ANEST IWATA Corporation FY2027 Q1 Earnings Report

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Executive Summary

The Q1 of the fiscal year ending March 2027 delivered solid results, with higher revenue and profits accompanied by improved margins. Revenue was ¥13.70B (+13.3% YoY), Operating Income was ¥1.23B (+32.8%), Ordinary Income was ¥1.76B (+34.1%), and Net Income was ¥1.37B (+26.6%). The Operating Income margin improved to 9.0% from the previous year, primarily due to the emergence of operating leverage resulting from a lower SG&A expense ratio. At the Ordinary Income level, contributions from non-operating income, including foreign exchange gains and equity-method investment income, were also significant, further lifting the profit growth rate.

Factors Affecting Results

【Revenue】Revenue increased in all regions, with the top line rising 13.3% to ¥13.70B. Japan and Asia, the core regions, generated ¥7.34B (+17.3%), accounting for 53.6% of total company revenue. Europe, Australia, and Africa recorded ¥3.34B (+23.3%), the highest growth rate among the regions. The Americas and India generated ¥2.92B (+16.4%), while China and ASEAN generated ¥2.91B (+4.2%), showing relatively slower growth.

【Profit and Loss】Although the gross margin declined slightly to 47.7% due to an increase in the cost of sales, the SG&A expense ratio was contained at 38.7% (down year on year), resulting in a 32.8% increase in Operating Income to ¥1.23B and an improvement in the Operating Income margin to 9.0%. Ordinary Income increased to ¥1.76B (+34.1%), supported by ¥0.55B in non-operating income, including ¥0.15B in foreign exchange gains and ¥0.26B in equity-method investment gains and losses, widening the gap from Operating Income. Net Income was ¥1.37B (+26.6%), while Net Income attributable to owners of the parent, excluding ¥0.23B attributable to non-controlling interests, was ¥1.14B (+27.0%). Profit growth was achieved through both improved core business profitability and the uplift from non-operating income amid higher revenue and profits.

Segment Analysis

By segment, Japan and Asia recorded Operating Income of ¥0.83B (+98.1%), accounting for approximately 67% of total company profit, with the margin improving substantially to 11.3%. Europe, Australia, and Africa generated profit of ¥0.44B (+81.7%) and secured the highest regional margin at 13.1%. The Americas and India generated profit of ¥0.40B (+40.4%), with a margin of 13.7%. China and ASEAN recorded profit of ¥0.13B (+57.6%), representing substantial growth, but the margin remained at 4.6%, highlighting the gap with other regions. The Other segment posted an Operating Loss of ¥0.03B. Regional margin differences are significant: while improvements in Japan and Asia are driving overall company profit, the low-profitability structure in China and ASEAN remains an issue to monitor going forward.

Key Financial Indicators

【Profitability】The Operating Income margin of 9.0% (7.7% in the previous year) and the Net Income margin of 10.0% both improved year on year, primarily due to greater SG&A efficiency.【Cash Flow Quality】Non-operating income is equivalent to approximately 45% of Operating Income. The fact that non-operating factors such as foreign exchange gains and equity-method gains are driving the growth in Ordinary Income is an important consideration when assessing earnings quality.【Investment Efficiency】ROE was 2.4%, while the total asset turnover ratio remained low at 0.18x, indicating room for improvement in asset efficiency.【Financial Soundness】The Equity Ratio was 74.9%, and interest-bearing debt was minimal relative to total assets, indicating a highly sound financial foundation.

Cash Flow Analysis

As the company has not disclosed a cash flow statement in these results, funding trends are assessed based on changes in the balance sheet. Cash and deposits stood at ¥16.73B, down from ¥20.75B in the same period of the previous year. The accumulation of working capital, together with accounts receivable of ¥11.78B and inventories of ¥7.44B, appears to have been one factor behind the use of funds. Accounts receivable and inventory are large relative to accounts payable of ¥6.53B, resulting in a structure in which funds remain tied up on the asset side. Meanwhile, goodwill increased to ¥0.92B following the acquisition of SANWA as a subsidiary, suggesting that funds may have been directed toward investment activities. Overall, abundant equity capital and low interest-bearing debt ensure funding safety, but the company’s future cash-generation capacity will depend on its ability to reduce working capital.

Earnings Quality

Against Operating Income of ¥1.23B, non-operating income of ¥0.55B—including ¥0.15B in foreign exchange gains, ¥0.26B in equity-method gains and losses, and ¥0.10B in interest and dividend income—boosted Ordinary Income, with the divergence between Ordinary Income and Operating Income widening from the previous year. These non-operating income items are susceptible to market fluctuations, creating uncertainty regarding their sustainability from the next fiscal year onward. Extraordinary income was ¥0.06B, compared with extraordinary losses of ¥0.13B, representing a modest net negative factor, although the impact on total Net Income was limited. The effective tax rate was approximately 19.3%, a normal level, with no temporary tax-related factors identified. Comprehensive Income was ¥1.88B, exceeding Net Income of ¥1.37B, primarily due to a ¥0.41B foreign currency translation adjustment. Core business profitability is trending upward, as indicated by the improvement in the Operating Income margin; however, attention should be paid to the somewhat higher dependence of Ordinary Income growth on non-operating factors.

Earnings Forecast and Guidance

The Q1 progress rates against the Full-Year plan were 22.6% for Revenue (¥13.70B / ¥60.70B), 22.9% for Operating Income (¥1.23B / ¥5.40B), 27.3% for Ordinary Income (¥1.76B / ¥6.46B), and 28.8% for Net Income (¥1.37B / ¥4.75B). Compared with standard quarterly progress of 25%, Revenue and Operating Income are slightly behind schedule, while Ordinary Income and Net Income are ahead. The outperformance reflects contributions from non-operating factors such as foreign exchange gains and equity-method gains. Given that the Full-Year plan assumes a 16.3% year-on-year decline in Ordinary Income, consistency with this forecast will need to be confirmed in subsequent quarters. The company revised its earnings forecast in these results.

Shareholder Returns

The Full-Year dividend forecast is ¥93 per share, including a ¥2 dividend at the end of Q2 and a ¥3 dividend at year-end to commemorate the company’s 100th anniversary. This represents an increase from the previous year’s annual dividend of ¥41 (the level after aggregating the interim and year-end dividends). The Payout Ratio against the company’s planned EPS of ¥100.45 is high at approximately 92.6%; however, given the financial foundation of ¥16.73B in cash and deposits and an Equity Ratio of 74.9%, the company appears to have sufficient near-term payment capacity. The dividend forecast has not been revised. Due to special factors, including the commemorative dividend, the Payout Ratio may be adjusted toward a normal level from the next fiscal year onward.

Risk Factors

1. Regional profitability gap: The Operating Income margin in China and ASEAN is 4.6%, significantly below that of other regions (11%–14%), weighing on overall company profitability.

2. Dependence on non-operating income: Non-operating income, including foreign exchange gains and equity-method gains, has made a significant contribution to the growth in Ordinary Income. If these factors reverse due to market fluctuations, they could become a source of volatility in Ordinary Income.

3. Increase in goodwill: Goodwill increased 121.1% year on year to ¥0.92B following the acquisition of SANWA as a subsidiary. Although it remains small at 1.6% of net assets, the contribution to earnings after integration should be monitored.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Operating Income margin is in line with the industry median, while the Net Income margin exceeds the industry median, reflecting the contribution of non-operating income to the relatively high Net Income margin.

Growth and Capital Efficiency

The Revenue growth rate is significantly above the industry median and is close to the upper bound of the IQR.

※Source: Compiled by the Company

Key Takeaways from the Results

1. The Operating Income margin improved to 9.0%, reflecting operating leverage from greater SG&A efficiency. The fact that this improvement originated in the core business is a positive factor in assessing earnings quality.

2. Although the progress of Ordinary Income and Net Income is ahead of the Full-Year plan, this is largely attributable to contributions from non-operating income such as foreign exchange gains and equity-method gains. Operating Income progress is only at a similar level to Revenue progress, and the gap between core business progress and progress at the Ordinary Income level is a notable feature of the results.

3. The low margin in China and ASEAN (4.6%) is substantially below that of other regions and is noteworthy when examining the regional earnings structure. Changes in this region’s margin in subsequent quarters could affect overall company profitability.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,316–¥1,387 at ±1% for the cost of equity, and ¥1,348–¥1,352 at ±0.1 for ω.

Notes:

• Because 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 from the Full-Year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest-rate reference month: 2026-07 / Mechanically calculated from publicly available data only; this does not constitute a forecast of the market share price or a recommendation of any specific investment action, nor does it 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 summary 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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AI Financial Analysis

Executive Summary

Anest Iwata delivered a strong FY2027 Q1 earnings result, with revenue growth translating into materially faster operating-profit growth. Revenue increased 13.3% year on year to ¥13.70bn. Operating income rose 32.8% to ¥1.234bn, outperforming the top-line growth rate by 19.5 percentage points. Ordinary income increased 34.1% to ¥1.763bn. Profit attributable to owners of parent rose 27.0% to ¥1.137bn, or ¥28.92 per share. Gross profit increased to ¥6.537bn and the gross margin expanded 50bp year on year to 47.7%, from 48.1% on the disclosed prior-period figures after rounding effects. The operating margin improved 100bp to 9.0%, from 7.7% in the prior-year quarter. This indicates positive operating leverage, as SG&A rose 8.2%, materially below the 13.3% increase in revenue. Non-operating income of ¥553m was substantial at 4.0% of revenue and included ¥149m of foreign-exchange gains, ¥264m of equity-method income and ¥101m of interest and dividend income. Consequently, the ordinary margin reached 12.9%, well above the operating margin. Profit before tax was ¥1.693bn, reflecting a net ¥70m extraordinary loss, comprising ¥63m of extraordinary income and ¥133m of extraordinary loss. The effective tax rate was 19.3%, supporting a tax burden ratio of 0.672. Annualized ROE was 8.1%, supported by an annualized 8.3% net margin, 0.729x asset turnover and conservative 1.34x financial leverage. The balance sheet remains highly liquid, with cash of ¥16.726bn exceeding short-term loans by 15.44x and a current ratio of 311.1%. However, manufacturing working-capital alerts point to extended receivable and inventory holding periods, which require monitoring despite the otherwise strong liquidity position. FY2027 full-year guidance implies a deceleration in the remaining quarters, as Q1 operating income has already reached 22.9% of the full-year target despite management forecasting a 2.9% full-year operating-income decline. The revised forecast and the planned ¥93 annual dividend, including a ¥5 per-share centennial commemorative component, make subsequent-quarter demand, margins and working-capital discipline central to the earnings outlook.

Profitability Analysis

The annualized DuPont decomposition is 8.1% ROE = 8.3% net profit margin × 0.729x asset turnover × 1.34x financial leverage. The principal contributor to returns is profitability rather than leverage: the group operates with only ¥1.083bn of interest-bearing debt against ¥56.291bn of total equity. Operating profitability improved sharply, with the operating margin expanding to 9.0% from 7.7%, driven by gross-margin improvement and SG&A growth of 8.2% versus revenue growth of 13.3%. Gross margin was 47.7%, demonstrating strong value-added characteristics for the group’s industrial equipment and coating-related operations. The operating-margin level is within the 8–15% “good” benchmark range, while the annualized net margin of 8.3% is also within the 5–10% good range. The interest burden was 1.372 because non-operating income exceeded interest expense, rather than because of debt-funded leverage; interest coverage was a very strong 82.27x. The tax burden of 0.672 was moderately below the 0.70 reference level, although the 19.3% effective tax rate remained supportive of earnings conversion. Japan and Asia was the core business by segment profit contribution, generating ¥828m of segment profit, 46.0% of reported-segment profit, on ¥4.959bn of external revenue. Japan and Asia revenue increased 13.2% year on year and segment profit nearly doubled by 98.1%, lifting its segment margin to 16.7% from 9.5%. Europe, Australia and Africa recorded revenue growth of 20.9% to ¥3.198bn and segment-profit growth of 81.7% to ¥438m, with a 13.7% margin. Americas and India generated ¥2.775bn of revenue, up 17.6%, and ¥400m of segment profit, up 40.4%, for a 14.4% margin. China and ASEAN grew revenue only 2.3% to ¥2.634bn, although segment profit increased 57.6% to ¥134m; its 5.1% margin remains materially below the other reporting regions. The segment reporting structure was reorganized in Q1, but prior-year comparatives were restated to the new basis, preserving year-on-year comparability. Consolidated operating income was reduced from aggregate reported-segment profit by ¥567m of other-segment loss, corporate costs and intersegment eliminations, making the conversion of regional profitability to group operating profit an ongoing analytical focus.

Growth Assessment

The Q1 revenue outcome was broad-based geographically, with all four reporting regions delivering year-on-year sales growth. Europe, Australia and Africa provided the fastest sales growth at 20.9%, followed by Americas and India at 17.6%, Japan and Asia at 13.2%, and China and ASEAN at 2.3%. The strongest incremental profitability was in Japan and Asia, where the approximately ¥410m increase in segment profit exceeded the increases in the other regions. Consolidated gross profit rose 12.5% and operating income rose 32.8%, evidencing favorable mix, pricing, productivity or fixed-cost absorption during the quarter. Ordinary income growth slightly exceeded operating-income growth due to stronger non-operating income, including foreign-exchange gains. The full-year forecast calls for revenue of ¥60.70bn, operating income of ¥5.40bn, ordinary income of ¥6.46bn and profit attributable to owners of parent of ¥3.95bn. Q1 progress versus full-year guidance is 22.6% for revenue, 22.9% for operating income, 27.3% for ordinary income and 28.8% for profit attributable to owners. Revenue and operating-income progress are modestly below the standard 25% first-quarter run rate, by 2.4ppt and 2.1ppt respectively, while ordinary income and net income are above the standard run rate by 2.3ppt and 3.8ppt. The full-year outlook assumes 8.6% revenue growth but a 2.9% decline in operating income and a 16.3% decline in ordinary income, implying lower margins or a less favorable non-operating contribution over the balance of the year. The Q1 result therefore exceeds the earnings cadence implied by full-year ordinary-income and net-income guidance, but does not by itself establish that the stronger quarterly margin is sustainable. The acquisition of SANWA, consolidated from Q1 in Japan and Asia, added ¥543m of goodwill and may support future scale and regional operating capabilities. Integration execution and realization of expected commercial or cost synergies will determine whether the acquisition contributes sustainably to returns.

Financial Health

Financial health is strong. Current assets of ¥47.374bn exceed current liabilities of ¥15.230bn by ¥32.144bn, producing a current ratio of 311.1% and a quick ratio of 262.2%. Cash and deposits of ¥16.726bn alone exceed total current liabilities by 1.10x. Total liabilities represent only 25.1% of total assets, while total equity represents 74.9%. Debt-to-equity was a conservative 0.34x and debt-to-capital was only 1.9%. Interest-bearing debt was limited to ¥1.083bn of short-term loans, and cash coverage of short-term debt was 15.44x. The 100% short-term debt ratio triggers the refinancing-risk alert because all borrowings mature within one year; however, the absolute debt amount is small and readily covered by cash, which substantially mitigates maturity-mismatch risk. Interest expense of ¥15m is immaterial relative to ¥1.234bn of operating income. Goodwill increased ¥506m year on year, or 121.1%, to ¥924m, principally associated with the ¥543m goodwill increase from the SANWA acquisition. This is a notable balance-sheet movement but remains financially contained: goodwill equals only 1.6% of equity and 1.2% of assets. Total intangible assets of ¥3.454bn account for 4.6% of assets, a moderate level that does not create a material intangible-asset concentration. Investment securities were ¥4.628bn, or 6.2% of assets, while property, plant and equipment was ¥16.991bn, or 22.6% of assets. Net defined-benefit liability was ¥1.183bn, equivalent to 6.3% of total liabilities, and should remain part of long-term obligation monitoring.

Notable B/S Changes

Goodwill: +¥5.06bn (+121.1%) to ¥9.24bn - principally reflects the SANWA acquisition and increases integration and future impairment monitoring requirements, although goodwill remains only 1.6% of equity. Work in process: +¥2.82bn (+22.6%) to ¥15.28bn - growth exceeded revenue growth and is consistent with the elevated inventory-duration alerts, making production conversion and demand realization important. Raw materials: +¥9.10bn (+21.6%) to ¥51.28bn - inventory investment rose faster than sales, increasing exposure to input costs, demand changes and working-capital absorption. Other current liabilities: +¥20.25bn (+46.1%) to ¥64.15bn - a sizeable movement within current funding sources that should be monitored alongside the group’s elevated working-capital cycle. Cash and deposits: -¥40.23bn (-19.4%) to ¥167.26bn - cash remains ample relative to ¥10.83bn of short-term loans, but the reduction coincided with expansion in working-capital-related balances and acquisition activity.

Cash Flow Quality

The earnings profile shows strong accounting profitability, with Q1 operating income increasing 32.8% and profit attributable to owners increasing 27.0%. Working-capital efficiency is the primary cash-conversion consideration. The high-receivable-days alert indicates annualized DSO of 78 days, above the 60-day warning threshold; this suggests a relatively long collection cycle and raises the sensitivity of cash conversion to customer payment behavior. The first high-inventory-days alert indicates annualized DIO of 180 days, while a second inventory alert indicates 95 days; both exceed their respective 90-day and 60-day warning thresholds. The alerts therefore consistently identify inventory duration as elevated, notwithstanding methodological differences between the reported measures. Inventories were ¥7.442bn, equal to 9.9% of total assets, while disclosed raw materials were ¥5.128bn and work in process was ¥1.528bn. Raw-material inventory increased 21.6% year on year and work in process increased 22.6%, faster than the 13.3% revenue increase, which warrants attention to purchasing, production scheduling and demand conversion. Finished goods increased 3.8% year on year to ¥7.442bn. The long-cash-conversion-cycle alert of 175 days, above the 120-day warning threshold, reflects the combined effect of extended receivable and inventory cycles. For a manufacturer, this profile can tie up liquidity even where headline cash balances are strong. The impact on the investment case is a greater need to validate that profit growth converts into operating cash and that inventory does not require discounting, write-downs or additional working-capital funding. The group’s sizable cash balance and low short-term debt provide a substantial buffer against this operational cash-cycle risk.

Dividend Sustainability

The FY2027 forecast dividend is ¥93 per share, comprising an expected interim dividend of ¥43 and a year-end dividend of ¥50. The interim and year-end payments include ¥2 and ¥3 per share, respectively, of centennial commemorative dividends. Based on forecast EPS of ¥100.45, the dividend-only payout ratio is approximately 92.6%. Excluding the ¥5 commemorative component, the ordinary dividend of ¥88 implies an approximately 87.6% payout ratio. Both ratios are above the 60% sustainability benchmark and leave a limited earnings retention buffer relative to forecast profit. Q1 EPS was ¥28.92, equivalent to 28.8% of forecast full-year EPS, broadly consistent with the Q1 profit progress rate. The balance sheet offers support, with ¥16.726bn of cash and deposits, low financial debt and ¥41.888bn of retained earnings. The planned dividend is therefore supported by financial capacity, but its coverage is more dependent on sustaining full-year profit than under a lower-payout policy. The commemorative component should be viewed as non-recurring, which reduces the normalized recurring commitment after FY2027. Dividend sustainability will depend principally on delivery of the revised full-year earnings forecast, maintenance of operating margins, and control of the long working-capital cycle.

Risk Assessment

Business risks include Manufacturing demand and regional execution risk: China and ASEAN revenue grew only 2.3% year on year and generated a 5.1% segment margin, materially below the 13.7–16.7% margins in the other principal regions., Working-capital and inventory risk: quality alerts identify annualized DSO of 78 days, DIO measures of 180 days and 95 days, and a 175-day cash conversion cycle. These metrics may indicate slower collection, elevated stockholding or exposure to production and demand-forecast errors., Foreign-exchange risk: Q1 foreign-exchange gains of ¥149m represented 12.1% of operating income, making reported ordinary income partly sensitive to currency movements., M&A integration risk: SANWA was newly consolidated in Japan and Asia and generated a ¥543m goodwill increase. Value realization depends on integration, retention of acquired customers and achievement of commercial synergies., Industrial manufacturing risk: demand is exposed to customers’ capital expenditure cycles, automotive and industrial production trends, input-cost inflation, supply-chain disruptions, product-quality issues and trade or tariff changes across the group’s global operating regions..

Financial risks include Refinancing-risk alert: the short-term debt ratio is 100%, above the 40% alert threshold. The practical impact is mitigated by ¥16.726bn of cash, which covers ¥1.083bn of short-term loans by 15.44x., Earnings composition risk: non-operating income of ¥553m equaled 4.0% of revenue and 44.8% of operating income, with equity-method income and FX gains contributing to ordinary-income strength., Dividend coverage risk: the forecast dividend-only payout ratio of approximately 92.6% is high and reduces flexibility if earnings fall below forecast., Goodwill risk: goodwill rose 121.1% year on year, although the resulting ¥924m balance remains low at 1.6% of equity and does not currently indicate material balance-sheet dependence on acquired value..

Key concerns include The most material operational concern is conversion of earnings into cash amid the high DSO, high inventory-days and long-CCC alerts., The most material forecast risk is the contrast between strong Q1 operating-profit growth of 32.8% and full-year guidance for a 2.9% operating-income decline., The most material regional issue is the low-margin China and ASEAN segment, where margin recovery must be sustained rather than relying solely on a small Q1 profit base., The most material capital-allocation issue is the high forecast payout ratio, even after separating the temporary centennial dividend..

Investment Implications

Key takeaways include Q1 operating income rose 32.8% on 13.3% revenue growth, with the operating margin improving 100bp to 9.0%., Japan and Asia is the core profit contributor, with segment profit of ¥828m and a 16.7% margin; Europe, Australia and Africa and Americas and India also recorded strong double-digit revenue growth., The balance sheet is conservatively financed, with a 311.1% current ratio, 1.9% debt-to-capital and cash coverage of short-term debt of 15.44x., Working-capital alerts—78-day DSO, elevated inventory-day measures and a 175-day CCC—temper the otherwise favorable earnings and liquidity picture., FY2027 guidance implies lower profitability in subsequent quarters, while the planned ¥93 dividend implies a high 92.6% forecast payout ratio..

Metrics to watch include Quarterly operating-margin trajectory versus the 9.0% Q1 level and the full-year operating-income forecast of ¥5.40bn., China and ASEAN revenue growth and segment margin relative to the 5.1% Q1 level., Annualized DSO, DIO and cash conversion cycle, together with inventory movements relative to sales., Foreign-exchange gains and equity-method income as contributors to ordinary income., SANWA integration progress, goodwill development and any acquisition-related amortization or impairment charges., Full-year EPS delivery relative to ¥100.45 and the dividend-only payout ratio implied by the ¥93 dividend..

Regarding relative positioning, The company combines good manufacturing-sector operating margins, broad international revenue growth and exceptionally conservative balance-sheet leverage. Its relative limitations are sub-15% operating profitability, annualized ROE of 8.1% that is driven primarily by margin rather than leverage, extended working-capital cycles, and a high planned payout ratio.