AKEBONO BRAKE INDUSTRY CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

During the quarter, despite a 6.7% year-on-year decline in revenue, the Company secured increases in Operating Income and Ordinary Income due to improved cost ratios and the boost from foreign exchange gains. However, the increase in the effective tax rate pressured final earnings. Revenue was ¥372.1B (¥398.7B in the prior-year period, YoY -6.7%), Operating Income was ¥14.0B (up +3.6%), and Ordinary Income was ¥11.9B (up +73.8%). Consolidated Net Income, including income attributable to non-controlling interests, was ¥2.3B (YoY +42.3%), while Net Income attributable to owners of the parent was ¥0.5B (¥△1.3B in the prior-year period), representing only a return to profitability. An effective tax rate of approximately 80% significantly compressed final earnings. The primary factors behind the earnings increase were the coverage of the slowdown in North America by the highly profitable businesses in Thailand and Indonesia, as well as the recognition of ¥3.1B in foreign exchange gains as non-operating income.

Factors Affecting Financial Performance

【Revenue】Revenue was ¥372.1B, down 6.7% year on year. By segment, Japan, the largest segment by composition, was broadly flat at ¥156.8B (+1.1%, composition ratio 42.1%), while North America, the second-largest segment, slowed significantly to ¥99.5B (-26.5%, composition ratio 26.7%), becoming the primary cause of the Company-wide revenue decline. Thailand grew to ¥21.4B (+26.2%) and Indonesia to ¥63.5B (+4.5%), while Europe at ¥24.6B (-2.4%) and China at ¥27.1B (-1.6%) remained broadly flat.

【Profit and Loss】The gross margin improved by +1.3pt to 12.6% from 11.3% in the prior year, while the SG&A ratio also increased to 8.9% from 7.9%, leaving the Operating Income margin at 3.8%, compared with 3.4% in the prior year. Ordinary Income increased +73.8% to ¥11.9B, supported by ¥3.1B in foreign exchange gains recorded as non-operating income. Extraordinary losses of ¥0.6B, including ¥0.4B in business restructuring expenses, were minor temporary factors. Against Profit Before Tax of ¥11.5B, corporate income taxes and other taxes of ¥9.2B were recorded, resulting in an effective tax rate of approximately 80% and a substantial gap between Ordinary Income and Net Income. Although revenue declined, Operating Income and Ordinary Income increased, resulting in a decline in revenue accompanied by an increase in profit.

Segment Analysis

Indonesia made the largest contribution to earnings, with Operating Income of ¥4.7B, representing 34.3% of Company-wide Operating Income, a 7.3% profit margin, and sales growth of YoY +4.5%. It was followed by Japan, with ¥3.6B, a 26.6% composition ratio, a 2.3% profit margin, and sales growth of YoY +1.1%, and Thailand, with ¥3.5B, a 25.6% composition ratio, a 16.2% profit margin, and sales growth of YoY +26.2%. Thailand had the highest profit margin among all segments at 16.2% and continued to achieve double-digit growth in both revenue and profit, driving the Company-wide margin as a highly profitable operating base. In contrast, North America generated almost no Operating Income against revenue of ¥99.5B, with Operating Income of ¥0.02B and a profit margin of 0.02%, leaving profitability at approximately break-even. Japan had the largest revenue composition ratio but a low profit margin of 2.3%, indicating substantial room for profitability improvement, together with China at 5.0% and Europe at 1.9%.

Key Financial Indicators

【Profitability】Improvements were confirmed at each stage, with the Operating Income margin at 3.8% (3.4% in the prior year), the Ordinary Income margin at 3.2% (1.7% in the prior year), and the gross margin at 12.6% (11.3% in the prior year). ROE was 0.4% based on consolidated Net Income. 【Cash Flow Quality】Operating Cash Flow (OCF) of ¥26.1B was approximately 0.9x EBITDA of ¥29.8B, including depreciation and amortization, confirming cash support for earnings. 【Investment Efficiency】Against total assets of ¥1305.5B, revenue was ¥372.1B, resulting in a quarterly total asset turnover ratio of 0.29x. 【Financial Soundness】The Equity Ratio was 43.9%, slightly down from 44.7% in the prior year. Interest-bearing debt was approximately ¥349.9B, centered on long-term borrowings of ¥303.9B, while the interest coverage ratio (Operating Income/interest expense) was 3.0x.

Cash Flow Analysis

Operating Cash Flow increased substantially to ¥26.1B from ¥4.6B in the prior year. Against the subtotal before changes in working capital of ¥47.9B, a ¥20.6B decrease in trade receivables contributed positively, while a ¥10.2B increase in inventories and a ¥4.6B decrease in trade payables were negative factors. Investing Cash Flow represented an outflow of ¥19.7B, mainly due to the acquisition of property, plant and equipment and intangible assets, while Financing Cash Flow was an inflow of ¥3.3B, mainly due to a net increase in short-term borrowings. As a result, Free Cash Flow remained positive at ¥6.4B, and cash and cash equivalents increased from ¥180.9B at the end of the prior fiscal year to ¥190.0B. Interest paid was ¥8.5B, remaining within the range of Operating Cash Flow. The ability to maintain cash levels while funding investment and working capital requirements indicates stability in liquidity management.

Quality of Earnings

Against core earnings of ¥14.0B in Operating Income, foreign exchange gains accounted for ¥3.1B of ¥4.3B in non-operating income, making a significant contribution to the increase in Ordinary Income to ¥11.9B. Foreign exchange gains were equivalent to approximately 22% of Operating Income, indicating that the quality of Ordinary Income is relatively highly sensitive to foreign exchange movements. Extraordinary items were limited, consisting of extraordinary income of ¥0.1B and extraordinary losses of ¥0.6B, including ¥0.4B in business restructuring expenses, and the impact of temporary factors was limited. Corporate income taxes and other taxes of ¥9.2B were recorded against Profit Before Tax of ¥11.5B, resulting in a high effective tax rate of approximately 80%. This created a substantial gap from Ordinary Income to consolidated Net Income of ¥2.3B and further to Net Income attributable to owners of the parent of ¥0.5B after deducting Net Income attributable to non-controlling interests of ¥1.8B. Operating Cash Flow of ¥26.1B was approximately 0.9x EBITDA of ¥29.8B. Even after incorporating changes in working capital, cash support for earnings was confirmed, and no significant concerns were identified regarding earnings quality from an accrual perspective.

Earnings Forecasts and Guidance

The Q1 progress rates against the Full-Year earnings forecasts were 26.4% for revenue (forecast of ¥1409.0B), 20.1% for Operating Income (forecast of ¥70.0B), and 22.9% for Ordinary Income (forecast of ¥52.0B). Compared with the simple progress benchmark of 25% based on an equal quarterly distribution, revenue was slightly ahead, while Operating Income and Ordinary Income were progressing somewhat behind schedule. Net Income attributable to owners of the parent was ¥0.5B against a forecast of ¥25.0B, representing a progress rate of 2.2% and a significant delay, primarily due to the high effective tax rate. As of the end of the quarter, no revisions had been made to the earnings or dividend forecasts.

Shareholder Returns

The dividend forecast is ¥0 per share for both the current period and the Full Year, continuing the suspension of dividends from the prior year. The Payout Ratio is 0% because there are no dividend payments subject to calculation. Although Free Cash Flow remained positive at ¥6.4B, the Company appears to be prioritizing the maintenance of its financial base at this time, taking into account its level of interest-bearing debt and the increase in working capital.

Risk Factors

1. Regional concentration risk: North American revenue declined 26.5% year on year to ¥99.5B, while the Operating Income margin fell to almost zero at 0.02%. Profitability improvement in this segment, which accounts for 26.7% of Company-wide revenue, will affect Company-wide earnings.

2. Foreign exchange sensitivity: Foreign exchange gains accounted for ¥3.1B of ¥4.3B in non-operating income and made a significant contribution to Ordinary Income of ¥11.9B. The structure is susceptible to fluctuations in Ordinary Income due to movements in foreign exchange rates.

3. Tax burden and financial structure: The effective tax rate was high at approximately 80%, and Net Income attributable to owners of the parent was limited to ¥0.5B against Profit Before Tax of ¥11.5B. Interest-bearing debt was approximately ¥349.9B, and the Equity Ratio had declined slightly to 43.9% from 44.7% in the prior year.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Return

Both the Operating Income margin and Net Profit margin were below the industry median, placing profitability at the lower end of the industry.

Growth and Capital Efficiency

The revenue growth rate was significantly below the industry median, indicating a pronounced revenue decline relative to industry peers.

Source: Compiled by the Company

Key Points from the Earnings Report

1. Despite a 6.7% decline in revenue, the gross margin improved from 11.3% to 12.6%, confirming a structure in which the highly profitable Thailand segment, with a 16.2% profit margin, and Indonesia segment, with a 7.3% profit margin, are supporting Company-wide earnings.

2. The increase in Ordinary Income was heavily supported by ¥3.1B in foreign exchange gains, while Net Income attributable to owners of the parent was limited to ¥0.5B due to the effective tax rate of approximately 80%. This highlights the fact that non-operating and tax-related factors are causing fluctuations in earnings.

3. While the Company continues its zero-dividend policy, it secured positive Free Cash Flow of ¥6.4B. Together with the increase in Operating Cash Flow of +463% year on year, this indicates stability in liquidity management.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥176–¥187 at ±1% for the cost of equity, and ¥181–¥182 at ±0.1 for ω.

Notes:

• Net Income has been substantially compressed relative to Operating Income due to the tax burden, acquisition-related expenses, and non-controlling interests, among other factors (Net Income ÷ Operating Income 36%). This value reflects that compression at face value; if these factors are temporary, underlying earnings power may be higher.
• Because 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 gap 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: 2026-07 / This value is not a forecast or guarantee of future share prices.)

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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, after consulting professionals as necessary.

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