| Metric | Current Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥143.6B | ¥140.2B | +2.4% |
| Operating Income / Operating Profit | ¥8.3B | ¥12.3B | -31.9% |
| Ordinary Income | ¥8.4B | ¥11.6B | -27.9% |
| Net Income / Net Profit | ¥2.8B | ¥6.9B | -59.3% |
| ROE | 2.9% | 7.1% | - |
FY2026 results showed revenue of ¥143.6B (vs. prior year +¥3.3B, +2.4%), a slight increase, but Operating Income of ¥8.3B (vs. prior year -¥4.0B, -31.9%), Ordinary Income of ¥8.4B (vs. prior year -¥3.2B, -27.9%), and Net Income of ¥2.8B (vs. prior year -¥4.1B, -59.3%) all declined materially. Gross margin was 68.6%, down 0.6pt from 69.2% a year earlier. Selling, general and administrative expenses (SG&A) were ¥90.1B (vs. prior year +¥5.3B, +6.2%), growing well above revenue growth (+2.4%), driving Operating Margin down 2.9pt to 5.8%. An impairment loss of ¥2.8B was recorded as an extraordinary loss, compressing Profit Before Tax to ¥5.5B (vs. prior year -¥5.8B, -51.3%). The effective tax rate rose to approximately 50% from 39% a year earlier, further depressing Net Income. Operating Cash Flow was ¥3.8B (vs. prior year -¥7.4B, -66.4%), Free Cash Flow was ¥2.7B, insufficient to cover dividend payments of ¥6.1B, and Cash and Deposits decreased by ¥3.5B to ¥67.5B.
[Revenue] Revenue reached ¥143.6B (vs. prior year +¥3.3B, +2.4%), a modest increase. As the company operates a single segment, detailed breakdowns are not disclosed, but resilient demand supported growth. Gross margin was 68.6%, down 0.6pt from 69.2% a year ago, and Cost of Sales rose to ¥45.1B (vs. prior year +¥1.9B, +4.4%), outpacing revenue growth. Increases in raw material and subcontracting costs and delayed price pass-through are presumed to be primary drivers of margin pressure.
[Profitability] Operating Income fell to ¥8.3B (vs. prior year -¥4.0B, -31.9%). SG&A was ¥90.1B (vs. prior year +¥5.3B, +6.2%), well above revenue growth of +2.4%, creating negative operating leverage. Operating Margin deteriorated 2.9pt to 5.8%, and SG&A ratio rose 3.5pt to 62.8%. Non-operating items were broadly flat: Non-operating income ¥0.3B (including interest income ¥0.1B) and Non-operating expenses ¥0.3B (including interest expense ¥0.1B and fees ¥0.1B), leaving Ordinary Income at ¥8.4B (vs. prior year -¥3.2B, -27.9%). An impairment loss of ¥2.8B was recognized as an extraordinary loss, compressing Profit Before Tax to ¥5.5B (vs. prior year -¥5.8B, -51.3%). Corporate tax and other taxes totaled ¥2.8B (of which current tax expense ¥3.5B, deferred tax -¥0.7B), raising the effective tax burden to approximately 50% from 39% a year earlier, resulting in Net Income of ¥2.8B (vs. prior year -¥4.1B, -59.3%). In summary, the result is revenue up but profit down; the primary drivers of the profit decline are structurally higher SG&A and a one-off impairment loss.
[Profitability] Operating Margin of 5.8% worsened 2.9pt from 8.7% a year earlier, driven by a decline in Gross Margin to 68.6% (vs. prior year -0.6pt) and an increase in SG&A ratio to 62.8% (vs. prior year +3.5pt). Net Profit Margin decreased 3.0pt to 2.0%, and ROE deteriorated sharply to 2.9% (prior year 6.4%). The main cause of ROE decline is lower net margin; Asset Turnover was 1.03x (prior year 0.98x), slightly improved, while Financial Leverage was 1.45x (prior year 1.47x), slightly lower and insufficient to offset lower profitability.
[Cash Quality] Operating Cash Flow of ¥3.8B versus Net Income of ¥2.8B yields an OCF/NI multiple of 1.37x, indicating cash backing of reported profits. However, from an Operating CF subtotal of ¥8.2B, tax payments of ¥4.4B and working capital changes of -¥0.2B (Accounts Receivable increase -¥1.9B, Inventories increase -¥0.4B, Accounts Payable increase +¥0.1B) reduced cash generation, with overall creation capability down materially from ¥11.2B a year earlier. Free Cash Flow was ¥2.7B and could not cover dividend payments of ¥6.1B, leaving FCF coverage at 0.35x.
[Investment Efficiency] Asset Turnover improved to 1.03x from 0.98x a year earlier. Days Sales Outstanding for trade receivables is approximately 48 days (¥1,909M ÷ Revenue ¥143.6B × 365 days). Inventory turnover days is approximately 10 days (¥388M ÷ Cost of Sales ¥45.1B × 365 days), indicating efficient short-term working capital management. Capital expenditure was ¥1.1B, below depreciation expense of ¥1.6B, indicating restrained investment.
[Financial Soundness] Equity Ratio is 68.7% (prior year 67.8%), Current Ratio 471%, Quick Ratio 471%, all at very high levels. Cash and Deposits of ¥67.5B versus Interest-bearing Liabilities (Short-term borrowings ¥1.3B + Long-term borrowings ¥2.3B) of ¥3.6B result in a net cash position. Debt/Equity ratio is 0.04x, and Interest Coverage is 96.8x (Operating CF ¥3.8B ÷ (Interest paid ¥0.1B - Interest received ¥0.1B)), evidencing strong ability to service obligations and very low financial risk.
Operating Cash Flow was ¥3.8B, down ¥7.4B from ¥11.2B a year earlier. In addition to the decrease in Operating CF subtotal to ¥8.2B (prior year ¥14.8B), tax payments increased to ¥4.4B (prior year ¥3.6B). Working capital changes, notably an increase in Accounts Receivable of -¥1.9B (prior year collection +¥1.0B) and Inventories increase -¥0.4B, were cash outflows not fully offset by Accounts Payable increase of +¥0.1B. Investing Cash Flow was -¥1.1B (prior year -¥0.6B), with capital expenditures held below depreciation of ¥1.6B. Financing Cash Flow was -¥6.2B, primarily due to dividend payments of ¥6.1B; long-term borrowings raised ¥1.5B and repayments -¥1.5B offset. Free Cash Flow of ¥2.7B did not cover dividend payments of ¥6.1B, and Cash and Deposits decreased by ¥3.5B to ¥67.5B. Although cash balances remain ample and short-term liquidity risk is low, if current profit levels persist, sustaining dividends will require improvement in operating cash generation.
Ordinary Income of ¥8.4B versus Net Income of ¥2.8B shows a difference of ¥6.6B, largely reflecting the extraordinary impairment loss of ¥2.8B and Corporate Tax and other taxes of ¥2.8B. The impairment is a non-recurring item and its absence in future periods should narrow the gap between Ordinary Income and Net Income. Non-operating income was ¥0.3B, representing 0.2% of Revenue, and aside from interest income of ¥0.1B there were no material non-recurring gains, indicating earnings are dependent on core operations. Comprehensive Income was ¥4.5B, ¥1.7B higher than Net Income of ¥2.8B, supported by other comprehensive income of ¥1.8B related to retirement benefit adjustments. This reflects remeasurement gains in a defined benefit plan due to improved pension asset performance and discount rate movements, and is temporary. From an accrual quality perspective, Operating CF ¥3.8B versus Net Income ¥2.8B yields OCF/NI of 1.37x, providing cash backing for earnings; considering non-cash items such as impairment, earnings quality is within acceptable bounds. However, the increase in Accounts Receivable and heavy tax payments have constrained cash generation; improvements in working capital management and normalization of the effective tax rate are key to improving earnings quality going forward.
Full Year guidance projected Revenue ¥136.6B (vs. prior year -4.8%), Operating Income ¥2.0B (vs. prior year -76.1%), Ordinary Income ¥2.0B (vs. prior year -76.1%), Net Income ¥0.4B (EPS forecast ¥3.58), and Dividend ¥31. Actuals exceeded guidance materially: Revenue ¥143.6B (vs. plan +5.1%), Operating Income ¥8.3B (vs. plan +318%), Ordinary Income ¥8.4B (vs. plan +320%), Net Income ¥2.8B (vs. plan >+600%). This indicates the initial plan was very conservative. The company maintains an annual dividend of ¥62 (interim ¥31 + year-end ¥31 forecast), but with Net Income ¥2.8B and Dividend payments of ¥6.1B, the Payout Ratio is approximately 218%, well above 100%. The company’s plan reflects caution accounting for potential extraordinary losses and cost overruns; if impairment loss does not recur and SG&A is curtailed next year, upside to earnings beyond plan is possible. However, to sustain the current dividend level, a substantial recovery in Net Income or a revision to the payout policy will be necessary.
Annual dividend is ¥62 (interim ¥31 + year-end ¥31 forecast), with a Payout Ratio of approximately 218%, greatly exceeding 100%. With Net Income of ¥2.8B and dividend payments of ¥6.1B, Free Cash Flow of ¥2.7B does not cover dividends, leaving FCF coverage at 0.35x. Strong Cash and Deposits of ¥67.5B provide short-term ability to pay dividends despite inadequacy of earnings coverage, but if current profit levels persist, maintaining dividends would require drawing on retained cash, raising sustainability concerns. Share buybacks were effectively zero on a cash flow basis (-¥0.0B); shareholder returns are dividend-centric. Total Return Ratio, effectively equivalent to the Payout Ratio here, is approximately 218% and is excessive; profit recovery or a revision to dividend policy is a medium-term issue. While no formal dividend policy update has been provided, the company has maintained the ¥31 dividend forecast, indicating an intent to preserve dividends assuming earnings normalize.
Structural increase in SG&A: SG&A of ¥90.1B (vs. prior year +6.2%) grew well above revenue growth of +2.4%, and SG&A ratio deteriorated 3.5pt to 62.8%. Continued rises in personnel, recruitment, and advertising expenses could entrench a structural cost base that reverses operating leverage and prolongs margin pressure. SG&A per ¥100M of revenue is ¥6,276,000 (¥90.1B ÷ ¥143.6B), up from ¥6,045,000 last year, suggesting a trend toward a more fixed-cost structure.
Deterioration in cash conversion efficiency: Operating CF ¥3.8B versus Operating Income ¥8.3B + Depreciation ¥1.6B = EBITDA approximately ¥10B, yielding an OCF/EBITDA ratio of about 0.38x, which is weak. Increases in Accounts Receivable (-¥1.9B) and tax payments of ¥4.4B pressured cash generation. If DSO lengthens or the effective tax rate remains elevated, FCF vulnerability will rise, constraining dividend and investment capacity.
Recurrent one-off losses and additional impairment risk: An impairment loss of ¥2.8B was recorded and goodwill decreased from ¥0.4B to ¥0.2B. Although impairment is assumed to be one-off, ongoing asset revaluations could lead to additional impairment or valuation losses. Of tangible fixed assets (¥40.8B), land ¥28.5B and buildings ¥34.3B (net ¥10.6B) are large asset components; adverse real estate markets or business conditions could trigger further impairment charges.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 5.8% | 8.1% (3.6%–16.0%) | -2.3pt |
| Net Profit Margin | 2.0% | 5.8% (1.2%–11.6%) | -3.9pt |
Profitability is below the industry median; both Operating Margin and Net Profit Margin lag the median, and increased SG&A and one-off losses have weakened competitive positioning within the industry.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | 2.4% | 10.1% (1.7%–20.2%) | -7.7pt |
Revenue growth is well below the industry median, placing the company in the lower tier on growth metrics.
※ Source: Company compilation
Upside from reversal of ¥2.8B impairment: If the one-off impairment does not recur next year, Profit Before Tax could benefit by roughly ¥2.8B and Net Income could improve by about ¥1.4B after considering the effective tax rate. Assuming no recurrence of extraordinary losses, normalizing Net Income against Ordinary Income of ¥8.4B suggests a normalized Net Income level above ¥4B, a significant improvement from the current ¥2.8B.
Success of SG&A control and margin recovery is critical: SG&A grew +6.2% vs. revenue growth +2.4%, causing Operating Margin to worsen 2.9pt to 5.8%. If SG&A is curtailed and price pass-through progresses, returning Operating Margin to the prior level of 8.7% would imply Operating Income of approximately ¥12.5B (Revenue ¥143.6B × 8.7%), and Net Income could normalize to the ¥4–5B range. Monitoring a sustained improvement in SG&A ratio is the most important indicator.
Verify sustainability of dividend and consider capital policy adjustments: With a Payout Ratio of ~218% and FCF coverage of 0.35x, the current dividend level is oversized relative to profits, although Cash and Deposits of ¥67.5B provide short-term payment capacity. If profits normalize to Net Income above ¥4B, the Payout Ratio would fall to the 50–60% range and become sustainable. Conversely, prolonged weak profits would necessitate revisiting dividend policy or reducing buybacks to normalize Total Return Ratio. Updates to dividend policy and progress on profit recovery will be key to judging the sustainability of shareholder returns.
This report was automatically generated by AI analyzing XBRL financial statement data. It is not a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the Company from public financial statements. Investment decisions are your responsibility; consult a professional advisor as needed.