ALPS ALPINE (6770) FY2027 Q1 Earnings Report

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Executive Summary

The most important point this quarter is that operating income turned from a profit into a loss despite revenue remaining nearly flat. Revenue was ¥2,378.9B (-0.4% YoY), virtually unchanged from the previous year, while operating income was ¥-9.2B, a deterioration of ¥46.5B from the previous year's ¥37.3B. Ordinary income was limited to ¥1.1B (-91.3% YoY), while net income was ¥-35.3B, with the loss widening from ¥-27.2B in the previous year. The primary factors were a significant deterioration in the profitability of the core Mobility Business despite higher revenue, and the recognition of ¥33.3B in income taxes and other taxes despite the small pretax loss, which increased the net loss.

Factors Affecting Earnings

【Revenue】Company-wide revenue was ¥2,378.9B, essentially flat at -0.4% YoY, although the direction of each segment was contrasting. The Mobility Business and Sensor & Communication Business posted higher revenue of ¥1,481.8B (+12.7% YoY) and ¥231.5B (+16.8% YoY), respectively, while the Components Business recorded a substantial revenue decline to ¥618.6B (-25.5% YoY), offsetting overall company growth.

【Profit and Loss】The gross margin was 15.8%, slightly below the SG&A expense ratio of 16.1%, causing operating income to turn into a loss of ¥-9.2B. This was approximately 2pt lower than the operating margin of 1.6% in the same period of the previous year. The primary factor was the deterioration of the Mobility Business, a revenue-growth segment, to an operating loss of ¥30.9B from ¥-5.4B in the previous year. The Components Business secured operating income of ¥27.3B, but this was approximately half of the previous year's ¥62.3B due to lower revenue. Non-operating income—comprising interest income of ¥5.4B, dividend income of ¥5.2B, and equity-method income of ¥7.4B—offset the operating loss, allowing ordinary income to remain positive at ¥1.1B. However, income taxes and other taxes of ¥33.3B were recognized against a pretax loss of ¥-2.0B, causing the net loss to widen to ¥-35.3B. In conclusion, this was a result characterized by higher revenue and lower profit—in substance, a deterioration in earnings accompanied by worsening profitability in the core business.

Segment Analysis

The Mobility Business is the core segment, accounting for 62.3% of the revenue mix, but its operating loss deteriorated to ¥30.9B from ¥-5.4B in the previous year, indicating that higher revenue has not translated into profit. The Components Business experienced a substantial revenue decline to ¥618.6B (-25.5% YoY), but maintained an operating margin of 4.4% and secured profit of ¥27.3B, serving as a support for company-wide profits. The Sensor & Communication Business increased revenue to ¥231.5B (+16.8% YoY), while its operating loss narrowed to ¥-5.0B from the equivalent of ¥-21.4B in the previous year, indicating improvement from its loss-making structure. The deterioration in company-wide operating income was primarily attributable to the expanded loss in the Mobility Business rather than the decline in profit in the Components Business.

Key Financial Indicators

【Profitability】The operating margin was -0.4% (1.6% in the previous year), while the net margin was -1.5%. The company moved into an operating loss because the gross margin of 15.8% was slightly below the SG&A expense ratio of 16.1%. 【Cash Flow Quality】Comprehensive income was positive at ¥34.9B. The gap from the net loss of ¥-35.3B was attributable to the recognition of foreign currency translation adjustments of ¥67.4B, indicating that the valuation of foreign-currency assets contributed separately from underlying business earnings. 【Investment Efficiency】ROE was -0.8%, and returns on capital remained weak despite a strong financial base with an equity ratio of 56.2%, indicating that the company is not generating value from invested capital. 【Financial Soundness】The company had an equity ratio of 56.2% and cash and deposits of ¥1,400.8B. Current assets of ¥4,988.6B substantially exceeded current liabilities of ¥2,555.7B, indicating that short-term financial soundness has been maintained.

Cash Flow Analysis

Because the cash flow statement has not been disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥1,400.8B, down ¥135.3B from ¥1,536.1B in the same period of the previous year. The deterioration in operating income and the accumulation of inventories—inventory assets were ¥819.6B, up ¥154.1B from ¥665.5B in the previous year—may have placed pressure on cash. Short-term borrowings increased to ¥445.8B from ¥370.7B in the previous year, suggesting that short-term financing was utilized to secure working capital. Property, plant and equipment increased to ¥1,688.8B from ¥1,579.9B in the previous year, indicating that capital investment has continued. Net assets were ¥4,466.5B, down ¥27.5B from the previous year, but the equity ratio was maintained at 56.2%, leaving the company with sufficient financial strength to absorb the loss.

Quality of Earnings

Ordinary income of ¥1.1B was secured as non-operating income of ¥19.6B—including interest income of ¥5.4B, dividend income of ¥5.2B, and equity-method income of ¥7.4B, among others—offset the operating loss of ¥-9.2B. This composition diverges from the earning power of the core business. Extraordinary gains and losses were limited in scale, consisting of gains of ¥0.5B and losses of ¥3.6B, including ¥3.2B in losses on the disposal and sale of fixed assets and ¥0.3B in impairment losses, and were not the primary cause of the wider net loss. Income taxes and other taxes of ¥33.3B were recognized against a pretax loss of ¥-2.0B, resulting in an extremely unusual effective tax rate. This demonstrates the lack of correlation between tax expense and the small pretax loss, and caution is warranted when simply extrapolating the net loss of ¥-35.3B as an earnings trend for the full year. Comprehensive income was positive at ¥34.9B because foreign currency translation adjustments of ¥67.4B exceeded the net loss; this was attributable to a factor separate from the underlying business results.

Earnings Outlook and Guidance

The full-year company forecast is revenue of ¥1兆450B (+2.5% YoY), operating income of ¥485B (+15.4% YoY), ordinary income of ¥455B (-7.4% YoY), and net income of ¥300B. Q1 revenue progress was 22.8%, slightly below the standard 25%, while operating income and net income were negative, resulting in negative progress rates. To achieve the full-year plan, profitability in the Mobility Business must improve and revenue in the Components Business must bottom out from Q2 onward. No revisions to the earnings forecast had been made as of this quarter.

Shareholder Returns

The full-year forecast dividend per share is ¥64.00, representing a planned increase from the previous year's dividend of ¥30. Based on forecast EPS of ¥150.41, the payout ratio is 42.6%, remaining below 60%. However, Q1 net loss attributable to owners of the parent was ¥-35.9B, meaning that assessment of the dividend funding capacity is premised on achieving the full-year net income plan of ¥300B. There was no revision to the dividend forecast as of this quarter.

Risk Factors

1. Deterioration in the profitability of the core Mobility Business: Despite revenue of ¥1,481.8B (+12.7% YoY), the operating loss widened to ¥30.9B. Higher revenue has not translated into profit, and the product mix and cost structure require examination.

2. Continued revenue decline in the Components Business: Revenue declined substantially to ¥618.6B (-25.5% YoY), although the profit margin was maintained at 4.4%. If the slowdown in demand continues, fixed-cost absorption may deteriorate, potentially leading to a decline in the profit margin.

3. Lower interest coverage capacity: Due to the operating loss, operating income was unable to cover interest expense of ¥3.3B, and the short-term debt ratio is also high within the composition of current liabilities. Cash and deposits of ¥1,400.8B provide a cushion, but a delay in earnings recovery will increase the importance of cash management.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The company's profitability is substantially below the manufacturing industry median, with both operating and net income ranking in the lower tier of the industry.

Growth and Capital Efficiency

Revenue growth also remains below the industry median and is sluggish compared with peers that are on a growth trajectory.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The decline in the operating margin of approximately 2pt YoY and the shift into a loss despite nearly flat revenue suggest a structural profitability issue reflecting changes in the cost structure and product mix.

2. The coexistence of higher revenue and expanded losses in the core Mobility Business indicates that growth and profitability are not being achieved simultaneously within the business portfolio. The future trend in segment-level earnings will therefore be a key focus.

3. The substantial recognition of income taxes and other taxes against the pretax loss, which expanded the net loss, is a factor requiring attention when interpreting the current-period earnings figures as a full-year trend.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,091–¥2,212 at ±1% for the cost of equity, and ¥2,146–¥2,153 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, resulting in a timing difference from the full-year forecast.
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, nor does it predict or guarantee future share prices.)

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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. 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 a professional as necessary.

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AI Financial Analysis

Executive Summary

FY2027 Q1 was a weak start, with a modest sales decline translating into an operating loss and a larger net loss. Revenue was ¥237.9bn, down 0.4% YoY. Gross profit declined 5.5% YoY to ¥37.5bn. The gross margin contracted by approximately 80bp to 15.8% from 16.6% in the prior-year quarter. SG&A expense increased 6.9% YoY to ¥38.4bn despite the decline in sales. Consequently, operating income swung from a ¥3.7bn profit to a ¥0.9bn loss, equivalent to a -0.4% operating margin versus 1.6% a year earlier. Ordinary income remained marginally positive at ¥0.1bn because ¥2.0bn of non-operating income exceeded ¥0.9bn of non-operating expenses. Interest income of ¥0.5bn, dividend income of ¥0.5bn and equity-method earnings of ¥0.7bn supported ordinary income, partly offsetting the operating loss. However, a ¥0.4bn net extraordinary loss and ¥3.3bn of income-tax expense resulted in a ¥3.6bn loss attributable to owners of the parent. EPS was negative ¥18.38, compared with negative ¥13.76 in the prior-year quarter. The loss attributable to owners widened 27.1% YoY even as the operating result deteriorated more sharply, reflecting the cushion from non-operating investment-related income and lower foreign-exchange losses. Comprehensive income turned positive to ¥3.5bn, supported principally by ¥7.0bn of other comprehensive income, including a ¥6.7bn foreign-currency translation gain. The Components business remained the earnings base, but its segment profit fell substantially. Mobility moved into a substantial segment loss despite strong sales growth, making its turnaround central to the full-year outcome. Inventories increased materially while sales were flat, heightening attention on demand visibility, product mix and inventory absorption. Liquidity remains sound, with a 195.2% current ratio and cash exceeding short-term borrowings by 3.14x. The unchanged full-year plan calls for ¥1,045.0bn of revenue, ¥48.5bn of operating income and ¥30.0bn of profit attributable to owners, implying a very pronounced recovery after Q1. The key issue for the remainder of FY2027 is whether cost control, gross-margin recovery and Mobility profitability can close this large gap to the plan.

Profitability Analysis

The supplied annualized DuPont analysis shows ROE of -3.2%, comprising a -1.5% net profit margin, 1.197x asset turnover and 1.78x financial leverage. The negative margin is the direct cause of the negative ROE; asset utilization and leverage cannot compensate for the quarterly loss. Operating margin deteriorated by roughly 200bp YoY, from 1.6% to -0.4%, while gross margin declined by approximately 80bp to 15.8%. The remaining pressure came from operating leverage: SG&A rose 6.9% YoY, or ¥2.5bn, while revenue declined ¥1.0bn. This unfavorable cost/revenue relationship converted a ¥3.7bn operating profit into a ¥0.9bn operating loss. The 15.8% gross margin is below the 20% reference level and signals inadequate pricing, mix and/or manufacturing-cost absorption for the current revenue base. The annualized ROIC of -0.9% likewise indicates that operating returns are below a sustainable cost-of-capital threshold. Interest coverage was -2.79x because EBIT was negative, so current-period operating profit does not cover interest expense. The reported 0.217 interest burden is mechanically distorted by the small negative EBIT and positive pre-tax loss, but it nevertheless demonstrates that financing costs are material when operating profitability is weak. The effective tax rate of -1,663.0% is not economically meaningful because pre-tax income was a small loss while income-tax expense was positive; the tax charge amplified the net loss. The ¥0.4bn net extraordinary loss, including ¥0.3bn loss on sales and retirement of non-current assets and ¥0.04bn impairment loss, was modest relative to revenue but further widened the gap between ordinary income and net income. Segment evidence indicates that profitability pressure is concentrated in Mobility and, to a lesser degree, Components rather than arising from a broad sales contraction.

Growth Assessment

Revenue was broadly flat YoY at ¥237.9bn, masking a major change in segment mix. Components revenue fell 25.5% YoY to ¥61.8bn, and segment profit declined 56.2% to ¥2.7bn; its segment margin fell to 4.4% from 7.5%. Sensor & Communication revenue increased 16.8% to ¥23.1bn and its segment loss narrowed to ¥0.5bn from ¥2.1bn, improving its margin from -10.8% to -2.2%. Mobility was the largest business by revenue at ¥148.2bn, or 62.3% of consolidated sales, and is the core business by scale. Mobility revenue grew 12.7% YoY, but segment profit reversed from a ¥0.5bn loss to a ¥3.1bn loss, with margin worsening from -0.4% to -2.1%. Thus, the sales growth mix was unfavorable to consolidated profits because expansion occurred in the loss-making Mobility business while the historically profitable Components business contracted. Other revenue was stable at ¥4.8bn, but its segment result moved to a small ¥0.5bn loss from a ¥0.2bn profit. Full-year revenue guidance of ¥1,045.0bn implies Q1 progress of 22.8%, modestly below the standard 25% seasonal benchmark. Q1 operating income progress is negative against the ¥48.5bn full-year target, versus a standard 25% benchmark. Achieving guidance requires approximately ¥494.2bn of operating income over Q2-Q4, compared with a ¥0.9bn Q1 operating loss, making the required earnings recovery exceptionally steep. The forecast assumes 2.5% full-year sales growth and a 15.4% increase in operating income, so improvement must come predominantly from margin restoration rather than revenue growth alone. No forecast revision was announced, which leaves execution against the recovery plan as the principal earnings catalyst and risk.

Financial Health

Balance-sheet liquidity is solid. Current assets were ¥498.9bn versus current liabilities of ¥255.6bn, producing working capital of ¥243.3bn and a current ratio of 195.2%. The quick ratio was also robust at 163.1%, indicating that liquidity does not depend solely on inventory monetization. Cash and deposits of ¥140.1bn covered short-term loans of ¥44.6bn by 3.14x. Interest-bearing debt was ¥99.8bn, consisting of ¥44.6bn of short-term loans and ¥55.3bn of long-term loans. Debt-to-equity was a moderate 0.78x, while debt-to-capital was 18.3%, both below the stated risk thresholds. There is therefore no balance-sheet leverage warning based on the D/E ratio. However, the 44.7% short-term debt ratio exceeds the 40% alert threshold and creates a refinancing-risk consideration, particularly while EBIT is negative. This maturity risk is mitigated by the substantial cash balance and the strong current-ratio buffer. Total equity declined ¥2.8bn YoY to ¥446.6bn, while total assets increased ¥12.0bn to ¥795.1bn; the equity ratio consequently declined to 55.9% from 57.1%. Deferred tax liabilities of ¥26.7bn exceed deferred tax assets of ¥13.9bn, and the balance sheet also includes a ¥74.2bn net defined-benefit liability. Interest coverage of -2.79x is the principal credit concern: although debt quantum is manageable, recurring operating earnings need to normalize to preserve debt-service resilience.

Notable B/S Changes

Finished goods: +¥15.4bn (+23.2%) to ¥82.0bn — inventory increased materially despite broadly flat sales, increasing demand-absorption and margin-risk sensitivity. Property, plant and equipment: +¥10.9bn (+6.9%) to ¥168.9bn — the manufacturing asset base expanded, with construction in progress still substantial at ¥33.6bn. Cash and deposits: -¥13.5bn (-8.8%) to ¥140.1bn — liquidity remains strong, but the reduction should be monitored alongside operating recovery. Accounts payable: +¥12.9bn (+13.9%) to ¥106.1bn — supplier financing increased and partially offsets the working-capital effect of higher inventory. Short-term loans: +¥7.5bn (+20.3%) to ¥44.6bn — greater short-term funding increased the short-term debt ratio to 44.7%. Accounts receivable: -¥13.0bn (-7.7%) to ¥155.4bn — collections and/or lower receivable exposure improved relative to the prior-year balance.

Cash Flow Quality

Dividend Sustainability

The full-year dividend forecast is ¥64 per share, unchanged from the company forecast. Against forecast FY2027 EPS of ¥150.41, the implied dividend-only payout ratio is approximately 42.6%, which is within the stated sub-60% sustainability benchmark. Q1 EPS was negative ¥18.38, so a quarterly earnings-based payout ratio is not meaningful. Dividend sustainability for FY2027 is therefore dependent on delivery of the planned recovery to ¥30.0bn in profit attributable to owners rather than on Q1 earnings. Retained earnings remained substantial at ¥198.0bn, providing balance-sheet capacity, while liquidity is supported by ¥140.1bn of cash and deposits. The unchanged dividend forecast indicates that management has not yet altered its shareholder-return stance despite the weak opening quarter.

Risk Assessment

Business risks include Mobility execution risk is the highest operational concern: sales grew 12.7% YoY, but the segment loss widened to ¥3.1bn and margin fell to -2.1%. Recovering profitability in the largest revenue segment is essential to meeting full-year guidance., Components demand and mix risk remains material: segment revenue fell 25.5% YoY and segment profit declined 56.2%, reducing the contribution from the group’s main profitable business., Manufacturing cost and pricing risk is elevated, as the consolidated gross margin fell about 80bp to 15.8%, below the 20% reference threshold, while SG&A increased faster than sales., Inventory and demand-forecast risk has increased: finished goods rose ¥15.4bn YoY to ¥82.0bn while consolidated revenue declined slightly. This may raise future discounting, utilization and valuation-pressure risk if demand does not improve., Product-quality risk is elevated by the ¥9.9bn product-warranty provision, equivalent to 4.1% of Q1 revenue and above the 3% warning threshold. For an automotive and electronics manufacturer, warranty claims, quality remediation and customer-reputation effects can pressure margins..

Financial risks include Debt-service risk is elevated in the current quarter because interest coverage was -2.79x; negative EBIT did not cover ¥0.3bn of interest expense., Refinancing risk requires monitoring because 44.7% of interest-bearing debt is short term, above the 40% alert level. Cash coverage of short-term loans is nevertheless strong at 3.14x., Tax-expense volatility is material: a ¥3.3bn tax expense on a ¥2.0bn pre-tax loss drove the attributable loss to ¥3.6bn., Foreign-exchange risk remains relevant for an export-oriented electronics and mobility supplier; Q1 recorded ¥0.2bn of FX losses, while foreign-currency translation produced a ¥6.7bn OCI gain..

Key concerns include Likelihood: high; impact: high — the gap between Q1 operating loss of ¥0.9bn and the ¥48.5bn full-year operating-profit plan requires an unusually large Q2-Q4 recovery., Likelihood: high; impact: high — low operating efficiency is reflected in a -0.4% EBIT margin and annualized ROIC of -0.9%, both below relevant benchmarks., Likelihood: medium; impact: high — sustained weak demand or product-mix deterioration could prevent inventory normalization and delay gross-margin recovery., Likelihood: medium; impact: medium — the favorable non-operating contribution, including interest, dividends and equity-method earnings, supported ordinary income but is not a substitute for a durable operating turnaround..

Investment Implications

Key takeaways include Q1 confirms a sharp deterioration in core operating profitability despite nearly stable consolidated revenue., The primary earnings swing factor is Mobility: strong revenue growth coincided with a ¥3.1bn segment loss., Components remains profitable but its revenue and segment profit contracted materially., Liquidity and leverage are currently adequate, but negative interest coverage makes operating recovery more important for credit quality., The unchanged full-year outlook embeds a substantial back-loaded earnings recovery..

Metrics to watch include Mobility segment margin and loss-reduction trajectory, Components revenue recovery and segment margin, Consolidated gross margin and SG&A-to-sales trend, Finished-goods inventory level relative to revenue growth, Operating-income progress toward the ¥48.5bn full-year forecast, Interest coverage and the mix of short-term versus long-term borrowings, Warranty provision and related quality-cost developments.

Regarding relative positioning, The company combines a sound liquidity position and moderate balance-sheet leverage with subscale current operating returns. Relative performance should be assessed primarily through the pace of Mobility margin normalization, Components demand recovery and gross-margin restoration rather than through sales growth alone.