GALILEI CO.LTD. FY2027 Q1 Earnings Report

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Executive Summary

This was a high-quality earnings result, with the operating margin improving as SG&A expenses were contained alongside revenue growth. Revenue was ¥349.9B (+5.4% YoY), Operating Income was ¥42.8B (+14.5%), Ordinary Income was ¥44.9B (+19.4%), and Net Income attributable to owners of the parent was ¥29.9B (+13.4%). The operating margin improved by approximately 1.0pt to 12.2%, from 11.2% in the same period of the previous year, as revenue growth, combined with restrained SG&A growth, boosted profitability. Ordinary Income increased at a faster rate than Operating Income due to improved non-operating income and expenses, including a shift from foreign exchange losses to gains.

Factors Affecting Earnings

【Revenue】Revenue increased to ¥349.9B, up +5.4% YoY. Although the Company discloses a single segment and does not provide a more detailed breakdown, the increase appears to have been driven by higher sales and the pass-through of costs. Cost of sales was ¥251.9B, representing a cost ratio of 72.0%, while Gross Profit was ¥98.0B, maintaining a gross margin of 28.0%, approximately in line with the previous year.

【Profit and Loss】SG&A expenses were ¥55.2B, up only +0.2% YoY, meaning that most of the revenue increase directly lifted Operating Income and generated positive operating leverage. Operating Income was ¥42.8B (+14.5%), and the operating margin was 12.2%, improving from 11.2% in the previous year. Non-operating income and expenses improved, with total income of ¥2.7B and total expenses of ¥0.6B, due to dividend income of ¥0.8B and a shift to a foreign exchange gain of ¥0.3B from a foreign exchange loss in the previous year. Consequently, Ordinary Income was ¥44.9B (+19.4%), exceeding the growth rate of Operating Income. Extraordinary gains and losses were largely neutral as a ¥0.1B gain on the sale of investment securities was offset by a ¥0.1B valuation loss, resulting in little impact as a temporary factor. After deducting income taxes of ¥14.9B, representing an effective tax rate of 33.1%, up from 29.5% in the previous year, Net Income attributable to owners of the parent was ¥29.9B (+13.4%). Both revenue and profit increased.

Key Financial Metrics

【Profitability】The operating margin was 12.2%, improving by approximately 1.0pt from 11.2% in the same period of the previous year, while the net profit margin, based on net income attributable to owners of the parent, was 8.6%, up approximately 0.6pt from 7.9% in the previous year. The primary factor behind the margin improvement was that SG&A expenses remained almost flat despite revenue growth.【Cash Quality】Cash and deposits were ¥461.3B, accounting for 30.6% of total assets. The current ratio was 261.9% (current assets of ¥895.5B / current liabilities of ¥341.9B), while the quick ratio based on cash and accounts receivable was approximately 196.4%, indicating a substantial liquidity buffer.【Investment Efficiency】ROE, based on actual Q1 results and not annualized, was 2.7%, while total asset turnover on the same basis was approximately 0.23x. The Company’s significant holdings of cash and investment securities are weighing on asset efficiency.【Financial Soundness】The equity ratio was 74.6%, up +1.2pt from 73.4% in the previous year, and the Company maintained a conservative financial structure with minimal interest-bearing debt.

Cash Flow Analysis

As no statement of cash flows is disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits decreased by ¥19.2B (-4.0%) YoY to ¥461.3B. The primary factor appears to have been a decrease in income taxes payable from ¥48.2B to ¥18.6B, a decline of ¥29.6B (-61.5%), indicating that the payment of corporate income taxes during the period placed pressure on cash. In terms of working capital, based on quarterly days using revenue and cost of sales for the current quarter, days sales outstanding were approximately 54.6 days, days inventory outstanding were approximately 14.3 days, and days payable outstanding were approximately 60.6 days. Accordingly, the cash conversion cycle was approximately 8.3 days, indicating efficient working capital management. Meanwhile, construction in progress increased to ¥107.8B (+5.1% YoY), accounting for 27.9% of property, plant and equipment, indicating continued investment in ongoing projects. Liquidity on hand remains substantial, with the cash position providing an adequate cushion against corporate tax payments and capital expenditure requirements.

Earnings Quality

The increase in Ordinary Income (+19.4%) exceeded the growth in Operating Income (+14.5%). This difference was attributable to improvements in non-operating income and expenses, including the shift from a foreign exchange loss to a foreign exchange gain, from -¥1.5B in the previous year to +¥0.3B in the current period, as well as an increase in dividend income. Accordingly, the improvement includes fluctuations unrelated to the earnings power of the core business, which warrants attention. Extraordinary gains and losses were largely offset by a ¥0.1B gain on the sale of investment securities and a ¥0.1B valuation loss, resulting in a limited impact on Net Income. Comprehensive Income was ¥22.2B, of which ¥22.1B was attributable to owners of the parent, below Net Income attributable to owners of the parent of ¥29.9B. The primary reason for this divergence was the occurrence of valuation-related negative items, including a -¥7.0B valuation difference on available-for-sale securities and a -¥1.1B adjustment related to retirement benefits. This divergence resulted from non-cash items associated with changes in the fair value of securities held and does not undermine the quality of earnings themselves. However, it should be noted that fluctuations in asset valuations affected Comprehensive Income.

Earnings Forecasts and Guidance

Q1 progress against the full-year forecasts of Revenue of ¥1449.2B, Operating Income of ¥171.5B, and Ordinary Income of ¥179.7B was 24.1% for Revenue, 24.9% for Operating Income, 25.0% for Ordinary Income, and 24.2% for EPS (actual ¥74.73 / forecast ¥308.56). This is in line with a standard Q1 progression of approximately 25%. There were no revisions to the earnings or dividend forecasts during the quarter, and progress at this point is consistent with the full-year outlook.

Shareholder Returns

The full-year dividend forecast is ¥89 per share. Based on forecast EPS of ¥308.56, the payout ratio is approximately 28.8%, remaining at a conservative level. Given the financial foundation of cash and deposits of ¥461.3B and an equity ratio of 74.6%, the Company has a reasonable capacity to pay dividends. The Company holds 4.04 million treasury shares, equivalent to approximately 9.2% of issued shares; however, no new share repurchases during the quarter could be confirmed based on the disclosed data.

Risk Factors

1. Increase in construction in progress (CIP): Construction in progress was ¥107.8B (+5.1% YoY), accounting for 27.9% of property, plant and equipment. If the start of operations for projects is delayed relative to plan, the timing of investment recovery could be pushed back and temporary expenses could be recognized.

2. Volatility in foreign exchange effects within non-operating income and expenses: The Company recorded a foreign exchange gain of ¥0.3B in the current period, compared with a foreign exchange loss of ¥1.5B in the previous year. This contributed to the growth rate of Ordinary Income (+19.4%) exceeding that of Operating Income (+14.5%). This item is a variable factor that could reverse depending on market conditions.

3. Increase in the effective tax rate: The income tax burden ratio was 33.1%, up from 29.5% in the previous year. This was a factor suppressing the growth in Net Income attributable to owners of the parent (+13.4%) somewhat relative to the growth in profit before tax (+18.8%).

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Growth and Capital Efficiency

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The operating margin improved to 12.2%, from 11.2% in the previous year, confirming positive operating leverage as SG&A expenses were held almost flat despite revenue growth. Whether this structure is sustainable will depend on the future trend in SG&A expense control.

2. The background to the growth rate of Ordinary Income (+19.4%) exceeding that of Operating Income (+14.5%) includes the non-recurring fluctuation resulting from the shift in foreign exchange gains and losses. It is therefore useful to evaluate this together with the earnings trend based on Operating Income.

3. Q1 progress against the full-year forecasts was 24.1% for Revenue, 24.9% for Operating Income, and 25.0% for Ordinary Income, representing standard levels. No forecast revisions were made.

Theoretical Share Price (For Reference)

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: ¥2,882–¥3,052 at ±1% for the cost of equity, and ¥2,961–¥2,971 at ±0.1 for ω.

Notes:

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

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not forecast 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 disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional adviser as necessary.

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