FUTABA INDUSTRIAL CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

During the quarter, the Company recorded higher revenue but lower operating income, indicating that volume growth did not translate directly into earnings expansion. Revenue increased to ¥1,756.1B (+7.1% YoY), while operating income declined to ¥36.5B (△12.9%), causing the operating margin to fall to 2.1% from 2.6% a year earlier. Ordinary income increased to ¥41.0B (+3.4%) due to improved non-operating income and expenses, including foreign exchange gains. However, after the tax burden reflecting an effective tax rate of 36.9% and profit attributable to non-controlling interests, net income attributable to owners of the parent amounted to ¥24.7B (△5.4% YoY; ¥25.9B on a consolidated net income basis, △5.1% YoY). Growth was driven by Asia (+66.7%) and North America (+9.8%), while the decline in gross margin and the Chinese business’s shift into the red were the primary causes of the earnings decline.

Factors Affecting Business Performance

【Revenue】Revenue increased to ¥1,756.1B, up +7.1% YoY. By region, Asia grew substantially by +66.7% and led overall growth, while Europe (+17.4%), North America (+9.8%), and the core Japanese market (+3.7%) also contributed to higher revenue. China, however, recorded a significant revenue decline of -34.0%. Japan accounted for approximately 44% of the revenue mix, the largest share, followed by North America at approximately 28%, Asia at approximately 12%, Europe at approximately 10%, and China at approximately 6%. The overall structure, in which Japan and North America account for slightly more than 70%, remained largely unchanged.

【Profit and Loss】Operating income was ¥36.5B (△12.9% YoY). The gross margin declined to 6.5% from 7.2% a year earlier, a decrease of approximately 0.7pt, as cost increases exceeding revenue growth put pressure on earnings. The SG&A ratio improved to 4.4% from 4.6%, indicating a certain degree of fixed-cost absorption, although this was insufficient to offset the deterioration in gross margin. Ordinary income increased to ¥41.0B (+3.4%), as non-operating income of ¥9.5B, including dividend income of ¥3.1B and foreign exchange gains of ¥1.8B, exceeded non-operating expenses of ¥4.9B, including interest expenses of ¥2.5B, thereby offsetting the decline in operating income. However, the burden of income taxes of ¥15.2B, equivalent to an effective tax rate of 36.9%, was substantial, and net income attributable to owners of the parent declined to ¥24.7B (△5.4%). Overall, the Company reported higher revenue but lower earnings.

Segment Analysis

Changes in the regional mix affected the Company-wide profit margin. North American revenue expanded to ¥495.9B (+9.8%), but operating income declined to ¥12.9B (△4.0%), resulting in higher revenue but lower earnings. Its operating margin remained the highest among the five segments at 2.6%. Asia recorded revenue of ¥204.7B (+66.7%) and operating income of ¥4.9B (+70.1%), with the rates of revenue and operating income growth broadly aligned; its 2.4% margin also showed an improving trend. Japan, the core market, recorded revenue of ¥805.0B (+3.7%) and operating income of ¥15.4B (+1.9%), remaining stable, although its margin was relatively low at 1.9%. Europe posted higher revenue of ¥182.4B (+17.4%), but operating income fell sharply to ¥3.8B (△37.5%), lowering its margin to 2.1%. China was the only segment to record lower revenue, declining to ¥103.6B (△34.0%), while its operating loss amounted to ¥0.4B, representing a shift from the previous year’s profit to a loss. Segment margins were widely dispersed, ranging from 2.6% in North America to △0.4% in China. Shrinking demand in China and deteriorating profitability in Europe are structural factors weighing on the Company-wide gross margin.

Key Financial Indicators

【Profitability】The operating margin was 2.1%, down approximately 0.5pt from 2.6% a year earlier, while the gross margin also declined to 6.5% from 7.2%, a decrease of approximately 0.7pt. The net margin based on net income attributable to owners of the parent was 1.4%, slightly below the previous year’s 1.6%. Meanwhile, the SG&A ratio improved to 4.4% from 4.6%, indicating progress in improving part of the cost structure. 【Cash Quality】Days sales outstanding shortened slightly to approximately 43 days on a quarterly annualized basis, compared with approximately 47 days a year earlier. Inventories increased to ¥318.3B from ¥291.4B, up +9.2%; work in process amounted to ¥181.3B, representing 57% of total inventories and indicating a concentration in work in process. 【Investment Efficiency】ROE was 1.8%, calculated by dividing net income attributable to owners of the parent of ¥24.7B by equity excluding non-controlling interests. Capital efficiency remained limited. 【Financial Soundness】The equity ratio was 43.6%, and the current ratio was approximately 112%, indicating that short-term payment capacity was secured. Interest-bearing debt, comprising short-term borrowings, long-term borrowings, and bonds, totaled approximately ¥511.6B, compared with cash and deposits of ¥245.5B. Interest expense coverage based on operating income was approximately 14.6x, indicating strong resilience to interest burdens.

Cash Flow Analysis

As no cash flow statement has been disclosed, funding trends were reviewed based on changes in the balance sheet. Cash and deposits increased to ¥245.5B from ¥213.8B in the same period of the previous year, an increase of ¥31.6B (+14.8%), indicating an accumulation of liquidity on hand. Inventories, however, increased to ¥318.3B from ¥291.4B, up ¥26.8B (+9.2%). In particular, work in process increased to ¥181.3B from ¥156.6B, up +15.8%, indicating that funds were increasingly tied up in working capital. Trade receivables were ¥833.4B, broadly unchanged from the previous year (△0.8%), while trade payables increased to ¥802.8B, up +0.9%; there was no significant change in the balance between receivables and payables. Construction in progress increased to ¥194.3B from ¥176.2B, up +10.3%, indicating that capital investment continued. Overall, cash on hand remained on an increasing trend, but inventory accumulation, particularly work in process, was observed as a factor constraining working capital.

Earnings Quality

The current-period earnings structure remains dependent on the core automotive parts business, while non-operating income and expenses are small relative to revenue. Major components of non-operating income of ¥9.5B included dividend income of ¥3.1B, interest income of ¥1.2B, and foreign exchange gains of ¥1.8B. The fact that these exceeded non-operating expenses of ¥4.9B, primarily consisting of interest expenses of ¥2.5B, and boosted ordinary income includes a temporary foreign exchange factor. The gap between ordinary income of ¥41.0B and net income attributable to owners of the parent of ¥24.7B reached approximately 40%, primarily due to the effective tax rate of 36.9% and profit attributable to non-controlling interests of ¥1.1B. Comprehensive income was ¥26.6B, broadly in line with consolidated net income of ¥25.9B. Within its components, foreign currency translation adjustments improved substantially to +¥9.6B from △¥1.7B a year earlier, while valuation differences on securities of △¥7.6B and adjustments related to retirement benefits of △¥1.8B offset this improvement. Without the boost from foreign exchange, comprehensive income may have remained at a more subdued level.

Earnings Forecast and Guidance

Progress toward the full-year plan was 25.4% for revenue, calculated as ¥1,756.1B/¥6,900.0B, which is broadly a standard level. By contrast, progress was 19.2% for operating income, calculated as ¥36.5B/¥190.0B; 21.6% for ordinary income, calculated as ¥41.0B/¥190.0B; and 17.6% for net income, calculated as ¥24.7B/¥140.0B. Progress on earnings was therefore somewhat slower. The full-year ordinary income plan assumes an earnings decline of △8.8% YoY, differing in direction from the current quarter’s increase of +3.4%. The earnings forecast was revised during the quarter, and the plan may incorporate deterioration in profitability from the initial plan through the second half of the fiscal year.

Shareholder Returns

The annual dividend forecast is ¥22.00 per share, representing a planned increase of +¥2.00 (+10.0%) from the previous fiscal year’s actual dividend of ¥20.00. Based on approximately 89.3 million shares outstanding after excluding treasury shares, the annual dividend amount is calculated at approximately ¥1.96B. The payout ratio against the full-year plan for net income attributable to owners of the parent of ¥140.0B is approximately 14.0%. There has been no revision to the dividend forecast, and given the cash and deposits balance of ¥245.5B, the Company has sufficient capacity to execute the planned dividend.

Risk Factors

1. Declining gross margin: The gross margin declined to 6.5% from 7.2% a year earlier, a decrease of approximately 0.7pt. Rising raw material and logistics costs, as well as delays in passing through higher costs to prices, may be putting pressure on margins.

2. Deterioration in regional mix: Revenue in the Chinese business contracted by △34.0% YoY, and operating results shifted to a loss of ¥0.4B. Europe also experienced deteriorating profitability, with operating income declining by △37.5% despite revenue growth of +17.4%. Regional disparities are weighing on the Company-wide profit margin.

3. Expansion of working capital: Inventories increased to ¥318.3B, up +9.2% YoY, with work in process accounting for 57%. Inventory accumulation may suggest production inefficiencies or a mismatch with demand and could constrain cash generation.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Company’s profitability metrics, including both operating margin and net margin, are substantially below the industry median and rank toward the lower end among manufacturing companies.

Growth and Capital Efficiency

Revenue growth slightly exceeds the industry median, placing the Company at a mid-to-slightly-above-mid level in terms of top-line growth.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Revenue increased by +7.1%, but operating income declined by △12.9% as the gross margin fell by 0.7pt. The key focus of the results is that volume growth has not been sufficiently converted into earnings growth.

2. Ordinary income increased due to improved non-operating income and expenses, including foreign exchange gains. However, net income attributable to owners of the parent declined due to the burden of the 36.9% effective tax rate. Attention should therefore be paid to the differing earnings trends at the ordinary income and bottom-line levels.

3. By region, Asia improved significantly through higher revenue and earnings, while China shifted into the red and Europe experienced margin deterioration. Changes in the regional mix are therefore a structural factor that will influence future profit-margin trends.

Theoretical Stock 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 five-year fade). It is not a forecast of the market stock price or a recommendation of any specific investment action.

Sensitivity: ¥1,634–¥1,733 for a ±1% change in the cost of equity, and ¥1,681–¥1,684 for a ±0.1 change in ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing gap relative to the full-year forecast).
• Because non-controlling interests are included in net assets, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not forecast or guarantee the future stock 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 issue. 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 with a professional as necessary.

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