EAGLE INDUSTRY CO.,LTD. FY2027 Q1 Earnings Report

Quick View

Executive Summary

In addition to higher revenue, Operating Income and Ordinary Income grew at a faster pace, resulting in earnings growth accompanied by margin improvement. Revenue was ¥47.79B (up +12.5% YoY), Operating Income was ¥4.22B (up +40.8%), Ordinary Income was ¥5.77B (up +47.0%), and Net Income attributable to owners of the parent was ¥3.44B (up +32.6%). High-margin areas serving the semiconductor, general industrial machinery, and aerospace markets expanded, while the gross margin improved to 27.1% (24.9% in the same period of the previous year). In addition, equity-method investment income and foreign exchange gains boosted Ordinary Income. Meanwhile, the Automotive and Construction Machinery businesses, which account for approximately half of the sales mix, achieved only +1.0% revenue growth and posted lower Operating Income, indicating a widening earnings gap among segments.

Factors Affecting Business Performance

【Revenue】Revenue was ¥47.79B (up +12.5% YoY). By segment, Automotive and Construction Machinery accounted for the largest share at ¥23.06B (48.3% of the total, YoY +1.0%), but growth was sluggish. General Industrial Machinery generated ¥10.74B (22.5% of the total, +17.8%), Semiconductors ¥6.00B (12.6% of the total, +62.4%), Marine ¥5.47B (11.4% of the total, +13.8%), and Aerospace ¥2.75B (5.8% of the total, +29.4%), driving the increase in revenue. Strong growth in Semiconductors and Aerospace, together with steady expansion in General Industrial Machinery, lifted the overall revenue growth rate.

【Profitability】The gross margin improved by +2.2pt to 27.1% from 24.9% in the previous year, while the SG&A expense ratio increased by +0.4pt to 18.3% from 17.9%. However, the improvement in gross margin more than offset this increase, expanding the Operating Income margin by +1.8pt to 8.8% from 7.1%. Ordinary Income increased to ¥5.77B (+47.0%), driven by equity-method investment income of ¥1.27B (¥0.74B in the previous year) and foreign exchange gains of ¥0.15B; the Ordinary Income margin expanded to 12.1% from 9.2% in the previous year. After deducting income taxes and other taxes of ¥1.58B, consolidated Net Income was ¥4.18B. After deducting Net Income attributable to non-controlling interests of ¥0.74B (¥0.54B in the previous year, +37.0%), Net Income attributable to owners of the parent was ¥3.44B (+32.6%). Segment profit increased significantly in General Industrial Machinery to ¥1.80B (+68.3%), Semiconductors to ¥0.45B (+241.8%), and Aerospace to ¥0.27B (+198.9%). Conversely, Marine declined to ¥1.35B (-10.9%), and Automotive and Construction Machinery declined to ¥0.36B (-42.4%, 1.6% margin). Thus, growth in the high-margin segments offset deterioration in Automotive and Construction Machinery profitability. In conclusion, the company achieved higher revenue and higher profit.

Segment Analysis

General Industrial Machinery was the largest contributor to company-wide profit, generating revenue of ¥10.74B (22.5% of the total) and Operating Income of ¥1.80B (16.8% margin), representing substantial profit growth of +68.3% YoY. Semiconductors generated revenue of ¥6.00B (YoY +62.4%), with its margin improving to 7.5% from approximately 5.5% in the previous year; profit recovered sharply to ¥0.45B (+241.8%). Aerospace also posted notable growth, with revenue of ¥2.75B (+29.4%) and profit of ¥0.27B (+198.9%, 9.9% margin). Marine revenue increased to ¥5.47B (+13.8%), but profit declined to ¥1.35B (-10.9%); although its margin remained the highest among all segments at 24.7%, it decreased from the previous year. Automotive and Construction Machinery revenue was almost flat at ¥23.06B (48.3% of the total, +1.0%), while profit declined to ¥0.36B (-42.4%) and the margin fell to 1.6% from just under 3.0% in the previous year. This segment is the only area of concern amid a structure in which improved profitability in other segments is driving company-wide profit.

Key Financial Metrics

【Profitability】The Operating Income margin improved to 8.8% from 7.1% in the previous year (+1.8pt), the Ordinary Income margin improved to 12.1% from 9.2% (+2.8pt), and the Net Income margin, based on income attributable to owners of the parent, improved to 7.2% from 6.1% (+1.1pt). 【Cash Quality】Cash and deposits were ¥34.62B (¥33.68B in the previous year, +2.8%), indicating a gradual accumulation of cash. However, accounts receivable were ¥37.98B (up +4.7%) and inventories were ¥13.97B (up +9.0%), indicating an expansion in working capital and increased funds tied up in support of revenue growth. 【Investment Efficiency】ROE was 2.9%, while total assets of ¥23.36B increased only +2.2% YoY, indicating gradual improvement in efficiency as earnings growth outpaced asset growth. 【Financial Soundness】The Equity Ratio remained high at 62.3%, while short-term borrowings increased to ¥19.94B (¥15.22B in the previous year, +31.0%). The current ratio declined slightly to 227.7% from 242.5% but remained high, indicating continued strong liquidity.

Cash Flow Analysis

As a cash flow statement was not disclosed, cash trends were assessed based on changes in the balance sheet. Cash and deposits were ¥34.62B, an increase of ¥0.94B from ¥33.68B in the previous year, indicating continued gradual accumulation of funds. Meanwhile, accounts receivable and notes receivable increased to ¥37.98B (¥36.26B in the previous year, +¥1.72B), and inventories increased to ¥13.97B (¥12.82B in the previous year, +¥1.15B). The resulting expansion in working capital associated with higher revenue is exerting pressure on cash generation. This increase in working capital appears to have been funded by short-term borrowings of ¥19.94B (¥15.22B in the previous year, +¥4.72B, +31.0%), suggesting that rising working-capital requirements during the revenue growth phase are manifesting as increased reliance on short-term funding. Long-term borrowings decreased to ¥20.25B from ¥22.95B in the previous year, indicating a slight shift in the maturity mix toward short-term funding.

Earnings Quality

Ordinary Income of ¥5.77B comprises Operating Income of ¥4.22B plus equity-method investment income of ¥1.27B (¥0.74B in the previous year), foreign exchange gains of ¥0.15B, and other non-operating income. Although non-operating income was not excessive at 3.6% of revenue, it was one factor behind Ordinary Income growth (+47.0%) exceeding Operating Income growth (+40.8%). Extraordinary items were minor, comprising extraordinary income of ¥0.002B and extraordinary losses of ¥0.011B (loss on disposal of fixed assets), indicating virtually no impact from temporary factors. Against pretax income of ¥5.76B, the effective tax rate after deducting income taxes and other taxes of ¥1.58B was 27.4%, up from 20.1% in the same period of the previous year. This fluctuation in the tax burden was one factor contributing to the difference between consolidated Net Income (¥4.18B) and Ordinary Income. After deducting Net Income attributable to non-controlling interests of ¥0.74B (¥0.54B in the previous year, +37.0%), Net Income attributable to owners of the parent was ¥3.44B. The difference from Ordinary Income was primarily attributable to tax expenses and non-controlling interests, with no unusual accounting distortions identified. Comprehensive income was ¥5.88B (¥5.08B attributable to owners of the parent), exceeding Net Income attributable to owners of the parent of ¥3.44B due to a positive contribution of ¥1.62B from foreign currency translation adjustments.

Earnings Forecasts and Guidance

Progress against the full-year plan was 23.9% for Revenue (¥47.79B/¥200.00B), 26.4% for Operating Income (¥4.22B/¥16.00B), and 28.9% for Ordinary Income (¥5.77B/¥20.00B), with profit progress exceeding the standard Q1 benchmark of 25%. Progress toward the full-year forecast of ¥12.0B in Net Income attributable to owners of the parent was also 28.7% (¥3.44B/¥12.0B), confirming that earnings are ahead of schedule. The company revised its earnings forecasts during the quarter, apparently reflecting a review based primarily on an improved mix in General Industrial Machinery and Semiconductors. Effective October 1, 2026, the company plans to establish a joint holding company through a share transfer with NOK Corporation; performance trends from the second half onward will also be related to the progress of this management integration.

Shareholder Returns

An interim dividend of ¥70 was determined, an increase of +16.7% from the ¥60 dividend in the same period of the previous year. However, because a management integration with NOK Corporation through the establishment of a joint holding company by share transfer is scheduled for October 2026, the year-end dividend is currently undecided. The payout ratio, calculated as the interim dividend of ¥70 divided by the full-year forecast EPS of ¥262.89, is 26.6% on a reference basis. Since the year-end dividend is undecided, the annual payout ratio cannot be calculated. Given the financial foundation represented by an Equity Ratio of 62.3% and a current ratio of 227.7%, constraints on payment of the interim dividend itself appear limited.

Risk Factors

1. Declining profitability in the Automotive and Construction Machinery segment: Against revenue of ¥23.06B (48.3% of the total, YoY +1.0%), Operating Income declined to ¥0.36B (YoY -42.4%), with the margin falling to 1.6%. Delays in passing through price increases and higher costs are weighing on the company-wide margin.

2. Increased reliance on short-term funding: Short-term borrowings increased to ¥19.94B (¥15.22B in the previous year, +31.0%), increasing their share of current liabilities. The expansion in working capital due to higher accounts receivable and inventories is the underlying factor, and a potential increase in funding costs if the interest-rate environment changes warrants attention.

3. Reliance on non-operating income and expenses: Of Ordinary Income of ¥5.77B, equity-method investment income of ¥1.27B and foreign exchange gains of ¥0.15B made significant contributions. Performance at investee companies and foreign exchange fluctuations could therefore cause volatility in Ordinary Income.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Operating Income margin was approximately in line with the industry median, while the Net Income margin exceeded the industry median by +1.7pt.

Growth and Capital Efficiency

The revenue growth rate exceeded the industry median by +6.2pt and was positioned near the upper bound of the IQR.

※Source: Compiled by the Company

Key Takeaways from the Results

1. The improved mix toward high-margin segments—General Industrial Machinery, Semiconductors, and Aerospace—expanded the Operating Income margin to 8.8% from 7.1% in the previous year. The primary driver was the improvement in gross margin (+2.2pt), indicating a qualitative improvement in the earnings structure.

2. Although the Automotive and Construction Machinery segment accounts for 48.3% of the sales mix, its Operating Income margin remained at 1.6% and declined YoY, widening the profitability gap with other segments. Correcting the profitability of this segment is a structural issue for sustained improvement in company-wide earnings.

3. While short-term borrowings increased +31.0% YoY, the current ratio declined slightly to 227.7% from 242.5% in the previous year, confirming an expansion in working capital associated with higher revenue and a change in the funding structure. With the management integration with NOK scheduled for October 2026, capital allocation and financial policy trends will be key areas of focus.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly available data using a residual income model (Ohlson-type model with an explicit 5-year fade period). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥2,859–¥3,027 at ±1% for the cost of equity, and ¥2,940–¥2,941 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 versus the full-year forecast.

(Model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not forecast or guarantee the future share price)

---

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 responsibility, after consulting a professional as necessary.

---End of Report---