Stanley Electric Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

In Q1 of FY2027, Stanley Electric recorded a significant increase in revenue, primarily due to the contribution from the consolidation of Iwasaki Electric. However, the Company reported a pattern of higher revenue but lower profit due to increased SG&A expenses and a heavier tax burden. Revenue was ¥1,458.6B (+21.7% YoY), while Operating Income was ¥87.6B (+1.8% YoY), essentially flat. Ordinary Income was ¥95.5B (▲6.6% YoY), and consolidated Net Income, including the portion attributable to non-controlling interests, was ¥62.0B (▲8.8% YoY). Of this amount, Net Income Attributable to Owners of the Parent was ¥41.4B (▲19.7% YoY). Although the gross margin improved to 23.0%, the SG&A ratio increased due to M&A-related expenses and other factors, offsetting the earnings benefit from higher revenue at the operating-income level and below.

Factors Affecting Performance

【Revenue】Revenue of ¥1,458.6B (+21.7% YoY) was driven by the solid performance of the core Automotive Equipment Business (revenue of ¥1,119.9B, a 65.2% composition ratio, +8.7% YoY), as well as the sharp expansion of the Electronic Applied Products Business (revenue of ¥484.1B, a 28.2% composition ratio, +75.4% YoY) following the consolidation of Iwasaki Electric. The Electrical Components Business (revenue of ¥104.4B, a 6.1% composition ratio, +13.7% YoY) also contributed to the increase in revenue.

【Profit and Loss】The gross margin improved by +3.2pt from the previous year to 23.0%; however, the SG&A ratio increased by +4.4pt to 17.0% (an increase of +¥96.7B in absolute terms). As a result, the Operating Income margin declined to 6.0% from 7.2% in the previous year, and Operating Income remained at ¥87.6B (+1.8% YoY). At the ordinary-income level, interest expenses of ¥6.5B and foreign exchange losses of ¥1.3B increased at a faster pace than interest income of ¥11.3B, resulting in Ordinary Income of ¥95.5B (▲6.6% YoY). Although extraordinary income of ¥12.9B, including a gain on the sale of investment securities of ¥1.27B, provided support as a temporary factor, the effective tax rate increased to 40.3% from 32.1% in the previous year. After deducting Net Income Attributable to Non-Controlling Interests of ¥20.6B, Net Income Attributable to Owners of the Parent was ¥41.4B (▲19.7% YoY). In conclusion, the Company recorded higher revenue but lower profit.

Segment Analysis

The Automotive Equipment Business maintained its position as the largest pillar of Company-wide earnings, with Operating Income of ¥10.02B (+6.4% YoY; margin of 9.0%). The Electrical Components Business secured the highest profitability among the four segments, with Operating Income of ¥1.32B (+20.8% YoY; margin of 12.7%). Meanwhile, despite revenue in the Electronic Applied Products Business expanding sharply by +75.4%, Operating Income declined to ¥1.27B (▲41.0% YoY), leaving the operating margin at 2.6%—a substantial decline from the previous year for the same business. This suggests the impact of initial integration costs and PPA-related expenses associated with the consolidation of Iwasaki Electric, making the segment an important near-term leverage point for improving the Company-wide Operating Income margin.

Key Financial Metrics

【Profitability】The Operating Income margin was 6.0% (7.2% in the previous year, ▲1.2pt), the Net Income margin on a consolidated basis was 4.2% (5.7% in the previous year, ▲1.5pt), and the gross margin was 23.0% (19.8% in the previous year, +3.2pt), indicating that improvements in costs were offset by higher SG&A expenses. 【Cash Quality】Days Sales Outstanding (DSO) was approximately 58 days, Days Inventory Outstanding (DIO) was approximately 65 days, and Days Payables Outstanding (DPO) was approximately 45 days, resulting in a Cash Conversion Cycle (CCC) of approximately 78 days, essentially unchanged from approximately 79 days in the same period of the previous year. Inventories increased by +42.1%, primarily reflecting revenue expansion and the expansion of the consolidation scope due to the M&A; no trend deterioration in capital efficiency has been identified at this point. 【Investment Efficiency】ROE was 1.1%, representing the quarterly level and not an annualized figure. Total assets expanded to ¥932.44B, while asset turnover efficiency temporarily declined due to the sharp increase in assets, including goodwill and intangible fixed assets. 【Financial Soundness】The Equity Ratio was 49.4% (▲6.7pt from 56.1% in the previous year), primarily due to the recognition of goodwill and intangible fixed assets associated with the M&A and the expansion of total assets. The current ratio was 167.6%, while interest-bearing debt, consisting of total borrowings and bonds, was approximately ¥201.30B. Of this amount, the short-term proportion was approximately 73%, indicating a somewhat short-term-biased structure. Interest coverage was 13.4x, indicating sufficient capacity to withstand interest payments.

Cash Flow Analysis

Because cash flow statement data has not been disclosed, cash flow trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥240.78B, an increase of +¥13.79B (+6.1%) from ¥226.99B in the previous year. Interest-bearing debt expanded to approximately ¥201.30B in total borrowings and bonds, primarily because short-term borrowings increased by +¥70.00B from ¥76.70B to ¥146.70B. It is highly likely that funding for the M&A—the acquisition of shares in Iwasaki Electric—was obtained through short-term borrowings. In terms of working capital, inventories increased by +¥23.75B and accounts receivable increased by +¥8.45B, while accounts payable also increased by +¥14.91B; as noted above, the CCC remained essentially flat. Since the cash balance increased, the Company’s funding position was maintained as of the current quarter-end, although its funding structure is somewhat dependent on short-term financing.

Quality of Earnings

Of the ¥41.4B in Net Income Attributable to Owners of the Parent for the current period, extraordinary income of ¥1.29B, including a gain on the sale of investment securities of ¥1.27B, was a non-recurring temporary factor and made a relatively significant contribution to net income. Non-operating income was small at ¥1.70B, equivalent to 1.2% of revenue. Interest income of ¥1.13B exceeded interest expenses of ¥0.65B and supported earnings at the ordinary-income level, while a foreign exchange loss of ¥0.13B was a headwind. The effective tax rate rose to 40.3% (Profit Before Tax of ¥10.38B and income taxes of ¥4.18B) from 32.1% in the previous year, widening the gap between Ordinary Income and Net Income. In addition, Net Income Attributable to Non-Controlling Interests of ¥2.06B was deducted from consolidated Net Income of ¥6.20B. Accordingly, the divergence between Ordinary Income and Net Income Attributable to Owners of the Parent was attributable to both the tax burden and non-controlling interests. Comprehensive Income was ¥16.20B, exceeding Net Income of ¥6.20B, primarily due to foreign currency translation adjustments of ¥5.45B and valuation differences on securities of ¥4.71B.

Earnings Forecast and Guidance

Progress against the full-year forecast was 23.5% for revenue (¥1,458.6B/¥6,220.0B), 15.9% for Operating Income (¥87.6B/¥550.0B), 16.5% for Ordinary Income (¥95.5B/¥580.0B), and 12.2% for Net Income attributable to owners of the parent (¥41.4B/¥340.0B). While revenue was close to the simple progress benchmark of 25%, all profit-related indicators were below that level, with net income progress particularly slow. Initial M&A integration costs and the high tax burden may have weighed on profit progress in Q1, and the degree to which integration benefits emerge in the second half of the fiscal year is expected to determine future progress. There were no revisions to either the earnings forecast or the dividend forecast.

Shareholder Returns

The full-year dividend forecast is ¥55 per share, representing an increase of ¥6 from the previous-year actual dividend of ¥49. The Payout Ratio calculated against forecast EPS of ¥276.43 is 19.9%, a conservative level. Cash and deposits were ample at ¥240.78B, and with the Equity Ratio maintained at 49.4%, the Company’s current liquidity position provides a certain degree of support for the dividend. No data concerning share repurchases has been disclosed.

Risk Factors

1. Declining profitability in the Electronic Applied Products Business: Revenue increased by +75.4%, while Operating Income decreased by ▲41.0%, leaving the operating margin at 2.6%. The progress in absorbing the initial integration costs associated with the consolidation of Iwasaki Electric will affect the pace of recovery in the Company-wide profit margin.

2. Short-term bias in the funding structure: Short-term borrowings account for approximately ¥146.70B, or approximately 73%, of interest-bearing debt of approximately ¥201.30B, an increase of +¥70.00B from the previous year. M&A-related funding is currently being financed with short-term funds, and the impact of changes in the refinancing environment on financial costs needs to be monitored.

3. Higher effective tax rate and pressure from non-controlling interests: The effective tax rate increased to 40.3% from 32.1% in the previous year, while Net Income Attributable to Non-Controlling Interests of ¥20.6B was deducted from consolidated Net Income. As a result, the decline in Net Income Attributable to Owners of the Parent (▲19.7% YoY) was greater than the decline in Ordinary Income (▲6.6% YoY).

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Return

The Company’s Operating Income margin and Net Income margin were both below the industry median, indicating a relatively low level of profitability within the industry.

Growth and Capital Efficiency

The Company’s revenue growth rate was significantly above both the industry median and the upper quartile of 14.8%, indicating a high level of growth within the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. Goodwill surged to ¥58.30B due to the acquisition of shares in Iwasaki Electric, an increase of +¥53.03B from ¥5.24B in the previous year. The notes state that the Purchase Price Allocation (PPA) is provisional. The finalization of the PPA and the emergence of integration benefits, together with the recovery of profitability in the Electronic Applied Products Business, will be key areas of focus.

2. Progress against the full-year forecast was 23.5% for revenue, compared with 15.9% for Operating Income and 12.2% for Net Income, indicating that profit-related indicators are lagging relatively. The degree to which integration costs are absorbed in the second half of the fiscal year will be a key point in evaluating earnings quality.

3. The dividend forecast remains at ¥55, an increase of ¥6 from the previous-year actual dividend, while the Payout Ratio of 19.9% is currently at a conservative level.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson type, explicit five-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥4,181–¥4,430 at ±1% for the cost of equity, and ¥4,290–¥4,311 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; therefore, there is a timing difference relative to the full-year forecast.
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual income model / Interest rate reference month: 2026-06 / This value does not forecast 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 release 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 discretion and responsibility, after consulting with a professional as necessary.

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