Makino Milling Machine Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

The most important point this quarter is that both revenue and profit grew substantially year on year, indicating a structural improvement in profitability. Revenue was ¥697.7B (+25.9% YoY), Operating Income was ¥75.9B (+137.1%), Ordinary Income was ¥81.8B (+121.9%), and Net Income attributable to owners of the parent was ¥56.6B (+353.0%). The Operating Income margin improved by +5.1pt to 10.9% from 5.8% in the same period of the prior year, primarily due to operating leverage resulting from an improvement in the gross margin (33.6% versus 28.7% in the prior year) while the SG&A ratio remained broadly flat (22.8%). The fact that the growth rate in Net Income exceeded those of Operating Income and Ordinary Income was also partly attributable to the recognition of ¥7.98B in extraordinary income, including gains on the sale of investment securities.

Factors Affecting Business Performance

【Revenue】All segments recorded higher revenue, indicating a broad-based recovery in demand. By segment (including intersegment sales, total basis; percentage of total), Asia (Two) was the largest at ¥371.9B (+17.7%, 38.4% of total), followed by Japan Region (One) at ¥314.4B (+25.3%, 32.5%) and the Americas (Three) at ¥241.5B (+57.1%, 24.9%). Europe (Four), although small in scale, achieved high growth of ¥40.8B (+67.7%, 4.2%).

【Profit and Loss】The gross margin improved by +4.9pt to 33.6% from 28.7% in the prior year, while the SG&A ratio remained broadly flat at 22.8% (22.9% in the prior year), allowing the effect of higher revenue to flow directly through to Operating Income. The Operating Income margin improved to 10.9% (5.8% in the prior year, +5.1pt), and the Ordinary Income margin improved to 11.7% (6.7% in the prior year, +5.1pt). Extraordinary income of ¥7.98B (¥6.8B in gains on the sale of investment securities and ¥1.18B in gains on the sale of fixed assets) was recorded, while extraordinary losses were minimal at ¥0.15B, resulting in Profit Before Tax of ¥89.6B. After deducting income taxes and other taxes of ¥33.0B (effective tax rate: 36.8%), Net Income amounted to ¥56.6B. This was a decision of higher revenue and higher profit driven by both revenue growth and control of costs and SG&A expenses.

Segment Analysis

Three of the four segments recorded higher profit. Asia (Two, MAKINO ASIA) was the largest contributor in absolute terms, with Operating Income of ¥35.8B (+133.1% YoY; margin: 9.6%). Japan Region (One, Makino Milling Machine Co., Ltd.) recorded ¥33.8B (+520.8%; margin: 10.7%), the largest recovery from the prior year, apparently benefiting from higher operating rates and shipments. The Americas (Three, MAKINO INC) recorded ¥13.3B (+140.6%; margin: 5.5%), with a somewhat lower margin than the other segments. Europe (Four, MAKINO Europe) achieved sharp revenue growth to ¥40.8B (+67.7%), but remained in the red with an Operating Loss of ¥5.2B, an improvement from the ¥6.2B loss in the prior year. The fixed-cost burden during the launch phase is considered to be the reason for the negative margin of -12.8%. Against total segment profit of ¥77.7B, difference adjustments, including the elimination of unrealized gains, amounted to -¥1.78B (compared with +¥11.9B in the prior year), resulting in consolidated Operating Income of ¥75.9B.

Key Financial Indicators

【Profitability】The Operating Income margin of 10.9% (5.8% in the prior year, +5.1pt), Net Income margin of 8.1% (2.3% in the prior year, +5.9pt), and gross margin of 33.6% (28.7% in the prior year) all improved significantly.【Cash Flow Quality】Accounts receivable of ¥633.7B (¥609.3B in the prior year, +4.0%) and inventories of ¥386.5B (¥373.2B in the prior year, +3.6%) increased only moderately relative to revenue growth (+25.9%), although their absolute amounts continue to rise. Comprehensive Income of ¥135.0B substantially exceeded Net Income of ¥56.6B and included factors different from recurring operating income, such as foreign currency translation adjustments and valuation differences on securities.【Investment Efficiency】ROE (quarterly result) improved to 2.1%, while total asset turnover improved to 0.158 times (0.131 times in the prior year). Under a DuPont decomposition, the expansion of the Net Income margin was the primary driver of the improvement.【Financial Soundness】The Equity Ratio was 60.9% (61.7% in the prior year, -0.8pt), the current ratio was 190.6%, and the company held cash and deposits of ¥724.3B against interest-bearing debt of ¥480.8B, resulting in positive net cash of ¥243.9B.

Cash Flow Analysis

Although no Statement of Cash Flows has been disclosed, funding trends can be inferred from changes in the balance sheet. Cash and deposits totaled ¥724.3B, a decrease of ¥27.1B from ¥751.4B in the prior year, suggesting that funds were invested in accounts receivable (+¥24.4B), inventories (+¥13.6B), and investment securities (+¥82.3B). Property, plant and equipment increased to ¥1148.3B from ¥1108.0B in the prior year, indicating that capital investment has continued. Accounts payable increased to ¥253.4B (¥224.5B in the prior year, +12.9%), also indicating an expansion of working capital on the trade payables side. As revenue and profit expand, funds are increasingly tied up in working capital (accounts receivable and inventories), and future cash-generation capacity will depend on the turnover efficiency of inventories and accounts receivable.

Quality of Earnings

Profit for the quarter included certain temporary factors in addition to improved profitability in the core business. Extraordinary income of ¥7.98B (¥6.8B in gains on the sale of investment securities and ¥1.18B in gains on the sale of fixed assets) represented 8.9% of Profit Before Tax of ¥89.6B, while extraordinary losses were minimal at ¥0.15B. The difference between Ordinary Income of ¥81.8B and Net Income of ¥56.6B was primarily attributable to income taxes and other taxes of ¥33.0B (effective tax rate: 36.8%), suggesting that the degree of mixing between recurring and temporary items was limited. Meanwhile, Comprehensive Income of ¥135.0B exceeded Net Income of ¥56.6B by ¥78.4B, mainly comprising foreign currency translation adjustments of ¥23.7B and valuation differences on securities of ¥56.8B. These are items of Other Comprehensive Income and should be distinguished from Net Income, which represents the recurring earnings power of the business.

Earnings Forecast and Guidance

Progress against the full-year earnings forecasts (Revenue: ¥2760.0B, Operating Income: ¥276.0B, Ordinary Income: ¥284.0B, EPS: ¥188.96) was 25.3% for Revenue, 27.5% for Operating Income, and 28.8% for Ordinary Income in Q1. Operating Income and Ordinary Income exceeded the 25% benchmark based on an equal quarterly allocation, indicating a pace that is somewhat ahead on the profit front. No revisions were made to the earnings forecast figures themselves, but the dividend forecast was revised.

Shareholder Returns

The dividend forecast was revised during the quarter. As the specific dividend per share cannot be confirmed from the available data, the Payout Ratio and related metrics have not been calculated. From a financial perspective, the company has substantial retained earnings and liquidity, with an Equity Ratio of 60.9%, retained earnings of ¥1557.6B, and cash and deposits of ¥724.3B.

Risk Factors

1. Profitability of the Europe segment: Four (MAKINO Europe) achieved sharp revenue growth of ¥40.8B (+67.7%), but remained loss-making with an Operating Loss of ¥5.2B (margin: -12.8%). Although the loss narrowed from ¥6.2B in the prior year, the timing of a return to profitability cannot be quantitatively confirmed.

2. Accumulation of working capital: Accounts receivable of ¥633.7B (+4.0%) and inventories of ¥386.5B (+3.6%) increased. While these increases were moderate relative to revenue growth (+25.9%), continued expansion in absolute terms could increase the amount of funds tied up in working capital.

3. Short-term concentration of interest-bearing debt: Of the ¥480.8B in interest-bearing debt, a total of ¥360.8B—comprising short-term borrowings of ¥170.8B, current portion of long-term borrowings of ¥90.0B, and bonds due within one year of ¥100.0B—will mature within one year, representing approximately 75% of total interest-bearing debt.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Income margin and Net Income margin exceeded the industry median, indicating that profitability is relatively high within the industry.

Growth and Capital Efficiency

The Revenue growth rate substantially exceeded the industry median, indicating a top-tier growth rate within the industry.

※Source: Compiled by the Company

Key Points in the Financial Results

1. The gross margin improved from 28.7% in the prior year to 33.6%, while the Operating Income margin improved from 5.8% to 10.9%, representing an improvement of approximately 5pt in both cases. This indicates a step change in profitability attributable to improvements in the cost structure and product mix.

2. By segment, Asia, the Americas, and Japan Region led the increase in profit, while Europe remained loss-making with an Operating Loss of ¥5.2B despite 67.7% revenue growth. This indicates that differences in profitability among regions are a structural characteristic.

3. Progress against the full-year forecast was 27.5% for Operating Income and 28.8% for Ordinary Income, both ahead of the 25% benchmark based on equal quarterly allocation. The upward trend in working capital (accounts receivable and inventories) remains a key point to monitor in terms of future cash generation.

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: ¥8,806–¥9,315 at ±1% for the cost of equity, and ¥8,977–¥9,106 at ±0.1 for ω.

Notes:

• 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 relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat on the high side.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / 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 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 discretion and responsibility, after consulting professionals as necessary.

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