KYOKUTO KAIHATSU KOGYO (7226) FY2027 Q1 Earnings Report

Quick View

Executive Summary

The Company reported higher revenue and earnings, driven primarily by revenue growth in the Special-Purpose Vehicle Business and improved operating leverage. Revenue was ¥386.6B (+15.6% YoY), Operating Income was ¥13.4B (+38.2%), and Ordinary Income was ¥15.1B (+39.2%). Net Income was ¥8.8B, representing a return to profitability from a ¥49.8B loss in the same period of the previous year, mainly due to the recognition of an extraordinary loss of ¥59.4B. As the growth in cost of sales and SG&A expenses remained below revenue growth, the Operating Income margin improved by 0.6pt YoY to 3.5%.

Factors Affecting Financial Performance

【Revenue】Revenue of ¥386.6B increased 15.6% YoY. The core Special-Purpose Vehicle Business generated ¥323.8B (+10.9%) and accounted for 83.7% of consolidated revenue, while the Environmental Business recorded the highest growth rate at ¥42.7B (+70.6%). Other Businesses, including the Rental Business, contracted to ¥3.6B (-5.2%).

【Profit and Loss】Operating Income of ¥13.4B (+38.2%) benefited from an improvement in the gross margin to 17.8% from 17.4% in the previous year, as well as the fixed-cost absorption effect resulting from the 14.2% increase in SG&A expenses remaining below the 15.6% revenue growth rate. Ordinary Income was ¥15.1B, as non-operating income of ¥4.0B, including a foreign exchange gain of ¥1.2B, exceeded non-operating expenses of ¥2.2B, including interest expense of ¥1.8B. Net Income was ¥8.8B; the high effective tax rate of 41.3% constrained the conversion efficiency from profit before tax to Net Income. The net loss in the same period of the previous year was mainly attributable to an extraordinary loss of ¥59.4B, which exceeded a ¥4.0B gain on the sale of investment securities. As the extraordinary loss in the current period was limited to ¥0.1B, the reversal of temporary factors had a significant impact. The Company achieved higher revenue and earnings, confirming an improvement in the profitability of its core business.

Segment Analysis

The Special-Purpose Vehicle Business generated revenue of ¥323.8B (+10.9%) and segment profit of ¥10.8B (+40.0%), with a segment margin of 3.3%, up from 2.6% in the previous year, making it the largest contributor to consolidated profit. The Environmental Business recorded revenue of ¥42.7B (+70.6%) and segment profit of ¥4.0B (+28.3%), with a margin of 9.4%, the highest profitability among the reported segments. The Parking Business increased revenue to ¥18.1B (+17.0%), but segment profit declined to ¥1.3B (-17.2%) and the margin fell to 6.9% from 9.8% in the previous year, indicating that revenue growth has not translated into higher profit.

Key Financial Indicators

【Profitability】The Operating Income margin improved by 0.6pt from 2.9% in the same period of the previous year to 3.5%, but remains low in absolute terms. Both the gross margin of 17.8% and the EBIT margin of 3.5% indicate limited capacity to absorb fluctuations.【Cash Quality】Accounts receivable declined 35.7% YoY to ¥234.8B, while inventories increased 36.3% to ¥47.9B, of which work in process of ¥182.1B accounted for the core of manufacturing inventories. Cash and deposits declined 32.2% YoY to ¥152.4B.【Investment Efficiency】Annualized ROE was 3.1% and annualized ROIC was 2.3%, leaving capital efficiency at a low level. The DuPont decomposition consists of a net profit margin of 2.3%, total asset turnover of 0.801x, and financial leverage of 1.69x, with the net profit margin being the primary reason for the low ROE.【Financial Soundness】With an Equity Ratio of 59.1%, a current ratio of 224.4%, and a D/E ratio of 0.69x against interest-bearing debt of ¥380.7B, the financial base is conservative.

Cash Flow Analysis

In lieu of disclosure of the cash flow statement, an analysis of funding trends based on changes in the balance sheet indicates that Cash and deposits declined by ¥72.6B, or -32.2%, YoY to ¥152.4B, while accounts receivable decreased by ¥130.1B to ¥234.8B, changing the composition of current assets. Inventories increased by ¥12.8B to ¥47.9B, of which work in process of ¥182.1B accounted for approximately 50.5% of total manufacturing inventories. This suggests that part of the funds released through the reduction in accounts receivable was redirected toward inventory accumulation, meaning that the extent to which working capital remains tied up will determine the conversion of revenue growth into cash. Property, plant and equipment increased by ¥40.5B to ¥737.8B, indicating that investments in progress are being transferred into operating assets, as reflected by increases in buildings and structures and a decrease in construction in progress.

Earnings Quality

Extraordinary losses were limited to ¥0.1B against current-period profit before tax of ¥15.1B, and the result can therefore be viewed as reflecting recurring earnings power. Non-operating income of ¥4.0B included a foreign exchange gain of ¥1.2B, equivalent to approximately 9% of Operating Income of ¥13.4B, indicating a certain degree of sensitivity of Ordinary Income to foreign exchange fluctuations. In contrast, although the same period of the previous year included an extraordinary gain of ¥4.0B from the sale of investment securities, an extraordinary loss of ¥59.4B was recognized, resulting in a substantial net loss. Accordingly, the +117.8% comparison of Net Income includes a significant reversal of temporary factors. The effective tax rate was high at 41.3%, constraining the conversion efficiency from profit before tax to Net Income and representing a qualitative point of caution regarding the tax burden.

Earnings Forecast and Guidance

The Full-Year earnings forecast calls for Revenue of ¥1,800.0B (+11.6% YoY), Operating Income of ¥85.0B (-4.3%), and Ordinary Income of ¥79.0B (-16.6%), representing a plan for higher revenue but lower earnings. Q1 progress rates were 21.5% for Revenue, 15.7% for Operating Income, and 19.2% for Ordinary Income, all below a simple one-quarter progress rate of 25%. In particular, the lower progress rate for Operating Income than for Revenue reflects the fact that the Q1 result of 3.5% was below the full-year assumed Operating Income margin of 4.7%; achieving profitability improvements toward the second half of the fiscal year will be the key to meeting the plan. No revisions were made to the earnings or dividend forecasts during the quarter.

Shareholder Returns

The Full-Year dividend forecast is ¥120 per share, compared with a dividend of ¥70 in the previous year. Based on the Full-Year forecast EPS of ¥129.85, the Payout Ratio is approximately 92.4%, exceeding the general benchmark of 60% even when dividends alone are considered. Against forecast Net Income attributable to owners of the parent of ¥50.0B for the Full Year, total forecast dividends are estimated at approximately ¥46.2B, leaving a small dividend funding buffer relative to profit. Q1 Net Income attributable to owners of the parent of ¥8.9B represented only 17.7% of the Full-Year forecast, below the standard 25% progress rate; therefore, the certainty of the annual dividend funding will depend on profitability from Q2 onward.

Risk Factors

1. Inventory and Working Capital Risk: Inventories were ¥47.9B (+36.3% YoY), of which work in process of ¥182.1B accounted for approximately 50.5% of manufacturing inventories. In the made-to-order Special-Purpose Vehicle Business, delays in production processes or shifts in the timing of acceptance inspections could amplify fluctuations in working capital and profit recognition.

2. Concentration Risk in the Core Business: The Special-Purpose Vehicle Business accounted for the majority of consolidated profit, with revenue of ¥323.8B and segment profit of ¥10.8B. The structure is such that sales volumes, raw material costs, and trends in price pass-through in this business have a significant impact on consolidated performance.

3. Declining Profitability in the Parking Business: Against a 17.0% increase in revenue, segment profit declined 17.2%, and the margin fell from 9.8% to 6.9%. The fact that revenue growth has not translated into higher profit may hinder profitability improvements across the overall portfolio.

Industry Benchmark (Reference; Company Analysis)

Key Points from the Financial Results

1. In Q1, Revenue increased +15.6% and Operating Income increased +38.2%, confirming the effect of operating leverage from improved gross margins and restrained growth in SG&A expenses. The return to Net Income profitability was mainly due to the reversal of the extraordinary loss recognized in the previous year and should be distinguished from improvements in core business earnings power.

2. The Environmental Business achieved the highest profitability among the reported segments, with revenue growth of +70.6% and a segment profit margin of 9.4%, confirming the coexistence of growth and profitability. Meanwhile, the Parking Business posted higher revenue but lower profit, indicating differences in profitability trends across businesses.

3. Against the assumed Full-Year Operating Income margin of 4.7%, the Q1 result was 3.5%, while the progress rate for Operating Income of 15.7% was below the 21.5% progress rate for Revenue. The degree to which margins improve toward the second half of the fiscal year will be a key point in assessing achievement of the Full-Year plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,513–¥2,650 for ±1% in the Cost of Equity, and ¥2,569–¥2,587 for ±0.1 in ω.

Notes:

• As forecast ROE is below the Cost of Equity, the theoretical value will be below Book Value Per Share.
• Net assets as of the end of the quarter are used, creating a timing difference from the Full-Year forecast.
• As net assets include non-controlling interests, the theoretical value may be calculated at a slightly high level.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / 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.)

---

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 you should consult a professional advisor as necessary.

---End of Report---