Sintokogio,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

Although revenue declined this quarter, the Company achieved increases in operating income, ordinary income, and net income, confirming a qualitative improvement in its earnings structure. Revenue declined to ¥398.1B (-3.9% YoY), while operating income rose substantially to ¥11.0B (+55.1%), ordinary income to ¥13.9B (+175.7%), and net income to ¥6.8B (+62.9%). The operating margin was 2.8%, an improvement of approximately 1.1pt YoY; however, it remains low for a manufacturer. The increase in ordinary income was supported by non-operating income, including dividend income and foreign exchange gains.

Factors Affecting Performance

【Revenue】Revenue declined 3.9% YoY to ¥398.1B. By segment, the largest Surface Technology area (58.9% of total revenue) remained solid at ¥234.5B, up 1.8% YoY, while the Environmental Technology area also expanded to ¥30.6B, up 12.3%. In contrast, the Handling Technology area declined sharply to ¥13.3B, down 48.2%; the Materials and Forming Technology area fell to ¥110.4B, down 8.4%; and the Support Technology area declined to ¥11.1B, down 15.2%. As a result, overall revenue remained on a declining trend.

【Profitability】Operating income increased 55.1% YoY to ¥11.0B, with the Surface Technology area serving as the primary driver as segment profit surged 262.9% to ¥10.1B. The Environmental Technology area also maintained high profitability, with profit rising 59.6% to ¥5.1B and a profit margin of 16.8%. Meanwhile, the Support Technology area recorded an operating loss of ¥2.4B, widening from a loss of ¥1.0B in the previous year. Profit margins in the Handling Technology area and Materials and Forming Technology area also declined to 1.0% and 0.5%, respectively, indicating a widening earnings disparity among businesses. Ordinary income increased 175.7% YoY to ¥13.9B, outpacing operating income growth, as non-operating income of ¥7.7B, including dividend income of ¥4.7B and foreign exchange gains of ¥0.8B, provided a boost. Net income increased 62.9% YoY to ¥6.8B, but growth was restrained relative to ordinary income because income taxes and other taxes amounted to ¥6.7B against pretax income of ¥13.6B, resulting in an effective tax rate of approximately 49.6%. Overall, the Company delivered higher earnings despite lower revenue, with increasing earnings dependence on the core Surface Technology and Environmental Technology areas.

Segment Analysis

The Surface Technology area recorded revenue of ¥234.5B, up 1.8% YoY, and operating income of ¥10.1B, up 262.9%, representing 91.4% of consolidated operating income of ¥11.0B and indicating an extremely high dependence on this area for company-wide profits. The Environmental Technology area generated revenue of ¥30.6B, up 12.3%, operating income of ¥5.1B, up 59.6%, and a profit margin of 16.8%, making it the most profitable segment company-wide. In contrast, the Materials and Forming Technology area, with revenue of ¥110.4B, down 8.4%, recorded profit of ¥0.5B, down 53.2%, while the Handling Technology area, with revenue of ¥13.3B, down 48.2%, recorded profit of ¥0.1B, down 95.5%. Both segments suffered substantial profit declines due to weaker demand and lower utilization. The Support Technology area recorded an operating loss of ¥2.4B against revenue of ¥11.1B, down 15.2%, with losses widening from ¥1.0B in the same period of the previous year. Adjustments, including company-wide expenses, also widened to -¥2.65B from -¥2.22B in the previous year, partially offsetting improvement effects by business.

Key Financial Indicators

【Profitability】The operating margin improved to 2.8% from 1.7% in the same period of the previous year, but remains low within a structure characterized by a gross margin of 29.8% and an SG&A ratio of 27.0%. The net margin remained at 1.7%, while the effective tax rate was high at approximately 49.6%, with pretax income of ¥13.6B, indicating that the tax burden is constraining the conversion of earnings into net income.【Cash Quality】Trade receivables of ¥468.7B accounted for 20.1% of total assets, while total inventories amounted to ¥261.6B, comprising raw materials of ¥90.7B, work in process of ¥82.7B, and finished goods of ¥88.3B.【Investment Efficiency】ROE was 0.6% and the equity ratio was 52.7%, indicating room for improvement in capital efficiency. EPS was ¥12.98, compared with ¥3.56 in the previous year, while BPS was ¥2,191.80.【Financial Soundness】Cash and deposits of ¥381.4B provide substantial coverage against current liabilities of ¥507.1B, and current assets of ¥1,177.2B substantially exceed current liabilities. Long-term borrowings of ¥402.4B account for the majority of interest-bearing debt, indicating a shift toward a longer-term liability structure.

Cash Flow Analysis

Because disclosed figures from the cash flow statement are not included, cash trends are analyzed based on changes in the balance sheet. Cash and deposits declined to ¥381.4B from ¥413.2B in the same period of the previous year, while investment securities increased to ¥409.3B from ¥349.8B, suggesting that a portion of cash on hand may have been allocated to securities investments. Trade receivables of ¥468.7B represented 20.1% of total assets, while inventories increased from the previous year, primarily in raw materials and work in process. Long-term borrowings were ¥402.4B, nearly unchanged from ¥407.8B in the previous year, indicating that interest-bearing debt remained stable. Current assets of ¥1,177.2B substantially exceeded current liabilities of ¥507.1B, securing short-term payment capacity.

Earnings Quality

Ordinary income of ¥13.9B exceeded operating income of ¥11.0B, with the difference attributable to ¥7.7B of non-operating income, including dividend income of ¥4.7B, interest income of ¥1.3B, and foreign exchange gains of ¥0.8B. Dependence on non-core income is therefore somewhat high. Extraordinary income was ¥0.1B and extraordinary losses were ¥0.4B, resulting in only a slight net negative impact, and their effect on net income was limited. Meanwhile, comprehensive income of ¥51.6B substantially exceeded net income of ¥6.8B, primarily due to valuation difference on securities of ¥39.6B and foreign currency translation adjustments of ¥6.7B. This divergence indicates that valuation gains arising from market price fluctuations made a significant contribution and should be distinguished from recurring business earnings power. Income taxes and other taxes of ¥6.7B were recorded against pretax income of ¥13.6B, resulting in a high effective tax rate of approximately 49.6%; the heavy tax burden is therefore an important consideration in assessing earnings quality.

Earnings Forecast and Guidance

The full-year forecast calls for revenue of ¥1,700.0B, down 3.5% YoY; operating income of ¥73.0B, up 90.5%; and ordinary income of ¥66.0B, up 96.1%. There were no revisions to either the earnings or dividend forecasts. Q1 progress rates were 23.4% for revenue, 15.1% for operating income, 21.1% for ordinary income, and 12.2% for net income. Revenue progress was generally at a standard level, while operating income and net income progress were somewhat low relative to the full-year plan. The difference between the Q1 operating margin of 2.8% and the full-year forecast operating margin of 4.3% indicates that profitability improvements in the second half are incorporated into the full-year forecast.

Shareholder Returns

The full-year dividend forecast is ¥48.00 per share, with no revision to the dividend forecast. Based on forecast full-year EPS of ¥106.63, the forecast payout ratio is 45.0%. Using the average number of shares outstanding during the period of 52,516 thousand shares, annual total dividends are estimated at approximately ¥2.52B, leaving sufficient dividend capacity against forecast full-year net income of ¥5.60B. However, Q1 net income was only 12.2% of the full-year forecast, meaning that the effective support for the dividend depends on earnings progress in the second half. No disclosure regarding share buybacks was made, and the total return ratio was not calculated.

Risk Factors

1. Expansion of earnings disparity among businesses: Revenue in the Handling Technology area declined 48.2%, while profit declined 95.5%; the operating loss in the Support Technology area widened to ¥2.4B. If demand recovery in low-margin businesses is delayed, the pace of company-wide profitability improvement may be constrained.

2. Concentration of profit in core areas: Segment profit of ¥10.1B in the Surface Technology area accounted for 91.4% of consolidated operating income of ¥11.0B. Changes in orders and profitability in this area could have a significant impact on consolidated performance as a whole.

3. High tax burden: The effective tax rate reached approximately 49.6%, constraining the conversion of pretax income of ¥13.6B into net income of ¥6.8B. This contributed to the relatively limited growth in net income (+62.9%) compared with the growth in ordinary income (+175.7%).

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Company’s operating margin and net margin are both substantially below the industry median, placing it toward the lower end of the industry in terms of profitability.

Growth and Capital Efficiency

Revenue growth was also substantially below the industry median, indicating an inferior level of top-line growth relative to industry peers.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. The Company achieved operating income growth (+55.1%) despite lower revenue this quarter, primarily due to improved profitability centered on the Surface Technology area. However, the operating margin of 2.8% remains below the industry median of 8.7%, indicating that profitability improvement remains at an interim stage.

2. The substantial increase in ordinary income (+175.7%) was significantly supported by non-operating income, including dividend income and foreign exchange gains, while net income growth (+62.9%) was constrained by the high effective tax rate (approximately 49.6%). Distinguishing core business earnings from non-operating income is important when assessing earnings quality.

3. The Handling Technology, Materials and Forming Technology, and Support Technology areas all recorded lower profits or losses. The increasing concentration of company-wide earnings in core areas warrants attention as a structural consideration of the business portfolio.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,868–¥1,975 at ±1% for the cost of equity, and ¥1,912–¥1,926 at ±0.1 for ω.

Notes:

• As 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 difference relative to the full-year forecast.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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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 a professional as necessary.

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AI Financial Analysis

Executive Summary

FY2027 Q1 was an operationally improved but still low-return start, with profit growth materially outpacing a modest sales decline. Revenue fell 3.9% YoY to ¥39.82bn. Operating income rose 55.1% YoY to ¥1.10bn despite the lower revenue base. Gross profit increased 3.0% to ¥11.87bn. The gross margin expanded by 198bp YoY to 29.8% from 27.8%. SG&A expenses declined 0.5% YoY to ¥10.76bn, supporting positive operating leverage. Consequently, the operating margin improved by 105bp to 2.8% from 1.7%, although it remains below the 5% level generally associated with adequate operating efficiency. Ordinary income increased 175.7% to ¥1.39bn, benefiting from ¥769m of non-operating income, including ¥471m of dividend income and ¥127m of interest income. Profit attributable to owners of parent rose 265.3% to ¥681m, while EPS was ¥12.98. Net income was also supported by the absence of the prior-year ¥299m gain on sales of investment securities; the current quarter instead recorded only a net ¥34m extraordinary loss. The effective tax rate was elevated at 49.6%, reducing the conversion of pre-tax profit into net income. Comprehensive income reached ¥5.16bn, substantially exceeding net income because valuation gains on securities contributed ¥3.96bn to OCI. Surface Creation was the largest business by both revenue and segment profit and drove the group-level earnings recovery. Environmental Technology also delivered strong double-digit sales growth and the highest reported segment margin. In contrast, the Materials + Forming and Handling Technology businesses weakened, limiting the breadth of the recovery. Q1 revenue progress against the ¥170.0bn full-year plan was 23.4%, close to the 25% seasonal benchmark, whereas operating-income progress was 15.1%, indicating that substantial margin recovery is embedded in the remaining quarters. The full-year plan calls for operating income of ¥7.30bn, up 90.5% YoY, so execution in the weaker manufacturing-equipment-related businesses and further gross-margin improvement will determine whether the recovery becomes durable.

Profitability Analysis

Annualized DuPont ROE was 2.2%, comprising a 1.7% net profit margin, 0.685x annualized asset turnover, and 1.90x financial leverage. The principal limitation on shareholder returns is profitability rather than balance-sheet leverage: the 1.7% net margin and 2.8% EBIT margin remain low for a manufacturing group. Margin was nevertheless the major positive change in Q1, as gross margin expanded 198bp and operating margin expanded 105bp despite a 3.9% revenue decline. This reflects a 3.0% increase in gross profit together with a 0.5% reduction in SG&A expenses. Segment performance identifies Surface Creation as the core business: external revenue rose 1.8% YoY to ¥23.45bn and segment profit surged to ¥1.01bn from ¥278m, lifting its margin to 4.3% from 1.2%. Environmental Technology produced the strongest reported segment margin at 17.1%, with revenue up 12.5% to ¥3.00bn and segment profit up 59.6% to ¥514m. Materials + Forming revenue declined 8.4% to ¥10.84bn and segment profit fell 53.2% to ¥52m, compressing margin to 0.5% from 0.9%. Handling Technology revenue dropped 48.2% to ¥1.33bn and segment profit fell to ¥14m from ¥308m, reducing margin to 1.1% from 12.0%. Support Technology revenue declined 15.7% to ¥1.10bn and its loss widened to ¥242m from ¥98m. Unallocated corporate costs increased to ¥287m from ¥219m, reflecting R&D and head-office expenses and partly offsetting segment-level improvement. Non-operating income represented 1.9% of revenue and dividend income represented 42.1% of non-operating income, so ordinary-profit growth is not solely attributable to the operating recovery. The 49.6% effective tax rate resulted in a tax burden factor of 0.501, materially below the 0.70 level associated with normal tax conversion. ROIC of 1.7% is below 5%, indicating that the improved Q1 margin has not yet translated into adequate returns on the capital employed.

Growth Assessment

The revenue decline masks a divergent business mix. Surface Creation and Environmental Technology together added ¥751m of external revenue YoY, but this was more than offset by a ¥999m decline in Materials + Forming and a ¥1.24bn decline in Handling Technology. Surface Creation's earnings rebound is particularly important because it accounts for 58.9% of consolidated external revenue and 73.7% of reported segment profit before corporate costs. Environmental Technology's 12.5% revenue growth and 17.1% segment margin provide the most attractive current growth-and-profitability profile. However, the sharp decline in Handling Technology points to uneven equipment demand or project timing, and its prior-year profit contribution was significant. The Materials + Forming segment's 53.2% profit decline also signals that the group-wide gross-margin recovery is not uniform. Management retained full-year guidance: revenue of ¥170.0bn, operating income of ¥7.30bn, ordinary income of ¥6.60bn, and profit attributable to owners of ¥5.60bn. Q1 revenue progress of 23.4% is only 1.6 percentage points below the standard 25% pace. Operating-income progress is 15.1%, 9.9 percentage points below the standard pace, while ordinary-income progress is 21.1%. Net-income progress is 12.2%, 12.8 percentage points below the standard pace, reflecting the elevated Q1 tax burden as well as the earnings recovery required later in the year. The guidance implies a full-year operating margin of 4.3%, versus 2.8% in Q1, requiring a further 153bp improvement over the remainder of the year. The forecast therefore relies on a meaningful recovery in the lower-margin segments, improved project mix, or stronger cost absorption. Earnings quality at the operating level improved because gross profit increased even as sales declined, but below-the-line investment income remains meaningful to ordinary income.

Financial Health

Liquidity is strong, with a current ratio and quick ratio of 232.1% and working capital of ¥67.01bn. Cash and deposits of ¥38.14bn cover short-term loans of ¥7.77bn by 4.91x. Short-term debt represents only 16.2% of interest-bearing debt, limiting immediate refinancing and maturity-mismatch risk. Interest-bearing debt totaled ¥48.01bn, comprising ¥40.24bn of long-term loans and ¥7.77bn of short-term loans. Debt-to-equity was 0.90x and debt-to-capital was 28.1%, both within conservative covenant-oriented benchmarks. The balance sheet is therefore not overleveraged, but interest coverage of 3.53x is below the 5x level generally associated with strong debt-service capacity and should improve with operating income. Total assets increased by ¥5.29bn YoY to ¥232.65bn, while total equity increased by ¥3.87bn to ¥122.70bn. Equity growth was driven largely by comprehensive income rather than retained operating earnings, as accumulated other comprehensive income increased by ¥4.51bn to ¥34.35bn. Investment securities increased by ¥5.95bn YoY to ¥40.93bn and account for 17.6% of total assets, creating meaningful market-value sensitivity within equity. Goodwill was only ¥411m, equal to 0.3% of equity and 0.2% of assets, indicating minimal acquisition-related impairment exposure. Intangible assets were 1.6% of total assets, also indicating no material intangible-asset concentration. Asset retirement obligations were ¥64m, immaterial at approximately 0.1% of total liabilities. Defined-benefit liabilities of ¥1.76bn and order-loss provisions of ¥206m are additional obligations to monitor in project execution and funding assessment.

Notable B/S Changes

Investment securities: +¥5.95bn YoY (+17.0%) to ¥40.93bn — the increase exceeds ¥5.0bn and, together with ¥3.96bn of Q1 securities valuation gains in OCI, increases exposure of equity to market-price movements. Accumulated other comprehensive income: +¥4.51bn YoY (+15.1%) to ¥34.35bn — largely reflects securities valuation and foreign-currency translation movements, increasing the sensitivity of book equity to financial-market and FX changes.

Cash Flow Quality

Dividend Sustainability

The full-year dividend forecast is ¥48 per share, unchanged under the disclosed dividend policy outlook. Against forecast EPS of ¥106.63, the implied dividend payout ratio is 45.0%. This is below the 60% benchmark generally viewed as sustainable from an earnings-coverage perspective. Q1 EPS of ¥12.98 represents 12.2% of full-year forecast EPS, so the forecast dividend depends on the planned profit acceleration in subsequent quarters. Treasury shares totaled 2.06m shares, or 3.8% of issued shares, but no current-period buyback amount is provided; accordingly, assessment is based on the dividend payout ratio rather than a total return ratio. The strong liquidity position and moderate debt-to-capital ratio support financial flexibility, while the low operating margin and below-standard interest coverage make the expected operating recovery important for maintaining earnings-based dividend coverage.

Risk Assessment

Business risks include High priority — Demand and project-timing risk: Handling Technology revenue declined 48.2% YoY and segment profit declined 95.5%, demonstrating material sensitivity to order timing and manufacturing investment demand., High priority — Margin sustainability risk: consolidated EBIT margin improved to 2.8% but remains below 5%; the full-year plan requires a 4.3% operating margin, leaving limited tolerance for lower utilization, pricing pressure, or input-cost inflation., High priority — Working-capital efficiency risk: annualized DSO of 107 days exceeds the 60-day warning level and the annualized cash conversion cycle of 144 days exceeds the 120-day warning level. Long collection cycles tie up capital and can increase counterparty-credit exposure in project-based manufacturing., Medium priority — Segment concentration risk: Surface Creation contributes 58.9% of external revenue and is the largest segment profit contributor, making group earnings sensitive to its order intake, project execution, and pricing., Medium priority — Manufacturing cost risk: the group remains exposed to volatility in materials, energy, labor, and supply-chain costs; the low consolidated operating margin provides limited buffer against adverse cost movements., Medium priority — FX and overseas-market risk: Q1 included ¥84m of foreign-exchange gains, illustrating currency sensitivity, while global industrial-equipment demand can be affected by exchange rates, trade restrictions, and regional capital-spending cycles., Medium priority — Investment-security valuation risk: investment securities of ¥40.93bn are material relative to assets, and Q1 OCI included ¥3.96bn of valuation gains on securities; adverse market movements could reverse part of the equity uplift..

Financial risks include Medium priority — Interest-servicing risk: interest coverage of 3.53x is adequate but below the 5x strong-coverage benchmark. Higher interest rates or weaker operating profit would constrain coverage., Medium priority — Tax-conversion risk: the 49.6% effective tax rate produced a 0.501 tax burden factor, materially reducing net-income conversion from pre-tax profit. If sustained, it would limit EPS growth relative to operating-profit growth., Medium priority — Capital-efficiency risk: ROIC of 1.7% and annualized ROE of 2.2% are low, indicating that the current asset and capital base is generating modest returns despite the Q1 earnings rebound., Low priority — Goodwill impairment risk: goodwill is only 0.3% of equity, so balance-sheet dependence on acquired goodwill is limited..

Key concerns include The LOW_OPERATING_EFFICIENCY alert is justified because the 2.8% EBIT margin remains below 5%. Q1 margin improvement is positive, but the investment case depends on converting it into the 4.3% margin implied by full-year guidance., The CAPITAL_EFFICIENCY alert is justified because ROIC is 1.7%, below 5%. This indicates that operating-profit recovery has not yet overcome the weight of the invested capital base; sustained margin improvement and better asset utilization are required., The HIGH_TAX_BURDEN alert is justified because the effective tax rate was 49.6%, above 40%, and the tax burden factor was 0.501. The immediate impact is that ¥1.36bn of pre-tax income translated into only ¥681m of profit attributable to owners., The HIGH_RECEIVABLE_DAYS alert is justified because annualized DSO of 107 days is well above the 60-day warning threshold. For an industrial project business, some extended customer acceptance and collection timing is normal, but this level increases capital lock-up and collection risk., The LONG_CCC alert is justified because the annualized cash conversion cycle of 144 days is above the 120-day warning threshold. It suggests that receivable monetization and overall working-capital discipline require attention, particularly while returns on capital remain low., No material liquidity warning is indicated: current and quick ratios are both 232.1%, D/E is 0.90x, and short-term debt is covered 4.91x by cash..

Investment Implications

Key takeaways include Q1 demonstrated meaningful operational leverage: operating income rose 55.1% and gross margin expanded 198bp despite a 3.9% sales decline., Surface Creation is the core earnings engine, while Environmental Technology provides the strongest segment margin and growth., The recovery remains uneven because Materials + Forming profitability weakened and Handling Technology experienced a sharp revenue and profit contraction., Full-year guidance requires operating-margin expansion from 2.8% in Q1 to 4.3% for the full year., The balance sheet has strong short-term liquidity and moderate leverage, but interest coverage remains only moderate., Low ROIC, high receivable days, and a long cash conversion cycle are the principal efficiency constraints., Investment securities are a material source of equity-market sensitivity, as shown by the ¥3.96bn Q1 valuation gain recorded in OCI..

Metrics to watch include Surface Creation order momentum and segment margin, Materials + Forming recovery in revenue and segment profit, Handling Technology order timing, revenue normalization, and margin recovery, Consolidated gross margin and operating margin versus the 4.3% full-year operating-margin implication, Annualized DSO and cash conversion cycle, Interest coverage and interest expense, Effective tax rate and conversion of ordinary income into net income, ROIC and annualized ROE, Fair-value movement in the ¥40.93bn investment-securities portfolio.

Regarding relative positioning, Relative to typical industrial-manufacturing benchmarks, ShinTo Kogyo combines strong liquidity, conservative debt-to-capital, and negligible goodwill risk with below-par operating and capital efficiency. The Q1 gross-margin recovery and the high-margin Environmental Technology business are constructive, but the company remains more dependent on successful execution of a back-half margin recovery and working-capital improvement than a consistently high-return industrial peer.