Makino Milling Machine (6135) 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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AI Financial Analysis

Executive Summary

Makino Milling Machine delivered a strong FY2027 Q1 earnings rebound, led by substantial operating-margin expansion and a marked recovery in its Asian and Americas businesses. Revenue increased 25.9% year on year to ¥69.77bn. Operating income rose 137.1% to ¥7.59bn, materially outpacing sales growth. Ordinary income increased 121.9% to ¥8.18bn. Profit attributable to owners of the parent increased 353.7% to ¥5.66bn. The gross margin improved to 33.6% from 28.7% in the prior-year quarter, an expansion of approximately 497bp. The operating margin improved to 10.9% from 5.8%, an expansion of approximately 510bp. The net margin rose to 8.1% from 2.3%, an expansion of approximately 586bp. SG&A expenses increased 25.3%, broadly in line with the 25.9% revenue increase, indicating that the profit recovery was driven mainly by gross-margin improvement rather than a reduction in commercial investment. Segment II, covering China, ASEAN and India, remained the core business by segment-profit contribution, generating ¥3.58bn of segment profit. Segment I also recorded a particularly large profit recovery, while the Americas and Europe achieved strong sales growth. Net income included a net extraordinary gain of ¥0.78bn, principally from a ¥0.68bn gain on sales of investment securities, equivalent to approximately 13.8% of reported net income. This means the majority of earnings growth was operational, although reported bottom-line profit benefited from non-recurring items. Comprehensive income of ¥13.50bn substantially exceeded net income because of positive securities valuation and foreign-currency translation movements. The Q1 operating-income progress rate against full-year guidance was 27.5%, above the seasonal 25% reference level, while revenue progress was broadly on schedule at 25.3%. The key constraint on the otherwise favorable earnings picture is working-capital intensity, with elevated receivable and inventory days extending the operating cash cycle. Management maintained full-year guidance, so subsequent order conversion, production efficiency and cash realization will determine whether the Q1 margin strength can be sustained.

Profitability Analysis

Annualized ROE was 8.4%, based on the provided DuPont decomposition of an 8.1% net profit margin, 0.633x asset turnover and 1.64x financial leverage. The largest positive change in the earnings profile was margin expansion rather than leverage: gross margin increased by approximately 497bp and operating margin by approximately 510bp year on year. This reflects a significant recovery in the profitability of the machine-tool business as revenue expanded 25.9%. Asset turnover of 0.633x, annualized, indicates that returns remain dependent on improving utilization of a substantial manufacturing and working-capital asset base. Financial leverage of 1.64x is moderate and is not the principal driver of return generation. EBIT margin was 10.9%, placing operating profitability within the stated 8-15% good range. The interest burden was favorable at 1.180, as pre-tax income exceeded EBIT due to net non-operating and extraordinary gains rather than being constrained by financing costs. Interest coverage was very strong at 43.12x. The tax burden was 0.632, corresponding to a 36.8% effective tax rate and limiting the conversion of pre-tax profit into net income relative to the pre-tax result. Segment profitability was uneven: Segment I generated ¥3.38bn of profit on ¥31.44bn of total segment sales, Segment II generated ¥3.58bn on ¥37.19bn, Segment III generated ¥1.33bn on ¥24.15bn, and Segment IV recorded a ¥0.52bn loss on ¥4.08bn. Segment I's recovery was especially pronounced from ¥0.54bn a year earlier, and Segment II increased from ¥1.54bn. Segment IV narrowed its loss from ¥0.62bn but remains structurally dilutive. The gross-margin-led improvement appears operationally meaningful, but its durability depends on maintaining factory utilization, pricing discipline and mix as regional demand evolves.

Growth Assessment

Revenue growth was broad-based outside Segment I. External sales in Segment II increased 14.6% year on year to ¥33.33bn, supporting its position as the largest external-sales region and core profit contributor. Segment III external sales increased 56.2% to ¥23.88bn, representing the strongest major regional growth rate. Segment IV external sales increased 68.2% to ¥4.07bn, although the business remained loss-making at the segment-profit level. Segment I external sales declined 1.3% to ¥8.49bn, but segment profit increased sharply to ¥3.38bn, implying a substantial improvement in internal-sales mix, utilization and/or profitability. The operating-income increase of 137.1% was substantially faster than revenue growth, demonstrating strong positive operating leverage. Full-year revenue guidance is ¥276.0bn, implying 5.7% year-on-year growth, and Q1 revenue progress of 25.3% is closely aligned with the 25% seasonal benchmark. Full-year operating-income guidance is ¥27.6bn, and Q1 progress of 27.5% is 2.5 percentage points ahead of the seasonal reference. Ordinary-income progress is 28.8% against the ¥28.4bn full-year plan, also ahead of the seasonal reference. Net-income progress is 25.6% against the ¥22.1bn full-year plan, broadly consistent with the seasonal reference. The unchanged forecast indicates management has not yet extrapolated the strong Q1 profit recovery into a higher full-year target. The outlook therefore depends on whether strong Americas demand, Asian regional profitability and improved Segment I economics can offset the continuing European loss and cyclicality in capital-equipment orders.

Financial Health

Liquidity is strong, with a current ratio of 190.6% and a quick ratio of 162.7%. Working capital totaled ¥125.74bn, providing a substantial buffer against current liabilities. Cash and deposits were ¥72.43bn, representing 16.4% of total assets. Debt-to-equity was 0.64x, below the 1.0x conservative benchmark and well below the 2.0x level that would indicate aggressive leverage. Debt-to-capital was 8.2%, indicating a conservatively capitalized balance sheet. Interest-bearing debt was ¥24.08bn and interest coverage of 43.12x indicates very high debt-service capacity. The stated short-term debt ratio of 70.9% is elevated and creates a refinancing and maturity-concentration risk, as a majority of borrowings is short term. Current portions include ¥10.00bn of bonds and ¥9.00bn of long-term loans, in addition to ¥17.08bn of short-term loans. This maturity structure is mitigated by cash equal to 4.24x short-term debt under the reported credit metric and by the strong current ratio. Total equity increased to ¥268.58bn from ¥261.43bn a year earlier, while the capital adequacy ratio remained robust at 60.9%. Investment securities increased ¥8.23bn, or 26.9%, to ¥38.78bn and now represent 8.8% of total assets. The increase was accompanied by a ¥5.68bn positive valuation difference on securities in other comprehensive income, which contributed materially to the ¥13.50bn comprehensive-income result. This raises sensitivity of equity and comprehensive income to market-price movements in the securities portfolio. PPE increased ¥4.02bn year on year to ¥114.83bn, consistent with a meaningful manufacturing fixed-asset base. Intangible assets were only 0.8% of total assets, indicating limited balance-sheet dependence on acquired intangibles.

Notable B/S Changes

Investment securities: +¥8.23bn (+26.9%) to ¥38.78bn — securities now represent 8.8% of total assets; positive valuation movements supported OCI but increase exposure of equity to market-price fluctuations. PPE: +¥4.02bn (+3.6%) to ¥114.83bn — the manufacturing asset base remains substantial at 26.1% of total assets, requiring continued adequate utilization to sustain return on assets. Total equity: +¥7.16bn (+2.7%) to ¥268.58bn — reinforces the already strong 60.9% capital adequacy ratio and supports the capacity to manage working-capital volatility.

Cash Flow Quality

Working-capital efficiency is the principal cash-conversion risk in the quarter. Accounts receivable were ¥63.37bn, or 14.4% of total assets, and the quality alert identifies annualized DSO of 83 days, above the 60-day warning threshold. Elevated DSO can reflect long collection terms, shipment timing or slower customer payment, and it increases the risk that reported revenue converts more slowly into cash. Finished-goods inventory was ¥38.65bn, while raw materials and work in process were ¥53.70bn and ¥23.71bn, respectively, underscoring the scale of capital tied up across the production cycle. The quality alerts identify inventory days of 229 days and an alternative reported inventory-days measure of 76 days; both measures indicate inventory management should remain a central monitoring item. The annualized cash conversion cycle was reported at 262 days, materially above the 120-day warning threshold. A long cash conversion cycle is particularly consequential for a machine-tool manufacturer because production lead times, customer acceptance conditions and inventory composition can delay cash realization. Trade payables were ¥25.34bn and electronically recorded operating obligations were ¥17.09bn, providing some supplier-financing support. However, the scale of receivables and inventory relative to payables indicates that working capital remains a significant funding requirement. The sharp increase in operating profit is encouraging, but sustained earnings quality will be stronger if receivables and inventory grow more slowly than revenue in subsequent quarters.

Dividend Sustainability

Risk Assessment

Business risks include Machine-tool demand is cyclical and sensitive to customer capital-expenditure plans in automotive, aerospace, electronics and general industrial end markets., Segment II is the largest profit contributor, creating material exposure to demand conditions in China, ASEAN and India., Segment III sales grew 56.2% year on year; maintaining this pace may be difficult if North American manufacturing investment moderates., Segment IV remained loss-making despite 68.2% external-sales growth, indicating ongoing European pricing, utilization or cost-structure risk., High raw-material, work-in-process and finished-goods balances expose the group to demand-forecast errors, production bottlenecks and inventory obsolescence..

Financial risks include The 70.9% short-term debt ratio is a refinancing-risk alert because a large share of borrowings matures within one year, notwithstanding strong liquidity., Annualized DSO of 83 days, inventory days of 229 days and a 262-day cash conversion cycle indicate substantial working-capital funding needs., Investment securities increased 26.9% to ¥38.78bn, and positive securities valuation movements contributed ¥5.68bn to OCI; equity is therefore exposed to market valuation volatility., The effective tax rate of 36.8% reduced profit conversion, with a tax burden of 0.632..

Key concerns include Priority: high impact and medium likelihood — conversion of strong Q1 earnings into cash, given prolonged receivable and inventory cycles., Priority: high impact and medium likelihood — preservation of operating-margin gains if order intake, capacity utilization or product mix normalize., Priority: medium impact and high likelihood — continued European losses, which dilute consolidated profitability., Priority: medium impact and low-to-medium likelihood — short-term debt refinancing concentration, mitigated by ¥72.43bn of cash and a 190.6% current ratio., Priority: medium impact and medium likelihood — foreign-exchange and market-price movements affecting overseas operations and the investment-securities portfolio..

Investment Implications

Key takeaways include Q1 revenue grew 25.9%, while operating income grew 137.1%, evidencing powerful positive operating leverage., Gross margin expanded approximately 497bp to 33.6%, and operating margin expanded approximately 510bp to 10.9%., Segment II is the core business by profit contribution at ¥3.58bn, while Segment I produced the largest year-on-year profit recovery., The balance sheet is conservatively capitalized, with 60.9% capital adequacy, 8.2% debt-to-capital and 43.12x interest coverage., Working-capital efficiency and the continued loss in Europe are the principal factors that could qualify the favorable earnings narrative., Net income was supported by a ¥0.78bn net extraordinary gain, but the majority of profit expansion originated in operating performance..

Metrics to watch include Order intake and backlog conversion by Asia, Americas and Europe, Operating margin and gross margin versus the Q1 levels of 10.9% and 33.6%, Segment IV loss trajectory, Annualized DSO of 83 days, inventory days and the 262-day cash conversion cycle, Short-term debt ratio of 70.9% and cash coverage of short-term debt, Investment-securities valuation movements and their impact on OCI, Progress versus full-year guidance: revenue 25.3%, operating income 27.5%, ordinary income 28.8% and net income 25.6% at Q1.

Regarding relative positioning, The company combines good operating profitability, strong interest coverage and a well-capitalized balance sheet with a comparatively working-capital-intensive manufacturing model. Its Q1 10.9% operating margin and 8.4% annualized ROE indicate a clear improvement from the prior-year quarter, but returns remain below the 10-15% ROE range typically associated with stronger capital efficiency.