SHIBUYA CORPORATION FY2026 FY Earnings Report

Quick View

Executive Summary

The Company recorded higher revenue but lower earnings for the period, with the deterioration in profitability of non-core segments offsetting the solid performance of its core businesses as the key development. Revenue increased to ¥1,356.1B (+5.1% YoY), while Operating Income declined to ¥130.8B (-4.9% YoY) and Ordinary Income decreased to ¥135.6B (-1.5% YoY). Meanwhile, Net Income increased to ¥102.2B (+1.7% YoY), supported by extraordinary income, including ¥8.1B in subsidy income and other items. The primary driver of revenue growth was the expansion of the Packaging Plant Business, while the main causes of the earnings decline were the lower gross profit margin (18.6%, versus approximately 19.5% in the previous year) and significant earnings declines in both the Mechatronics Systems Business and Agricultural Equipment Business.

Factors Affecting Performance

【Revenue】Revenue increased to ¥1,356.1B, up +5.1% YoY. The core Packaging Plant Business led growth, with revenue of ¥846.3B (+4.3%), accounting for 62.4% of total Company revenue. The Mechatronics Systems Business generated revenue of ¥399.6B (+2.9%), while the Agricultural Equipment Business generated ¥134.2B (+8.0%); however, their growth rates were below that of the Packaging Plant Business. By region, Japan recorded ¥80.3B (+6.1%) and China ¥155.1B (+21.0%), with overseas markets also showing solid growth.

【Profitability】Operating Income declined to ¥130.8B, down -4.9% YoY. The Operating Income margin was 9.6%, approximately 110bp below the previous year's 10.7%. The gross profit margin declined to 18.6%, while SG&A expenses increased to ¥121.5B (+6.1%), outpacing revenue growth and causing operating leverage to work negatively. By segment, the Packaging Plant Business was the only segment to achieve higher earnings, with Operating Income of ¥132.4B (+5.3%, margin of 15.6%), whereas the Mechatronics Systems Business generated ¥17.8B (-23.9%, margin of 4.5%) and the Agricultural Equipment Business generated ¥5.2B (-50.1%, margin of 3.9%), both representing significant earnings declines. Ordinary Income was ¥135.6B (-1.5%), with non-operating income of ¥5.5B, including dividends and foreign exchange gains, slightly narrowing the decline. Net Income was ¥102.2B (+1.7%), supported by extraordinary income of ¥8.1B, including ¥7.2B in subsidy income. In conclusion, the Company recorded higher revenue but lower earnings.

Segment Analysis

The Packaging Plant Business recorded revenue of ¥846.3B (+4.3%) and Operating Income of ¥132.4B (+5.3%), achieving both revenue and earnings growth. It is the core business, accounting for 85.2% of total Company Operating Income before adjustments (¥155.4B). The Mechatronics Systems Business recorded revenue of ¥399.6B (+2.9%) but Operating Income of ¥17.8B (-23.9%), resulting in higher revenue but lower earnings, with a margin of only 4.5%. The Agricultural Equipment Business recorded revenue of ¥134.2B (+8.0%) but Operating Income of ¥5.2B (-50.1%); despite higher revenue, earnings were halved. The margin gap among segments has widened (15.6% versus 4.5% and 3.9%), making the improvement of profitability in the two non-core businesses a key challenge for Company-wide earnings.

Key Financial Metrics

【Profitability】The Operating Income margin was 9.6%, down approximately 110bp from 10.7% in the previous year, while the Net Income margin declined slightly to 7.5% from 7.8%. ROE was 8.6%, which can be decomposed into a Net Income margin of 7.5%, total asset turnover of 0.78x, and financial leverage of 1.46x, indicating an earnings structure based on underlying operating strength rather than leverage.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥52.8B, only 0.52x Net Income of ¥102.2B, as increases in contract assets and trade receivables absorbed working capital.【Investment Efficiency】Capital expenditures were ¥42.7B, while construction in progress increased to ¥49.9B, indicating ongoing investment to expand production capacity.【Financial Soundness】The Equity Ratio was 68.7% (67.7% in the previous year), while total interest-bearing debt was approximately ¥27.9B. Debt/EBITDA was low, indicating an extremely sound financial foundation.

Cash Flow Analysis

Operating Cash Flow was ¥52.8B, a decrease of -41.8% YoY, representing only 0.52x Net Income of ¥102.2B. The primary factors were the absorption of working capital due to increases in trade receivables and contract assets (-¥78.2B), as well as a decrease in trade payables (-¥19.6B), which appear to reflect temporary front-loaded cash investment associated with the progress of long-term projects. Investing Cash Flow was -¥107.4B, consisting of capital expenditures of ¥42.7B together with a net increase in time deposits. Financing Cash Flow was -¥36.0B, primarily reflecting repayment of long-term borrowings and dividend payments. Free Cash Flow was -¥54.6B; however, the cash outflow for the period remains sufficiently absorbable given cash and deposits of ¥440.1B and the low level of interest-bearing debt.

Quality of Earnings

Earnings for the period were primarily generated by recurring business activities, with the impact of one-time factors limited. Extraordinary income was ¥8.1B, comprising ¥7.2B in subsidy income, ¥0.2B in gains on sales of investment securities, and ¥0.7B in gains on sales of fixed assets, while extraordinary losses were small at ¥0.5B. The contribution of one-time items to Net Income of ¥102.2B was therefore approximately 7%. Non-operating income was ¥5.5B, including ¥1.1B in dividends received and ¥1.6B in foreign exchange gains, equivalent to 0.4% of revenue and immaterial in composition. On the other hand, OCF was below Net Income (a ratio of 0.52x), and accruals expanded due to increases in contract assets and work in progress, with the timing mismatch between earnings and cash associated with project progress slightly diluting earnings quality. The gap between Ordinary Income and Net Income was small, and the impact of tax effects was limited.

Earnings Forecast and Guidance

The forecast for the following period is revenue of ¥1,500.0B (+10.6%), Operating Income of ¥160.0B (+22.3%), Ordinary Income of ¥162.0B (+19.5%), EPS of ¥397.60, and a dividend of ¥120.00. The forecast assumes that earnings growth will exceed revenue growth, incorporating a recovery from the decline in the gross profit margin during the current period and improved profitability in the Mechatronics Systems and Agricultural Equipment businesses. Contract liabilities of ¥124.5B and the accumulation of construction in progress indicate a certain degree of visibility into future revenue; however, delays in long-term projects or increases in costs could create downside risks to the achievement of guidance.

Shareholder Returns

The annual dividend was ¥100 (interim dividend of ¥47.5 and year-end dividend of ¥52.5), representing an increase of ¥55 YoY. The Payout Ratio was 27.1% against Net Income of ¥102.2B, maintaining the Company's policy-based dividend level. Free Cash Flow was -¥54.6B for the period, meaning that dividend payments of ¥26.95B were not fully covered by internally generated funds alone. However, the Company's ability to sustain dividends is considered strong, supported by cash and deposits of ¥440.1B and a low level of interest-bearing debt. A dividend of ¥120 is forecast for the following period, implying a Payout Ratio of approximately 30.2% based on forecast EPS of ¥397.60. No share repurchases were confirmed, and shareholder returns remain centered on dividends.

Risk Factors

1. Segment profitability gap: If the deterioration in profitability of the Mechatronics Systems Business (Operating Income -23.9%, margin of 4.5%) and the Agricultural Equipment Business (-50.1%, margin of 3.9%) continues, downward pressure on the Company-wide Operating Income margin of 9.6% may persist.

2. Declining cash conversion: OCF was only 0.52x Net Income, and continued working capital absorption due to increases in contract assets (+¥32.0B) and trade receivables could result in a further decline in capital efficiency.

3. Business and customer concentration: The Packaging Plant Business accounts for 62.4% of revenue and the majority of Operating Income, while a certain degree of dependence on major customers is also evident. Accordingly, changes in investment trends in this business or among specific customers could have a significant impact on performance.

Industry Benchmark (Reference; Compiled by the Company)

Profitability exceeds the industry median, placing the Company in the upper tier of the manufacturing sector.

The growth rate is also tracking above the industry median.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The core Packaging Plant Business maintained higher revenue and earnings (Operating Income +5.3%) and drove Company-wide earnings, while the gross profit margin declined to 18.6% and the Operating Income margin contracted by approximately 110bp from the previous year. Whether the margin trend is reaching a turning point from an improvement phase to a pressured phase will depend on the gross profit margin trend from the following period onward.

2. OCF was only 0.52x Net Income, with working capital absorbed by increases in contract assets and trade receivables. Although this appears to be strongly temporary in nature due to the progress of long-term projects, the trend in the cash conversion ratio will require monitoring.

3. The financial foundation remains robust, as evidenced by an Equity Ratio of 68.7% and a low level of interest-bearing debt. Guidance indicates that the Company expects earnings growth to exceed revenue growth in the following period (Operating Income +22.3%). Whether profitability improvements in the two non-core businesses proceed as planned will be a key observation point in assessing the achievability of the earnings forecast.

Theoretical Share Price (Reference Value)

Sensitivity: ¥4,199–¥4,445 for a ±1% change in the cost of equity, and ¥4,319–¥4,320 for a ±0.1 change in ω.

(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 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 securities. Industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

---End of Report---