SANYO DENKI CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

In Q1 of the fiscal year ending March 2027, Sanyo Denki achieved substantial increases in both revenue and earnings, driven by revenue growth across all segments, an improved gross margin, and a lower SG&A ratio. Revenue was ¥32.24B (¥24.15B in the previous year, YoY +33.5%), Operating Income was ¥4.21B (¥1.77B, YoY +138.1%), Profit Before Tax was ¥4.43B (¥1.51B, YoY +194.3%), and Net Income attributable to owners of the parent was ¥2.99B (¥1.05B, YoY +184.6%). The earnings growth rate substantially exceeded the revenue growth rate, indicating that structural profitability improvements were the core feature of the current period’s performance.

Factors Affecting Performance

【Revenue】All three segments recorded double-digit revenue growth, reflecting a company-wide recovery in demand and normalization of shipments. The Motion Company was the largest segment, with revenue of ¥12.73B (YoY +46.3%) and a 39.5% composition ratio, followed by the San Ace Company with ¥11.64B (up 19.6%, composition ratio 36.1%) and the Electronics Company with ¥6.32B (up 43.0%, composition ratio 19.6%). In terms of growth rates, Motion and Electronics recorded relatively strong growth, resulting in broad-based revenue expansion.

【Profit and Loss】The gross margin improved to 29.4% from 26.4% in the previous year, an improvement of +3.0pt, while the SG&A ratio declined to 16.4% from 19.3%, a reduction of -2.9pt. As both factors improved simultaneously, the Operating Income margin expanded to 13.1% from 7.3%, an increase of +5.8pt. Profit Before Tax was further supported by financial income of ¥0.28B exceeding financial expenses of ¥0.06B, reaching ¥4.43B (YoY +194.3%). Net Income was ¥2.99B (YoY +184.6%), and the Net Income margin reached 9.3% versus 4.3% in the previous year, resulting in higher revenue and earnings.

Segment Analysis

The San Ace Company (cooling fans) recorded revenue of ¥11.64B (YoY +19.6%) and Operating Income of ¥2.74B (up 77.0%), with a margin of 23.6%, the highest profitability company-wide and the core contributor to earnings growth. The Motion Company (servo motors, etc.) was the largest segment by revenue, at ¥12.73B (up 46.3%), but its Operating Income was ¥0.77B (up 84.2%) and its margin was relatively low at 6.0%. The Electronics Company (power supply equipment, etc.) recorded revenue of ¥6.32B (up 43.0%) and Operating Income of ¥0.62B (up 347.6%), representing outstanding growth and a significant improvement from the low profitability level in the previous year. Profitability gaps among the segments are substantial, and the high-margin composition of San Ace and the earnings improvement potential of Electronics will determine the trajectory of the company-wide margin going forward.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 13.1% from 7.3%, an increase of +5.8pt, while the Net Income margin also expanded to 9.3% from 4.3%. Profitability improved through both a gross margin of 29.4% (26.4% in the previous year) and an SG&A ratio of 16.4% (19.3% in the previous year). 【Cash Flow Quality】Operating Cash Flow (OCF) was limited to ¥0.99B, representing a low 0.33x relative to Net Income of ¥2.99B, indicating a divergence between earnings and cash generation. 【Investment Efficiency】ROE was 2.2% (quarterly result, before annualization), and reliance on financial leverage was low because interest-bearing debt was limited to ¥3.28B. 【Financial Soundness】The Equity Ratio was 75.9%, slightly down from 76.9% in the previous year but remaining at a high level. With cash and cash equivalents of ¥25.28B versus interest-bearing debt of ¥3.28B, the company is effectively in a net cash position.

Cash Flow Analysis

Operating Cash Flow was ¥0.99B, down -72.9% from ¥3.65B in the previous year. The primary factors were increases in trade receivables of -¥2.63B and inventories of -¥3.13B, partially offset by an increase in trade payables of +¥2.52B. Investing Cash Flow was -¥1.48B, of which capital expenditures accounted for -¥0.72B. Financing Cash Flow was -¥3.31B, with dividend payments of -¥2.49B representing the largest cash outflow. As a result, Free Cash Flow (Operating Cash Flow + Investing Cash Flow) was -¥0.49B, and part of financing activities, including dividends, was funded through a drawdown of cash on hand. Cash and cash equivalents decreased by -¥3.44B (-12.0%) from ¥28.72B at the beginning of the period to ¥25.28B, indicating that the accumulation of working capital accompanying revenue growth constrained cash generation.

Quality of Earnings

Temporary items on the income statement were immaterial, comprising other income of ¥0.04B and other expenses of ¥0.00B. Accordingly, the increase in Operating Income can be considered recurring and attributable to core margin improvement. Non-operating income and expenses comprised financial income of ¥0.28B exceeding financial expenses of ¥0.06B, making only a limited contribution equivalent to 0.9% of revenue. Meanwhile, comprehensive income for the quarter was ¥8.06B, substantially exceeding Net Income of ¥2.99B. The difference arose from other comprehensive income of ¥5.06B, comprising +¥3.10B from financial assets measured at fair value, +¥1.01B from remeasurements of defined benefit plans, and +¥0.95B from foreign currency translation adjustments for foreign operations. These items are primarily valuation- and foreign exchange-related and should be distinguished from recurring earnings power on a P&L basis. In addition, OCF at 0.33x Net Income indicates delayed cash conversion of accruals due to increases in trade receivables and inventories, making this a monitoring point in assessing earnings quality.

Earnings Forecast and Guidance

Against the full-year forecasts of revenue of ¥128.85B, Operating Income of ¥16.29B, and Net Income of ¥12.00B, Q1 progress rates were 25.0% for revenue, 25.8% for Operating Income, and 24.9% for Net Income. These figures were broadly consistent with simple equal quarterly progress of 25%, with Operating Income slightly ahead of schedule, indicating that the effects of gross margin improvement and SG&A efficiency are also reflected relative to the plan. There were no revisions to the earnings or dividend forecasts during the quarter, and management maintained its current plan.

Shareholder Returns

The full-year dividend forecast is ¥80 per share, based on the post-split basis following the 3-for-1 stock split in October 2025. The resulting Payout Ratio against forecast EPS of ¥338.12 is approximately 23.7%. Dividend payments during Q1 were ¥2.49B (¥1.07B in the previous year), corresponding to the year-end dividend for the previous fiscal year. No share repurchases were conducted during the quarter (¥0.97B were conducted in the previous year), leaving dividends as the primary form of shareholder returns. Given cash on hand of ¥25.28B and an Equity Ratio of 75.9%, the level of cash and deposits available as a source of dividends is substantial. However, Q1 Free Cash Flow was negative, and working capital trends will be relevant to the underlying funding capacity for future shareholder returns.

Risk Factors

1. Increase in working capital and delayed cash conversion: Operating Cash Flow was ¥0.99B, only 0.33x Net Income of ¥2.99B. Inventories of ¥3.13B and trade receivables of ¥2.63B each weighed on cash flow, partially offset by an increase in trade payables of ¥2.52B.

2. Rising inventory levels: Inventories increased by +¥3.49B (+8.8%) to ¥43.35B from ¥39.86B at the end of the previous fiscal year, accounting for 24.6% of total assets. While this may reflect strategic inventory accumulation during a period of revenue growth, monitoring is necessary from the perspective of potential valuation losses and obsolescence risk if demand fluctuates.

3. Impact of foreign exchange fluctuations: Foreign currency translation adjustments for foreign operations of +¥0.95B were recorded in other comprehensive income, while foreign exchange translation effects of +¥0.36B arose in OCF. Given the company’s meaningful overseas business exposure, fluctuations in foreign exchange rates may affect performance and shareholders’ equity.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Both the company’s Operating Income margin and Net Income margin exceed the industry median, placing its profitability at a relatively high level within the industry.

Growth and Capital Efficiency

The revenue growth rate substantially exceeds the industry median, representing an outstanding pace of revenue growth within the industry.

※Source: Compiled by the company

Key Earnings Highlights

1. Structural profitability improvement: The gross margin improved by +3.0pt and the SG&A ratio improved by -2.9pt, resulting in an expansion of the Operating Income margin from 7.3% to 13.1%. A key characteristic is that margins were lifted by both pricing/product mix and the cost structure, rather than by a temporary effect associated solely with revenue growth.

2. Delayed cash conversion: Operating Cash Flow was ¥0.99B, only 0.33x Net Income of ¥2.99B, and Free Cash Flow was -¥0.49B. The accumulation of inventories and trade receivables accompanying revenue growth was the cause, and progress in inventory management and receivables collection will be the focus in resolving the divergence between earnings and cash.

3. Consistency of guidance progress: Progress rates for revenue, Operating Income, and Net Income were all around 25%, broadly consistent with equal quarterly progress. There were no revisions to the earnings or dividend forecasts during the quarter, and the initial-year plan remains unchanged.

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). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥3,658–¥3,875 at cost of equity ±1%, and ¥3,764–¥3,764 at ω±0.1.

Note:

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

(Calculation model: residual income model / interest rate reference month: 2026-06 / 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. Industry benchmarks are reference information compiled by the company based on publicly available earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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