SAKURAI (7255) FY2026 Q3 Earnings Report

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Executive Summary

The most important point in the current period results was the return to operating profitability, indicating progress in improving the earnings structure despite only modest revenue growth. Revenue was ¥3.51B (+0.6% YoY), Operating Income was ¥0.07B (compared with an Operating Loss of ¥0.03B in the same period of the previous year), Ordinary Income was ¥0.15B (+197.5%), and Net Income was ¥0.17B (+273.0%). The primary drivers of the improvement were a reduction in losses from higher revenue in the Machine Tool Manufacturing Business and improvements in the gross margin and SG&A expense ratio. However, Ordinary Income and Net Income also benefited substantially from non-operating income and gains on the sale of investment securities, and therefore need to be evaluated separately from earnings power generated solely by operating activities.

Factors Affecting Performance

【Revenue】Revenue was ¥3.51B, essentially flat at +0.6% YoY. By segment, the Automotive Parts Manufacturing Business declined to ¥2.68B (76.3% composition ratio, ▲11.2% YoY), while the Machine Tool Manufacturing Business increased substantially to ¥0.85B (24.2% composition ratio, +75.3% YoY), supporting consolidated revenue.

【Profit and Loss】Gross profit was ¥0.49B, with a gross margin of 13.9%, improving from 12.4% in the same period of the previous year. SG&A expenses were ¥0.42B, and the SG&A expense ratio declined to 11.9% (13.2% in the previous year), resulting in a return to Operating Income of ¥0.07B (compared with an Operating Loss of ¥0.03B in the previous year). Ordinary Income of ¥0.15B was supported by ¥0.12B in non-operating income, including dividends received and rental income, exceeding Operating Income in scale. Net Income of ¥0.17B included net extraordinary gains of ¥0.04B, including a ¥0.04B gain on the sale of investment securities, indicating a substantial contribution from non-recurring factors. By segment, the Automotive Parts Manufacturing Business generated profit of ¥0.155B (▲26.3% YoY), while the Machine Tool Manufacturing Business recorded a loss of ¥0.085B (compared with a loss of ¥0.239B in the previous year); the reduction in losses contributed to the consolidated profit increase. Overall, the results show higher revenue and profit, but the revenue increase was limited to the Machine Tool Business, while the profit increase remained highly dependent on non-operating and extraordinary gains and losses.

Segment Analysis

The Automotive Parts Manufacturing Business recorded Revenue of ¥2.68B (▲11.2% YoY) and Operating Income of ¥0.155B (▲26.3%), with its profit margin declining from 7.0% to 5.8%. Despite being the core business, it posted lower revenue and profit, and the continuation of deteriorating profitability warrants attention. The Machine Tool Manufacturing Business recorded Revenue of ¥0.85B (+75.3%) and an Operating Loss of ¥0.085B (a loss of ¥0.239B in the previous year), with its loss ratio improving substantially from negative 49.9% to negative 10.0%. Fixed-cost absorption progressed as a result of higher revenue, but the business has not yet reached profitability, and the profitability gap between the two businesses has reached 15.8pt. The greatest lever for improving consolidated profitability is the Machine Tool Business exceeding its breakeven point.

Key Financial Indicators

【Profitability】The Operating Margin improved to 2.0% (negative 0.8% in the same period of the previous year), while the Net Profit Margin improved to 4.7% (1.3%). However, both the gross margin of 13.9% and the EBIT margin of 2.0% remained at low levels.【Earnings Quality】Non-operating income accounted for ¥0.12B of Ordinary Income of ¥0.15B, exceeding Operating Income in scale. In addition, Net Income benefited from net extraordinary gains of ¥0.04B, including a ¥0.04B gain on the sale of investment securities; consequently, reported earnings diverged from recurring business earnings power.【Capital Efficiency】Annualized ROE was 4.5% and annualized ROIC was 1.7%, indicating low capital efficiency relative to the high Equity Ratio of 68.7%.【Financial Soundness】The financial foundation is conservative, with a current ratio of 182.4%, an Equity Ratio of 68.7%, and a Debt/Capital ratio of 19.8%. However, short-term borrowings of ¥0.80B account for the majority of interest-bearing debt, and the short-term debt ratio of 65.7% indicates reliance on short-term borrowing.

Cash Flow Analysis

As detailed cash flow statements have not been disclosed, funding trends can be assessed from changes in the balance sheet. Cash and deposits were ¥1.41B, an increase of ¥0.12B from ¥1.29B in the same period of the previous year. Accounts receivable declined substantially to ¥0.33B from ¥0.87B in the same period of the previous year. Given that revenue was approximately flat, progress in collecting receivables and changes in transaction terms may have contributed to the improvement in cash levels. Meanwhile, work in process was ¥0.75B, an increase of ¥0.12B from ¥0.63B in the same period of the previous year, accounting for 82.3% of total inventory. Long-term borrowings were reduced to ¥0.42B from ¥0.57B in the same period of the previous year, indicating progress in controlling interest-bearing debt. Overall liquidity on hand is improving, but the accumulation of work in process warrants attention as a factor that may constrain working capital.

Earnings Quality

Net Income of ¥0.17B substantially exceeded Operating Income of ¥0.07B, with the difference explained by ¥0.12B in non-operating income at the Ordinary Income level, including dividends received and rental income, and net extraordinary gains of ¥0.04B, including a ¥0.04B gain on the sale of investment securities. Net extraordinary gains accounted for approximately 25% of Net Income and should be distinguished from recurring business earnings power. Meanwhile, foreign exchange losses of ¥0.02B were equivalent to 25.1% of Operating Income and reduced profit as a non-operating expense. The fact that work in process accounted for 82.3% of total inventory also warrants attention from an accrual perspective, as it entails future earnings volatility risk associated with production progress and valuation. Overall, the profit increase in the current period reflected both structural improvements in operating profit and a meaningful degree of dependence on non-recurring items, indicating that earnings quality remains in the process of improving.

Earnings Forecast and Guidance

The cumulative Q3 progress rate against the Full-Year forecast was 70.7% for Revenue (4.3pt below the standard progress rate of 75%), while Operating Income, Ordinary Income, and Net Income were substantially ahead at 363.2%, 153.7%, and 204.9%, respectively. The Full-Year forecast calls for Operating Income of ¥0.02B, Ordinary Income of ¥0.09B, and Net Income of ¥0.08B, all below cumulative Q3 results, suggesting a conservative plan that factors in deteriorating profitability or a reversal of one-time gains in Q4. Because the outperformance in Ordinary Income and Net Income includes contributions from non-operating income and gains on the sale of investment securities, operating earnings power must be distinguished from non-recurring factors when assessing the potential for an upward revision to the Full-Year outlook.

Shareholder Returns

The company’s Full-Year dividend forecast is ¥5 per share, representing a reduction from the previous year’s dividend of ¥15. The forecast Payout Ratio based on forecast EPS of ¥24.24 is approximately 20.6%, indicating a light dividend burden relative to earnings. Retained earnings were ¥5.10B, providing a sufficient accumulated source of dividends. Treasury shares totaled 678,000 shares, accounting for approximately 17.0% of issued shares; however, no share repurchase results for the current period have been disclosed, and the Total Return Ratio has not been calculated.

Risk Factors

1. Lower revenue and profit in the core business: The Automotive Parts Manufacturing Business recorded a ▲11.2% YoY decline in Revenue and a ▲26.3% decline in segment profit, while its profit margin fell from 7.0% to 5.8%. If profitability in this business, which is the pillar of consolidated profit, continues to deteriorate, improvements in the Machine Tool Business alone may not be sufficient to offset the decline.

2. Accumulation of work in process: Work in process was ¥0.75B, accounting for 82.3% of total inventory of ¥0.91B. If production stagnates, projects are prolonged, or cost overruns arise, there is a risk of pressure on capital efficiency and future earnings.

3. Dependence on short-term borrowings: The short-term debt ratio was 65.7%, including short-term borrowings of ¥0.80B, creating potential refinancing risk depending on refinancing terms and interest-rate trends. Cash and deposits of ¥1.41B provide some mitigation of this risk.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Margin and Net Profit Margin are below the industry median, placing profitability at the lower end of the industry.

Growth and Capital Efficiency

The Revenue Growth Rate is also below the industry median, indicating that top-line growth is relatively modest within the industry.

※Source: Company compilation

Key Points from the Results

1. The return from an operating loss to profitability, improvement in the gross margin, and reduction in SG&A expenses confirm an improvement in the earnings structure. However, the core Automotive Parts Manufacturing Business posted lower revenue and profit, leaving challenges regarding the stability of the recovery.

2. The Machine Tool Manufacturing Business achieved substantial revenue growth and reduced its losses, but continues to report an Operating Loss. Establishing sustained profitability will be key to improving the consolidated profit margin.

3. Non-operating income and gains on the sale of investment securities boosted Net Income, and reported earnings cannot be regarded as recurring earnings power as-is. The high Equity Ratio and substantial cash balance support financial resilience, while dependence on short-term borrowings remains.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,097–¥1,160 at Cost of Equity ±1%; ¥1,117–¥1,135 at ω±0.1.

Notes:

• Normalized EPS calculated from Ordinary Income and other figures is used to exclude the impact of temporary gains and losses (the company’s forecast EPS is ¥24.2).
• Because forecast ROE is below the Cost of Equity, the theoretical value is below Book Value Per Share.
• Net assets as of the quarter-end are used (there is a timing difference from the Full-Year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest-rate reference month: 2026-08 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast 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 discretion and responsibility, after consulting with professionals as necessary.

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