| Metric | This Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥466.2B | ¥417.4B | +11.7% |
| Operating Income / Operating Profit | ¥37.0B | ¥33.8B | +9.4% |
| Ordinary Income | ¥41.9B | ¥40.0B | +4.9% |
| Net Income | ¥37.4B | ¥29.4B | +27.4% |
| ROE | 3.1% | 2.5% | - |
FY2026 Q1 results showed Revenue ¥466.2B (YoY +¥48.9B +11.7%), Operating Income ¥37.0B (YoY +¥3.2B +9.4%), Ordinary Income ¥41.9B (YoY +¥1.9B +4.9%), and Net Income attributable to owners of the parent ¥37.4B (YoY +¥7.7B +27.4%), indicating a trend of revenue and profit growth. Cost of goods sold ratio rose slightly to 74.4% (prior 74.2%), causing gross margin to decline 0.2pt to 25.6% (prior 25.8%). SG&A ratio improved 0.1pt to 17.6% (prior 17.7%), but Operating Margin declined 0.2pt to 7.9% (prior 8.1%). The large increase in Net Income (+27.4%) was mainly due to recognition of Special Income ¥12.5B (Gain on sale of investment securities ¥2.7B, Gain on sale of fixed assets ¥12.5B, etc.), which far exceeded the growth in Operating Income (+9.4%). Non-operating items contributed +¥4.9B, aided by foreign exchange gains ¥0.6B and other non-operating income ¥2.2B, while interest expense rose to ¥1.1B from ¥0.6B a year earlier. By segment, the core Valve Business recorded Revenue ¥366.4B (+10.0%) and Operating Income ¥42.5B (-3.0%) (revenue up, profit down), while the Metal Solutions Business achieved Revenue ¥103.2B (+20.0%) and Operating Income ¥5.9B (+385.2%), delivering substantial profit growth and supporting consolidated profits.
[Revenue] Revenue ¥466.2B (YoY +11.7%) was driven by the core Valve Business (+10.0% / +¥33.3B) and the Metal Solutions Business (+20.0% / +¥17.2B). The Valve Business benefited from steady demand in plant and construction sectors and FX effects, while the Metal Solutions Business achieved higher shipments alongside margin improvements. Other businesses increased modestly to ¥5.4B (+2.3%). Segment composition was Valve 78.3%, Metal Solutions 22.1%, Other 1.2%, indicating continued concentration in Valves. Gross profit ¥119.2B (gross margin 25.6%) rose +10.9% YoY, but gross margin fell 0.2pt, suggesting that increases in raw material and logistics costs have not been fully passed through to prices.
[Profit & Loss] SG&A ¥82.2B increased +11.5% YoY, slightly below revenue growth, improving SG&A ratio to 17.6% (prior 17.7%) by 0.1pt. Operating Income ¥37.0B (+9.4%) benefited from higher sales, but Operating Margin fell to 7.9% (prior 8.1%) due to the decline in gross margin and higher corporate allocated expenses (¥11.1B this period vs ¥10.6B prior). By segment, Valve Operating Income ¥42.5B (-3.0%) showed profitability deterioration with margin 11.6% (estimated down from prior ~13.2%), while Metal Solutions improved to ¥5.9B (+385.2%) and margin 5.7%. Non-operating items were a net +¥4.9B: interest income ¥0.5B, dividend income ¥0.3B, FX gains ¥0.6B, while interest expense increased to ¥1.1B (prior ¥0.6B). Ordinary Income ¥41.9B (+4.9%) outpaced Operating Income growth due to non-operating income. Recognition of Special Income ¥12.5B boosted Profit before Income Taxes to ¥54.4B (+28.1%), and after income taxes ¥17.0B (effective tax rate 31.3%), Net Income attributable to owners of the parent was ¥37.4B (+27.4%). Most of the Special Income is temporary; on an ordinary/recurring basis, Operating Income +9.4% better reflects the business. In summary, revenue and profit grew, but operating-level margin edged down, and much of the Net Income increase was due to one-off gains.
Valve Business (Revenue ¥366.4B, +10.0%) posted Operating Income ¥42.5B (-3.0%) with margin 11.6%, down from the prior year. Despite higher sales, profit declined due to product-mix shifts, delayed pass-through of higher raw material costs, and lag in absorbing fixed costs. Increased corporate allocation of ¥11.1B (prior ¥10.6B) also pressured profitability. Metal Solutions Business (Revenue ¥103.2B, +20.0%) delivered Operating Income ¥5.9B (+385.2%) and materially improved margin to 5.7%. Nearly five-fold profit growth from prior ¥1.2B reflects cost-structure improvement and sustained efficiency gains. Other Business (Revenue ¥5.4B, +2.3%) posted an operating loss of ¥0.5B (improved from prior loss ¥0.6B) but remains negative. On a consolidated basis, Valve contributed roughly 87% of segment profits and Metal Solutions about 12%, so high segment concentration is a source of consolidated earnings volatility.
[Profitability] Operating Margin 7.9% decreased 0.2pt from 8.1% prior, mainly due to gross margin decline to 25.6% (prior 25.8%). ROE was 3.1%, slightly up from an estimated prior 3.0%; DuPont decomposition shows Net Profit Margin 8.0% (inflated by Special Income) × Asset Turnover 0.24 × Financial Leverage 1.58 ≒ ~3.0%, indicating constrained asset turnover. EBITDA margin was 12.0% (Operating Income ¥37.0B + Depreciation ¥18.6B = ¥55.6B, vs. Revenue) improving 0.2pt from prior 11.8%. [Cash Quality] Operating Cash Flow (OCF) ¥18.4B / Net Income ¥37.4B = 0.49x, indicating low quality, pressured by inventory increase ¥26.6B and decrease in bonus reserves ¥17.1B. OCF/EBITDA = 0.33x shows weak short-term cash generation. [Investment Efficiency] Asset turnover 0.243x/year similar to prior. Tangible fixed asset turnover 0.76x/year, inventory turnover days ~125 days (Inventories ¥18.95B ÷ COGS ¥347.0B × 90 days — figures retained as reported), and Receivables turnover days ~52 days (Receivables ¥267.2B ÷ Revenue ¥466.2B × 90 days), indicating scope to improve inventory turns. ROIC approximately 2.4% (NOPAT ~¥24B ÷ Invested Capital ~¥1,000B) is low and a focus for improvement. [Financial Health] Equity Ratio 63.5% (prior 64.1%) remains high and stable. Current Ratio 353%, Quick Ratio 295% indicate very strong short-term liquidity. Debt/Equity 0.11x (Interest-bearing debt ¥138.4B ÷ Net assets ¥1,216.6B) shows low leverage; Debt/EBITDA 2.49x (annualized) is within acceptable range. Interest Coverage 34.6x (Operating Income ¥37.0B ÷ Interest Expense ¥1.1B) implies low interest burden. Cash and deposits ¥294.5B provide ample liquidity and net-cash-like financial safety.
Operating CF was ¥18.4B (prior ¥16.6B, +10.9%), a slight increase, but OCF/Net Income remains low at 0.49x and needs improvement. Primary drivers were an increase in inventories ¥26.6B (prior ¥23.6B) and decrease in bonus reserves ¥17.1B (prior ¥17.3B), which were cash outflows. Increase in trade receivables ¥5.6B (prior year saw a decrease ¥3.9B) also pressured cash, while increase in trade payables ¥21.7B (prior ¥13.9B) partially eased working capital. Operating CF subtotal (pre-tax profit + non-cash adjustments) was ¥39.2B versus prior ¥36.2B, but after tax payments ¥20.2B (prior ¥19.8B), working capital changes constrained cash generation. Investing CF was -¥12.6B (prior -¥14.9B), with CapEx ¥12.1B (prior ¥17.4B) showing continued restraint. With Depreciation ¥18.6B, CapEx-to-Depreciation ratio is 0.65x, indicating maintenance-level investment and potential underinvestment for medium-term growth. Proceeds from sale of tangible fixed assets ¥13.4B (prior ¥0.1B) supported investing CF but was a one-off. Financing CF was +¥4.8B (prior -¥25.3B), supported by net increase in short-term borrowings ¥40.0B (prior -¥0.4B) and procurement of long-term borrowings ¥0.6B, while repayments of long-term borrowings ¥6.1B, bond redemptions ¥0.7B, dividend payments ¥27.9B (prior ¥23.6B), and share buybacks ¥1.0B (prior ¥1.1B) were made. Free Cash Flow was ¥5.8B, barely positive, insufficient for dividends without short-term borrowing supplementation. Cash and deposits rose to ¥294.5B (prior ¥282.4B, +¥12.1B) including FX effects of ¥1.4B. Overall, working capital buildup is pressuring OCF and the company is bridging via short-term borrowings; improving inventory turns and DSO is an immediate priority.
Quality of earnings: Ordinary Income ¥41.9B reflects Operating Income ¥37.0B plus non-operating net +¥4.9B, suggesting reasonable contribution from non-operating activities and stability on an ordinary basis. Non-operating income ¥6.7B (1.4% of sales) comprised interest income ¥0.5B, dividend income ¥0.3B, FX gains ¥0.6B, and other ¥2.2B — all within recurring ranges. Special Income ¥12.5B (gain on sale of investment securities ¥2.7B, gain on sale of fixed assets, etc.) boosted Net Income and represents a one-off; the amount corresponds to over ~30% of the Net Income ¥37.4B. The difference between Ordinary Income ¥41.9B and Net Income ¥37.4B is explained within tax expense ¥17.0B on a post-tax basis; Special Losses were negligible at ¥0.0B. Comprehensive Income ¥47.6B (owners of parent ¥47.1B) exceeded Net Income by ¥10.2B, mainly due to foreign currency translation adjustments +¥8.1B and unrealized securities valuation gains +¥2.2B, reflecting unrealized gains recorded via the balance sheet. OCF ¥18.4B / Net Income ¥37.4B = 0.49x and OCF/EBITDA = 0.33x indicate weak accrual quality, with inventory +¥26.6B and receivables +¥5.6B weakening cash backing. Decrease in bonus reserves ¥17.1B was a timing item expected to normalize over the fiscal year. Overall, Ordinary-level earnings are rooted in operations and are relatively sustainable, but the Net Income spike depends on one-offs and cash backing is weak, indicating room to improve earnings quality.
Full Year plan is unchanged: Revenue ¥1,950.0B (vs prior +10.4%), Operating Income ¥170.0B (+10.0%), Ordinary Income ¥174.0B (+8.3%), Net Income ¥127.0B. Q1 progress ratios: Revenue 23.9% (¥466.2B ÷ ¥1,950.0B), Operating Income 21.7% (¥37.0B ÷ ¥170.0B), Ordinary Income 24.1% (¥41.9B ÷ ¥174.0B), Net Income 29.5% (¥37.4B ÷ ¥127.0B). Versus standard progress (Q1 = 25%), Operating Income is behind by -3.3pt while Net Income is ahead by +4.5pt. Net Income lead is attributable to Special Income ¥12.5B; assuming such special gains are not repeated full-year, the company needs to improve operating margins and normalize non-operating/special items in H2. The lag in Operating Income stems from the Valve Business margin decline (-3.0%) and will need to be recouped in H2 through price pass-through, product-mix improvement, and better fixed-cost absorption. Continued strength in the Metal Solutions Business supports the outlook. If working capital normalizes, OCF should improve and the company has sufficient funding flexibility for the full year; probability of achieving plan is assessed as moderate.
Dividend forecast is ¥29 per year (implied interim and year-end each ¥14.5), implying Payout Ratio approximately 19.9% against FY EPS forecast ¥146.02, a conservative level. This is an increase from prior year dividend ¥21, maintaining a policy of consecutive increases. Total dividend payout is about ¥25.4B (outstanding shares ~87.6 million × ¥29), implying a payout ratio near 20% against FY Net Income forecast ¥127.0B; given cash and deposits ¥294.5B and ample liquidity, dividend sustainability is very high. Q1 dividend payment of ¥27.9B (per cash flow statement) relates to year-end dividend payment against prior-year profits and does not impair full-year dividend capacity. Share buybacks were small at ¥1.0B (prior ¥1.1B), and Total Return Ratio remains around ~20%, dividend-focused. Free Cash Flow ¥5.8B is expected to improve on an annual basis; if OCF normalizes, dividend coverage will be sufficient. A 20% payout is conservative within the industry, leaving room for future dividend increases and expanded buybacks.
Working capital risk: Inventories ¥189.5B (prior ¥176.0B, +7.7%), Receivables ¥267.2B (prior ¥241.0B, +10.9%) indicate expanding working capital, with OCF ¥18.4B / Net Income ¥37.4B = 0.49x low. Inventory turnover ~125 days and receivables ~52 days have lengthened, and short-term borrowings ¥47.99B (prior ¥5.68B, +745%) bridge liquidity. Delays in normalizing inventory/receivables may require additional borrowing, increase interest burden, and lengthen CCC, lowering ROIC.
Core business profitability risk: Valve Business Operating Income ¥42.5B (-3.0%) and margin 11.6% (estimated down 1.6pt from prior ~13.2%) signal deterioration in the core segment. Since this business accounts for ~77.1% of revenue, margin deterioration would pressure consolidated operating margins and jeopardize the FY Operating Income target ¥170.0B if price pass-through and product-mix improvements do not progress. Continued raw materials/logistics cost upside, demand composition shifts, or competitive price pressure could further reduce Operating Margin 7.9% (prior 8.1%).
Short-term debt increase and interest rate risk: Sharp rise in short-term borrowings to ¥47.99B (prior ¥5.68B, +¥42.3B) raises interest expense sensitivity in a rising-rate environment (Interest Expense ¥1.1B, prior ¥0.6B, +¥0.5B). Debt/EBITDA 2.49x (annualized) is within acceptable range, but sustained working capital demand could increase short-term borrowings and interest costs, pressuring non-operating expenses and limiting Ordinary Income growth. Interest Coverage is 34.6x, a safe buffer, but monitoring of interest rate trends and borrowing dependency is required.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 7.9% | 6.8% (2.9%–9.0%) | +1.1pt |
| Net Profit Margin | 8.0% | 5.9% (3.3%–7.7%) | +2.1pt |
The company’s Operating and Net Profit Margins exceed industry medians, placing it in the upper tier among manufacturers.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | 11.7% | 13.2% (2.5%–28.5%) | -1.5pt |
Revenue growth is 1.5pt below the median but remains in double digits, representing mid-ranking growth within the industry.
※ Source: Company compilation
Improvement in Metal Solutions profitability has lifted consolidated margins: Operating Income ¥5.9B (+385.2%), margin improvement to 5.7% contributes to portfolio diversification and stabilization. This helps offset some Valve margin deterioration; continued profit improvement and sales expansion in this segment are medium-term watch points.
Working capital buildup compressing OCF (OCF/NI = 0.49x) and the sharp rise in short-term borrowings (+745%) indicate tight near-term liquidity. If inventory turnover (~125 days) and receivables (~52 days) shorten, OCF recovery and reduction in Debt/EBITDA 2.49x are expected in H2, improving financial health and expanding Total Return Ratio capacity.
Special Income ¥12.5B inflated Net Income this period, while the underlying reality is Operating Income +9.4%. Improvement in Valve Operating Margin 11.6% (estimated -1.6pt YoY) is critical to meeting full-year targets. Key monitoring items for H2 are price pass-through, product-mix improvement, and fixed-cost absorption progress.
This report was automatically generated by AI analyzing XBRL earnings summary data. It does not constitute a recommendation to invest in specific securities. Industry benchmarks are reference information compiled by the company from public financial statements. Investment decisions are the responsibility of the reader; consult a professional advisor as necessary.