (-¥8.0B). Net Income was ¥-6.7B (¥9.8B in the previous year). In conclusion, the company experienced declining revenue and earnings, with a transition into the red.

Segment Analysis

North America Die Casting recorded a loss of -¥6.5B, making it a larger negative contributor than the company-wide loss of -¥4.6B. Japan Die Casting, despite securing revenue growth, also slipped slightly into the red due to operational and cost-related challenges. Meanwhile, the Aluminum Business achieved both revenue and earnings growth and maintained the highest profit margin among all segments at 5.2%, supporting company-wide earnings. Profitability disparities among the regional Die Casting businesses are significant, and restoring profitability in North America will be key to the recovery of company-wide earnings.

Key Financial Indicators

【Profitability】The operating margin declined to -1.1% (3.8% in the previous year), while the net profit margin declined to -1.6% (2.3% in the previous year), with both moving from positive to negative territory. ROE was -1.2% (a similar level of profitability in the previous year). Under DuPont analysis, the shift of the net profit margin into negative territory was the primary cause of deterioration, while changes in total asset turnover (0.304x, on a quarterly basis) and financial leverage (total assets/net assets of 2.49x) were limited.【Cash Quality】Based on the number of days in the quarter, estimated working capital turnover days were approximately 68 days for accounts receivable (approximately 72 days in the previous year), representing a slight reduction; approximately 14 days for inventories (approximately 11 days in the previous year), representing an increase; and approximately 35 days for accounts payable (approximately 32 days in the previous year), also representing an increase. Accordingly, the cash conversion cycle was approximately 47 days (approximately 51 days in the previous year), a slight reduction. Although inventory has increased, the longer payment period and improvement in receivables collection partially offset this factor.【Investment Efficiency】Total asset turnover was 0.304x (on a quarterly basis), slightly below 0.316x in the previous year, indicating some recent deterioration in asset efficiency.【Financial Soundness】The Equity Ratio was nearly flat at 40.1% (41.1% in the previous year). Cash and deposits increased to ¥149.2B (up +22.4% year on year), while short-term borrowings stood at ¥172.3B and the cash/short-term liabilities ratio remained at 0.87x. Long-term borrowings declined by -11.5%, indicating a shift toward shorter-term interest-bearing debt.

Cash Flow Analysis

As the company does not disclose a statement of cash flows, funding trends are analyzed based on changes in the balance sheet. Cash and deposits increased by ¥27.2B (+22.4%) year on year to ¥149.2B. The use of short-term liabilities and trade credit, including an increase of +¥12.0B (+7.5%) in short-term borrowings, +¥18.8B (+14.2%) in accounts payable, and +¥7.2B (+41.4%) in provision for bonuses, contributed to securing funds. Meanwhile, long-term borrowings decreased by -¥18.9B (-11.5%), indicating a shift in the composition of interest-bearing debt from long term to short term. Inventories increased by +¥11.5B (+24.2%), tying up funds, while accounts receivable decreased by -¥20.3B (-6.0%), with collections also showing a slight improvement from the previous year on a turnover-days basis (approximately 68 days, compared with approximately 72 days in the previous year). Despite the operating loss, cash and deposits increased, with the use of short-term borrowings and trade payables, together with progress in collecting receivables, supporting liquidity. However, the shift toward shorter-term interest-bearing debt will require monitoring from a refinancing perspective.

Quality of Earnings

The combined operating results of the Die Casting and Aluminum businesses, which form the recurring earnings base, amounted to an operating loss of -¥4.6B. Non-operating income was limited at ¥2.1B in total, including ¥0.3B in dividend income and ¥0.2B in foreign exchange gains, while non-operating expenses of ¥2.2B, including ¥2.0B in interest expense, reduced Ordinary Income to -¥4.8B. Extraordinary income was ¥2.8B (including ¥0.1B in gains on the sale of fixed assets), compared with extraordinary losses of ¥5.9B (including ¥0.5B in losses on the disposal and sale of fixed assets). The difference of -¥3.2B accounted for approximately 40% of the loss before tax (-¥8.0B), with low-frequency items serving as a temporary factor that expanded the final loss. The gap between Ordinary Income (-¥4.8B) and Net Income (-¥6.7B) was primarily attributable to the net extraordinary loss and corporate income taxes of -¥1.3B (tax effect). Comprehensive income was +¥7.1B, exceeding Net Income (-¥6.7B), primarily due to foreign currency translation adjustments of +¥12.8B, as the yen-denominated valuation of overseas subsidiaries supported net assets. From the perspective of current-period earnings and accruals, the increase in inventories (+¥11.5B) remains a risk of delayed cash conversion.

Earnings Forecast and Guidance

The full-year company plan calls for Revenue of ¥1,616.0B (前年比 -3.3%), Operating Income of ¥14.0B (down -62.6%), Ordinary Income of ¥8.0B (down -72.1%), Net Income of ¥5.0B, EPS of ¥20.13, and DPS of ¥34. No revision to the earnings forecast was made during the quarter. Revenue progress was 26.3% (¥424.2B/¥1,616.0B), slightly above the seasonal benchmark of 25% based on a simple four-quarter allocation. However, the company recorded an operating loss of -¥4.6B in Q1, representing a significant shortfall in earnings progress. To achieve the full-year plan, approximately ¥18.6B in additional Operating Income, or approximately ¥6.2B per quarter on average, will be required over the remaining three quarters. Progress in improving profitability toward the second half of the fiscal year, including the restoration of profitability in North America Die Casting, will be the focus going forward.

Shareholder Returns

The full-year dividend forecast remains ¥34 per share, with no revision during the quarter. Based on the company’s planned EPS of ¥20.13, the Payout Ratio is approximately 168.9% (¥34/¥20.13), meaning that the planned dividend exceeds the projected earnings level. Retained earnings amounted to ¥201.8B, indicating that funding for dividends was secured at the beginning of the period. However, given that the company recorded an operating loss in Q1, if achievement of the full-year earnings plan is delayed, maintaining the dividend level may depend on internal reserves. No data regarding share buybacks has been identified.

Risk Factors

1. Deterioration in the profitability of the North America Die Casting Business: The North America segment’s operating result was -¥6.5B (a shift into the red from +¥6.4B in the previous year), with a profit margin of -4.7%, representing the largest deterioration among all segments and the primary cause of the company-wide operating loss (-¥4.6B).

2. Decline in gross profit margin and insufficient fixed-cost absorption: Cost of sales increased at a faster pace than revenue (up +4.0% year on year), causing the gross profit margin to decline by 4.7pt from 10.9% to 6.2%. As the SG&A ratio remained nearly flat at 7.3%, the decline in gross profit directly translated into deterioration in operating results.

3. Shortening maturity of interest-bearing debt and refinancing structure: While the burden of ¥2.0B in interest expense continued, short-term borrowings increased by +7.5% year on year to ¥172.3B, compared with cash and deposits of ¥149.2B, leaving the cash/short-term liabilities ratio at 0.87x. Long-term borrowings declined by -11.5%, confirming a trend toward shorter-term interest-bearing debt.

Industry Benchmark (For Reference; Company Analysis)

Profitability and Returns

Both the operating margin and net profit margin are significantly below the industry median, placing profitability at the lower end of the industry.

Growth and Capital Efficiency

The revenue growth rate also falls below the industry median, and top-line growth is comparatively weak within the industry.

Source: Company compilation

Key Takeaways from the Results

1. The deterioration in profitability originated from the North America Die Casting Business turning loss-making and the decline in the company-wide gross profit margin. The Aluminum Business (Operating Income +¥1.7B, profit margin 5.2%, up +165.6% year on year) was the only segment to secure earnings growth. Differences in profitability among segments will determine the structure of future company-wide earnings recovery.

2. Against the full-year plan of Operating Income of ¥14.0B, the company recorded a loss of -¥4.6B as of Q1. While revenue progress was 26.3%, earnings progress was significantly behind plan. The pace of recovery over the remaining three quarters will be closely watched in future disclosures.

3. The dividend forecast of ¥34 represents a Payout Ratio of approximately 168.9% against planned EPS of ¥20.13, exceeding the projected earnings level. The degree to which full-year results are achieved will therefore be an issue for the sustainability of the dividend policy.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade period). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥1,648–¥1,737 at ±1% for the cost of equity, and ¥1,676–¥1,701 at ±0.1 for ω.

Notes:

• Net Income is significantly compressed relative to Operating Income due to tax burdens, acquisition-related expenses, and non-controlling interests (Net Income ÷ Operating Income 36%). This value reflects that compression at face value; if these factors are temporary, underlying earnings power may be higher.
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets at 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.

(Model used: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not predict or guarantee the future share price)

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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. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.

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