DAIDO METAL CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

FY2027 Q1 recorded increases in both revenue and earnings, with the gradual improvement in profitability being the key highlight. Revenue was ¥353.3B (+5.4% YoY), operating income was ¥20.2B (+10.1%), and ordinary income was ¥17.9B (+21.8%). Consolidated net income, including net income attributable to non-controlling interests, was ¥12.0B (+55.7%), while net income attributable to owners of the parent was ¥10.2B (+72.3%), demonstrating an earnings profile in which the growth rate accelerated from the ordinary income level onward. An improvement in the gross profit margin and a reduction in non-operating expenses drove the earnings increase.

Factors Affecting Business Performance

【Revenue】Revenue was ¥353.3B, representing a 5.4% YoY increase. The revenue mix was Powertrain 51.4%, Life 17.2%, Frontier 16.1%, Marine & Energy 14.8%, and Other 1.7%. The high-margin segments Marine & Energy (+14.4%) and Life (+8.0%) led growth, while Powertrain also contributed solidly to the revenue increase with growth of +3.5%.

【Profit and Loss】Operating income was ¥20.2B (+10.1%), and the operating margin improved to 5.7% from 5.5% in the previous year. The gross profit margin improved slightly to 25.3% from 25.1%, while the SG&A expense ratio remained broadly flat at 19.6%. Ordinary income was ¥17.9B (+21.8%). Although interest expense of ¥3.9B remained a burden, foreign exchange losses declined from ¥2.4B in the previous year to ¥0.2B, resulting in a reduction in non-operating expenses. Net income attributable to owners of the parent was ¥10.2B (+72.3%), showing growth exceeding that at the ordinary income level. By segment, Powertrain was the only segment to record a decline in earnings, with profit of ¥22.5B (-3.7%), while Marine & Energy, at ¥10.9B (+17.1%), and Life, at ¥10.9B (+27.1%), grew. Frontier continued to post a loss of ¥-3.5B. Both revenue and earnings increased.

Segment Analysis

Powertrain is the largest segment by scale, with revenue of ¥181.6B (+3.5%), but profit declined to ¥22.5B (-3.7%), and its profit margin decreased to 12.4%. Marine & Energy achieved both high profitability and high growth, with revenue of ¥52.3B (+14.4%), profit of ¥10.9B (+17.1%), and a profit margin of 20.8%. Life recorded revenue of ¥60.6B (+8.0%), profit of ¥10.9B (+27.1%), and a profit margin of 18.0%, clearly demonstrating improved profitability. Frontier continued to post a loss of ¥-3.5B against revenue of ¥56.7B (+2.3%), resulting in a profit margin of -6.1% and contributing to the polarization of profitability within the portfolio. At the company-wide level, the scale of Powertrain and the high margins of Marine & Energy and Life contributed to an improved mix, while Frontier’s losses partially offset these benefits.

Key Financial Indicators

【Profitability】The operating margin was 5.7% (5.5% in the previous year), the ordinary income margin was 5.1% (4.4% in the previous year), and the consolidated net profit margin was 3.4% (2.3% in the previous year), all improving from the previous year. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥36.0B, approximately 3.0 times consolidated net income of ¥12.0B, indicating that cash generation exceeded reported earnings. 【Investment Efficiency】ROE was 1.3% (caution is warranted in making simple comparisons because it is annualized based on quarterly net income attributable to owners of the parent). The combination of a low total asset turnover ratio and an equity ratio of 43.4% indicates room for improvement in asset efficiency. 【Financial Soundness】The equity ratio remained broadly unchanged at 43.4% (43.9% in the previous year), while total assets of ¥2101.3B and net assets of ¥911.9B showed no significant changes.

Cash Flow Analysis

Operating Cash Flow was ¥36.0B, a substantial increase of +40.7% YoY, and was well above consolidated net income of ¥12.0B, indicating high earnings quality. In terms of working capital, inventories increased by ¥17.0B, putting downward pressure on OCF, while an increase in trade payables (+¥12.0B) and a decrease in trade receivables (+¥8.0B) partially offset this effect. Investing Cash Flow was ¥-7.3B, reflecting ongoing capital expenditures centered on ¥16.5B in capital investments. Free Cash Flow (OCF + investing cash flow) was secured at ¥28.7B, a level that effectively covered financing cash flow of ¥-29.8B, including ¥5.2B in share repurchases and debt repayments. Overall, cash-generation capacity is on an increasing trend; however, attention is required because inventory accumulation will affect working capital efficiency going forward.

Earnings Quality

The improvement in earnings during the current period was primarily attributable to recurring factors, namely a slight improvement in the gross profit margin (25.1%→25.3%) and a reduction in non-operating expenses, with no significant impact from one-off factors identified. Non-operating income was ¥2.5B, including ¥1.0B in dividend income, while non-operating expenses were ¥4.8B, including ¥3.9B in interest expense and ¥0.2B in foreign exchange losses. The substantial reduction from foreign exchange losses of ¥2.4B in the previous year was the main factor causing the growth rate of ordinary income (+21.8%) to exceed that of operating income (+10.1%). Comprehensive income was ¥12.6B, close to consolidated net income of ¥12.0B. Valuation differences on securities of +¥1.8B contributed to the increase, while retirement benefit adjustments of ¥-0.5B and other items partially offset it, resulting in only a limited divergence from net income. From an accrual perspective, OCF exceeded net income, suggesting a substantive improvement in earnings accompanied by cash generation.

Earnings Forecast and Guidance

The full-year earnings forecast calls for revenue of ¥1450.0B (+2.1% YoY), operating income of ¥95.0B (+13.5%), and ordinary income of ¥90.0B (+21.6%). There has been no revision to either the earnings forecast or the dividend forecast. Q1 progress rates were 24.4% for revenue, 21.2% for operating income, and 19.9% for ordinary income, all measured against the full-year forecasts and below the simple 25% benchmark based on one-quarter of the year. Inventory accumulation during the first half and the continued losses in the Frontier Business may have somewhat restrained progress. However, if growth continues in the high-margin segments other than Powertrain, progress is expected to recover toward the second half of the fiscal year.

Shareholder Returns

The full-year dividend forecast is ¥36.00 per share, with no revision to the dividend forecast as of the current quarter. Based on the company’s forecast of ¥50.0B in net income attributable to owners of the parent and the number of shares outstanding excluding treasury shares, the payout ratio calculated using the estimated annual total dividend is considered to be in the 30% range, representing a level without excessive burden. Share repurchases of ¥5.2B were conducted during Q1, and total shareholder returns, including dividends and share repurchases, were implemented within the quarter’s free cash flow of ¥28.7B.

Risk Factors

1. Segment concentration risk: Powertrain accounts for 51.4% of revenue, resulting in a high degree of dependence on demand trends and technological developments in this business. Profit in this business declined by -3.7%, and the decrease in its profit margin to 12.4% could readily affect the Group’s overall earnings trend.

2. Continued losses in the Frontier Business: The business continues to post an operating loss of ¥-3.5B against revenue of ¥56.7B, resulting in a profit margin of -6.1%. This is a structural factor that partially offsets the earnings growth generated by the other high-margin segments.

3. Financial costs and leverage: Interest expense increased to ¥3.9B from ¥3.5B in the previous year. Given the level of interest-bearing liabilities, including long-term borrowings of ¥267.0B, the impact of changes in the interest-rate environment on ordinary income should be monitored.

Industry Benchmark (Reference; Prepared by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Compared with the industry median, both the operating margin and net profit margin are lower, placing profitability relatively low within the industry.

Growth and Capital Efficiency

The revenue growth rate is slightly below the industry median but remains within the IQR, placing the growth pace broadly in the middle range of the industry.

※Source: Prepared by the Company

Key Points from the Earnings Results

1. Profit margins are improving gradually due to an improvement in the gross profit margin and a reduction in non-operating expenses. A key characteristic is that the growth rates of ordinary income and net income exceed the growth rate of operating income.

2. Cash-generation capacity is strong. OCF reached approximately 3.0 times consolidated net income, and free cash flow more than adequately covered dividends and share repurchases, while inventory accumulation affected working capital efficiency.

3. By segment, Marine & Energy and Life achieved both high profitability and high growth, while continued losses in Frontier and declining earnings in Powertrain somewhat restrained overall progress. Full-year progress rates for both revenue and earnings were slightly below the simple 25% benchmark.

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 5-year fade period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,762–¥1,865 at ±1% for the cost of equity, and ¥1,807–¥1,816 at ±0.1 for ω.

Notes:

• Goodwill amortization of ¥18.4 per share has been added back to earnings (as a non-cash expense and to enhance comparability with IFRS companies).
• Net income is substantially compressed relative to operating income due to tax burdens, acquisition-related expenses, non-controlling interests, and other factors (net income ÷ operating income 53%). 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 difference relative to the full-year forecast.
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not predict 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 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, and, where necessary, after consulting with a professional advisor.

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