DAIHEN CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

The Company reported increases in both revenue and profit for the quarter, driven particularly by strong growth and improved profitability in the Material Processing Business. Revenue was ¥55.51B (¥49.06B in the same period of the previous year, YoY+13.1%), Operating Income was ¥4.08B (¥3.16B in the previous year, YoY+28.9%), Ordinary Income was ¥4.73B (¥3.78B in the previous year, YoY+25.3%), and Net Income attributable to owners of the parent was ¥2.78B (¥1.97B in the previous year, YoY+40.9%). The fact that the increase in Operating Income exceeded revenue growth was attributable to simultaneous improvement in the gross profit margin (30.1%, +0.2pt) and a decline in the SG&A expense ratio (22.7%, -0.7pt), indicating that greater cost-structure efficiency contributed in addition to higher revenue. Consolidated Net Income, including Net Income attributable to non-controlling interests, was ¥3.10B (YoY+31.8%); the discussion below uses Net Income attributable to owners of the parent as the basis.

Factors Affecting Financial Results

【Revenue】Revenue of ¥55.51B (YoY+13.1%) was driven by strong growth in Material Processing (¥22.73B, YoY+37.4%, composition ratio 40.9%) and Factory Automation (¥8.23B, YoY+25.7%, composition ratio 14.8%). Meanwhile, Energy Management, which accounted for the largest share of revenue (composition ratio 44.1%), recorded ¥24.50B (YoY-5.5%), partially offsetting the Company-wide growth rate.

【Profit and Loss】Operating Income of ¥4.08B (YoY+28.9%) exceeded the revenue growth rate because improvement in the gross profit margin to 30.1% (+0.2pt) and a decline in the SG&A expense ratio to 22.7% (-0.7pt) progressed simultaneously. Ordinary Income of ¥4.73B (YoY+25.3%) was supported by non-operating income of ¥1.03B (including foreign exchange gains of ¥0.13B and interest and dividend income of ¥0.55B), while non-operating expenses of ¥0.38B, including interest expenses of ¥0.25B, represented a certain headwind. Extraordinary losses of ¥0.13B had a minor impact on Net Income as a temporary factor. Net Income attributable to owners of the parent of ¥2.78B (YoY+40.9%) differed from Ordinary Income due to income taxes and other taxes of ¥1.52B, equivalent to an effective tax rate of 32.8%, and Net Income attributable to non-controlling interests of ¥0.32B; the conclusion of higher revenue and profit remains unchanged.

Segment Analysis

By segment, Material Processing recorded revenue of ¥22.73B (YoY+37.4%), Operating Income of ¥2.68B (YoY+39.4%), and an Operating Income margin of 11.8%, securing the highest profitability across the Company and serving as the core driver of profit growth. Energy Management recorded revenue of ¥24.50B (YoY-5.5%), Operating Income of ¥2.20B (YoY-6.3%), and a profit margin of 9.0%. Although it had the largest revenue scale, it experienced declines in both revenue and profit, restraining the Company-wide growth rate. Factory Automation recorded revenue of ¥8.23B (YoY+25.7%) and Operating Income of ¥0.40B, a substantial improvement from ¥0.035B in the previous year, but its profit margin remained at 4.9%, representing a significant profitability gap versus the other segments. After deducting Company-wide expenses of ¥1.21B, the total segment profit of ¥5.29B was adjusted to Operating Income of ¥4.08B, creating a structure in which margin disparities among segments directly affect the Company-wide profit margin.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 7.3% from 6.4% in the previous year, an improvement of +0.9pt, with both the gross profit margin of 30.1% (+0.2pt) and the SG&A expense ratio of 22.7% (-0.7pt) contributing. The Net Income margin attributable to owners of the parent rose to 5.0% from 4.0% in the previous year, an increase of +1.0pt. 【Cash Quality】Cash and deposits were ¥33.52B (¥34.16B in the previous year, -1.9%), remaining broadly flat, while accounts receivable and notes receivable declined substantially to ¥44.92B (YoY-23.2%). In contrast, work in process increased to ¥30.02B (YoY+33.5%), indicating a shift in the composition of funds from receivables to inventory (work in process). 【Investment Efficiency】Basic EPS expanded to ¥117.75 (¥82.51 in the previous year, YoY+42.7%), outpacing the rate of profit growth. ROE (for the current quarter, before annualization) was 1.8%. 【Financial Soundness】The Equity Ratio (net assets including non-controlling interests / total assets) improved to 54.7% from 53.3% in the previous year, an increase of +1.4pt, while total assets contracted slightly to ¥317.02B (¥320.18B in the previous year, -1.0%). Short-term borrowings were ¥38.35B (YoY-4.0%) and long-term borrowings were ¥35.78B, with no significant change in the debt composition.

Cash Flow Analysis

Although the cash flow statement has not been disclosed, changes in the balance sheet indicate shifts in fund movements. Cash and deposits were ¥33.52B, almost unchanged at -1.9% from ¥34.16B in the same period of the previous year, while accounts receivable and notes receivable declined substantially to ¥44.92B (YoY-23.2%), suggesting that cash collection from receivables may have progressed. Conversely, work in process accumulated to ¥30.02B (YoY+33.5%), indicating that inventory associated with production in progress and projects at an intermediate stage of execution was absorbing funds amid revenue growth. On the liabilities side, income taxes payable declined substantially to ¥2.02B (¥5.70B in the previous year, -64.6%), reflecting the impact of the prior fiscal year’s tax payment timing, while short-term borrowings were slightly reduced to ¥38.35B (YoY-4.0%). Overall, despite the increase in Operating Income, cash levels remained broadly unchanged, with the accumulation of inventory (work in process) and the timing of tax payments observed as uses of funds.

Quality of Earnings

Current-period profit was primarily generated by recurring business activities, and the impact of temporary factors was limited. Extraordinary losses of ¥0.13B represented approximately 4.7% of Net Income attributable to owners of the parent of ¥2.78B, indicating a minor impact. Non-operating income of ¥1.03B comprised foreign exchange gains of ¥0.13B, interest and dividend income of ¥0.55B, and other non-operating income of ¥0.35B. After deducting non-operating expenses of ¥0.38B, including interest expenses of ¥0.25B, the net amount contributed to an increase in Ordinary Income. The difference between Ordinary Income of ¥4.73B and Net Income attributable to owners of the parent of ¥2.78B was due to income taxes and other taxes of ¥1.52B, equivalent to an effective tax rate of 32.8%, and Net Income attributable to non-controlling interests of ¥0.32B. Both are structural factors, and no abnormality is evident. Comprehensive Income was ¥5.13B (¥4.84B attributable to owners of the parent). The difference from consolidated Net Income of ¥3.10B was attributable to OCI items related to marketable securities and foreign exchange, including valuation differences on securities of ¥1.43B and foreign currency translation adjustments of ¥0.84B, and is regarded as a temporary fluctuation reflecting market conditions.

Earnings Forecasts and Guidance

Progress against the full-year plan was 19.8% for revenue (¥55.51B against ¥280.00B), 16.3% for Operating Income (¥4.08B against ¥25.00B), 18.6% for Ordinary Income (¥4.73B against ¥25.50B), and 16.8% for Net Income attributable to owners of the parent (¥2.78B against ¥16.50B). All were below the simple one-quarter benchmark of 25%, suggesting progress based on a plan weighted toward the second half of the fiscal year. No revisions were made to either the earnings forecast or the dividend forecast, and the full-year outlook remains unchanged. The EPS forecast of ¥139.79 is based on the number of shares after the planned five-for-one stock split scheduled for October 2026 and therefore cannot be directly compared with current-quarter EPS of ¥117.75, which is based on the pre-split number of shares.

Shareholder Returns

No revision was made to the dividend forecast during the current quarter. A five-for-one stock split is scheduled to take effect on October 1, 2026. While the fiscal year-end dividend for the fiscal year ending March 2027 will be disclosed at an amount reflecting the impact of the split, the total annual dividend is shown as “-” on a pre-split basis. Without taking the split into account, the fiscal year-end dividend is ¥105.00 and the total annual dividend is ¥210.00. When comparing these figures with the previous year’s dividend of ¥84 per share, the impact of the change in the number of shares resulting from the stock split must be considered.

Risk Factors

1. Declining profitability of the Energy Management Business: Revenue was ¥24.50B (YoY-5.5%), Operating Income was ¥2.20B (YoY-6.3%), and the profit margin was 9.0%, making it the only segment to experience declines in both revenue and profit. As it accounts for the largest revenue composition ratio at 44.1%, supply and demand trends in this business have a significant impact on Company-wide results.

2. Delayed cash conversion due to an increase in work in process: Work in process increased substantially to ¥30.02B (YoY+33.5%), with projects in production absorbing funds. Monitoring is required to determine whether this represents a temporary accumulation associated with revenue growth or is due to delays in project execution.

3. Dependence on short-term interest-bearing debt: Short-term borrowings were ¥38.35B (YoY-4.0%) and account for a certain proportion of interest-bearing debt when combined with long-term borrowings of ¥35.78B. Although the Equity Ratio is robust at 54.7%, the impact of changes in the interest-rate environment on non-operating expenses, including interest expenses of ¥0.25B, requires close monitoring.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Income margin and Net Income margin were slightly below the industry median, placing profitability at a below-midrange level within the industry.

Growth and Capital Efficiency

The revenue growth rate was substantially above the industry median, placing growth among the higher levels within the industry.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The improvement in the Operating Income margin to 7.3% (+0.9pt) was driven by both an improved gross profit margin (+0.2pt) and a lower SG&A expense ratio (-0.7pt). In particular, the increase in the Material Processing profit margin to 11.8% has lifted the Company-wide margin. This change in the earnings structure is an important reference point for assessing future profit-margin trends.

2. Full-year progress was 19.8% for revenue and 16.3% for Operating Income, below the simple one-quarter benchmark of 25%, and reflects a plan weighted toward the second half. Demand trends in Energy Management and the potential for further profitability improvement in Factory Automation are factors that will influence progress from the second half onward.

3. On the balance sheet, accounts receivable declined by -23.2% year on year, while work in process increased by +33.5%, indicating a shift in the composition of funds from receivables to inventory. This change in working-capital composition should be monitored when assessing the pace of future cash generation.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson type; explicit five-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥5,685–¥6,014 for a ±1% change in the cost of equity capital, and ¥5,797–¥5,878 for a ±0.1 change in ω.

Notes:

• Because forecast ROE is below the cost of equity capital, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used; there is a timing difference versus the full-year forecast.
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(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 through analysis of XBRL earnings summary 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 with professionals as necessary.

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