HIROSE ELECTRIC CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

Despite increases in revenue and operating profit, the increase in net income was extremely limited compared with the strong growth at the operating level, as a sharp rise in the effective tax rate weighed on bottom-line earnings. Revenue was ¥620.9B (+26.8% YoY), Operating Income was ¥133.4B (+35.6%), and Profit Before Tax was ¥144.7B (+41.3%), indicating continued growth in both revenue and earnings. However, Net Income attributable to owners of the parent was ¥73.3B (+1.4%), representing a significant slowdown in growth. Revenue growth in both the main multi-pin connector and coaxial connector segments, together with an improvement in the selling, general and administrative expense ratio, supported the increase in operating income. However, the effective tax rate surged from 29.4% to 49.3%, offsetting the increase in bottom-line earnings. Quarterly earnings per share were ¥224.03 (+4.9%), exceeding the growth in net income, reflecting a decline in the weighted-average number of shares outstanding during the period following the cancellation of treasury shares.

Factors Affecting Earnings

【Revenue】Revenue was ¥620.9B, representing a 26.8% YoY increase. The main multi-pin connector business generated ¥541.2B (87.2% of total revenue, YoY +24.6%), while coaxial connectors generated ¥52.5B (8.5%, YoY +21.4%). The smaller Other Businesses segment also grew sharply to ¥27.1B (YoY +122.8%). By region, China remained the largest market at ¥209.3B (33.7% of total revenue, YoY +16.1%). However, growth in Japan (¥120.3B, YoY +46.2%) and Other Regions (¥192.9B, YoY +37.5%) accelerated overall growth, while China’s share declined from 36.8% to 33.7%.

【Profit and Loss】Operating Income was ¥133.4B (YoY +35.6%), representing growth exceeding the increase in revenue. The gross margin declined slightly to 41.9% from 42.4% in the previous year, but the selling, general and administrative expense ratio improved from 22.3% to 19.9%, raising the operating margin from 20.1% to 21.5%. Financial expenses declined from ¥6.7B to ¥1.7B, while financial income also increased, lifting Profit Before Tax to ¥144.7B (YoY +41.3%). However, due to the sharp rise in the effective tax rate from 29.4% to 49.3%, Net Income growth slowed significantly to ¥73.3B (YoY +1.4%). Overall, the company achieved increases in revenue and earnings, but the increase at the net income level was substantially diluted by the higher tax burden compared with the strong performance at the operating income and profit-before-tax levels.

Segment Analysis

The multi-pin connector segment recorded revenue of ¥541.2B (87.2% of total revenue, YoY +24.6%) and Operating Income of ¥115.3B (YoY +34.1%). Its operating margin improved from 19.8% to 21.3%, indicating simultaneous progress in revenue growth and profitability. The coaxial connector segment generated revenue of ¥52.5B (8.5% of total revenue, YoY +21.4%) and Operating Income of ¥14.7B (YoY +15.2%). Its margin was 27.98%, still the highest among the segments, although down from 29.48% in the previous year. Other Businesses recorded revenue of ¥27.1B and Operating Income of ¥3.4B, turning profitable from an operating loss of ¥0.4B in the previous year. The multi-pin connector segment accounted for 86.5% of company-wide Operating Income, indicating a high degree of dependence on the core segment and concentration in the earnings structure.

Key Financial Indicators

【Profitability】The operating margin was 21.5%, improving by +1.4pt from 20.1% in the same period of the previous year. However, the gross margin declined by -0.5pt from 42.4% to 41.9%, with the primary driver of the improvement being the reduction in the selling, general and administrative expense ratio from 22.3% to 19.9%. Meanwhile, the net profit margin declined by -3.0pt from 14.8% to 11.8%, as the increase in the effective tax rate weighed on profitability. 【Cash Flow Quality】Operating Cash Flow was ¥122.0B, equivalent to 1.66 times Net Income of ¥73.3B, indicating solid cash-generation capacity supporting reported earnings. 【Investment Efficiency】ROE was 1.9% (quarterly actual, before annualization), while quarterly net income as a percentage of total assets was approximately 1.7%. The asset structure, characterized by substantial holdings of cash and financial assets, tends to reduce asset turnover. Quarterly earnings per share were ¥224.03 (YoY +4.9%), exceeding Net Income growth (+1.4%) due to the decline in the weighted-average number of shares outstanding following the cancellation of treasury shares. 【Financial Soundness】The Equity Ratio was 86.4%, slightly down from 87.7% in the same period of the previous year but still extremely high. Operating Income was approximately 79 times financial expenses, indicating substantial capacity to absorb interest-related burdens.

Cash Flow Analysis

Cash flow from operating activities was ¥122.0B, an increase of +3.0% YoY, securing cash generation above Net Income of ¥73.3B. As revenue expanded, trade receivables increased by ¥65.3B and inventories increased by ¥34.0B, placing pressure on cash flows, while the ¥38.0B increase in trade payables provided a partial offset. Cash flow from investing activities was positive at ¥192.0B, primarily due to the withdrawal of ¥268.8B in time deposits, while capital expenditures remained limited to ¥46.7B. Cash flow from financing activities was negative ¥89.4B, most of which consisted of dividend payments of ¥85.1B. Free Cash Flow (Operating CF + Investing CF) was ample at ¥313.9B, and cash and cash equivalents increased by ¥229.6B from the beginning of the period to ¥1103.0B.

Quality of Earnings

Operating Cash Flow reached 1.66 times Net Income, indicating that earnings for the current period were of high quality and supported by cash generation. However, increases in trade receivables and inventories delay the conversion of earnings into cash and will require monitoring going forward. In the income statement, net financial income—financial income of ¥12.96B less financial expenses of ¥1.68B—expanded to ¥11.3B from ¥4.1B in the previous year, contributing to the increase in Profit Before Tax. The factor with the greatest impact on Net Income was the effective tax rate, which surged from 29.4% in the previous year to 49.3% in the current period. Consequently, Net Income growth of +1.4% fell substantially below Profit Before Tax growth of +41.3%. Comprehensive income was ¥97.7B, ¥24.4B above Net Income of ¥73.3B. This difference was attributable to other comprehensive income items not directly related to core operating earnings, including foreign currency translation adjustments for foreign operations of ¥14.1B and valuation gains of ¥10.0B on equity financial instruments measured at fair value through other comprehensive income.

Earnings Forecast and Guidance

Progress toward the full-year forecast was 24.8% for Revenue (¥620.9B/¥2500.0B) and 26.7% for Operating Income (¥133.4B/¥500.0B). Both were at or above the 25% benchmark for quarterly progress, indicating steady progress. Meanwhile, progress toward the forecast for Net Income attributable to owners of the parent was somewhat slower at 20.9% (¥73.3B/¥350.0B), apparently due to the rise in the effective tax rate during Q1. The full-year Operating Income forecast represents a +16.3% increase from the previous fiscal year, while forecast EPS is ¥1069.63. The earnings forecast was revised during the quarter, but the dividend forecast was not revised. Going forward, the level at which the effective tax rate settles for the full year will be a key variable determining the extent to which the Net Income forecast is achieved.

Shareholder Returns

The full-year dividend forecast is ¥520 per share, with no revision to the dividend forecast during the quarter. The ¥85.1B in dividends paid during Q1 represented dividends for the previous fiscal year and increased from ¥82.9B paid in the same period of the previous year. The Payout Ratio calculated using forecast EPS of ¥1069.63 and the dividend forecast of ¥520 is 48.6%, which is considered sustainable in light of Free Cash Flow of ¥313.9B and cash and cash equivalents of ¥1103.0B. Share repurchases, measured by the acquisition amount in the cash flow statement, were minimal (¥0.0B). However, the cancellation of treasury shares reduced the treasury share balance from ¥477.7B to ¥290.0B, a contraction of 39.3%, resulting in a change in the shareholder equity structure.

Risk Factors

1. Effective Tax Rate Increase Risk: The effective tax rate surged from 29.4% in the same period of the previous year to 49.3% in Q1, reducing Net Income growth to +1.4% against Profit Before Tax growth of +41.3%. Whether this level continues for the full year will directly affect the extent to which the Net Income forecast is achieved.

2. Product Segment Concentration Risk: The multi-pin connector segment accounts for 87.2% of Revenue and 86.5% of Operating Income, creating a structure in which results are susceptible to supply-and-demand trends in a specific product area.

3. Cash Efficiency Risk from Increased Working Capital: Trade receivables increased by ¥65.3B and inventories increased by ¥34.0B, while the ¥38.0B increase in trade payables was insufficient to fully offset the impact. If the buildup of working capital associated with revenue growth continues, it may affect the flexibility of cash generation.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Return

Growth and Capital Efficiency

Source: Compiled by the Company

Key Takeaways from the Earnings

1. The 21.5% operating margin significantly exceeded the industry median of 8.7%, confirming structural profitability improvement driven by the reduction in the selling, general and administrative expense ratio (22.3%→19.9%). It will be necessary to assess in subsequent quarters whether this improvement represents sustainable efficiency gains rather than temporary cost containment.

2. The net profit margin was 11.8%, exceeding the industry median of 7.0%, but declined from 14.8% in the previous year due to the sharp increase in the effective tax rate (29.4%→49.3%). The impact of fluctuations in the tax burden on the quality of bottom-line earnings will be an important point to monitor in assessing the full-year tax rate trend.

3. The high level of financial soundness and cash-generation capacity, reflected in an Equity Ratio of 86.4% and an Operating CF/Net Income ratio of 1.66 times, provides a degree of resilience against the business concentration risk arising from dependence on multi-pin connectors.

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 to take any specific investment action.

Sensitivity: ¥11,534–¥12,201 for a ±1% change in the cost of equity, and ¥11,854–¥11,869 for a ±0.1 change in ω.

Notes:

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

(Calculation model: Residual income model / Interest rate reference month: 2026-06 / This figure does not 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 professionals as necessary.

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