Meiko Electronics (6787) FY2027 Q1 Earnings Report

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Executive Summary

While Revenue grew significantly by 38.0% year on year, the rates of increase in the cost of sales and SG&A expenses exceeded the rate of revenue growth, resulting in growth accompanied by margin deterioration characteristic of higher revenue but lower profitability. Revenue was ¥732.2B, Operating Income was ¥60.7B (+8.7% YoY), Ordinary Income was ¥56.3B (+14.2%), and Net Income attributable to owners of the parent was ¥39.8B (+5.5%). The main cause of the decline in the Operating Income margin was that the cost of sales increased 40.3% year on year and SG&A expenses increased 49.5%, both exceeding the revenue growth rate. The relatively high growth in Ordinary Income was attributable to non-operating factors, including the shift to foreign exchange gains.

Factors Affecting Business Performance

【Revenue】Revenue increased 38.0% year on year to ¥732.2B. The company has a single-business structure centered on the design, manufacture, and sale of electronic circuit boards. Although a breakdown by segment is not disclosed, the expansion of the consolidation scope, including three newly consolidated companies, appears to have contributed to the increase in revenue.

【Profit and Loss】Operating Income was limited to ¥60.7B (+8.7% YoY), while the gross profit margin declined by approximately 1.3pt to 19.7% from 21.0% in the same period last year, and the SG&A ratio also increased to 11.4%. In non-operating income and expenses, the company shifted from a foreign exchange loss in the same period last year to a foreign exchange gain of ¥1.4B in the current period, causing Ordinary Income of ¥56.3B (+14.2%) to exceed the growth rate of Operating Income. The only extraordinary loss was a ¥1.4B loss on the disposal and sale of fixed assets, limiting its financial impact. Net Income was limited to ¥39.8B (+5.5%), as interest expense increased 98.2% year on year to ¥7.7B, restraining the conversion to profit before tax. In conclusion, the company is in a phase of higher revenue and higher profit accompanied by characteristics of higher revenue but lower profitability—in other words, a higher-revenue, higher-profit phase accompanied by declining profitability.

Key Financial Indicators

【Profitability】The Operating Income margin was 8.3%, down approximately 2.2pt from 10.5% in the same period last year, while the Net Income margin was also down approximately 1.7pt to 5.4% from 7.1% in the same period last year. The gross profit margin also declined to 19.7% from 21.0% in the same period last year, reflecting increases in the cost of sales and SG&A expenses that exceeded revenue growth.【Cash Quality】Comprehensive Income was ¥79.8B, exceeding Net Income of ¥39.8B. The difference was primarily attributable to a ¥37.6B increase in foreign currency translation adjustments, indicating that factors outside the core business had a significant impact.【Investment Efficiency】Annualized ROE was 10.8%, indicating that an expansion in financial leverage is compensating for the decline in the Net Income margin. Total assets expanded 16.8% year on year, while equity growth was limited to +4.0%.【Financial Soundness】The Equity Ratio was 38.2%, showing a declining trend from approximately 40.6% in the previous year, while short-term borrowings increased 62.4% year on year. Cash and deposits increased 44.9% year on year to ¥398.6B, but this level cannot be considered to provide sufficient headroom relative to the pace of increase in short-term liabilities.

Cash Flow Analysis

Although the company does not disclose a cash flow statement, analysis of changes in the balance sheet indicates that working capital is expanding alongside the rapid growth in revenue. Accounts receivable of ¥631.9B and inventories of ¥149.6B have both accumulated in line with the increase in revenue, suggesting that funds may be tied up in receivables and inventory. Meanwhile, accounts payable increased year on year to ¥506.6B, partially offsetting the funding burden on purchases. Short-term borrowings increased 62.4% year on year in response to the expansion of working capital, and cash and deposits also increased to ¥398.6B. Construction in progress was ¥586.7B, accounting for 30.5% of property, plant and equipment and suggesting that funding needs related to investment activities remain ongoing. Overall, the company appears to be financing the increase in working capital and capital expenditures during this period of revenue growth through increased borrowings.

Earnings Quality

Current-period earnings include a strongly one-off factor in the form of a ¥1.4B foreign exchange gain in non-operating income, which contributed to the increase in Ordinary Income. In the same period last year, the company recorded a foreign exchange loss instead; fluctuations in non-operating income and expenses were therefore the primary reason that the growth rate of Ordinary Income exceeded that of Operating Income. The only extraordinary loss was a ¥1.4B loss on the disposal and sale of fixed assets, and its small size did not materially distort earnings quality. Comprehensive Income of ¥79.8B significantly exceeded Net Income of ¥39.8B, but most of the difference consisted of the valuation-related item of ¥37.6B in foreign currency translation adjustments arising from exchange-rate movements; it should be noted that this does not indicate the earnings power of the core business. If the rate of increase in accounts receivable and inventories is relatively high compared with revenue growth, this may entail future collection and impairment risks. From an accrual perspective, it is therefore necessary to monitor the progress of converting earnings into cash.

Earnings Forecasts and Guidance

The full-year company forecasts are Revenue of ¥3,200B (+33.0% YoY), Operating Income of ¥380B (+54.6%), and Ordinary Income of ¥350B (+32.1%). Progress toward the full-year forecasts in Q1 was 22.9% for Revenue, 16.0% for Operating Income, and 16.1% for Ordinary Income. Revenue progress was nearly in line with the standard level of 25%, but progress for Operating Income and Ordinary Income was below this level. Achieving the full-year plan therefore requires an acceleration in profit growth from Q2 onward, particularly an improvement in profit margins. There have been no revisions to either the earnings forecasts or the dividend forecasts.

Shareholder Returns

The full-year dividend forecast is ¥160 per share, representing a level that is expected to increase from the previous-year dividend result of ¥45 (a reference figure before the combined interim and year-end amounts). The forecast Payout Ratio against the full-year EPS forecast of ¥1,051.95 is approximately 15.2%, significantly below the general sustainability benchmark of approximately 60%. There was no revision to the dividend forecast during the quarter. As the amount of share repurchases cannot be confirmed from the disclosed data, the Total Return Ratio, combining dividends and share repurchases, has not been calculated.

Risk Factors

1. Short-term liquidity risk: Short-term borrowings increased 62.4% year on year to ¥697.7B, and the short-term liabilities ratio was 51.1%, exceeding the 40% level considered a warning threshold for refinancing risk. The current ratio was 101.0% and the quick ratio was only 92.1%, indicating a limited liquidity buffer.

2. Profitability deterioration risk: The gross profit margin was 19.7%, down from 21.0% in the same period last year and below the 20% level. The cost of sales is increasing at a pace exceeding the growth in Revenue. If the company is unable to pass through raw material and subcontracting costs, profit margins may continue to decline even as revenue increases.

3. Working capital and investment execution risk: Accounts receivable and inventories have increased, intensifying the tying-up of funds. In addition, construction in progress was ¥586.7B, accounting for 30.5% of property, plant and equipment. If the start of operations or recovery of investment is delayed, this could result in depreciation expenses being incurred ahead of earnings contributions and a decline in capital efficiency.

Industry Benchmarks (Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Income margin and Net Income margin were slightly below the industry median, placing profitability somewhat toward the lower end of the industry.

Growth and Capital Efficiency

The Revenue growth rate significantly exceeded the industry median, indicating an exceptional period of revenue growth within the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. While Revenue showed strong growth of +38.0% year on year, Operating Income growth was limited to +8.7%. The decline in profitability through deterioration in both the gross profit margin and SG&A ratio will be a key focus going forward.

2. Short-term borrowings are increasing simultaneously with a decline in liquidity indicators. How the expansion of working capital associated with revenue growth is being financed will be an important point of observation in assessing financial soundness.

3. The substantial increase in goodwill and intangible assets suggests an expansion in the consolidation scope, including three newly consolidated companies. The extent to which the acquired businesses realize earnings contributions will be a key point to be confirmed in future financial results.

Theoretical Share Price (Reference Value)

Sensitivity: ¥7,413–¥7,871 at ±1% for the cost of equity, and ¥7,589–¥7,710 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end are used (there is a time lag relative to the full-year forecast).
• As 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 using only publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee future share prices.)

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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 disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting a professional as necessary.

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