SHIMA SEIKI MFG.,LTD. FY2027 Q1 Earnings Report

Quick View

Executive Summary

In Q1, in addition to a sharp decline in sales volume in the core computerized flat knitting machine business, selling, general and administrative expenses remained elevated without corresponding reductions, causing operating income to fall from a profit in the previous year to a loss. Revenue was ¥76.5B (¥105.2B in the previous year, YoY -27.3%), Operating Income was ¥-8.5B (¥3.1B in the previous year, YoY -375.9%), Ordinary Income was ¥-5.0B (¥10.1B in the previous year, YoY -149.4%), and Net Income attributable to owners of the parent was ¥-5.9B (¥9.1B in the previous year, YoY -164.7%). Although the gross profit margin improved to 41.7% (33.3% in the previous year), the direct cause of the operating loss was a 26.3% year-on-year increase in SG&A expenses, which reached 52.8% of revenue.

Factors Affecting Business Performance

【Revenue】Revenue was ¥76.5B, down 27.3% from ¥105.2B in the same period last year. The core computerized flat knitting machine segment fell to ¥53.2B (69.5% composition ratio, YoY-34.0%), becoming the primary cause of the decline, with demand adjustments becoming pronounced. The design systems-related business generated ¥5.6B (YoY-20.4%), while the glove and sock knitting machine business generated ¥0.2B (YoY-89.3%), with both recording substantial revenue declines. In contrast, Other (parts, repair and maintenance, etc.) secured revenue growth at ¥17.5B (YoY+11.8%), providing support for the business portfolio. By region, Europe grew to ¥24.5B (YoY+28.5%), while Asia, previously the core sales region, nearly halved to ¥28.8B (YoY-51.7%), driving the overall revenue decline.

【Profit and Loss】Gross profit was limited to ¥31.9B (¥35.0B in the previous year, YoY-9.0%), representing a much smaller decline than the 27.3% decrease in revenue. Due to improvements in costs, the gross profit margin improved by +8.4pt to 41.7%, from 33.3% in the previous year. However, SG&A expenses increased to ¥40.4B (¥32.0B in the previous year, YoY+26.3%) despite the decline in revenue, rising to 52.8% of revenue (30.4% in the previous year). As a result, operating income fell into a loss of ¥-8.5B, and the operating margin deteriorated to -11.1% (previous year +2.9%). Non-operating income and expenses generated net income of ¥4.3B, including foreign exchange gains of ¥1.1B and dividend income of ¥1.0B, partially offsetting the loss; however, Ordinary Income remained a loss of ¥-5.0B. Net loss attributable to owners of the parent was ¥5.9B, resulting in lower revenue and lower profit.

Segment Analysis

The computerized flat knitting machine business (core business, 69.5% revenue composition ratio) recorded revenue of ¥53.2B (YoY-34.0%), Operating Income of ¥5.5B (YoY-41.7%), and a profit margin of 10.4%, making it the segment most strongly affected by the slowdown in demand. The design systems-related business recorded revenue of ¥5.6B (YoY-20.4%), Operating Income of ¥0.3B (YoY-83.5%), and a sharply lower profit margin of 5.2%. The glove and sock knitting machine business recorded revenue of ¥0.2B (YoY-89.3%) and an operating loss of ¥0.1B, falling into the red. Other (parts, repair and maintenance, etc.) recorded revenue of ¥17.5B (YoY+11.8%), Operating Income of ¥3.2B (YoY-12.8%), and a profit margin of 18.2%, the highest among the four categories, thereby supporting earnings. Corporate expenses increased to ¥17.4B (¥12.1B in the previous year), exceeding total reported segment profit of ¥5.7B, which directly resulted in the operating loss on a consolidated basis.

Key Financial Indicators

【Profitability】The operating margin fell into negative territory at -11.1% (previous year +2.9%), while the net profit margin was -7.7% (previous year +8.6%). Although the gross profit margin improved to 41.7% (33.3% in the previous year), indicating effective cost control, the SG&A ratio rose sharply to 52.8% (30.4% in the previous year), weighing on profitability.【Cash Quality】Cash and deposits increased to ¥251.9B (¥212.9B in the previous year, +18.3%), while the Company’s ability to generate cash from its core operations declined due to the operating loss. Total inventories (finished goods, raw materials, and work-in-process) were ¥247.8B (¥244.4B in the previous year), broadly unchanged; however, finished goods inventory declined to ¥106.9B (-8.5%), while raw materials increased to ¥133.1B (+9.7%), indicating a change in inventory composition amid slowing demand.【Investment Efficiency】ROE was -0.7%, turning negative from the profitable situation in the same period last year. Total assets increased to ¥1,119.6B (¥1,095.3B in the previous year), while asset efficiency declined due to deteriorating earnings.【Financial Soundness】The Equity Ratio remained high at 73.9% (75.2% in the previous year), although it declined slightly. Interest-bearing debt consisted of short-term borrowings of ¥91.0B (YoY+46.8%) and long-term borrowings of ¥50.0B (YoY-25.0%), indicating a shift toward shorter-term borrowing. The current ratio was 420.5% (current assets of ¥845.5B/current liabilities of ¥201.1B), ensuring ample liquidity.

Cash Flow Analysis

As the cash flow statement has not been disclosed separately, cash trends are analyzed based on changes in the balance sheet. Cash and deposits increased by +18.3% to ¥251.9B from ¥212.9B in the same period last year. This increase was largely financed by a ¥29.0B increase in short-term borrowings (¥62.0B→¥91.0B), while long-term borrowings decreased by ¥16.7B (¥66.7B→¥50.0B), indicating a shift in the funding structure toward shorter-term sources. Trade receivables decreased to ¥346.8B (¥368.9B in the previous year), while trade payables also declined to ¥12.5B (¥13.9B in the previous year), reflecting the contraction in business scale across working capital. Contract liabilities (advances received) increased to ¥14.7B (¥12.8B in the previous year, +15.3%), indicating some accumulation of advance orders. Given that operating income was in the red, the increase in cash balances was to a significant extent dependent on borrowings and adjustments to the asset composition rather than on operating activities themselves. The recovery of cash-generation capacity in the core business will therefore be a key focus going forward.

Earnings Quality

The difference between Ordinary Income and net income was small (net loss attributable to owners of the parent of ¥5.9B versus Ordinary Loss of ¥5.0B), and no significant divergence due to extraordinary gains or losses was identified. While operating income was a loss of ¥-8.5B, Ordinary Income narrowed the loss to ¥5.0B through non-operating income of ¥4.3B (including dividend income of ¥1.0B, foreign exchange gains of ¥1.1B, and interest income of ¥1.5B, among others), meaning a considerable portion of the loss was offset by non-core income. Non-operating income was equivalent to 5.6% of revenue, and the increasing reliance on income sources outside the core business warrants attention from an earnings-quality perspective. Comprehensive income was positive at ¥7.5B, diverging from net loss of -¥5.9B; this was attributable to valuation-related increases such as foreign currency translation adjustments of +¥6.5B and valuation differences on securities of +¥6.8B, which do not directly reflect the results of business activities during the period.

Earnings Forecasts and Guidance

Against the full-year earnings forecast (Revenue of ¥410.0B, Ordinary Income of ¥10.0B, EPS of ¥26.53, and dividend of ¥20.00), progress in Q1 was limited to 18.7% for revenue (¥76.5B/¥410.0B), below the simple progress benchmark of 25%. Against the full-year plan of ¥3.0B in Operating Income, Q1 recorded a loss of ¥-8.5B. Ordinary Income also started significantly below plan, at a loss of ¥-5.0B in Q1 versus the full-year plan of ¥10.0B. The Company has made no revisions to either its earnings forecast or dividend forecast. Achieving the back-end-loaded plan will depend on a recovery in sales volume from Q2 onward and optimization of SG&A expenses.

Shareholder Returns

The Company’s annual dividend forecast is ¥20.00, with no revision at this time. Based on forecast full-year EPS of ¥26.53, the Payout Ratio is approximately 75.4% (¥20.00/¥26.53), a somewhat high level. Although the Company recorded a net loss in Q1, its financial foundation—cash and deposits of ¥251.9B and an Equity Ratio of 73.9%—supports the source of dividend funds. Dividend sustainability will need to be monitored in light of the full-year return to operating profitability and the recovery of cash flow.

Risk Factors

1. Business concentration risk: The computerized flat knitting machine segment accounts for 69.5% of revenue, and the segment’s revenue declined sharply by YoY-34.0%, materially affecting consolidated performance. The high degree of dependence on a specific segment is amplifying earnings volatility.

2. Regional demand volatility risk: Revenue from Asia nearly halved to ¥28.8B (¥59.5B in the previous year, YoY-51.7%), with regional demand fluctuations directly translating into the overall revenue decline. The contrast with Europe (+28.5%) indicates widening differences in demand between regions.

3. Rigidity of the cost structure: SG&A expenses rose to 52.8% of revenue (30.4% in the previous year), with fixed-cost burdens increasing at a pace well above the revenue decline rate of -27.3%. If demand does not enter a recovery phase, cost rigidity may continue to weigh on operating income.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the operating margin and net profit margin were substantially below the industry median, placing the Company at the lower end of the industry during the quarter.

Growth and Capital Efficiency

The revenue growth rate was also substantially below the industry median, with the decline in revenue standing out compared with other industry peers.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The gross profit margin improved to 41.7% (33.3% in the previous year), indicating effective cost management. The focus going forward is how to restrain SG&A expenses, which have risen to 52.8% of revenue, while maintaining the benefits of cost improvements and returning operating income to profitability.

2. Contract liabilities (advances received) increased to ¥14.7B (¥12.8B in the previous year, +15.3%), and this figure, which suggests an accumulation of advance orders, will serve as a reference point for assessing the pace of future revenue recovery.

3. The borrowing structure has shifted toward shorter maturities, with short-term borrowings up +46.8% and long-term borrowings down -25.0%. While the Company maintains strong financial soundness with an Equity Ratio of 73.9%, the change in the funding structure warrants monitoring.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type, explicit 5-year fade). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥1,830–¥1,933 at ±1% for the cost of equity, and ¥1,863–¥1,891 at ±0.1 for ω.

Notes:

• Normalized EPS calculated from Ordinary Income, etc., is used to exclude the impact of temporary gains and losses (the Company’s forecast EPS is ¥26.5).
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used (there is a timing mismatch with the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual income model / Interest rate reference month: 2026-06 / This value does not forecast or guarantee future share prices)

---

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 professionals as necessary.

---End of Report---