CMK CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

The defining feature of the quarter was that, despite double-digit revenue growth, net income turned negative due to higher non-operating expenses and a sharp increase in the tax burden. Revenue grew significantly to ¥27.19B (+19.4% YoY), while operating income improved to ¥0.39B (+140.8% YoY). Ordinary income, however, declined to ¥0.13B (-43.0% YoY), and net income attributable to owners of the parent fell into the red at ¥-0.15B (¥0.08B in the same period last year). Improvement at the operating level from higher revenue was offset below the ordinary income level by increases in interest paid, foreign exchange losses, and corporate income taxes.

Factors Affecting Financial Performance

【Revenue】Revenue was ¥27.19B (+19.4% YoY), with all regions trending toward higher sales. By composition of sales to external customers, Japan was the largest at ¥17.76B (65.3% of total), followed by Southeast Asia at ¥4.71B (17.3%), China at ¥3.69B (13.6%), and Europe and the Americas at ¥1.03B (3.8%). On a segment-total basis, Japan grew strongly by +28.9% and Southeast Asia by +14.9%, while China recorded a slight decline in revenue (-1.0%).

【Profit and Loss】Operating income improved to ¥0.39B (+140.8% YoY), and the operating margin improved to 1.4% from 0.7% in the same period last year. However, the gross margin declined to 12.7% from 13.4%, with operating profitability secured through the effect of higher revenue and control of SG&A expenses (SG&A ratio of 11.3%, compared with 12.7% in the same period last year). Ordinary income declined to ¥0.13B (-43.0% YoY), as non-operating expenses of ¥0.45B, including ¥0.17B of interest paid and ¥0.13B of foreign exchange losses, exceeded non-operating income of ¥0.19B. Extraordinary gains and losses were negligible, consisting only of an extraordinary loss of ¥0.004B, and the impact of one-time factors was limited. However, corporate income taxes and other taxes of ¥0.24B were recorded against pretax income of ¥0.12B, resulting in a net loss attributable to owners of the parent of ¥-0.15B (¥0.08B in the same period last year). While the operating level showed higher revenue and higher profit, performance below the ordinary income level can be summarized as higher revenue but lower profit due to the effects of foreign exchange, interest rates, and the tax burden.

Segment Analysis

By segment, Japan emerged as a pillar of profitability, with operating income of ¥1.11B (+603.2% YoY; 6.1% margin), contributing to an increase in company-wide profit. China maintained resilience, with revenue declining slightly to ¥8.22B (-1.0% YoY) but operating income increasing to ¥0.42B (+7.3% YoY; 5.2% margin). Southeast Asia, meanwhile, recorded higher revenue of ¥9.69B (+14.9% YoY), but operating income declined to ¥-1.25B, with the loss widening from ¥-0.40B in the same period last year and the margin falling to -12.9%, becoming a significant factor weighing on company-wide earnings. Europe and the Americas maintained a modest operating profit, with revenue of ¥1.06B (+6.6% YoY) and operating income of ¥0.04B (-36.5% YoY; 3.8% margin). The contrast is clear: profitability improved in Japan and China, while widening losses in Southeast Asia diluted the company-wide profit margin.

Key Financial Indicators

【Profitability】Although the operating margin improved to 1.4% from 0.7% in the same period last year, the ordinary income margin deteriorated to 0.5% from 1.0%, and the net income margin attributable to owners of the parent deteriorated to -0.5% from 0.4%, indicating that improvement at the operating level has not flowed through to the bottom line. 【Cash Flow Quality】Although the statement of operating cash flows has not been disclosed, cash and deposits were ¥18.68B, down ¥0.80B from ¥19.48B in the same period last year; accounts receivable and notes receivable declined slightly to ¥19.11B from ¥19.89B; and inventories increased to ¥8.94B from ¥8.72B. 【Investment Efficiency】ROE was -0.1% (profitable in the same period last year), weighed down by the unusual factor of corporate income taxes and other taxes exceeding pretax income. 【Financial Soundness】The equity ratio was broadly flat at 56.7% (equivalent to 56.8% in the same period last year), while the current ratio was 153.5% and interest coverage, calculated as operating income divided by interest paid, remained limited at 2.28x, indicating limited resilience to interest expense.

Cash Flow Analysis

As detailed disclosure of the statement of cash flows is unavailable, funding trends are reviewed based on changes in the balance sheet. Cash and deposits were ¥18.68B, down ¥0.80B from ¥19.48B at the end of the previous year, indicating a net decline in funds. Property, plant and equipment was broadly flat at ¥78.73B, compared with ¥80.27B in the same period last year, while construction in progress declined by ¥2.30B to ¥10.00B from ¥12.30B, suggesting that some capital investments have moved into the completion stage. Meanwhile, short-term borrowings increased to ¥11.55B from ¥10.25B, while long-term borrowings declined to ¥20.03B from ¥22.26B, indicating a shift toward a shorter-term interest-bearing debt structure. Accounts receivable and notes receivable declined to ¥19.11B, while inventories increased to ¥8.94B, resulting in changes in the composition of working capital. Overall, cash and deposits declined while the borrowing structure shifted toward shorter maturities, placing the company in a phase where future operating cash generation warrants close attention in assessing funding conditions.

Quality of Earnings

The core source of recurring earnings was operating income of ¥0.39B, indicating improvement in profit generated by business activities. In non-operating items, non-operating expenses of ¥0.45B, including ¥0.17B of interest paid and ¥0.13B of foreign exchange losses, exceeded income from interest received of ¥0.04B and dividends received of ¥0.06B, resulting in net non-operating expenses of ¥0.26B. Extraordinary gains and losses were negligible, consisting only of a ¥0.004B loss on the disposal of fixed assets, and the impact of one-time factors was limited. Corporate income taxes and other taxes of ¥0.24B were recorded against pretax income of ¥0.12B, resulting in an estimated effective tax rate of approximately 198%, substantially above normal levels and creating a significant gap between ordinary income of ¥0.13B and net income attributable to owners of the parent of ¥-0.15B. This gap is highly likely to have resulted from non-recurring tax effects, such as the valuation of temporary differences for tax purposes, indicating that bottom-line earnings are more volatile than the ordinary income level, which reflects operating conditions. Comprehensive income was ¥0.61B, exceeding the net loss, with positive valuation differences on securities of ¥0.52B and foreign currency translation adjustments of ¥0.27B contributing to the result. However, these items are driven by market conditions and differ in nature from realized gains and losses, which should be noted.

Earnings Forecast and Guidance

Progress in Q1 against the full-year plan was 24.7% for revenue, at ¥27.19B/¥110.00B, close to the simple pro rata level of 25%. Operating income, however, was ¥0.39B/¥5.00B, or 7.7%, and ordinary income was ¥0.13B/¥4.70B, or 2.7%, representing substantial delays relative to the full-year plan. As net income was negative for the period, progress against the full-year plan of ¥3.00B in net income is effectively delayed. The earnings forecast was revised during the quarter, and the pace of progress from the second half onward will depend on improvement in the Southeast Asia segment’s earnings and normalization of foreign exchange effects and the tax burden.

Shareholder Returns

The annual dividend forecast remains unchanged at ¥28.00, with no revision to the dividend forecast during the quarter. Based on approximately 71,293 thousand shares outstanding after deducting treasury shares, the annual total dividend is estimated at approximately ¥2.00B. The payout ratio against the full-year net income plan of ¥3.00B is approximately 67%, and, as the company recorded a net loss for the quarter, the sustainability of dividends depends on earnings recovery in the second half. No disclosure regarding share buybacks has been made, and shareholder returns currently center on dividends.

Risk Factors

1. Widening losses in the Southeast Asia segment: Operating income in the segment was ¥-1.25B (-212.5% YoY), with a margin of -12.9%, substantially weighing on company-wide operating income of ¥0.39B. If delays in earnings improvement continue, the segment will remain a structural burden on company-wide profitability.

2. High sensitivity to foreign exchange rates and interest rates: The foreign exchange loss of ¥0.13B was equivalent to approximately 34% of operating income of ¥0.39B, while interest coverage remained at 2.28x after taking into account interest paid of ¥0.17B. The impact of higher interest rates and foreign exchange fluctuations on ordinary income is relatively significant.

3. Abnormally high tax burden: Corporate income taxes and other taxes of ¥0.24B were recorded against pretax income of ¥0.12B, resulting in an effective tax rate of approximately 198%. If this level is temporary, normalization is expected on a full-year basis; however, if it recurs, it will increase the volatility of net income.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The company’s profitability, measured by both operating margin and net profit margin, is substantially below the industry median.

Growth and Capital Efficiency

The revenue growth rate is substantially above the industry median, with the pace of revenue growth at a high level within the industry.

Source: Compiled by the company

Key Points from the Earnings Results

1. While revenue growth and operating income improvement are progressing, ordinary income and net income have deteriorated, with the direction of the upper and lower sections of the income statement diverging—a defining feature of the quarter. This divergence stems from non-business factors, namely foreign exchange losses, interest paid, and the tax burden. The trend in operating income is therefore a useful reference for assessing the degree of improvement in underlying business conditions.

2. By segment, Japan and China are trending toward higher profit, while widening losses in Southeast Asia are weighing on company-wide earnings. Regional disparities in profitability have widened, and the earnings trend in this segment will determine company-wide profitability going forward.

3. Progress against the full-year plan is broadly on track for revenue, while operating income and ordinary income are significantly behind plan. The pace of profit recovery toward the second half will be a key focus in assessing achievement of the full-year plan.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly available 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: ¥979–¥1,034 at ±1% for the cost of equity, and ¥1,000–¥1,010 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.
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat on the high side.

(Model: Residual Income Model / Interest Rate Reference Month: 2026-07 / 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 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, and, where necessary, after consulting with a professional advisor.

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