ISUZU MOTORS LIMITED FY2027 Q1 Earnings Report

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Executive Summary

The Q1 of the fiscal year ending March 2027 produced higher revenue and higher profit, with improvements in gross margin driven by price pass-through and a better product mix pushing up operating income. Revenue was ¥832.52B (+6.8% year on year), Operating Income was ¥74.76B (+30.7%), and Profit Before Tax was ¥81.43B (+26.8%). Quarterly Net Income attributable to owners of the parent was ¥50.94B (+23.0%), while quarterly profit on a consolidated basis, including non-controlling interests, was ¥62.66B (+24.5%). Operating Income grew at a faster pace than revenue, indicating that this was a quarter led by improved profitability.

Factors Affecting Earnings

【Revenue】Revenue was ¥832.52B (+6.8% year on year). The core Automotive Business led overall performance with revenue of ¥785.28B (+6.4%), while the Financial Business complemented this performance with double-digit revenue growth of ¥47.24B (+12.9%). Both businesses secured revenue growth, maintaining growth across the overall business portfolio.

【Profit and Loss】Gross profit margin improved to 22.6% from 20.0% in the previous year, an improvement of +2.6pt, while the Operating Income margin also improved to 9.0% from 7.3%, an improvement of +1.6pt. Although the SG&A expense ratio increased to 14.1% from 12.7%, an increase of +1.4pt, the improvement in gross margin absorbed this increase. In non-operating items, financial income of ¥7.27B exceeded financial expenses of ¥2.57B, resulting in Profit Before Tax of ¥81.43B (+26.8%). Since profit grew more substantially than revenue, the quarter can be characterized as one of higher revenue and higher profit.

Segment Analysis

The Automotive Business reported external revenue of ¥785.28B (+6.4% year on year) and segment profit of ¥71.18B (+32.5%), with the segment profit margin improving to 9.1% from 7.3% in the previous year. It accounted for the majority of consolidated Operating Income of ¥74.76B (approximately 95%) and was the primary driver of profit growth. The Financial Business reported external revenue of ¥47.24B (+12.9%) and segment profit of ¥3.26B (+4.7%), with its segment profit margin declining slightly to 6.9% from 7.4%. The Financial Business continues to expand its asset base—lease receivables and vehicles for rental totaled ¥420.595B (+10.6% year on year)—and supports top-line growth, but has not achieved the same degree of margin improvement as the Automotive Business.

Key Financial Indicators

【Profitability】The Operating Income margin was 9.0%, improving from 7.3% in the previous year, as the improvement in gross margin (+2.6pt) exceeded the increase in the SG&A expense ratio (+1.4pt). The Net Profit margin was 7.5% based on consolidated quarterly profit and 6.1% based on profit attributable to owners of the parent. ROE was 3.7% (quarterly actual figure). 【Cash Quality】Operating Cash Flow (OCF) was -¥45.27B, turning negative against Net Income attributable to owners of the parent of ¥50.94B, indicating a delay in cash conversion. 【Investment Efficiency】Capital expenditures were ¥59.55B, approximately 1.5 times depreciation and amortization of ¥38.97B, indicating a phase of active growth and replacement investment. 【Financial Soundness】The Equity Ratio was 40.7%, slightly up from 40.4% in the previous year. The current ratio, calculated from current assets of ¥2,052.88B and current liabilities of ¥1,194.94B, was approximately 1.72 times, indicating that the capital base and short-term liquidity remained generally sound.

Cash Flow Analysis

Operating Cash Flow (OCF) deteriorated substantially to -¥45.27B from ¥63.43B in the previous year, as changes in working capital exceeded the cash generation from Profit Before Tax of ¥81.43B and depreciation and amortization of ¥38.97B. The primary factors were an increase in inventories (-¥71.89B) and a decrease in operating liabilities (-¥111.68B), which could not be fully offset by the cash inflow from a decrease in operating receivables (+¥61.54B, reflecting accelerated collections). Investing Cash Flow was -¥64.16B, primarily due to the acquisition of property, plant and equipment, while capital expenditures of ¥59.55B were approximately 1.5 times depreciation and amortization. As a result, Free Cash Flow, combining Operating Cash Flow and Investing Cash Flow, was negative at -¥109.43B. The company funded its cash requirements through Financing Cash Flow of +¥106.39B, including a net increase in commercial paper of ¥123.0B and an increase in long-term borrowings of ¥53.1B. Cash and cash equivalents were ¥391.12B, an increase of +¥5.69B from the end of the previous fiscal year. Although short-term funding conditions have been maintained, cash-generation capacity during the quarter temporarily declined due to working-capital factors.

Quality of Earnings

The increase in profit during the quarter was primarily attributable to recurring factors, namely improved gross margins driven by price pass-through and a better product mix, with limited dependence on one-off extraordinary gains or losses. An expenditure arising from the loss of control of a subsidiary (-¥8.57B) was recorded within the breakdown of Investing Cash Flow, and it should be noted that changes in the scope of consolidation affected the composition of assets and equity interests. Comprehensive income was ¥72.39B, a divergence of +¥8.57B from Net Income attributable to owners of the parent of ¥50.94B. The primary factor was the foreign-exchange impact from translation adjustments of foreign operations (+¥11.91B). Although Operating Cash Flow turned negative, Profit Before Tax and Operating Income remained solid. Excluding working-capital movements, the quarter’s profit was supported on an accrual basis; however, the time lag in cash conversion warrants attention.

Earnings Forecasts and Guidance

Progress against the full-year forecast was 22.5% for revenue (actual ¥832.52B / forecast ¥3,700.00B), 28.8% for Operating Income (actual ¥74.76B / forecast ¥260.00B), and 31.8% for Net Income attributable to owners of the parent (actual ¥50.94B / forecast ¥160.00B). Revenue progress was slightly below the 25% benchmark for an evenly distributed quarterly allocation, while Operating Income and Net Income exceeded that benchmark, indicating that profit performance is ahead of revenue progress. As of the end of the quarter, no revisions had been made to either the earnings forecast or the dividend forecast.

Shareholder Returns

The full-year dividend forecast is ¥94 per share, implying a Payout Ratio of approximately 40.4% against forecast EPS of ¥232.82. The actual dividend in the previous year was ¥46 per share. Dividend payments during the quarter totaled ¥31.19B on a consolidated basis (¥31.62B to owners of the parent), while share buybacks were only ¥0.00B, indicating a shareholder-return policy centered on dividends.

Risk Factors

1. Risk of cash conversion deterioration due to worsening working capital: Inventories increased by -¥71.89B, while operating liabilities decreased by -¥111.68B, causing Operating Cash Flow to turn negative at -¥45.27B. The pace at which inventories and accounts payable normalize will be key to restoring future cash-generation capacity.

2. Risk of dependence on short-term funding: Current bonds and borrowings increased by +¥133.29B from the end of the previous fiscal year, and short-term funding, including a net increase in commercial paper of +¥123.0B, is being used to offset negative Free Cash Flow of -¥109.43B. This structure is susceptible to rollover risk and interest-rate fluctuations.

3. Risk of profitability pressure from higher SG&A expenses: The SG&A expense ratio increased to 14.1% from 12.7% in the previous year, an increase of +1.4pt, with expenses rising at a pace of +18.0%, exceeding revenue growth of +6.8%. Continued absorption through gross-margin improvement is a prerequisite for sustained improvement in the Operating Income margin.

Industry Benchmark (For Reference, Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Income margin and Net Profit margin were slightly above the industry median, placing profitability at the middle to slightly upper range within the industry.

Growth and Capital Efficiency

Although the revenue growth rate was slightly above the industry median, it did not reach the upper IQR limit of 14.6%, representing mid-range growth within the industry.

※Source: Compiled by the Company

Key Takeaways from the Results

1. Gross margin improved by +2.6pt year on year and absorbed the increase in the SG&A expense ratio (+1.4pt), resulting in an improvement in the Operating Income margin to 9.0%. Price pass-through and product-mix improvements were the primary drivers of higher profitability, and the sustainability of these effects will determine future margin trends.

2. Operating Cash Flow turned negative at -¥45.27B, creating a divergence between Net Income growth and cash-generation capacity. The primary factors were increased inventories and decreased operating liabilities, making the pace of working-capital normalization a key structural factor affecting Free Cash Flow in the second half of the fiscal year.

3. Full-year progress was 22.5% for revenue, compared with 28.8% for Operating Income and 31.8% for Net Income, indicating that profit is ahead of revenue and that profit progress relative to the full-year plan is at a comparatively high level as of the first half.

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: ¥2,246–¥2,378 at cost of equity ±1%, and ¥2,308–¥2,315 at ω±0.1.

Notes:

• Net assets as of the quarter-end were used (there is a timing difference from the full-year forecast).

(Model used: residual income model / Interest-rate reference month: 2026-06 / This figure does not forecast or guarantee future share prices)

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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, after consulting professionals as necessary.

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