KOMATSU LTD. FY2027 Q1 Earnings Report

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Executive Summary

Revenue and profit increased, supported by solid demand for construction equipment, yen depreciation, and improved pricing. However, operating income growth failed to keep pace with revenue growth due to higher costs, resulting in a slight decline in the profit margin. Revenue was ¥10,431.4B (+14.7% YoY), operating income was ¥1,515.5B (+8.0%), and net income was ¥961.5B (+5.4%). The primary drivers of revenue growth were the effects of yen depreciation, higher volumes, and improved selling prices in the core Construction, Mining and Utility Equipment Business, while the Industrial Machinery and Others Business also achieved strong growth against a backdrop of semiconductor-related demand. Meanwhile, the operating margin declined to 14.5% from 15.4% in the prior year, and the slight slowdown in profit growth relative to revenue growth will be an important point in assessing future cost trends.

Factors Affecting Results

【Revenue】Revenue was ¥10,431.4B, representing a 14.7% increase YoY. The core Construction, Mining and Utility Equipment Business led overall growth, reaching ¥9,669B (+14.4%) on the effects of yen depreciation, higher volumes, and improved pricing, with North America and Central and South America contributing. The Industrial Machinery and Others Business posted strong growth of 21.7% to ¥529B, driven by increased sales of large presses and Gigaphoton excimer laser maintenance, while parts revenue also expanded 18.4% to ¥2,865B.

【Profit and Loss】Operating income was ¥1,515.5B (+8.0%), profit before tax was ¥1,400.4B (+6.7%), and net income was ¥961.5B (+5.4%). Although all increased, their growth rates remained below the rate of revenue growth. The operating margin declined by approximately 0.9pt to 14.5% from 15.4% in the prior year, suggesting that increases in raw material, logistics, and labor costs partially offset the benefits of price pass-through. The decline from profit before tax to net income was approximately 31.4% (approximately 30.6% in the prior year), indicating no significant change in the effective tax rate, and no temporary factors attributable to extraordinary gains or losses were identified. In conclusion, although revenue and profit increased, the profit margin narrowed slightly, positioning the company in a phase of revenue and profit growth accompanied by margin contraction.

Segment Analysis

The Construction, Mining and Utility Equipment Business is the core business, accounting for 92.7% of the business mix. It led overall revenue and profit growth, with revenue of ¥9,669B (+14.4%) and segment profit of ¥1,301B (+6.4%). However, its segment margin was 13.5%, below those of the Industrial Machinery and Others Business (17.0%) and the Retail Finance Business (29.4%), indicating differences in profitability among segments. The Industrial Machinery and Others Business achieved profit growth exceeding revenue growth, with revenue of ¥529B (+21.7%) and profit of ¥90B (+25.1%), supporting company-wide profit growth. The Retail Finance Business posted revenue of ¥327B (+7.4%) and profit of ¥96B (+2.8%), representing moderate revenue and profit growth reflecting yen depreciation and asset expansion. The decline in the margin of the core Construction, Mining and Utility Equipment Business appears to have been the primary cause of the contraction in the company-wide operating margin.

Key Financial Indicators

Profitability: Operating margin of 14.5% (15.4% in the prior year), net profit margin of 9.2% (10.0% in the prior year), and ROE of 2.6% (based on quarterly results).

Financial soundness: Equity Ratio of 51.8% (54.7% in the prior year). Total assets expanded 5.6% YoY to ¥67,825.9B, exceeding the 0.05% growth in net assets, which was the backdrop to the increase in leverage.

Earnings structure: The decline from profit before tax of ¥1,400.4B to net income was approximately 31.4%, representing a decrease commensurate with the effective tax rate and showing no significant distortion attributable to extraordinary gains or losses.

Cash Flow Analysis

The absolute amounts of Operating Cash Flow (OCF) and investing cash flow cannot be determined from the disclosed information; however, free cash flow resulted in an excess outflow of ¥16B in Q1 of the current fiscal year. Full-year guidance calls for FCF generation of +¥2,600B, premised on improvement toward the second half of the fiscal year. From a financing perspective, borrowings and bonds increased by +¥3,026B from the end of the prior fiscal year, confirming an expansion in funding procurement during a period of asset growth. Cash generation is considered an area requiring monitoring because quarterly FCF was negative.

Earnings Quality

Against profit before tax of ¥1,400.4B, net income was ¥961.5B, representing a decline of approximately 31.4% (approximately 30.6% in the prior year), which was essentially unchanged. No temporary divergence attributable to extraordinary gains or losses was identified. The effective tax rate has not changed significantly from the prior year, and the reduction from ordinary income to net income was primarily attributable to the tax burden. No disclosure indicates the scale of non-operating income, and earnings appear to be primarily driven by the core business, starting from operating income.

Earnings Forecast and Guidance

Progress against full-year guidance was 24.2% for revenue, 27.3% for operating income, and 27.6% for net income, indicating that profit performance is slightly ahead of the standard quarterly progress rate of 25%. Full-year guidance was revised upward from the announcement on April 28, driven by the reduced impact of the situation in the Middle East, including the use of alternative transportation routes in anticipation of a blockade of the Strait of Hormuz, and a reassessment of the impact of U.S. tariffs, including the abolition of IEEPA tariffs, a shift to Section 301 tariffs, and the incorporation of a ¥30B refund. The outlook for demand for the major seven construction equipment categories was revised upward from 0% to +5% YoY, while the outlook for mining equipment demand remains somewhat challenging at ▲5% to ▲10%. Regional differences in demand intensity are reflected in the regional BB ratios, with Komatsu America in the 90% range and Komatsu Germany trending lower.

Shareholder Returns

Dividend guidance in the XBRL data is listed as ¥95 per share, while the PDF earnings presentation describes an annual dividend of ¥190 (unchanged) and a consolidated Payout Ratio of 48.6%; the two figures are inconsistent. Since a Payout Ratio of 48.6% is broadly consistent with full-year net income guidance of ¥349B and an annual dividend of ¥190, it is highly likely that ¥190 represents the combined annual dividend for the interim and year-end dividends. Regardless of which figure is used, the Payout Ratio remains at or below 50%, and given the strength of the financial base, including an Equity Ratio of 51.8%, concerns regarding dividend sustainability itself are limited.

Catalysts

【Short Term】Key points to monitor include the application of U.S. Section 301 tariffs after July 24, 2025, foreign exchange trends through October based on an assumption of ¥150 to the U.S. dollar, and regional disparities in mining equipment BB ratios.

【Long Term】Longer-term initiatives include the full-scale rollout of the global AI structure, scheduled to become operational from 2027, the overseas expansion of Smart Construction® projects, including Changi Airport Terminal 5, and the redevelopment of the new head office building using ¥20B in green bonds, with ZEB Ready certification.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Growth and Capital Efficiency

※Source: Compiled by the Company

Risk Factors

1. Tariff and geopolitical risks: The U.S. Section 122 additional tariff expired on July 23, and the company transitioned to Section 301 additional tariffs (12.5% for Japan and other countries, 37.5% for Brazil); tariff rates on steel and aluminum also continue to fluctuate. In the Middle East, the assumption of alternative transportation routes in anticipation of a blockade of the Strait of Hormuz leaves a risk of project delays.

2. Demand volatility risk: The outlook for mining equipment demand is somewhat challenging at ▲5% to ▲10% YoY. Demand for rental and general users in Japan declined by ▲11% YoY in Q1 of the current fiscal year, and disparities in demand by region and equipment type persist.

3. Changes in financial soundness: The Equity Ratio declined by approximately 2.9pt to 51.8% from 54.7% in the prior year, while borrowings and bonds increased by +¥3,026B from the end of the prior fiscal year. Total asset growth (+5.6%) exceeded net asset growth (+0.05%), requiring monitoring of the upward trend in financial leverage during the asset expansion phase.

Key Points from the Earnings Results

1. Although revenue and profit increased, the operating margin narrowed by approximately 0.9pt to 14.5% from 15.4% in the prior year. This confirms a structure in which the decline in the margin of the core Construction, Mining and Utility Equipment Business weighed on the company-wide margin.

2. Full-year progress was 27.3% for operating income and 27.6% for net income, exceeding the standard 25% level and advancing ahead of revenue progress of 24.2%. This reflects the upward revision from the forecast announced in April, including changes to the assumptions regarding the situation in the Middle East and the impact of U.S. tariffs.

3. The annual dividend was maintained at ¥190 (based on the PDF), with a Payout Ratio of 48.6%, which is not an excessive burden relative to the financial base represented by an Equity Ratio of 51.8%. However, the discrepancy with the ¥95 figure listed in XBRL means that consistency among disclosure materials remains an item requiring attention.

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 five-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥4,049–¥4,293 at ±1% for the cost of equity, and ¥4,163–¥4,177 at ±0.1 for ω.

Notes:

• The EPS impact of approximately ¥17.7 per share from a ±¥5 change in the assumed exchange rate has been reflected in the bear/bull scenarios.
• Net assets as of the end of the quarter are used; there is a timing difference relative to the full-year forecast.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This figure does not forecast or guarantee future share prices)

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This report is an earnings analysis document automatically generated through AI integration and analysis of XBRL earnings flash data and PDF earnings presentation materials. 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, and you should consult a professional as necessary.

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