JAPAN MATERIAL Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

The key highlight of the quarter was the significant improvement in profit margins in addition to higher revenue and earnings, indicating results in which both the quality of growth and profitability improved simultaneously. Revenue was ¥159.7B (+20.5% YoY), Operating Income was ¥47.4B (+48.6%), Ordinary Income was ¥48.4B (+56.2%), and Net Income was ¥33.2B (+55.3%). Driven by expanding demand in the core Electronics-Related Business, as well as a higher gross margin and lower SG&A expense ratio, the Operating Income margin improved by +560bp to 29.7% (24.1% in the previous year).

Factors Affecting Earnings

【Revenue】Revenue was ¥159.7B (+20.5% YoY), with the Electronics-Related Business driving growth at ¥154.9B (+20.3% YoY; 97.0% composition ratio). Graphics Solutions recorded strong growth of ¥4.3B (+31.4%), although its scale remains small. Solar Power Generation declined slightly to ¥0.6B (-6.8%). The business portfolio is highly concentrated in the Electronics-Related Business, creating a structure in which growth is strongly dependent on demand trends in that business.

【Profit and Loss】Operating Income was ¥47.4B (+48.6% YoY). Positive operating leverage was generated as the gross profit margin rose by +420bp to 38.4% (34.2% in the previous year), while the SG&A expense ratio declined to 8.7% (10.1% in the previous year). Ordinary Income was ¥48.4B (+56.2%), with foreign exchange gains of ¥0.5B providing an additional boost. Extraordinary items were immaterial (extraordinary loss of ¥0.01B), and the impact of one-off factors was limited. Net Income was ¥33.2B (+55.3%); the gap between Ordinary Income and Net Income was primarily attributable to income taxes and other taxes of ¥15.1B, resulting in a normal effective tax rate of approximately 31.2%. The company achieved higher revenue and earnings, with the earnings growth rate exceeding the revenue growth rate, indicating qualitative improvement in profitability.

Segment Analysis

The Electronics-Related Business is the core business, generating the majority of company-wide profit, with revenue of ¥154.9B (+20.3% YoY), Operating Income of ¥50.1B (+43.1%), and a profit margin of 32.3%. Graphics Solutions remained stable, with revenue of ¥4.3B (+31.4%), Operating Income of ¥0.5B (+21.1%), and a profit margin of 10.8%. Solar Power Generation contracted in scale, with revenue of ¥0.6B (-6.8%) and Operating Income of ¥0.4B (-7.5%), but maintained high profitability with a profit margin of 67.3%. Company-wide profit is highly dependent on the higher margins of the Electronics-Related Business, and operating conditions in that business will be a driver of fluctuations in company-wide earnings.

Key Financial Indicators

【Profitability】The Operating Income margin improved by +560bp to 29.7% (24.1% in the previous year), while the Net Income margin expanded by +460bp to 20.8% (16.1% in the previous year). The gross margin rose to 38.4% (34.2% in the previous year), with improved cost efficiency and business mix as the primary drivers of higher profitability.【Cash Flow Quality】Cash and deposits were substantial at ¥244.4B, while accounts receivable of ¥240.8B and inventories of ¥20.4B had accumulated. Working capital expanded in line with revenue growth, requiring attention to the time lag in cash conversion relative to earnings growth.【Investment Efficiency】ROE was 5.2%; despite the high Net Income margin of 20.8%, low total asset turnover remained a constraint. Cash and accounts receivable represented high proportions of total assets of ¥756.5B, indicating room for improvement from an asset-efficiency perspective.【Financial Soundness】The Equity Ratio was extremely high at 84.0%, and cash and accounts receivable substantially exceeded current liabilities of ¥103.3B, indicating a conservative and stable financial base.

Cash Flow Analysis

Although detailed disclosure of the statement of cash flows is not available, funding trends can be assessed from movements in the balance sheet. Cash and deposits increased to ¥244.4B from ¥216.2B in the previous year, indicating continued accumulation of internally generated funds from operating activities. Meanwhile, accounts receivable and notes receivable were ¥240.8B and inventories were ¥20.4B, with both increasing, confirming the expansion of working capital accompanying revenue growth. Although earnings remain high, the accumulation of accounts receivable and inventories may create a time lag in future cash conversion. The balance between earnings growth and cash generation will therefore warrant monitoring. Property, plant and equipment was largely unchanged at ¥148.5B, with no significant acceleration in investment activity observed.

Earnings Quality

Current-period earnings were primarily supported by sustainable earnings from operating activities, with limited reliance on one-off factors. Non-operating income was ¥0.98B (0.6% of revenue), consisting mainly of foreign exchange gains of ¥0.5B, interest income of ¥0.2B, and dividend income of ¥0.1B, all of which were limited in scale. Extraordinary losses amounted to only ¥0.01B. The gap between Ordinary Income and Net Income was primarily attributable to the recognition of income taxes and other taxes of ¥15.1B, with the effective tax rate remaining at a normal level of approximately 31.2%. Comprehensive Income was ¥35.4B, and the difference from Net Income of ¥33.2B was primarily attributable to foreign currency translation adjustments of ¥1.0B and valuation differences on securities of ¥1.1B; no significant divergence was observed. Overall, earnings quality is supported by the company’s core earning power, with limited dependence on non-recurring factors.

Earnings Forecast and Guidance

The full-year plan calls for Revenue of ¥610.0B (+5.2% YoY), Operating Income of ¥155.0B (+5.9%), and Ordinary Income of ¥155.0B (+2.5%). Q1 progress rates were 26.2% for Revenue, 30.6% for Operating Income, 31.2% for Ordinary Income, and 30.7% for Net Income, all exceeding the simple progress benchmark of 25%, with particularly front-loaded progress on the profit side. There were no revisions to the earnings forecast or dividend forecast, and management has maintained its full-year plan at this time. Although front-loaded first-half earnings driven by gross margin improvement and fixed-cost absorption have been confirmed, it will be necessary to monitor the potential unwinding of temporary tailwinds, such as foreign exchange effects, toward the second half.

Shareholder Returns

The company’s full-year dividend forecast is ¥35.00 per share, implying a Payout Ratio of approximately 33.3% against forecast full-year EPS of ¥105.08. There have been no revisions to the interim or year-end dividend forecasts, and the plan remains unchanged. As there has been no disclosure regarding share repurchases, the Payout Ratio is the appropriate metric for evaluating shareholder returns. Given the conservative financial base, including cash and deposits of ¥244.4B and an Equity Ratio of 84.0%, the reliability of the funding source for dividends is considered high.

Risk Factors

1. Segment concentration risk: The Electronics-Related Business accounts for 97.0% of Revenue and the majority of Operating Income, creating a structure in which changes in demand and utilization rates in that business directly affect company-wide performance.

2. Changes in working capital efficiency: Accounts receivable and notes receivable have accumulated to ¥240.8B, while inventories stand at ¥20.4B. Trends in collection and inventory cycles relative to revenue growth may affect cash generation.

3. Risk of reversal in non-operating factors: Foreign exchange gains of ¥0.5B, which contributed to higher Ordinary Income, are susceptible to market conditions. If reversed, they may affect the earnings growth rate at the Ordinary Income level.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Returns

The company is significantly above the industry median, placing its profitability among the top tier of the industry.

Growth and Capital Efficiency

The Revenue growth rate also exceeded the industry median, securing high growth close to the upper limit of the industry IQR.

※Source: Company analysis

Key Takeaways from the Earnings Results

1. The Operating Income margin improved by +560bp YoY, confirming qualitative improvement in the profit structure itself rather than merely higher revenue. Positive operating leverage from a higher gross margin and lower SG&A expense ratio was the underlying factor.

2. Full-year progress rates exceeded 30% for Operating Income and Net Income, progressing ahead of the simple benchmark of 25%. This indicates front-loaded earnings in the first half, while the potential reversal of foreign exchange and other temporary factors in the second half will be a key point to monitor.

3. While the financial base is extremely conservative, with an Equity Ratio of 84.0% and cash and deposits of ¥244.4B, accounts receivable and inventories have increased. The balance between revenue growth and working capital growth is therefore a structural point of observation that will influence future cash-generation capacity.

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). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥747–¥791 at Cost of Equity ±1%, and ¥765–¥774 at ω±0.1.

Notes:

• Net assets as of the quarter-end were used (there is a timing difference 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 / Interest Rate Reference Month: 2026-07 / This value does not forecast or guarantee the future share price)

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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 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 a professional adviser where necessary.

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