COSEL (6905) FY2026 Q3 Earnings Report

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Executive Summary

Due to deteriorating profitability in the core Japan and Europe businesses, operating income fell from a profit in the previous year to a loss. Revenue was ¥17.35B (-18.2% YoY), while operating income was ¥-0.90B (deteriorating from ¥0.73B in the previous year). Ordinary income barely remained profitable at ¥0.01B (-98.6% YoY), but this was attributable to a ¥0.68B foreign exchange gain and does not indicate a recovery in the core business. Net income was ¥-0.24B (deteriorating from ¥0.30B in the previous year), as the operating loss and significant corporate tax burden depressed final earnings.

Factors Affecting Performance

【Revenue】Revenue was ¥17.35B, down -18.2% YoY. By segment, the core Japan Production and Sales Business declined significantly to ¥12.13B (-24.9%), becoming the primary factor behind the decline in consolidated revenue. The Europe Production and Sales Business was nearly flat at ¥4.53B (+0.5%), while North America increased to ¥1.22B (+9.7%). Asia declined to ¥1.86B (-8.8%), and China Production declined to ¥1.30B (-6.5%).

【Profit and Loss】Gross profit after deducting cost of sales of ¥13.31B was ¥4.04B, with the gross margin declining from the previous year to 23.3%. SG&A expenses were ¥4.94B, remaining nearly flat compared with the 18.2% decline in revenue (¥4.99B in the previous year), and insufficient fixed-cost absorption pushed the operating margin down to -5.2%. By segment, Japan posted a loss of ¥-0.47B and Europe posted a loss of ¥-0.63B, with the two core businesses driving the deficit; the small profits in North America and Asia were insufficient to offset these losses. Non-operating income totaled ¥0.91B, including a ¥0.68B foreign exchange gain, nearly offsetting the ¥0.90B operating loss at the ordinary income level. While profit before tax remained at only ¥0.00B, corporate income taxes of ¥0.24B were recognized, resulting in net income of ¥-0.24B. In conclusion, the company experienced both revenue and profit declines.

Segment Analysis

Segment earnings deteriorated primarily in the core Japan Production and Sales Business and Europe Production and Sales Business. The Japan Production and Sales Business recorded revenue of ¥12.13B (-24.9%), and operating income turned from a profit of ¥0.67B in the previous year to a loss of ¥-0.47B, having the largest impact on consolidated earnings. The Europe Production and Sales Business was nearly flat in revenue at ¥4.53B (+0.5%), but its operating loss widened from ¥-0.37B in the previous year to ¥-0.63B. The North America Sales Business (¥1.22B, operating income of ¥0.01B) and Asia Sales Business (¥1.86B, operating income of ¥0.06B) remained profitable, but their small scale was insufficient to support consolidated profitability. The China Production Business posted revenue of ¥1.30B and fell from a profit of ¥0.07B in the previous year to a loss of ¥-0.02B. Across the company, declining demand and the burden of fixed costs are concentrated in the two core businesses.

Key Financial Indicators

【Profitability】The operating margin was -5.2%, deteriorating by approximately 8.6pt from 3.4% in the same period of the previous year, while the gross margin also declined to 23.3% from 26.9% in the previous year. The net profit margin was also -1.4%, deteriorating from 1.3% in the previous year. 【Cash Flow Quality】Ordinary income of ¥0.01B resulted from a ¥0.68B foreign exchange gain offsetting the ¥0.90B operating loss, and therefore can hardly be regarded as earnings derived from the core business. Comprehensive income was ¥1.10B, exceeding net income, but this was attributable to OCI factors such as foreign currency translation adjustments of ¥0.89B and valuation differences on securities of ¥0.54B, and does not indicate the earning power of the business. 【Investment Efficiency】Annualized ROE was -0.6%, while annualized ROIC was also -2.2%, indicating that the company has not generated returns exceeding its cost of capital. BPS was ¥1,329.25, slightly down from ¥1,357.41 in the previous year. 【Financial Soundness】The equity ratio was 91.7% (91.9% in the previous year), an extremely high level, and current assets of ¥46.63B significantly exceeded current liabilities of ¥3.20B. Cash and deposits were ¥27.71B, indicating substantial short-term financial capacity.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is unavailable, cash flow trends can be assessed from changes in the balance sheet. Cash and deposits were ¥27.71B, nearly unchanged from ¥27.79B in the same period of the previous year, indicating that cash levels were maintained despite the operating loss. Meanwhile, accounts payable increased to ¥1.43B (+39.4% from ¥1.03B in the previous year), suggesting that the use of trade payables may have supplemented part of working capital. Construction in progress also increased significantly to ¥1.15B from ¥0.03B in the previous year, while property, plant and equipment increased +12.0% YoY. If capital expenditures are proceeding ahead of operations and monetization, the recovery of invested capital will influence future cash flow trends. Net assets declined to ¥54.68B from ¥55.84B in the previous year, reflecting the recognition of a net loss and a decrease in retained earnings; however, the equity ratio remained high at 91.7%.

Quality of Earnings

Current-period ordinary income of ¥0.01B resulted from non-operating income of ¥0.91B, including a ¥0.68B foreign exchange gain, while operating income was ¥-0.90B. This indicates a substantial reliance on temporary and non-recurring factors in terms of earnings quality. Foreign exchange gains accounted for just under 75% of non-operating income, while dividends received of ¥0.05B and other income of ¥0.02B were limited. Extraordinary items were small, consisting of extraordinary income of ¥0.01B and extraordinary losses of ¥0.02B, and had a negligible impact on net income. Corporate income taxes of ¥0.24B were recorded against profit before tax of ¥0.03B, resulting in an extremely high effective tax rate on a nominal basis. However, this was an arithmetic consequence of the very small profit before tax and should not be interpreted as a normal tax rate level. Comprehensive income of ¥1.10B substantially exceeded net income of ¥-0.24B, but the difference was attributable to OCI items such as foreign currency translation adjustments and valuation differences on securities, and does not signify an improvement in accruals generated by business activities. Overall, the ordinary-income profit does not reflect an improvement in the core business’s earning power, and earnings quality can be considered low.

Earnings Forecast and Guidance

Against the full-year company forecast of revenue of ¥24.12B, operating income of ¥-0.81B, and ordinary income of ¥0.05B, the Q3 cumulative revenue progress rate was 71.9%, below the standard 75%. Cumulative operating income was ¥-0.90B, already below the full-year forecast of ¥-0.81B, making a return to profitability in Q4 a prerequisite for achieving the full-year forecast. The progress rate for ordinary income was significantly behind at 19.1%, requiring the remaining ordinary income to be generated in Q4. Neither the earnings forecast nor the dividend forecast has been revised, and the company currently expects to achieve its original plan.

Shareholder Returns

The Q2 dividend was ¥27.00 per share, while the full-year forecast for annual dividends is ¥55.00, with no revision to the dividend forecast. As the Q3 cumulative loss attributable to owners of the parent was ¥0.24B, the payout ratio based on current-period earnings is not meaningful as a calculation. When the total annual dividend amount, based on the number of shares issued, is compared with the full-year forecast for profit attributable to owners of the parent of ¥0.03B, the payout ratio is extremely high, indicating that current-period earnings are insufficient to fully cover dividends. However, the solid financial foundation represented by cash and deposits of ¥27.71B, retained earnings of ¥38.37B, and an equity ratio of 91.7% supports the continuation of dividends for the time being.

Risk Factors

1. Deteriorating profitability in core businesses: The Japan Production and Sales Business generated revenue of ¥12.13B (-24.9%), while segment income turned from a profit of ¥0.67B in the previous year to a loss of ¥-0.47B. The Europe Production and Sales Business was also nearly flat at revenue of ¥4.53B, but its loss widened to ¥-0.63B. Recovery in demand and a review of the fixed-cost structure in both businesses will be key to consolidated performance.

2. Ordinary income dependence on foreign exchange: Ordinary income of ¥0.01B was supported by a ¥0.68B foreign exchange gain, creating a structure in which the gain offset the ¥0.90B operating loss. If foreign exchange rates reverse, ordinary income may deteriorate again without any improvement in operating income.

3. Margin deterioration due to insufficient fixed-cost absorption: While revenue declined 18.2%, SG&A expenses declined only 1.0%, causing the operating margin to deteriorate from 3.4% in the previous year to -5.2%. The gross margin also declined to 23.3%, making cost-structure flexibility during periods of declining demand a key issue.

Industry Benchmark (For Reference; Compiled by the Company)

Key Points in the Financial Results

1. The strong financial foundation, including an equity ratio of 91.7% and a current ratio exceeding 14 times current liabilities, provides high resilience in short-term cash management. However, the core business is operating at a loss, making the certainty of earnings recovery a key point of focus.

2. While revenue declined 18.2%, SG&A expenses declined by only 1.0%, confirming that insufficient fixed-cost absorption amplified the deterioration in profitability. Trends in future SG&A control will be closely watched.

3. The ordinary-income profit is heavily dependent on a ¥0.68B foreign exchange gain and represents an improvement without a return to operating profitability. Accordingly, the recovery of profitability in the Japan and Europe businesses will be a key focus in evaluating future performance.

Theoretical Share Price (Reference Value)

Sensitivity: ¥968–¥1,022 at ±1% for the cost of equity, and ¥985–¥1,001 at ±0.1 for ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets at the end of the quarter are used (there is a timing difference relative to the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest-rate reference month: 2026-07 / Mechanically calculated value based solely on 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 summary data. It does not recommend investment in any specific security. The industry benchmark is reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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