Kurita Water Industries Ltd. FY2027 Q1 Earnings Report

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Executive Summary

The first quarter recorded higher revenue and earnings, primarily driven by growth and margin expansion in the Electronics Market Business. Revenue was ¥99.90B (¥87.41B in the same period last year, +14.3%), Operating Income was ¥14.29B (¥9.02B, +58.5%), and consolidated Net Income was ¥14.38B (¥5.76B, +149.5%). The Operating Income margin improved by +400bp to 14.3% from 10.3% in the same period last year, while profit from discontinued operations of ¥3.67B (△¥0.22B in the same period last year) also boosted Net Income growth.

Factors Affecting Performance

【Revenue】Revenue increased 14.3% YoY to ¥99.90B. By segment, the Electronics Market Business generated ¥45.93B (46.0% of total revenue, +23.3%), while the General Water Treatment Market Business generated ¥53.97B (54.0%, +7.6%). The Electronics Market Business led company-wide growth, with equipment revenue surging to ¥21.34B (¥14.38B in the same period last year, +48.4%). The General Water Treatment Market Business was supported by chemicals (¥31.61B, +12.7%).

【Profit and Loss】Operating Income increased 58.5% to ¥14.29B, and the Operating Income margin improved by +400bp to 14.3% from 10.3% in the same period last year. While the gross margin declined by -190bp to 34.1% from 36.0%, the SG&A ratio improved by -140bp to 25.3% from 26.7%. In addition, a sharp increase in other income to ¥5.91B (¥1.09B in the same period last year) drove the increase in Operating Income. Profit Before Tax was ¥14.62B (+63.9%). Consolidated Net Income was ¥14.38B (+149.5%), including a contribution of ¥3.67B from profit from discontinued operations (△¥0.22B in the same period last year). Both revenue and earnings increased.

Segment Analysis

The Electronics Market Business reported revenue of ¥45.93B (+23.3%), Operating Income of ¥9.46B (+90.6%), and a margin of 20.6% (13.3% in the same period last year, +730bp). Profitability improved significantly due to growth in equipment revenue and increased scale. The General Water Treatment Market Business reported revenue of ¥53.97B (+7.6%), Operating Income of ¥4.83B (+18.4%), and a margin of 9.0% (8.1% in the same period last year, +90bp). Growth in the chemicals business contributed to higher revenue and earnings, while maintenance revenue declined slightly to ¥10.78B (¥11.39B in the same period last year, -5.3%). The Electronics Market Business's share of company-wide Operating Income increased to 66.2% from 55.1% in the same period last year, indicating a greater dependence on the Electronics Market Business within the earnings structure.

Key Financial Metrics

【Profitability】The Operating Income margin improved by +400bp to 14.3% from 10.3% in the same period last year, while the consolidated Net Income margin improved by +780bp to 14.4% from 6.6%. In contrast, the gross margin declined by -190bp to 34.1% from 36.0%, indicating that the increase in Operating Income was led by SG&A control and higher other income.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥10.07B, representing only 0.70x consolidated Net Income of ¥14.38B. Increased corporate tax payments (¥9.72B versus ¥6.12B in the same period last year) and an increase in inventories (¥1.38B cash outflow) constrained the conversion of earnings into cash.【Investment Efficiency】ROE was 4.3% for the quarter, calculated as parent-company shareholders' Net Income of ¥14.35B divided by ending equity of ¥33.51B.【Financial Soundness】The Equity Ratio was 60.1%, broadly unchanged from 60.4% at the end of the same quarter last year. The current ratio was approximately 202% (current assets of ¥241.95B/current liabilities of ¥119.70B), while the ratio of Operating Income to financial expenses was approximately 25.7x, indicating a low interest burden.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥10.07B, down -2.5% from ¥10.32B in the same period last year. The increase in Profit Before Tax was offset by higher corporate tax payments (-¥9.72B versus -¥6.12B in the same period last year) and an increase in inventories (-¥1.38B). Investing Cash Flow was -¥7.24B, including capital expenditures of -¥4.06B, down from -¥8.51B in the same period last year. Financing Cash Flow was -¥2.81B. While proceeds from bond issuance amounted to ¥9.96B, the primary cash outflows were treasury stock purchases of -¥11.11B and dividend payments of -¥6.23B. Free Cash Flow was positive at ¥2.82B, but below the combined ¥17.34B in dividends and treasury stock purchases. Shareholder returns during the quarter therefore exceeded cash generation from operating activities. Cash and cash equivalents increased by +¥0.54B from the beginning of the period to ¥6.579B.

Quality of Earnings

The increase in earnings reflected not only growth in Operating Income (Operating Income margin +400bp), but also a sharp increase in profit from discontinued operations of ¥3.67B (△¥0.22B in the same period last year) and other income of ¥5.91B (¥1.09B in the same period last year, 5.9% of revenue). These items may include temporary factors that differ in nature from recurring business earnings. Quarterly profit from continuing operations was ¥10.72B (¥5.98B in the same period last year, +79.1%), indicating that the earnings growth trend was maintained even excluding discontinued operations. Meanwhile, OCF was only 0.70x consolidated Net Income of ¥14.38B, indicating a certain divergence between earnings and cash flow. Comprehensive income was ¥16.23B, exceeding Net Income of ¥14.38B by +¥1.85B, with other comprehensive income, including foreign currency translation adjustments for foreign operations (+¥1.26B), making a positive contribution.

Earnings Forecast and Guidance

There were no revisions to the revenue or earnings forecasts. Progress against the full-year forecast was 23.5% for revenue (¥99.90B/¥425.00B) and 21.8% for Operating Income (¥14.29B/¥65.50B). Compared with the quarterly benchmark of 25%, revenue and Operating Income were slightly below the expected level. Quarterly Net Income attributable to owners of the parent of ¥14.35B represented 28.3% progress against the full-year forecast of ¥50.70B, indicating that earnings progress was ahead, partly due to temporary factors such as profit from discontinued operations.

Shareholder Returns

The full-year dividend forecast remains unchanged at ¥134 per share. The Payout Ratio against forecast full-year EPS of ¥475.47 is 28.2% (¥134/¥475.47). During the quarter, the Company paid dividends of ¥6.23B and repurchased ¥11.11B of treasury stock, for a combined total of ¥17.34B, exceeding quarterly Net Income attributable to owners of the parent of ¥14.35B. The treasury stock balance increased to ¥38.23B from ¥24.23B at the end of the same quarter last year. Total returns, including dividends and treasury stock purchases, exceeded quarterly Free Cash Flow of ¥2.82B.

Risk Factors

1. Business portfolio concentration: The Electronics Market Business's share of company-wide Operating Income increased to 66.2% from 55.1% in the same period last year, increasing sensitivity to demand fluctuations in specific markets, such as semiconductor-related capital investment trends.

2. Delayed cash conversion: OCF remained at only 0.70x consolidated Net Income. Higher corporate tax payments and the buildup of inventories to ¥21.10B (¥20.35B at the end of the same quarter last year) are placing a burden on working capital.

3. Shareholder returns ahead of cash generation: The combined ¥17.34B in dividends and treasury stock purchases during the quarter exceeded Free Cash Flow of ¥2.82B. A portion of the funding for shareholder returns depends on cash and deposits held at the beginning of the period and financing, including ¥9.96B from bond issuance.

Industry Benchmark (Reference, Prepared by the Company)

Profitability and Return

The Company's Operating Income margin and Net Income margin both exceed the industry median and the upper bound of the IQR, placing profitability at a high level within the industry.

Growth and Capital Efficiency

The Revenue growth rate is close to the upper bound of the industry IQR and represents growth well above the manufacturing industry average.

※Source: Company compilation

Key Takeaways from the Earnings Results

1. The Operating Income margin improved by +400bp from 10.3% in the same period last year to 14.3%, primarily due to improved profitability accompanying the expansion of equipment revenue in the Electronics Market Business. The segment's margin increased to 20.6% (13.3% in the same period last year, +730bp), confirming a qualitative change in the earnings structure.

2. The increase in Net Income (+149.5%) was supported by items with temporary characteristics, including profit from discontinued operations of ¥3.67B and a sharp increase in other income to ¥5.91B. The difference from quarterly profit from continuing operations (+79.1%) warrants attention.

3. While progress toward the full-year forecast was somewhat slower than the standard benchmark for Operating Income at 21.8%, Net Income attributable to owners of the parent had reached 28.3%. Trends in core business earnings toward the second half of the fiscal year will be key to achieving the guidance.

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 period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥3,669–¥3,890 at ±1% for the cost of equity, and ¥3,760–¥3,803 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: 2026-07 / This value does not forecast 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 with a professional as necessary.

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