COSEL (6905) FY2027 Q1 Earnings Report

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Executive Summary

The key point in FY2027 Q1 was the return to operating profitability from the operating loss recorded in the same period of the previous year, driven by increased revenue and improved absorption of fixed costs. Revenue was ¥78.1B (¥50.8B in the previous year, +54.0% YoY), Operating Income was ¥5.5B (a loss of ¥3.9B in the previous year), Ordinary Income was ¥5.8B (a loss of ¥0.8B in the previous year), and Net Income was ¥6.6B (a loss of ¥0.7B in the previous year). Recovery in demand at operations in Japan, North America, Asia, and China led the revenue increase, while sales in Europe alone remained at approximately the previous year's level.

Factors Affecting Performance

【Revenue】Revenue increased substantially to ¥78.1B, up +54.0% YoY. The Japan Production and Sales Business, at ¥48.1B (+81.3%), accounted for 55.3% of consolidated revenue and was the largest growth driver. North America at ¥5.7B (+81.8%), Asia at ¥9.2B (+56.5%), and China at ¥8.8B (+130.5%) also posted strong growth, while Europe at ¥15.2B (-0.3%) remained almost unchanged from the previous year, indicating differences in the pace of supply and demand recovery across regions.

【Profit and Loss】Operating Income turned profitable at ¥5.5B, compared with a loss of ¥3.9B in the previous year. The gross margin improved to 29.7% from approximately 25.6% in the previous year, while the SG&A ratio was 22.8%. Although revenue increased by 54.0%, SG&A expenses rose by only +5.5%, resulting in operating leverage. Ordinary Income was ¥5.8B, broadly consistent with Operating Income, while Net Income of ¥6.6B included an extraordinary gain of ¥3.5B (with no primary cause specified). Accordingly, profit before tax excluding extraordinary items was close to Ordinary Income. In conclusion, the Company achieved both revenue and profit growth.

Segment Analysis

By segment, Operating Income from the Japan Production and Sales Business was ¥5.3B, with a profit margin of 11.1% and growth of +283.8% YoY, making it the largest earnings contributor. North America at ¥0.8B (profit margin of 14.1%, +633.3%), China at ¥0.7B (profit margin of 8.3%, +661.5%), and Asia at ¥0.6B (profit margin of 6.6%, +258.8%) all reported profits and substantial improvements. In contrast, the Europe Production and Sales Business recorded an operating loss of ¥2.1B (profit margin of △13.7%), deteriorating further by △12.5% YoY and remaining the only loss-making segment, thereby weighing on the consolidated profit margin. The high concentration of revenue and profit in the Japan business and the structurally low profitability of the Europe business characterize consolidated performance.

Key Financial Indicators

【Profitability】The Operating Income margin improved substantially to 7.0% from negative 7.7% in the same period of the previous year, while the gross margin also rose to 29.7%. The Net Income margin was 8.5%; however, profit before tax of ¥9.3B included an extraordinary gain of ¥3.5B, indicating that recurring earning power was closer to Ordinary Income of ¥5.8B, or an Ordinary Income margin of 7.4%. 【Cash Quality】Cash and deposits were ¥266.1B, accounting for 43.1% of total assets. Accounts receivable of ¥77.7B and inventories of ¥28.1B have been increasing in line with revenue growth. 【Investment Efficiency】Annualized ROE was 5.1%, improving from the loss recorded in the same period of the previous year, although asset turnover efficiency relative to total assets of ¥617.0B remained limited. EPS was ¥16.08 (△¥1.67 in the previous year), and BPS was ¥1,260.17. 【Financial Soundness】The Equity Ratio was extremely high at 84.0%. Current assets of ¥483.5B substantially exceeded current liabilities of ¥59.6B, indicating a conservative and stable financial base.

Cash Flow Analysis

As no cash flow statement was disclosed, cash flow trends are analyzed based on changes in the balance sheet. Cash and deposits decreased by ¥17.6B from ¥283.7B in the previous year to ¥266.1B, but continued to account for more than 40% of total assets, indicating a high level of liquidity. Along with revenue growth, accounts receivable increased from ¥74.5B to ¥77.7B, and inventories also appear to be trending upward, suggesting that funds may be increasingly invested in working capital. Accounts payable increased by 40.4% from ¥14.3B to ¥20.1B, partially financing working capital through the use of trade payables. Property, plant and equipment increased from the previous year, indicating that asset allocation toward the production base is progressing. Overall, the expansion of working capital amid revenue growth has contributed to the decline in cash balances, but this is supported by a strong financial base, reflected in an Equity Ratio of 84.0%.

Quality of Earnings

Q1 Net Income of ¥6.6B included an extraordinary gain of ¥3.5B; therefore, recurring earning power should be evaluated after excluding this item. Excluding the extraordinary gain, profit before tax was approximately ¥5.8B, broadly consistent with Ordinary Income of ¥5.8B. Accordingly, it is appropriate to focus on Operating Income and Ordinary Income in evaluating earnings. Non-operating income was ¥0.7B, equivalent to only 0.9% of revenue, consisting mainly of dividend income of ¥0.4B and interest income of ¥0.3B, indicating low reliance on non-core income. Meanwhile, non-operating expenses included a foreign exchange loss of ¥0.3B, demonstrating that currency fluctuations related to overseas operations affected earnings. Comprehensive Income was ¥8.2B, exceeding Net Income of ¥6.6B. The primary cause of this difference was a ¥1.5B increase in the valuation difference on securities, indicating favorable earnings conditions including changes in asset values.

Earnings Forecast and Guidance

The full-year Company forecast is revenue of ¥318.0B (+27.0% YoY), Operating Income of ¥23.0B, Ordinary Income of ¥24.0B (+798.1% YoY), and Net Income of ¥26.0B. Q1 progress rates were 24.6% for revenue, 23.7% for Operating Income, 24.2% for Ordinary Income, and 25.4% for Net Income, all close to the simple average progress rate of 25% and within a standard range. The Net Income progress rate slightly exceeded that of Operating Income, primarily because an extraordinary gain of ¥3.5B was recorded in Q1. Maintaining core operating margins without relying on extraordinary factors will therefore be important for achieving the full-year targets. The fact that the earnings forecast was revised during the current quarter should be noted as an update to the outlook reflecting recent changes in the business environment.

Shareholder Returns

The full-year dividend forecast is ¥60.00 per share. Based on the average number of shares outstanding during the period of 41,134 thousand shares, the annual total dividend is approximately ¥24.7B, resulting in a Payout Ratio of approximately 94.9% against the full-year Net Income forecast of ¥26.0B. The dividend is expected to increase from ¥27 in the previous year to ¥60, representing a dividend plan that reflects the recovery in business performance. Although the Payout Ratio is high, the financial base of cash and deposits of ¥266.1B and an Equity Ratio of 84.0% provides support for the dividend. The sustainability of future dividends will depend on maintaining recurring profit generation without relying on extraordinary gains.

Risk Factors

1. Europe Business Profitability Risk: The Europe Production and Sales Business generated revenue of ¥15.2B, down 0.3% YoY, and recorded an operating loss of ¥2.1B (profit margin of △13.7%). There has been no reduction in the loss compared with the previous year, making this a structural factor weighing on the consolidated profit margin.

2. Business Concentration Risk: The Japan Production and Sales Business accounts for 55.3% of consolidated revenue and a substantial portion of Operating Income. Consequently, fluctuations in demand in the core region could have a significant impact on overall consolidated performance.

3. Foreign Exchange Risk: A foreign exchange loss of ¥0.3B was recorded in non-operating expenses. Currency fluctuations associated with operations in North America, Europe, and Asia may affect earnings.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

The Operating Income margin is below the industry median, while the Net Income margin exceeds the median.

Growth and Capital Efficiency

The revenue growth rate is substantially above the industry median, representing an exceptionally strong revenue growth phase within the industry.

※Source: Company analysis

Key Takeaways from the Results

1. Revenue growth of +54.0% and the limited increase in SG&A expenses (+5.5%) resulted in a substantial year-on-year improvement in the Operating Income margin and a return to operating profitability. The degree of operating leverage demonstrates the strong capacity to absorb fixed costs during a period of revenue growth.

2. Net Income of ¥6.6B included an extraordinary gain of ¥3.5B, and recurring earning power was close to Ordinary Income of ¥5.8B. The full-year Operating Income progress rate of 23.7% is within a standard range, making the maintenance of core operating margins excluding extraordinary factors the key focus going forward.

3. The Europe business's operating loss of ¥2.1B showed no improvement from the previous year. Together with the concentration of revenue and profit in the Japan business (55.3%), the imbalance in the regional earnings structure is a notable characteristic of consolidated performance.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,086–¥1,144 at ±1% for the cost of equity, and ¥1,110–¥1,117 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 (there is a timing gap relative to the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-08 / 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, and does not 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 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 professionals as necessary.

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