AIRMAN (6364) FY2027 Q1 Earnings Report

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Executive Summary

In Q1, profit expanded at a pace exceeding revenue growth, resulting in higher revenue and profit accompanied by improved profitability. Revenue was ¥137.4B (+3.7% YoY), Operating Income was ¥24.4B (+50.9%), Ordinary Income was ¥25.9B (+67.9%), and Net Income attributable to owners of the parent was ¥17.8B (+62.9%), with profit growth substantially exceeding revenue growth in each case. The primary driver of profit growth was the increase in gross margin, centered on the Construction Machinery Business (27.4%→33.3%); the recognition of foreign exchange gains in non-operating income also contributed to the increase in Ordinary Income.

Factors Affecting Results

【Revenue】Revenue was ¥137.4B, representing a 3.7% YoY increase. By segment, the Construction Machinery Business was the primary contributor at ¥112.0B (81.5% of revenue, YoY +4.4%), while the Industrial Machinery Business remained at ¥25.4B (18.5% composition ratio, YoY +0.9%). Growth in the Construction Machinery Business drove overall company revenue growth.

【Profit and Loss】Operating Income was ¥24.4B (YoY +50.9%), and the Operating Income margin improved to 17.7% from 12.2% in the previous year, an improvement of +5.5pt. The primary factor was the increase in gross margin (27.4%→33.3%); the SG&A ratio was 15.5%, nearly unchanged from 15.3% in the previous year, indicating that cost improvements translated directly into higher profit. Segment profit was ¥26.4B for Construction Machinery (YoY +55.4%, profit margin 23.6%, +7.8pt from 15.8% in the previous year) and ¥4.9B for Industrial Machinery (YoY +8.8%, profit margin 19.3%, +1.4pt from 17.9% in the previous year). The larger margin improvement in Construction Machinery was the primary factor lifting the overall profit margin. Ordinary Income was ¥25.9B (YoY +67.9%); foreign exchange gains of ¥1.4B in non-operating income reversed the foreign exchange losses recorded in the previous year, increasing Ordinary Income by more than the growth in Operating Income. Extraordinary gains and losses had virtually no impact (extraordinary loss of ¥0.0B), and temporary factors were limited. Net Income attributable to owners of the parent was ¥17.8B (YoY +62.9%); although the effective tax rate rose slightly to 31.1% from 28.7% in the previous year, the profit growth trend was maintained. This was a results profile characterized by higher revenue and profit, with profit growth substantially exceeding revenue growth.

Segment Analysis

The Construction Machinery Business generated revenue of ¥112.0B (YoY +4.4%) and segment profit of ¥26.4B (YoY +55.4%), with a profit margin of 23.6% (15.8% in the previous year). It is the core business, accounting for 81.5% of total company revenue and 84.3% of total segment profit of ¥31.3B. The Industrial Machinery Business generated revenue of ¥25.4B (YoY +0.9%) and segment profit of ¥4.9B (YoY +8.8%), with a profit margin of 19.3% (17.9% in the previous year), securing higher profit despite modest revenue growth. Both businesses improved their profit margins from the previous year; however, the larger improvement in Construction Machinery contributed to lifting consolidated Operating Income to ¥24.4B after deducting company-wide expenses of ¥6.9B from total segment profit.

Key Financial Indicators

【Profitability】The Operating Income margin and Net Income margin both improved significantly, to 17.7% (12.2% in the previous year) and 13.0% (8.2% in the previous year), respectively, while gross margin also increased to 33.3% (27.4% in the previous year). 【Cash Quality】Cash and deposits were ¥114.3B, down from ¥121.2B in the previous year, while inventories increased to ¥137.3B (¥108.2B in the previous year, +26.9%). Working capital accumulation has therefore preceded profit growth, creating a structure in which cash generation is likely to lag behind profit recognition. 【Investment Efficiency】ROE was 3.9%, EPS was ¥66.11 (¥39.67 in the previous year, +66.6%), and BPS was ¥1,704.59 (¥1,670.64 in the previous year). Against total assets of ¥677.8B, Net Income attributable to owners of the parent was ¥17.8B, and the substantial equity base (Equity Ratio of 68.0%) is one factor suppressing capital efficiency. 【Financial Soundness】The Equity Ratio remained high at 68.0% (68.5% in the previous year), and the liability structure was conservative, centered on long-term borrowings of ¥70.9B.

Cash Flow Analysis

Cash and deposits were ¥114.3B, a decrease of ¥6.9B from ¥121.2B in the previous year, indicating a modest contraction in cash on hand despite the earnings expansion. The primary factor was a ¥29.2B increase in inventories (¥108.2B→¥137.3B), reflecting increased funds tied up in working capital, mainly product inventories. Meanwhile, accounts payable were ¥55.6B, up ¥6.9B from ¥48.6B in the previous year, and the increase in trade payables partially offset the working capital burden. Investment securities were ¥62.8B, up ¥5.8B from ¥57.1B in the previous year, indicating that part of the funds was allocated to securities investments. Long-term borrowings were ¥70.9B, slightly down from ¥72.1B in the previous year, reflecting a conservative financial stance. Overall, inventory accumulation has delayed the timing of cash generation relative to profit growth.

Quality of Earnings

Most profit was derived from improved operating profitability, and the impact of temporary factors was limited. Extraordinary losses were minimal at ¥0.0B, and the difference between Ordinary Income and Net Income attributable to owners of the parent was primarily attributable to the effective tax rate of 31.1% (28.7% in the previous year). Foreign exchange gains accounted for ¥1.4B of non-operating income of ¥1.8B and reversed the foreign exchange loss of ¥1.3B in the previous year, contributing to the increase in Ordinary Income. This foreign exchange impact could reverse depending on market conditions and therefore warrants attention. Comprehensive income was ¥23.4B, ¥5.6B higher than Net Income attributable to owners of the parent of ¥17.8B. The difference was primarily due to an increase of +¥4.0B in valuation difference on securities and an increase of +¥1.2B in foreign currency translation adjustments, indicating that valuation gains unrelated to the earning power of the core business lifted comprehensive income. Inventory and trade receivables have increased from the previous year, and the lag between accrual-based profit recognition and cash conversion is also an observation point when assessing earnings quality.

Earnings Forecasts and Guidance

Q1 progress against the full-year plan was 22.8% for Revenue (versus the ¥602.0B plan), 29.4% for Operating Income (versus the ¥83.0B plan), 29.8% for Ordinary Income (versus the ¥87.0B plan), and 29.7% for Net Income attributable to owners of the parent (versus the ¥60.0B plan). Profit-related indicators exceeded the simple progress benchmark of 25%. The company revised its earnings forecasts during the quarter, while leaving its dividend forecast (¥20.00) unchanged. Although revenue progress was slightly below the standard benchmark, profit progress was ahead, supported by the improvement in gross margin and margin expansion in the Construction Machinery Business.

Shareholder Returns

The annual dividend forecast remains unchanged at ¥20.00, the same level as the previous fiscal year, and no revision to the dividend forecast was made during the quarter. Based on the full-year EPS forecast of ¥222.73, the Payout Ratio is approximately 9.0% (¥20.00÷¥222.73), representing a low return level relative to earnings. Based on the weighted-average number of shares during the period of approximately 26.94M shares, excluding treasury shares, the total annual dividend is estimated to be in the ¥5B range, which is within a reasonable level relative to cash and deposits of ¥114.3B and the earnings level. No share repurchases have been confirmed.

Risk Factors

1. Business concentration risk: The Construction Machinery Business accounts for 81.5% of Revenue (¥112.0B/¥137.4B) and 84.3% of segment profit, creating a structure in which demand fluctuations in this business have a significant impact on overall performance.

2. Working capital retention risk: Inventories were ¥137.3B, an increase of +26.9% from the previous year, accumulating at a pace substantially exceeding revenue growth of +3.7%. The relative risk of inventory valuation losses and discounting measures during periods of demand fluctuation has increased.

3. Foreign exchange risk: Foreign exchange gains of ¥1.4B in non-operating income reversed the foreign exchange losses recorded in the previous year and lifted Ordinary Income. However, this effect could reverse due to fluctuations in foreign exchange rates and therefore requires monitoring as a factor affecting Ordinary Income.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Income margin and Net Income margin substantially exceeded the industry median, placing profitability at a high level within the industry.

Growth and Capital Efficiency

The revenue growth rate was below the industry median, positioning the company’s revenue growth pace as somewhat modest within the industry.

※Source: Company compilation

Key Points from the Financial Results

1. Gross margin improved by +5.9pt to 33.3% (27.4% in the previous year), while the Operating Income margin improved by +5.5pt to 17.7% (12.2% in the previous year). Profit growth of +50.9%, substantially exceeding revenue growth of +3.7%, indicates a change in the margin structure driven by improved pricing and product mix.

2. While inventories increased by +26.9%, cash and deposits declined, creating a divergence between earnings growth and the timing of cash generation. The future trend in inventory levels will be an observation point for assessing working capital efficiency.

3. Full-year progress rates for profit-related indicators were in the 29% range, exceeding the planned simple progress benchmark of 25%. The company revised its earnings forecasts during the quarter, and the relationship between progress and the revisions will be a point to confirm in future results.

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: ¥1,876–¥1,991 at ±1% for the cost of equity, and ¥1,927–¥1,941 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).

(Calculation model: Residual income model / Interest rate reference month: 2026-06 / This figure does not predict 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 release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the company based on publicly available earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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AI Financial Analysis

Executive Summary

AIRMAN delivered a strong FY2027 Q1 result, with modest sales growth translating into substantially faster operating and net-profit growth. Revenue increased 3.7% YoY to ¥13.74bn. Operating income rose 50.9% to ¥2.44bn. Ordinary income increased 67.9% to ¥2.59bn. Net income attributable to owners grew 63.3% to ¥1.78bn. The gross margin expanded by approximately 590bp YoY to 33.3%, from 27.4% in the prior-year quarter. The operating margin expanded by approximately 550bp to 17.7%, from 12.2%. The net margin improved by approximately 475bp to 13.0%, from 8.2%. This indicates that the quarter was driven primarily by improved manufacturing profitability rather than by top-line expansion alone. Construction Machinery was the principal earnings driver, generating ¥2.64bn of segment profit, up 55.4% YoY. Industrial Machinery remained profitable and expanded segment profit by 8.8% YoY to ¥0.49bn. The Construction Machinery segment margin was 23.6%, materially above Industrial Machinery's 19.3% margin. Non-operating foreign-exchange gains of ¥0.14bn supported ordinary income, although this represented only 5.6% of operating income and does not alter the fundamentally operating-led earnings improvement. The effective tax rate was 31.1%, producing a tax burden factor of 0.688. Financial leverage remained moderate at 1.47x, while the annualized ROE reached 15.4%. Balance-sheet liquidity is very strong, with a 379.6% current ratio and ¥35.06bn of working capital. The principal operating concern is working-capital intensity, reflected in elevated receivable days, inventory days and a 194-day cash-conversion cycle. Full-year guidance implies Q1 progress of 22.8% for revenue, 29.4% for operating income and 29.7% for owner-attributable net income, so the company has made an above-seasonal start on profitability while sales progress is broadly consistent with the 25% first-quarter reference point. The outlook therefore depends on maintaining the elevated gross margin, converting inventory into shipments, and limiting the effect of FX normalization on ordinary income.

Profitability Analysis

The annualized 15.4% ROE is explained by a 13.0% net profit margin, 0.811x asset turnover and 1.47x financial leverage. Margin, rather than leverage, is the dominant source of the return profile: the 13.0% net margin is above the 10% benchmark generally associated with excellent profitability. The largest YoY change was in operating profitability, as the operating margin rose about 550bp to 17.7% while revenue rose only 3.7%. Gross-margin expansion of about 590bp to 33.3% shows that the improvement originated principally in the cost-of-sales line. SG&A increased 5.7% YoY to ¥2.14bn, faster than sales growth, but this was substantially outweighed by the ¥0.94bn increase in gross profit. Consequently, operating leverage was strongly positive despite higher corporate costs. Segment profit increased 45.6% to ¥3.13bn before corporate expenses, whereas company-wide expenses, mainly unallocated administrative and R&D costs, increased 29.5% to ¥0.69bn. Construction Machinery, the core business by segment-profit contribution, produced ¥11.20bn of revenue, up 4.4% YoY, and ¥2.64bn of segment profit, up 55.4% YoY. Its segment margin improved to 23.6% from 15.8%, underpinning the consolidated result. Industrial Machinery generated ¥2.54bn of revenue, up 0.9% YoY, and ¥0.49bn of segment profit, up 8.8% YoY, with a 19.3% margin versus 17.9% a year earlier. The revenue mix also improved in aftermarket categories: consolidated parts revenue rose 57.7% YoY to ¥0.86bn and service revenue rose 14.4% to ¥0.62bn, supporting profitability resilience. The five-factor DuPont interest burden of 1.062 reflects non-operating income exceeding interest expense, while interest coverage of 78.55x confirms that financing costs are not constraining profitability. FX gains of ¥0.14bn aided ordinary income growth, but the operating-income increase of ¥0.82bn remains the main earnings driver. The absence of reported segment goodwill or impairment items supports the view that Q1 profit expansion was operational rather than acquisition-accounting driven.

Growth Assessment

Revenue growth of 3.7% was moderate, but earnings growth was exceptional because of improved gross profitability and a favorable sales mix. Construction Machinery accounted for 81.5% of consolidated revenue and 84.3% of total segment profit, making it the central determinant of near-term growth. Product sales in Construction Machinery rose only 0.9% YoY, while parts sales increased 159.6% and service revenue increased 36.3%; this indicates that aftermarket activity made a disproportionate contribution to the segment's growth. Industrial Machinery product sales were broadly flat, while parts and service sales each expanded modestly. The higher mix of parts and service revenue can support margins because these categories typically carry stronger pricing and recurring customer relationships than equipment shipments. Full-year guidance calls for revenue of ¥60.20bn, operating income of ¥8.30bn and owner-attributable net income of ¥6.00bn. Q1 progress is 22.8% for revenue, 29.4% for operating income and 29.7% for net income. Profit progress is 4.4 percentage points above the standard 25% Q1 run rate, but not by more than 10 percentage points; it is therefore a favorable start rather than conclusive evidence of a guidance beat. Revenue progress is 2.2 percentage points below the standard run rate, emphasizing the need for shipment conversion during the remaining quarters. Full-year guidance embeds 8.3% revenue growth and 15.5% operating-income growth, implying a more balanced expansion profile than the Q1 margin-led result. The annualized Q1 operating margin is above the margin implied by the full-year operating-income target, so sustaining current gross-margin conditions would be important to upside execution. Foreign-exchange gains should be treated as variable support to ordinary income rather than as a core growth engine. Inventory growth provides potential delivery capacity, but also raises the importance of demand realization and inventory discipline.

Financial Health

Financial health is strong, with total equity of ¥46.11bn funding 68.0% of total assets. The current ratio of 379.6% and quick ratio of 270.1% indicate substantial short-term liquidity. Current assets of ¥47.60bn exceed current liabilities of ¥12.54bn by ¥35.06bn. Cash and deposits of ¥11.43bn are 51.26x short-term loans of ¥0.22bn. Short-term debt represents only 3.0% of interest-bearing debt, limiting maturity-mismatch risk. Interest-bearing debt totals ¥7.32bn, comprising ¥7.09bn of long-term loans and ¥0.22bn of short-term loans. Debt/capital is conservative at 13.7%, and the reported debt-to-equity ratio is 0.47x, well below the 2.0x risk threshold. Interest coverage of 78.55x further demonstrates ample debt-service capacity. The liability structure is weighted toward non-current liabilities, which reduces refinancing pressure in the near term. Inventories increased ¥2.92bn, or 26.9% YoY, to ¥13.73bn and now account for 20.3% of total assets. Finished goods are the largest identified inventory category at ¥13.73bn, while raw materials were ¥1.98bn and work in process was ¥0.28bn. This inventory build is the principal balance-sheet movement requiring monitoring because it ties up capital and increases exposure to demand or product-mix changes. Investment securities of ¥6.28bn represent 9.3% of total assets, and accumulated valuation and translation adjustments increased to ¥4.62bn, leaving equity partly sensitive to market-price and currency movements. Asset-retirement obligations of ¥0.19bn are immaterial relative to total liabilities at roughly 0.9%.

Notable B/S Changes

Inventories: +¥2.92bn (+26.9%) to ¥13.73bn - growth materially exceeded revenue growth of 3.7%, increasing working-capital absorption and making shipment conversion, inventory turnover and valuation risk key monitoring points.

Cash Flow Quality

The quarter's earnings quality is supported by a ¥0.82bn YoY increase in operating income, which is substantially larger than the ¥0.14bn FX gain recognized in non-operating income. The ¥0.14bn FX gain represents 5.6% of operating income, indicating a limited but relevant sensitivity of ordinary income to exchange-rate movements. Extraordinary loss was only ¥0.02bn, or less than 0.1% of net income, so reported earnings were not materially distorted by exceptional items. Working-capital efficiency is the central cash-conversion concern. The supplied quality alerts identify receivable days of 90 days, exceeding the 60-day warning threshold. They also identify inventory days of 159 days and a separate inventory-days measure of 137 days, both above the relevant warning thresholds. The cash-conversion cycle of 194 days is above the 120-day warning threshold and signals a prolonged interval between production expenditure and cash collection. Accounts receivable were broadly stable at ¥13.62bn, while electronic receivables were ¥4.59bn, requiring disciplined collection management given the elevated receivable-day metric. Inventory rose 26.9% YoY to ¥13.73bn, substantially outpacing sales growth of 3.7%. This divergence is consistent with elevated working-capital absorption unless inventories convert into future shipments. Trade payables increased 14.3% YoY to ¥5.56bn, and electronic payables were ¥1.60bn, providing some supplier-financing offset but not eliminating the longer conversion cycle. The inventory and cash-cycle alerts are particularly important for a manufacturer because finished-goods concentration increases potential exposure to shipment timing, discounting, or obsolescence. Product-warranty provisions total ¥0.14bn, approximately 0.1% of revenue, indicating a limited reported warranty-cost burden. Cash and deposits of ¥11.43bn and strong current liquidity provide a meaningful buffer against the operational cash demands associated with the extended conversion cycle.

Dividend Sustainability

The full-year dividend forecast is ¥72 per share. Relative to forecast EPS of ¥222.73, the implied dividend payout ratio is 32.3%. This is comfortably below the 60% sustainability benchmark and leaves substantial forecast earnings retention. The forecast dividend is 3.6x the prior-period ¥20 per-share dividend disclosed for the comparable first quarter, although quarterly and full-year dividend amounts are not directly comparable. Retained earnings of ¥381.75bn provide a substantial capital base for ordinary distributions. The conservative debt/capital ratio of 13.7%, strong interest coverage and large working-capital surplus also support financial flexibility. Dividend durability will nevertheless depend on continued conversion of the enlarged inventory balance into sales and cash, particularly because the cash-conversion cycle is long. The stated forecast has no dividend revision, which indicates that the planned ¥72 per-share distribution remains unchanged alongside the earnings-forecast revision. No total return ratio is calculated because the provided data do not specify a current buyback program.

Risk Assessment

Business risks include Demand and shipment-conversion risk: inventories increased 26.9% YoY while revenue increased only 3.7%; delayed construction-equipment demand could pressure volumes, pricing, or future inventory valuation., Working-capital risk: quality alerts show DSO of 90 days, DIO measures of 159 days and 137 days, and a 194-day cash-conversion cycle; this elevates funding needs and raises sensitivity to customer collections and inventory turnover., Core-business concentration: Construction Machinery supplies 81.5% of revenue and 84.3% of segment profit, so end-market weakness in construction equipment would have a disproportionate earnings effect., Manufacturing-cycle risk: elevated finished-goods holdings heighten exposure to product-mix shifts, dealer destocking, demand volatility, and potential discounting., Foreign-exchange risk: Q1 included ¥0.14bn of FX gains; a reversal in currency conditions could reduce ordinary income even if operating performance remains stable..

Financial risks include Market-value and currency sensitivity in equity: investment securities total ¥6.28bn and valuation and translation adjustments total ¥4.62bn, making book equity partly sensitive to securities prices and exchange rates., Long-term borrowing exposure: ¥7.09bn of long-term loans represents the majority of ¥7.32bn interest-bearing debt, though this is mitigated by conservative leverage and 78.55x interest coverage., Bonus-related obligations: provision for bonuses increased to ¥1.46bn from ¥0.86bn, increasing near-term operating-liability requirements..

Key concerns include Highest priority is inventory normalization and cash conversion, given the combination of a 26.9% inventory increase, elevated DIO alerts and a 194-day cash-conversion cycle., The Q1 operating-margin expansion to 17.7% is well above the profitability implied by full-year guidance; the durability of gross-margin gains is a key issue for the remaining quarters., Construction Machinery's substantially higher profit contribution makes its order flow, aftermarket demand and finished-goods turnover the most important operational indicators., FX gains aided ordinary income, so investors should distinguish sustainable operating-margin improvement from currency-related non-operating support..

Investment Implications

Key takeaways include Q1 earnings were strong: operating income rose 50.9% and owner-attributable net income rose 63.3% on 3.7% revenue growth., Gross-margin expansion of approximately 590bp and operating-margin expansion of approximately 550bp were the central drivers of the result., Construction Machinery is the core business, delivering ¥2.64bn of segment profit and a 23.6% segment margin., The annualized 15.4% ROE is supported principally by a high 13.0% net margin, rather than aggressive leverage., Liquidity and solvency are robust, but elevated receivable days, inventory days and cash-conversion cycle require close monitoring., Forecast dividend coverage appears strong, with a 32.3% payout ratio based on the ¥72 per-share full-year dividend forecast and ¥222.73 forecast EPS..

Metrics to watch include Construction Machinery revenue growth and segment margin versus the Q1 levels of 4.4% and 23.6%, respectively., Gross margin and operating margin relative to Q1 levels of 33.3% and 17.7%., Inventory balance, finished-goods turnover and the inventory-days alerts of 159 days and 137 days., Receivable days of 90 days and the 194-day cash-conversion cycle., Full-year forecast progress, particularly whether revenue advances from 22.8% Q1 progress toward the standard seasonal run rate., FX gains or losses relative to Q1 FX gains of ¥0.14bn., Long-term debt, interest coverage and debt/capital as indicators of continuing balance-sheet conservatism..

Regarding relative positioning, AIRMAN's reported profitability is strong for a manufacturing company, with a 17.7% operating margin, 13.0% net margin and annualized 15.4% ROE, while its 379.6% current ratio, 13.7% debt/capital ratio and 78.55x interest coverage indicate a conservative financial position. Its relative weakness is operational capital efficiency: the supplied DSO, DIO and cash-conversion-cycle alerts are materially above manufacturing benchmarks.