Shindengen Electric Manufacturing Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

Revenue increased while earnings declined in the current quarter, with the slowdown in core earning power being the most important point. Revenue increased to ¥292.9B (+7.7% YoY), but Operating Income declined to ¥9.4B (-35.4%), Ordinary Income to ¥12.0B (-16.7%), and Net Income to ¥8.2B (-43.3%). Operating-stage margins contracted due to deterioration in the gross margin accompanying higher costs and an increase in the SG&A ratio. Although non-operating income, including dividends received and foreign exchange gains, provided support at the Ordinary Income stage, the decline in final profit was the largest.

Factors Affecting Results

【Revenue】Revenue increased 7.7% YoY to ¥292.9B. By segment, the PowerDevice Business led growth with double-digit expansion of 15.5% to ¥126.3B, while the PowerUnit Business remained solid, increasing 4.8% to ¥180.3B. In contrast, the PowerSystems Business recorded a substantial 28.5% decline in revenue to ¥11.0B.

【Profit and Loss】Operating Income declined 35.4% to ¥9.4B, with the gross margin falling to 16.3% and the SG&A ratio rising to 13.1%; the increase in expenses exceeded the benefit from higher revenue. Ordinary Income declined 16.7% to ¥12.0B, with non-operating income, including ¥2.2B in dividends received and ¥1.3B in foreign exchange gains, partially offsetting the decline in Operating Income. Net Income declined 43.3% to ¥8.2B, most directly reflecting the deterioration at the operating stage. By segment profit, PowerSystems fell into a loss of ¥0.4B, weighing on company-wide profitability, while PowerUnit and PowerDevice also recorded lower profits despite higher revenue. In conclusion, the company reported higher revenue but lower earnings.

Segment Analysis

The core PowerUnit Business generated revenue of ¥180.3B (+4.8%) and Operating Income of ¥10.7B (-13.7%), with a profit margin of 5.9%. It was the largest contributor to company-wide profit, although its margin declined from the previous year. The PowerDevice Business recorded revenue of ¥126.3B (+15.5%) and Operating Income of ¥9.0B (-0.6%), with a profit margin of 7.1%. Although it was the most profitable segment, profit remained nearly flat relative to the increase in revenue. The PowerSystems Business recorded revenue of ¥11.0B (-28.5%) and Operating Income of -¥0.4B, falling into the red and becoming a factor reducing the company-wide margin, with a profit margin of -4.0%. PowerUnit accounts for 56.7% of total revenue, indicating a high degree of business concentration.

Key Financial Indicators

【Profitability】The Operating Income margin was 3.2%, a substantial decline from approximately 5.4% in the previous year, while the Net Income margin remained at 2.8%. ROE was 1.1%, explained by the combination of a 2.8% Net Income margin, total asset turnover of 0.193, and financial leverage of approximately 2.06x.【Cash Flow Quality】The difference between Ordinary Income and Net Income was primarily attributable to income taxes and other taxes (effective tax rate of 31.6%), with no extraordinary gains or losses recorded and limited impact from temporary factors.【Investment Efficiency】Total asset turnover was low at 0.193, indicating room for improvement in asset efficiency.【Financial Soundness】The Equity Ratio was 48.5%, slightly lower than 50.2% in the previous year. However, cash and deposits increased to ¥334.7B, maintaining ample liquidity.

Cash Flow Analysis

As cash flow statement data has not been disclosed, funding trends are assessed based on changes in the balance sheet. Cash and deposits increased by +¥65.5B from the previous year to ¥334.7B, while long-term borrowings also increased by +¥38.5B to ¥347.3B, indicating that liquidity was bolstered through additional financing. Meanwhile, inventories remained high at ¥131.4B, and notes and accounts receivable remained high at ¥201.2B, indicating that the increase in revenue was accompanied by an expansion in operating assets. Property, plant and equipment, including construction in progress, has been trending upward, suggesting that capital investment is continuing. Overall, the company appears to be securing liquidity through external financing while the increase in operating assets is slowing the pace of cash generation.

Earnings Quality

No extraordinary gains or losses were recorded in the current quarter, and unlike the ¥3.5B gain on the sale of fixed assets recorded in the same period of the previous year, no temporary factors were observed this fiscal period. As a result, the earnings structure is relatively recurring in nature. Non-operating income was ¥4.7B, accounting for approximately 1.6% of revenue, with dividends received of ¥2.2B and foreign exchange gains of ¥1.3B as the main components; these effectively boosted Ordinary Income. Non-operating income compensated for the decline in earnings at the operating stage, and the gap between core earning power (Operating Income) and reported Ordinary Income should be noted when evaluating earnings quality. Comprehensive Income was ¥19.4B, exceeding Net Income of ¥8.2B. The difference was attributable to a ¥9.4B increase in the valuation difference on securities, reflecting market conditions rather than operating results.

Earnings Forecast and Guidance

Progress against the full-year plan was 24.2% for revenue, 23.5% for Operating Income, 30.8% for Ordinary Income, and 30.5% for Net Income. Compared with standard quarterly progress of 25%, revenue and Operating Income were slightly below, while Ordinary Income and Net Income were above. This difference reflects the accelerated contribution from non-operating income, including dividends received and foreign exchange gains, and indicates that progress in Operating Income from the core business is somewhat behind schedule. Achieving the full-year plan of ¥1212.0B in revenue and ¥40.0B in Operating Income will require an improvement in the gross margin from the second half onward.

Shareholder Returns

The company’s full-year dividend plan is ¥100 per share, resulting in a Payout Ratio of approximately 37.7% against projected full-year EPS of ¥265.2. The substantial cash and deposits of ¥334.7B support the continuation of dividends for the current period. No revision to the dividend forecast was made during the current quarter.

Risk Factors

1. Declining profitability: The Operating Income margin deteriorated substantially to 3.2% from approximately 5.4% in the previous year, due to both a lower gross margin and a higher SG&A ratio. The PowerSystems Business also fell into the red, with Operating Income of -¥0.4B, putting pressure on company-wide profitability.

2. Dependence on non-operating income: The increase in Ordinary Income was significantly supported by ¥2.2B in dividends received and ¥1.3B in foreign exchange gains. Attention should be paid to the high volatility of these items in response to market conditions.

3. Increase in operating assets: Inventories of ¥131.4B and notes and accounts receivable of ¥201.2B remained high. As operating assets are expanding relative to revenue growth, monitoring is required from the perspective of capital efficiency.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s Operating Income margin and Net Income margin were both below the industry median, placing its profitability relatively low within the industry.

Growth and Capital Efficiency

The revenue growth rate was slightly above the industry median, indicating that top-line expansion was relatively favorable within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Despite higher revenue, the Operating Income margin contracted to 3.2%, indicating that the company was unable to absorb higher costs and increased SG&A expenses. This is a structural characteristic of the current period’s results.

2. The progress rates for Ordinary Income and Net Income (above 30%) exceeded the progress rate for Operating Income (23.5%). The resulting earnings structure’s high dependence on non-operating income is an important consideration when evaluating earnings quality.

3. The PowerDevice Business recorded high revenue growth of +15.5%, but profit remained nearly flat. Together with the PowerSystems Business’s shift into the red, segment-level profitability improvement will be a key area for monitoring going forward.

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: ¥5,917–¥6,258 at ±1% for the cost of equity, and ¥6,047–¥6,108 at ±0.1 for ω.

Notes:

• Since forecast ROE is below the cost of equity, 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 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 / Interest Rate Reference Month: 2026-07 / This value 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 disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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