Wacom Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

Although revenue declined during the quarter, improved gross margin enabled the Company to maintain operating income almost unchanged, while ordinary income and net income both increased by double digits. Revenue was ¥226.6B (-7.5% YoY), and operating income was ¥27.2B (-0.2% YoY), essentially flat. Ordinary income increased to ¥28.1B (+18.5% YoY), while net income rose to ¥20.5B (+24.9% YoY). The primary factors were improved product mix from substantial revenue growth in the Brand Business, which raised the gross margin to 42.3% (37.7% in the previous year), and the normalization of non-operating income and expenses as the foreign exchange loss recorded in the previous year decreased.

Factors Affecting Results

【Revenue】Revenue was ¥226.6B, a 7.5% YoY decline. By segment, the Brand Business recorded substantial revenue growth of ¥84.1B (+28.7% YoY), while the Technology Solution Business declined to ¥142.5B (-20.7% YoY), becoming the primary cause of the Company-wide revenue decline. The sales mix was 62.9% for Technology Solution (79.4% in the previous year) and 37.1% for Brand (26.6% in the previous year), with Brand’s share increasing.

【Profit and Loss】Operating income was ¥27.2B, essentially flat at -0.2% YoY. The gross margin improved to 42.3% (37.7% in the previous year), absorbing the impact of lower revenue; however, the SG&A ratio also increased to 30.3% (26.5% in the previous year), partially offsetting the benefit of the gross margin improvement. Ordinary income was ¥28.1B (+18.5% YoY), primarily due to the decrease in foreign exchange losses from ¥3.3B in the previous year to ¥0.3B. Although extraordinary losses of ¥0.97B, including an impairment loss on investment securities of ¥0.96B, were recorded as temporary factors, net income increased to ¥20.5B (+24.9% YoY). Profitability improved despite the decline in revenue; in conclusion, the Company achieved increased profit on lower revenue.

Segment Analysis

The Brand Business achieved substantial growth in both revenue and profit, with revenue of ¥84.1B (+28.7% YoY), operating income of ¥10.0B (+123.0% YoY), and a profit margin of 11.9% (6.8% in the previous year), contributing to the improvement in the Company-wide profit margin. The Technology Solution Business recorded revenue of ¥142.5B (-20.7% YoY), operating income of ¥31.3B (-12.9% YoY), and a profit margin of 22.0% (20.0% in the previous year), representing declines in both revenue and profit; however, its profit margin itself improved, and the business remained the primary contributor to Company-wide profit, accounting for 76% of total segment profit of ¥41.3B. Against Company-wide operating income of ¥27.2B, total segment profit was ¥41.3B, from which an adjustment of -¥14.1B (-¥13.2B in the previous year) for headquarters and administrative functions was deducted.

Key Financial Indicators

【Profitability】The operating margin improved to 12.0% (11.1% in the previous year), while the net profit margin improved to 9.0% (6.7% in the previous year); ROE was 5.6%. 【Cash Flow Quality】Operating Cash Flow (OCF) was -¥10.2B, indicating weak cash generation in contrast to net income of ¥20.5B. The primary downward factors were an increase in inventories (-¥23.1B) and income taxes paid (-¥24.2B). 【Investment Efficiency】Capital expenditures were ¥1.8B, below depreciation and amortization of ¥4.8B, indicating a restrained level of investment. 【Financial Soundness】The equity ratio was 56.7% (57.6% in the previous year), and the current ratio was 190.5% (current assets of ¥468.4B/current liabilities of ¥245.9B), indicating that the financial foundation remained stable.

Cash Flow Analysis

OCF was -¥10.2B, with the deficit widening from -¥6.9B in the previous year. The primary downward factors were an increase in inventories (-¥23.1B) and income taxes paid (-¥24.2B), which were partially offset by an increase in trade payables (+¥18.8B). Investing Cash Flow was -¥4.7B, with capital expenditures restrained at ¥1.8B, below depreciation and amortization of ¥4.8B. As a result, free cash flow (OCF + investing cash flow) was -¥14.8B. Financing Cash Flow was -¥10.7B, primarily due to the execution of ¥15.0B in share repurchases, and cash and deposits declined by ¥23.6B to ¥141.4B (¥164.99B in the previous year). Shareholder returns were implemented despite negative free cash flow, funded by cash on hand and an increase in short-term borrowings (¥31.6B, ¥6.6B in the previous year).

Quality of Earnings

Recurring earnings were centered on operating income of ¥27.2B, while non-operating income remained limited to ¥1.5B (0.7% of revenue). Among non-operating expenses, the foreign exchange loss was ¥0.3B, substantially down from ¥3.3B in the previous year, indicating normalization of non-operating income and expenses compared with the previous year. Extraordinary losses of ¥0.97B (including an impairment loss on investment securities of ¥0.96B) were recorded as a temporary factor, while extraordinary gains were negligible, limiting their impact on net income. The difference between ordinary income of ¥28.1B and net income of ¥20.5B (-27%) was primarily attributable to income taxes of ¥6.7B, with the effective tax rate stable at 24.8%. Comprehensive income was ¥29.2B, exceeding net income of ¥20.5B by ¥8.7B; valuation differences on securities of +¥7.0B and foreign currency translation adjustments of +¥1.8B were additional contributing factors.

Earnings Forecast and Guidance

Progress against the full-year plan was 20.6% for revenue (¥226.6B/¥1,100B), 19.4% for operating income (¥27.2B/¥140.0B), 20.1% for ordinary income (¥28.1B/¥140.0B), and 20.5% for net income (¥20.5B/¥100.0B), all below the 25% benchmark for evenly distributed quarterly progress. EPS progress was also 20.5%, at ¥15.24/¥74.32. The Company has made no revisions to either its earnings forecast or dividend forecast, and the full-year plan remains unchanged.

Shareholder Returns

The annual dividend forecast announced by the Company is ¥12 (¥11 in the previous fiscal year). The notes concerning dividends in the earnings summary indicate a regular dividend of ¥12 and a commemorative dividend of ¥3 as components of the year-end dividend. Based on the full-year net income forecast of ¥100B and total dividends of approximately ¥15.9B calculated using the number of shares outstanding after deducting treasury shares, the payout ratio is approximately 15.9%. During the quarter, the Company conducted share repurchases of ¥15.0B and implemented shareholder returns together with the ¥19.4B dividend payment for the previous fiscal year. There was no revision to the dividend forecast.

Risk Factors

1. Inventory Growth and Working Capital Efficiency: Inventories increased to ¥88.5B (¥73.5B in the previous year, +20.4%), becoming a negative factor for OCF. Continued monitoring of the risk of inventory accumulation and valuation losses is necessary.

2. Increase in Short-Term Borrowings: Short-term borrowings surged to ¥31.6B (¥6.6B in the previous year, +378%). The funds appear to have been used to build up working capital and finance shareholder returns, indicating a change in the funding structure.

3. Dependence on Segment Earnings Structure: The Technology Solution Business accounts for 62.9% of revenue and 76% of segment profit, creating a structure in which fluctuations in demand for this business have a significant impact on Company-wide results.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Profitability is above the industry median for both operating margin and net profit margin.

Growth and Capital Efficiency

The revenue growth rate is substantially below the industry median, positioning the Company in a declining-revenue phase within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Despite declining revenue, operating income was maintained almost unchanged through an improved gross margin (42.3%, +4.6pt YoY), while ordinary income and net income both increased by double digits. The primary factors were the change in product mix resulting from the expansion of the Brand Business and the normalization of non-operating income and expenses due to the decrease in foreign exchange losses.

2. OCF was negative at -¥10.2B, with the increase in inventories and income taxes paid being the primary factors, resulting in a divergence from net income. Progress against the full-year plan remained in the 19%–21% range for key indicators, below the benchmark for evenly distributed quarterly progress.

3. Short-term borrowings increased (+¥25.0B) while share repurchases and dividend payments were simultaneously implemented, indicating from the earnings data an allocation of funds toward both working capital buildup and shareholder returns.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from 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: ¥455–¥484 at ±1% for the cost of equity, and ¥464–¥478 at ±0.1 for ω.

Notes:

• Goodwill amortization of ¥1.1 per share has been added back to earnings (to account for a non-cash expense and comparability with IFRS companies).
• Net assets as of the quarter-end have been 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 is not intended to predict 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 summary data. It does not recommend investment in any specific security. The 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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