USHIO INC. FY2027 Q1 Earnings Report

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Executive Summary

The key feature of Q1 was a significant expansion in profit, including a return to profitability, partly due to the reversal of the extraordinary loss recorded in the same period of the previous year. Revenue was ¥489.9B (up +27.7% YoY), Operating Income was ¥49.5B (up +410.5%), Ordinary Income was ¥53.1B (up +230.5%), and Net Income attributable to owners of the parent was ¥30.3B (recovering from a ¥28.3B loss in the same period of the previous year, up +207.1%). All segments posted double-digit revenue growth, while an improvement in the gross margin and a decline in the SG&A ratio occurred simultaneously, resulting in an expansion of the Operating Income margin to 10.1% (2.5% in the previous year).

Factors Affecting Business Performance

【Revenue】Revenue was ¥489.9B, representing a +27.7% increase YoY. All five segments recorded double-digit revenue growth: Visual Imaging, the largest segment (47.0% of the revenue mix), grew +25.8%; Industrial Processes (42.0% of the revenue mix) grew +29.9%; Life Sciences grew +34.2%; and Photonics Solutions grew +29.1%. Demand expansion is therefore broad-based across the business.

【Profit and Loss】Operating Income was ¥49.5B (¥9.7B in the previous year, +410.5%), and the Operating Income margin improved to 10.1%, up +7.6pt from 2.5% in the previous year. The gross margin improved to 40.6% (36.5% in the previous year, +4.1pt), while the SG&A ratio improved to 30.5% (34.0% in the previous year, -3.5pt). In addition to the effect of higher revenue, improvements in the cost structure contributed to the expansion of the profit margin. Ordinary Income was ¥53.1B (+230.5%), while Net Income was ¥30.3B (versus a ¥28.3B loss in the same period of the previous year). The previous year included a one-time factor involving the recognition of an extraordinary loss of ¥40.5B (including business restructuring costs), whereas the extraordinary loss in the current period was minimal at ¥0.8B. This reversal also contributed to the return to profitability. Meanwhile, the effective tax rate was high at 42.1%, compressing Net Income relative to Ordinary Income. Overall, the Company recorded higher revenue and higher profit.

Segment Analysis

All five segments recorded increases in both revenue and profit. Industrial Processes generated revenue of ¥205.5B (+29.9%), Operating Income of ¥28.7B (+779.4%), and a profit margin of 14.0%, making it the largest contributor to the improvement in the Company-wide profit margin. Photonics Solutions generated revenue of ¥30.0B (+29.1%), Operating Income of ¥4.8B (+109.3%), and the highest margin among all segments at 15.8%. Life Sciences generated revenue of ¥21.4B (+34.2%), Operating Income of ¥2.3B (+98.2%), and a profit margin of 10.6%. Visual Imaging generated revenue of ¥230.2B (+25.8%) and accounted for approximately 47% of total Company revenue, making it the largest segment. However, its Operating Income was ¥13.8B (+290.9%) and its profit margin was 6.0%, the lowest among the major segments. Although profitability continues to improve, a gap remains relative to the other segments.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 10.1% (2.5% in the previous year), the gross margin improved to 40.6% (36.5% in the previous year), and the Net Income margin improved to 6.2% (-7.4% in the previous year). 【Cash Flow Quality】Against Ordinary Income of ¥53.1B, Net Income was ¥30.3B, resulting in a divergence rate of -42.9%, primarily due to the high effective tax rate of 42.1%. Non-operating income was ¥7.1B, mainly comprising interest income of ¥3.3B and dividend income of ¥2.0B, while non-operating expenses were ¥3.5B (including interest expense of ¥2.7B), resulting in a net positive of +¥3.6B with a high degree of recurrence. Meanwhile, Comprehensive Income was ¥322.1B, substantially exceeding Net Income, primarily due to a +¥273.4B valuation difference on securities. 【Investment Efficiency】EPS was ¥38.11 (¥-32.06 in the previous year), and ROE was 1.4% (quarterly result). Given total assets of ¥3738.3B, the current level of profit remains small, making improvement in asset efficiency a future challenge. 【Financial Soundness】The Equity Ratio was 59.8% (59.9% in the previous year), remaining high and virtually flat. Current assets were ¥2119.2B against current liabilities of ¥840.3B, resulting in a current ratio of approximately 252%. With cash and deposits of ¥720.3B, the Company maintains ample liquidity and substantial short-term financial flexibility.

Cash Flow Analysis

Cash and deposits were ¥720.3B, down -4.9% (-¥37.2B) from the end of the previous fiscal year. The primary factors are considered to be the deployment of funds associated with a substantial increase in investment securities (¥775.0B, up +98.5% YoY, or +¥384.7B), as well as funding requirements associated with the reduction of long-term borrowings (¥357.8B, down -10.0% YoY). Meanwhile, while Revenue increased +27.7%, accounts receivable increased only +7.0% (¥428.1B), and inventories increased only +0.8% (¥367.7B), indicating that the pace of working capital growth was significantly below revenue growth. This suggests that the risk of funds being tied up in support of revenue expansion is limited. Together with the strengthening of cash-generation capacity through improved profitability (Net Income of ¥30.3B versus a ¥28.3B loss in the previous year), capital efficiency can instead be assessed as trending toward improvement.

Earnings Quality

The extraordinary loss in the current period was minimal at ¥0.8B (including a ¥0.5B loss on disposal of fixed assets). The reversal from the ¥40.5B extraordinary loss recorded in the same period of the previous year (including business restructuring costs) was a temporary factor contributing to the return to profitability. Non-operating income of ¥7.1B mainly comprised dividend income of ¥2.0B and interest income of ¥3.3B, which have a high degree of recurrence, and exceeded non-operating expenses of ¥3.5B (including interest expense of ¥2.7B and foreign exchange loss of ¥0.5B), resulting in a net positive. The divergence of -42.9% between Ordinary Income of ¥53.1B and Net Income of ¥30.3B was primarily attributable to the high effective tax rate of 42.1%, rather than the impact of extraordinary income and losses. Comprehensive Income of ¥322.1B substantially exceeded Net Income, primarily due to the non-recurring and non-cash factor of a +¥273.4B valuation difference on securities. Accordingly, Net Income and Operating Income should be given greater weight when assessing the profitability of the core business.

Earnings Forecast and Guidance

The Q1 progress rates against the full-year plan (Revenue of ¥2100.0B, Operating Income of ¥140.0B, Ordinary Income of ¥140.0B, and EPS of ¥132.27) were 23.3% for Revenue, 35.3% for Operating Income, 37.9% for Ordinary Income, and 28.8% for Net Income (¥30.3B against the plan of ¥105B). Compared with the benchmark of 25% for quarterly progress, Revenue was broadly tracking on a linear basis, while Operating Income and Ordinary Income were progressing ahead of schedule, suggesting that improvements in the gross margin and SG&A efficiency are contributing ahead of other factors. Neither the earnings forecast nor the dividend forecast was revised, and management is maintaining its initial plan at this point.

Shareholder Returns

The full-year dividend forecast remains unchanged at ¥70/share, the same as ¥70/share in the previous fiscal year, and there has been no revision to the dividend forecast. Based on the Company’s EPS forecast of ¥132.27, the forecast Payout Ratio is 52.9% (¥70 ÷ ¥132.27). Given the Company’s ample cash and deposits of ¥720.3B, concerns regarding dividend sustainability are considered limited. No data on share buybacks has been disclosed; therefore, the above figure is presented as the Payout Ratio based solely on dividends.

Risk Factors

1. Persistently high effective tax rate: The effective tax rate for the current period was 42.1% (income taxes of ¥22.1B ÷ profit before tax of ¥52.3B), and was the primary factor limiting Net Income to ¥30.3B against Ordinary Income of ¥53.1B. Since the previous year recorded a pretax loss, a simple comparison is difficult; however, the degree to which the tax burden normalizes will influence the trajectory of the Net Income margin.

2. Risk of fluctuations in securities markets: Investment securities amounted to ¥775.0B (20.7% of total assets), up +98.5% YoY, while the increase in the valuation difference (+¥273.4B) substantially boosted Comprehensive Income to ¥322.1B. If market conditions reverse, volatility in Comprehensive Income and shareholders’ equity could increase.

3. Profitability disparity among segments: Visual Imaging’s Operating Income margin was 6.0%, the lowest among the major segments, with a substantial gap versus Industrial Processes (14.0%) and Photonics Solutions (15.8%). The improvement in the Company-wide profit margin is relatively dependent on specific segments.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Operating Income margin exceeds the industry median, while the Net Income margin falls below the median due to the impact of the high effective tax rate.

Growth and Capital Efficiency

The Revenue growth rate substantially exceeds the industry median, placing the Company among the high-growth group within the industry.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. The backdrop to the substantial +410.5% increase in Operating Income includes the reversal of the ¥40.5B extraordinary loss recorded in the same period of the previous year (including business restructuring costs); the extraordinary loss in the current period was minimal at ¥0.8B. The unusual nature of the comparison base should be considered when interpreting the rate of profit growth.

2. The gross margin improved by +4.1pt and the SG&A ratio declined by -3.5pt simultaneously, improving the Operating Income margin from 2.5% to 10.1%. This indicates changes in the cost structure in addition to the effect of higher revenue.

3. Full-year progress rates for Operating Income and Ordinary Income were 35.3% and 37.9%, respectively, ahead of the 23.3% progress rate for Revenue, indicating that profit growth is leading. Meanwhile, the high effective tax rate of 42.1%, which is restraining Net Income growth, will be a key monitoring point throughout the full year.

Theoretical Share Price (Reference Value)

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

Sensitivity: ¥2,434–¥2,574 at ±1% for the cost of equity, and ¥2,492–¥2,509 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).
• Since 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 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 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 responsibility and, where necessary, after consulting with a professional advisor.

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