H-ONE CO.,LTD. FY2027 Q1 Earnings Report

Quick View

Executive Summary

Despite largely flat revenue, this quarter saw a substantial contraction in Operating Income due to deterioration in the gross profit margin and adverse cost mix. Revenue was ¥508.6B (¥506.8B in the previous year, YoY+0.4%), Operating Income was ¥14.4B (¥25.6B in the previous year, YoY-43.6%), and Profit Before Tax was ¥14.8B (¥27.3B in the previous year, YoY-45.7%). Quarterly profit (on a consolidated basis, including non-controlling interests) was ¥16.3B (¥20.0B in the previous year, YoY-18.5%), of which quarterly Net Income attributable to owners of the parent was ¥14.5B (¥16.1B in the previous year, YoY-9.9%). The decline in Net Income attributable to owners of the parent was smaller than the declines in Operating Income and Profit Before Tax primarily because income taxes and other taxes shifted from an expense to income (+¥1.5B; -¥7.3B in the previous year), resulting in an effective tax rate of -9.9%.

Factors Affecting Performance

【Revenue】North America served as the growth driver, with revenue of ¥296.9B (YoY+11.4%), accounting for 58.4% of total revenue, while China declined to ¥53.8B (YoY-32.4%) and Asia and Oceania declined to ¥43.1B (YoY-7.0%). Japan was largely flat at ¥114.8B (YoY+0.5%). The increase in North American revenue offset declines in China and Asia, resulting in consolidated revenue of ¥508.6B (YoY+0.4%), essentially unchanged year on year.

【Profit and Loss】The gross profit margin declined to 11.9% from 14.5% in the previous year, a decrease of 2.6pt, while the SG&A ratio increased to 9.1% from 8.2%. Consequently, Operating Income was limited to ¥14.4B (YoY-43.6%, Operating Margin 2.8%). By segment, Japan was the only segment to achieve higher profit, with Operating Income of ¥17.7B (YoY+14.6%, margin 15.4%), whereas North America saw its margin decline, with Operating Income of ¥10.3B (YoY-35.1%, margin 3.5%). China fell into an Operating Loss of ¥9.5B (compared with a profit of ¥1.3B in the previous year), while losses in Asia and Oceania also widened to ¥1.9B (previous year: -¥0.6B). Profit Before Tax declined to ¥14.8B (YoY-45.7%), but the reduction in Quarterly Net Income attributable to owners of the parent was limited to -9.9% due to the lower tax burden (effective tax rate of -9.9%). This was a quarter of higher revenue but lower profit.

Segment Analysis

The Japan segment generated revenue of ¥114.8B (YoY+0.5%) and Operating Income of ¥17.7B (YoY+14.6%, margin 15.4%), serving as the core contributor to company-wide profit. It achieved profit growth exceeding revenue growth, supported by price pass-through and high-value-added projects. North American revenue continued to expand, reaching ¥296.9B (YoY+11.4%), while Operating Income was limited to ¥10.3B (YoY-35.1%, margin 3.5%, equivalent to 5.9% in the previous year), indicating deteriorating profitability despite higher revenue. China experienced a substantial revenue decline to ¥53.8B (YoY-32.4%) and fell into an Operating Loss of ¥9.5B (compared with a profit of ¥1.3B in the previous year), suggesting structural deterioration in earnings as slowing demand coincided with higher costs. Asia and Oceania also saw revenue decline to ¥43.1B (YoY-7.0%), while the Operating Loss widened to ¥1.9B (previous year: -¥0.6B). There is considerable disparity among regions in their contributions to company-wide Operating Income, with Japan’s high profitability partially offsetting weak performance in North America, China, and Asia.

Key Financial Indicators

【Profitability】The Operating Margin was 2.8%, down 2.2pt from 5.0% in the same period of the previous year (previous-year Operating Income of ¥25.6B ÷ revenue of ¥506.8B). The gross profit margin also declined to 11.9% from 14.5%, with higher costs and an adverse segment mix depressing margins. The Net Profit Margin attributable to owners of the parent was 2.8%, slightly below 3.2% in the previous year. 【Cash Quality】Operating Cash Flow (OCF) was -¥34.8B, showing a substantial gap from Net Income attributable to owners of the parent of ¥14.5B and indicating weak cash conversion. 【Investment Efficiency】ROE was 1.9%, while the total asset turnover ratio remained low at 0.23x (revenue of ¥508.6B ÷ total assets of ¥2190.2B), indicating room for improvement in asset efficiency. 【Financial Soundness】The Equity Ratio was 37.4%, down 1.3pt from 38.7% in the previous year, while short-term borrowings increased to ¥432.4B, up +¥196.0B (+83.0%) from the end of the previous fiscal year. Including long-term borrowings of ¥363.2B, interest-bearing debt totaled ¥795.5B, representing approximately 0.93x shareholders’ equity of ¥859.1B.

Cash Flow Analysis

Operating Cash Flow was -¥34.8B (previous year: +¥16.0B). At the subtotal stage, starting from Profit Before Tax of ¥14.8B, cash flow was already -¥26.9B, indicating that deterioration in working capital significantly constrained cash generation. The primary factors were an increase in inventories (-¥35.1B) and a decrease in trade payables (-¥58.3B), reflecting simultaneous inventory buildup and normalization of payment terms. Investing Cash Flow was -¥43.3B, consisting primarily of capital expenditures of -¥54.9B and proceeds from the sale of property, plant and equipment of +¥9.2B; the scale of investment expanded from -¥26.1B in the previous year. Free Cash Flow, combining Operating Cash Flow and Investing Cash Flow, was substantially negative at -¥78.1B. Funding was provided through Financing Cash Flow of +¥97.7B, primarily a net increase in short-term borrowings of +¥123.0B. Cash and cash equivalents increased to ¥245.7B at period-end, up +¥22.3B from the beginning of the period, but it should be noted that the source was borrowings rather than operating activities.

Quality of Earnings

Non-operating financial income of ¥2.2B, financial expenses of ¥3.8B, and equity-method investment income of ¥2.1B were all modest, and their proportions relative to revenue were limited; dependence on non-operating income was therefore low. Taxes and other taxes were recognized as income of +¥1.5B compared with an expense of -¥7.3B in the previous year, against Profit Before Tax of ¥14.8B. This supported Quarterly Profit of ¥16.3B and Net Income attributable to owners of the parent of ¥14.5B. However, this reduction in the tax burden may reflect a temporary tax-related factor rather than an improvement in recurring earnings power. Meanwhile, Operating Cash Flow of -¥34.8B was substantially below Net Income attributable to owners of the parent of ¥14.5B, with deterioration in working capital—including increased inventories and reduced trade payables—widening accruals, or the gap between accrual-based and cash-based earnings. Comprehensive Income was ¥41.1B (¥37.5B attributable to owners of the parent), exceeding Quarterly Net Income, primarily due to other comprehensive income items such as remeasurements of defined benefit plans (+¥9.1B) and foreign currency translation adjustments (+¥6.1B). These items do not indicate an improvement in the earnings power of the core business.

Earnings Forecast and Guidance

The full-year plan remains unchanged at Revenue of ¥2300.0B, Operating Income of ¥160.0B (YoY+9.2%), and a dividend of ¥70.00 per share, with no revisions to the earnings or dividend forecasts for the current quarter. While progress toward the full-year target was 22.1% for Revenue (¥508.6B ÷ ¥2300.0B), progress for Operating Income was only 9.0% (¥14.4B ÷ ¥160.0B), substantially below the 25% benchmark for simple quarterly-linear progress. Progress based on Net Income attributable to owners of the parent was also behind schedule at 13.1% (¥14.5B ÷ ¥110.0B), making margin improvement in the second half of the fiscal year a prerequisite for achieving the full-year plan. Reducing losses in the China segment and recovering margins in North America will be key to progress.

Shareholder Returns

Dividend payments during the current quarter amounted to ¥9.0B, and the full-year dividend forecast remains unchanged at ¥70.00 per share. Based on projected full-year Net Income attributable to owners of the parent of ¥110B and the average number of shares outstanding during the period of 28,119 thousand shares, the projected total dividend is approximately ¥19.7B, resulting in a Payout Ratio of approximately 17.9%. Share repurchases of ¥2.9B were conducted during the current quarter, bringing quarterly cash outflows from dividends and share repurchases to ¥11.9B. Operating Cash Flow was -¥34.8B and Free Cash Flow was also negative at -¥78.1B, indicating that the funding for dividends and share repurchases was effectively provided by increased borrowings. On a full-year basis, the Payout Ratio remains conservative at approximately 17.9%, but the recovery of cash-generating capacity will be a key factor determining the sustainability of shareholder returns.

Risk Factors

1. Deterioration in China segment profitability: Against revenue of ¥53.8B (YoY-32.4%), the segment fell into an Operating Loss of ¥9.5B (compared with Operating Income of ¥1.3B in the previous year), representing a structural risk caused by the combination of slowing demand and higher costs.

2. Dependence on North America and margin deterioration: North America accounts for 58.4% (¥296.9B) of consolidated revenue, while its Operating Margin declined to 3.5% (equivalent to 5.9% in the previous year), indicating simultaneous regional concentration and deterioration in profitability.

3. Working capital deterioration and reliance on short-term funding: Operating Cash Flow was -¥34.8B, while inventories increased to ¥352.4B (+¥40.1B, +12.8% from the end of the previous fiscal year). Funding was provided through an increase in short-term borrowings (+¥196.0B, +83.0% from the end of the previous fiscal year), increasing reliance on short-term financing.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Return

The Company’s profitability is substantially below the industry median, with both its Operating Margin and Net Profit Margin positioned toward the lower end of the industry.

Growth and Capital Efficiency

Revenue growth also fell below the industry median, with the pace of revenue growth remaining slow relative to the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The Operating Margin declined to 2.8% (5.0% in the previous year), while the gross profit margin also deteriorated by 2.6pt. The gap with the full-year planned Operating Margin of 6.9% (¥160.0B ÷ ¥2300.0B) is substantial, making recovery in profitability during the second half of the fiscal year a prerequisite for achieving the plan.

2. The China segment’s shift from an Operating Profit in the previous year to a loss of ¥9.5B is a fact requiring close monitoring as a structural change in the regional portfolio.

3. The shift to negative Operating Cash Flow and the sharp increase in short-term borrowings (+83.0%) reflect deterioration in working capital due to inventory buildup and reduced trade payables. Progress in normalizing working capital will be a key focus in evaluating the Company’s financial condition going forward.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥3,286–¥3,485 at ±1% for the cost of equity, and ¥3,372–¥3,401 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).

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

---

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 benchmark is reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, and after consulting a professional as necessary.

---End of Report---