Heiwa Corporation FY2027 Q1 Earnings Report

Quick View

Executive Summary

The company recorded higher revenue but lower earnings for the period. Although the sharp growth of the Amusement Equipment Business offset the decline in the Golf Business, rising costs and increased interest expenses pressured net income. Revenue was ¥777.6B (YoY +10.7%), Operating Income was ¥155.7B (YoY -1.5%), Ordinary Income was ¥124.5B (YoY -10.0%), and Net Income was ¥79.5B (YoY -10.1%). The Operating Income margin declined to 20.0% from the previous year, with deterioration in the gross profit margin and an increase in interest expenses (¥30.5B) serving as factors behind the earnings decline.

Factors Affecting Results

【Revenue】Revenue was ¥777.6B, up +10.7% YoY. By segment, the Golf Business slowed to ¥625.1B (80.4% of total revenue, YoY +1.1%), while the Amusement Equipment Business grew significantly to ¥152.5B (19.6% of total revenue, YoY +81.3%), driving company-wide revenue growth.

【Profit and Loss】Operating Income was ¥155.7B, down -1.5% YoY. Cost of sales increased to ¥508.4B (YoY +15.9%), outpacing revenue growth (+10.7%), and the gross profit margin declined to 34.6% from the previous year. The SG&A ratio improved to 14.6% from the previous year, indicating effective cost control, but this was insufficient to offset the increase in the cost ratio. Ordinary Income declined to ¥124.5B (-10.0%) due to higher non-operating expenses, including interest expenses of ¥30.5B, while Net Income was ¥79.5B (-10.1%). By segment, the Golf Business posted segment profit of ¥127.0B (YoY -19.1%), while the Amusement Equipment Business recorded ¥40.8B (YoY +195.1%, 26.8% profit margin), achieving substantial profit growth and demonstrating the complementary relationship within the portfolio. In conclusion, the company recorded higher revenue but lower earnings.

Segment Analysis

The Golf Business, the core business, recorded revenue of ¥625.1B (80.4% of total revenue, YoY +1.1%) and Operating Income of ¥127.0B (YoY -19.1%, 20.3% profit margin), resulting in lower earnings. The Amusement Equipment Business grew rapidly with highly profitable revenue of ¥152.5B (19.6% of total revenue, YoY +81.3%) and Operating Income of ¥40.8B (YoY +195.1%, 26.8% profit margin), increasing its contribution to company-wide earnings. Approximately 80% of revenue is concentrated in the Golf Business, resulting in relatively high sensitivity to demand trends and golf membership market conditions.

Key Financial Indicators

【Profitability】The Operating Income margin was 20.0% and the Net Income margin was 10.2%, both declining from the previous year. The gross profit margin of 34.6% was affected by rising costs.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥59.0B, representing approximately 0.74x Net Income of ¥79.5B. Working capital deteriorated, primarily due to an increase in accounts receivable, which had an impact of -¥80.3B.【Investment Efficiency】ROE was 3.1%. Financial leverage is high relative to the Equity Ratio of 23.3%, and the level of ROE is explained by the combination of the Net Income margin and asset turnover.【Financial Soundness】Long-term borrowings were substantial at ¥5,596.9B, while the Equity Ratio was 23.3%, virtually unchanged from 23.1% in the previous year. Goodwill of ¥1,380.2B accounted for approximately 54.6% of net assets of ¥2,528.2B, a level requiring monitoring for potential impairment should profitability deteriorate in the future.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥59.0B, down -7.7% YoY, indicating delayed cash conversion relative to Net Income of ¥79.5B. The primary factor was an increase in accounts receivable, with an impact of -¥80.3B, largely reflecting a lengthening of collection periods accompanying increased sales. Investing Cash Flow was -¥14.4B. Capital expenditures of ¥77.2B exceeded depreciation and amortization of ¥62.6B, indicating continued investment to maintain and expand the business. Financing Cash Flow was positive at ¥32.5B, supported by financing through long-term borrowings. As a result, Free Cash Flow (OCF + Investing Cash Flow) remained positive at ¥44.6B, although the company’s underlying ability to generate operating cash weakened slightly from the previous year.

Quality of Earnings

Non-operating income for the period was ¥3.2B, small relative to revenue, indicating that the majority of earnings was generated by the core business. Meanwhile, non-operating expenses were ¥34.5B, of which the majority, ¥30.5B, consisted of interest expenses and was the primary reason for the divergence between Ordinary Income and Net Income. Gains on sales of fixed assets of ¥0.26B and losses on disposal of fixed assets of ¥0.92B were both immaterial, and the impact of one-time gains and losses on results was limited. Comprehensive Income was ¥78.7B, nearly in line with Net Income of ¥79.5B. The divergence attributable to valuation differences on securities and retirement benefit adjustments was small, and no additional deterioration in earnings quality from other comprehensive income components was identified. However, the fact that OCF was below Net Income indicates delayed cash conversion due to the working-capital factor of increased accounts receivable, which should be considered when evaluating earnings quality.

Earnings Forecast and Guidance

Progress against the full-year forecast was 27.2% for Revenue (¥777.6B/¥2,859.0B), 29.9% for Operating Income (¥155.7B/¥520.0B), and 39.1% for Net Income (¥79.5B/¥203.0B). Compared with the simple quarterly allocation benchmark of 25%, all metrics were progressing at an above-plan pace, particularly Net Income. The full-year Operating Income forecast implies YoY growth of +19.8%, representing an expected turnaround from -1.5% in Q1 and presupposing improved profitability from the second half onward.

Shareholder Returns

The company’s full-year dividend forecast is ¥80.00 per share, representing an expected increase from the previous year’s dividend of ¥40 (based on the combined interim and year-end dividends). Based on the company’s forecast EPS of ¥205.83, the Payout Ratio is approximately 38.9%. There was no revision to the dividend forecast in Q1, and the established shareholder return policy was maintained. No share repurchases were identified, and dividends remain the primary form of shareholder returns.

Risk Factors

1. Business concentration risk: The Golf Business accounts for 80.4% of revenue, resulting in high sensitivity to the number of visitors, golf membership market conditions, and weather-related factors. The Golf Business recorded a YoY decline of -19.1% in Operating Income during the period, creating a structure in which fluctuations in this segment directly affect company-wide results.

2. Financial leverage and interest burden: The company carries long-term borrowings of ¥5,596.9B, and its Equity Ratio remains at 23.3%. Interest expenses increased to ¥30.5B from ¥22.9B in the previous year and represent the primary component of non-operating expenses. Changes in the interest-rate environment may affect Ordinary Income going forward.

3. Goodwill and asset impairment risk: Goodwill was ¥1,380.2B, accounting for approximately 54.6% of net assets. No impairment has been recognized at present, but the potential impact on future impairment testing will warrant attention if profitability deteriorates in either the Amusement Equipment or Golf Business.

Industry Benchmark (Reference; Company Research)

Industry Benchmark (manufacturing)

Profitability and Returns

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

Growth and Capital Efficiency

The Revenue growth rate also exceeded the industry median, indicating a relatively faster pace of revenue growth.

※Source: Company research

Key Points from the Financial Results

1. The Amusement Equipment Business recorded substantial growth, with revenue up YoY +81.3% and Operating Income up +195.1%, offsetting the decline in the Golf Business. The portfolio diversification effect supported results for the period and is an important point to monitor as the business mix evolves.

2. The gross profit margin declined from the previous year, and the increase in the cost ratio led to a contraction in the Operating Income margin. Since the SG&A ratio improved, cost inflation was identified as the primary pressure within the overall cost structure.

3. OCF continued to remain below Net Income, primarily due to an increase in accounts receivable. Full-year progress was ahead of plan, with Net Income at 39.1%, but cash flow trends should be monitored continuously when evaluating future working-capital management.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on 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: ¥2,635–¥2,788 at Cost of Equity ±1%, and ¥2,706–¥2,715 at ω±0.1.

Notes:

• Goodwill amortization of ¥76.0 per share has been added back to earnings (to reflect a non-cash expense and improve comparability with IFRS companies).
• Because Net Income progress against the full-year forecast (39%) exceeds the standard benchmark (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies progressing ahead of plan tend to exceed forecasts. For businesses with strong seasonality, the adjustment may be excessive).
• Net Income is substantially compressed relative to Operating Income due to the tax burden, acquisition-related expenses, and non-controlling interests, among other factors (Net Income ÷ Operating Income 39%). This figure reflects that compression at face value; if the factors are temporary, underlying earnings power may be higher.
• Goodwill represents a high proportion of net assets, and the assumptions would change significantly if impairment were recognized.
• 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 figure 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 issue. 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.

---End of Report---