SHIBAURA MACHINE (6104) FY2027 Q1 Earnings Report

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Executive Summary

The first quarter of FY2027 was a challenging period that marked a turning point in profitability from the previous year, as the Company fell into an operating loss due to a substantial decline in revenue. Revenue was ¥211.2B (-31.8% YoY), Operating Income was ¥-6.5B (¥9.2B in the previous year, a deterioration of ¥-15.7B), Ordinary Income was ¥-2.6B (¥10.2B in the previous year), and Net Income was ¥-0.2B (¥8.7B in the previous year). The primary cause of the revenue decline was the deterioration in orders and acceptance of products in the Injection Molding Machines Business. Although the gross margin improved to 36.1%, the reduction in SG&A expenses failed to keep pace with the decline in revenue, and insufficient fixed-cost absorption was the direct cause of the operating loss.

Factors Affecting Performance

【Revenue】Revenue was ¥211.2B, representing a substantial 31.8% YoY decline. By segment, the core Injection Molding Machines Business fell significantly to ¥137.9B (-43.4% YoY), becoming the main source of the consolidated revenue decline. In contrast, the Machine Tools Business secured revenue growth at ¥51.7B (+16.5% YoY), while the Control Machines Business increased revenue to ¥21.3B (+7.9% YoY). The decline in the Injection Molding Machines Business pushed down the Company-wide top line.

【Profit and Loss】The gross margin improved to 36.1% from the previous year, but the ¥82.7B reduction in SG&A expenses was limited to -3.2%, substantially below the revenue decline rate (-31.8%), causing the SG&A ratio to rise to 39.2%. Due to insufficient fixed-cost absorption, Operating Income fell to ¥-6.5B (¥9.2B in the previous year). By segment, the Injection Molding Machines Business was the largest deterioration factor, with segment losses of ¥-9.3B (¥+9.3B in the previous year; margin of -6.8%). The Machine Tools Business improved to ¥+3.6B (margin of 6.9%), but this was insufficient to offset the decline. Non-operating income of ¥4.8B (including dividend income of ¥1.8B and foreign exchange gains of ¥1.2B) partially reduced the loss, limiting the Ordinary Loss to ¥-2.6B. Income taxes and other taxes of ¥-2.6B were recorded, reducing the Net Loss to ¥-0.2B. Accordingly, the results can be characterized as a decline in revenue and earnings, with a transition to an operating loss.

Segment Analysis

The Injection Molding Machines Business recorded revenue of ¥137.9B (-43.4% YoY) and a segment loss of ¥-9.3B (¥+9.3B in the previous year), representing a substantial decline in earnings. Its margin fell by 1,040bp, from +3.6% to -6.8%, making it the largest contributor to the consolidated deficit. The Machine Tools Business recorded revenue of ¥51.7B (+16.5% YoY), segment profit of ¥3.6B (+142.2% YoY), and a margin of 6.9% (3.3% in the previous year), making it the segment with the greatest contribution to profitability. The Control Machines Business increased revenue to ¥21.3B (+7.9% YoY), but its segment loss expanded to ¥-1.3B, with the margin deteriorating to -6.0%. The Other Businesses secured a profit of ¥0.4B (margin of 7.8%) despite revenue of ¥5.5B (-22.4% YoY). Profitability differences between segments are substantial, and normalization of the Injection Molding Machines Business’ profitability will be the key to the Company-wide recovery.

Key Financial Indicators

【Profitability】The Operating Margin deteriorated significantly to -3.1% (3.0% in the previous year), while the Net Profit Margin declined to -0.1% (2.8% in the previous year), and annualized ROE was -0.1%. The gross margin improved to 36.1% (30.7% in the previous year); therefore, the primary cause of the deterioration in profitability was not the cost structure but insufficient fixed-cost absorption resulting from the increase in the SG&A ratio (39.2%, compared with 27.7% in the previous year).【Cash Quality】Days sales outstanding were approximately 79 days, inventory days were approximately 403 days, and the cash conversion cycle was approximately 395 days, all indicating prolonged periods. Work-in-process inventory was equivalent to 68.3% of total assets, requiring monitoring from the perspective of capital efficiency.【Investment Efficiency】Annualized ROIC was negative, and asset efficiency has declined amid the revenue contraction.【Financial Soundness】The Equity Ratio remained high at 67.7% (68.3% in the previous year). Cash and deposits of ¥341.4B were equivalent to 3.3 times short-term borrowings of ¥102.3B, indicating that short-term financial resilience has been secured.

Cash Flow Analysis

As a cash flow statement has not been disclosed, funding trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥341.4B, down from ¥378.9B in the same period of the previous year, suggesting that working capital may be increasingly tied up amid the revenue decline. Inventories increased substantially to ¥185.9B (¥141.7B in the previous year, +31.2%), of which work-in-process inventory of ¥407.4B was a major component. The increase in inventory despite the decline in revenue suggests that funds are becoming tied up. Trade receivables (accounts receivable and notes receivable) were ¥182.0B, down from ¥227.5B in the previous year, indicating progress in collections, although the balance remains high. Interest-bearing debt consisted primarily of short-term borrowings of ¥102.3B, while long-term borrowings were limited to ¥0.2B, indicating a strong reliance on short-term funding. Cash and deposits substantially exceeded short-term borrowings, and the Company is not at a level that would impair near-term liquidity. However, progress in reducing inventories will be the focus for improving capital efficiency going forward.

Quality of Earnings

Against an operating loss of ¥6.5B, non-operating income of ¥4.8B (including dividend income of ¥1.8B, foreign exchange gains of ¥1.2B, and interest income of ¥0.7B) reduced the loss, limiting the Ordinary Loss to ¥2.6B. Non-operating income was approximately 2.3% of revenue, which was not an exceptionally high level; however, attention is warranted because it includes items such as foreign exchange gains that are affected by market fluctuations. Extraordinary income was ¥0.0B and extraordinary losses were ¥0.2B, resulting in a limited net impact. Against a loss before taxes of ¥2.8B, income taxes and other taxes were ¥-2.6B, reducing the final loss to ¥0.2B. This reduction in the loss through the tax effect does not indicate an improvement in the underlying earning power of the business. Accordingly, when the divergence between ordinary income and net income is substantial, earning power should not be evaluated based solely on Net Income. Comprehensive income was positive at ¥6.0B, creating a significant divergence from the Net Loss for the period. This was attributable to market fluctuation factors, including valuation differences on securities of ¥4.2B and foreign currency translation adjustments of ¥2.8B, and should be distinguished from the underlying earnings of the core business.

Earnings Forecast and Guidance

The full-year Company forecasts remain unchanged at revenue of ¥1,370.0B (+3.2% YoY), Operating Income of ¥42.0B (-3.8% YoY), and Ordinary Income of ¥31.0B (-38.0% YoY), with no revisions to the earnings forecasts. Q1 progress toward the full-year revenue forecast was 15.4%, 9.6pt below the standard quarterly benchmark of 25%. Because Operating Income was negative at the quarterly stage, the progress rate was negative. Achieving the full-year plan will require a recovery in revenue from Q2 onward and fixed-cost absorption through improved profitability in the Injection Molding Machines Business.

Shareholder Returns

The full-year dividend forecast remains unchanged at ¥140 per share, with no revision. Based on the full-year EPS forecast of ¥84.58, the forecast Payout Ratio is 165.5%, substantially above the general benchmark of 60%. In Q1, the Company recorded a quarterly Net Loss attributable to owners of the parent of ¥0.2B, and no accumulation of dividend resources from current-period earnings was evident at the beginning of the fiscal year. On the other hand, the Company held retained earnings of ¥786.4B and cash and deposits of ¥341.4B, securing its short-term dividend payment capacity. Dividend sustainability will depend on achievement of the full-year EPS plan and progress in recovering funds tied up in inventories and work-in-process inventory.

Risk Factors

1. Deterioration in the profitability of the Injection Molding Machines Business: Revenue declined 43.4% YoY, while segment profit and loss deteriorated by more than ¥18.0B, from ¥+9.3B to ¥-9.3B, making it the largest contributor to the consolidated operating loss. The pace of recovery in orders and capacity utilization in this business will determine Company-wide performance.

2. Stagnation of inventories and work-in-process inventory: Inventories increased 31.2% YoY to ¥185.9B, of which work-in-process inventory accounted for ¥407.4B. An increase in inventories amid a revenue decline raises the risk of working capital being tied up and inventory valuation losses; therefore, progress in improving capital efficiency must be monitored.

3. Uncertainty regarding achievement of the full-year plan: Against the full-year Operating Income forecast of ¥42.0B, Q1 recorded an operating loss of ¥6.5B, while revenue progress was 15.4%, below the standard benchmark. The forecast Payout Ratio also exceeds the earnings level at 165.5%, requiring close monitoring from the perspective of available shareholder-return resources if the earnings recovery is delayed.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Growth and Capital Efficiency

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Although the gross margin improved to 36.1%, SG&A expense reductions were limited to 3.2% while revenue declined 31.8%; insufficient fixed-cost absorption was the direct cause of the transition to an operating loss. The recovery of revenue and progress in converting the cost structure toward variable costs will be key to restoring profitability.

2. The more than ¥18B decline in earnings in the Injection Molding Machines Business was the core driver of the consolidated deficit, and the earnings growth (+142.2%) in the Machine Tools Business was insufficient to offset it. Differences in recovery speed among businesses are contributing to fluctuations in Company-wide performance.

3. The financial foundation, including an Equity Ratio of 67.7% and cash and deposits of ¥341.4B, supports resilience until profitability recovers. However, the increase in inventories and work-in-process inventory, together with the prolonged cash conversion cycle, remains a structural point of concern from the perspective of capital efficiency.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥3,842–¥4,052 at ±1% for the cost of equity, and ¥3,914–¥3,964 at ±0.1 for ω.

Notes:

• Due to tax expenses, acquisition-related costs, minority interests, and other factors, Net Income is substantially compressed relative to Operating Income (Net Income ÷ Operating Income 48%). This value reflects that compression at face value; if the factors are temporary, the underlying normalized value may be higher.
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• 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 value based solely on publicly disclosed data; this is not a forecast of the market stock price or a recommendation of any specific investment action, and does not predict or guarantee future stock 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 a professional as necessary.

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