SUZUKI MOTOR CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

During the quarter, revenue increased in the high double digits, while operating income growth remained relatively moderate, and a sharp expansion in financial income drove Profit Before Tax and net income higher. Revenue was ¥17,057.7B (+22.0% YoY), operating income was ¥1,580.1B (+11.2%), Profit Before Tax was ¥2,832.0B (+61.2%; because the company reports under IFRS, this is presented as Profit Before Tax rather than Ordinary Income), and net income attributable to owners of the parent was ¥1,836.1B (+80.0%). The primary driver of revenue growth was expanded sales in the four-wheeler business. Gross margin declined to 23.5% (25.9% in the same period of the previous year), indicating cost-related headwinds, although an improvement in the SG&A ratio (15.3% versus 16.2% in the previous year) partially offset this decline. The substantial increase in Profit Before Tax and net income was primarily attributable to the sharp increase in financial income (¥1,306.6B versus ¥373.2B in the previous year), and it should be noted that this growth exceeded the pace of improvement in operating performance.

Factors Affecting Earnings

【Revenue】Revenue was ¥17,057.7B, representing a 22.0% YoY increase. By segment, the core four-wheeler business (Automobile) led overall performance with revenue of ¥15,416.9B (90.4% of total revenue, YoY +22.6%), followed by the motorcycle business (Motorcycle) at ¥1,244.3B (7.3% of total revenue, YoY +18.7%) and the marine business (Marine) at ¥368.5B (2.2% of total revenue, YoY +15.6%). Other businesses declined to ¥28.0B (YoY -14.2%). The company has a high degree of dependence on the four-wheeler business, creating a structure in which sales trends and foreign exchange effects in this business significantly influence overall company performance.

【Profit and Loss】Operating income was ¥1,580.1B (+11.2% YoY), below the rate of revenue growth. Gross margin declined to 23.5% from 25.9% in the previous year, a decrease of -2.4pt, suggesting the effects of higher costs or product mix changes. Meanwhile, the SG&A ratio improved by -0.9pt to 15.3% from 16.2%, partially offsetting the decline. As a result, the operating margin narrowed by -0.9pt to 9.3% from 10.2%. Profit Before Tax increased substantially to ¥2,832.0B (+61.2%), primarily due to the sharp increase in financial income of ¥1,306.6B (¥373.2B in the previous year, +250.2%), indicating significant dependence on factors with a high degree of non-recurring nature. Net income attributable to owners of the parent was ¥1,836.1B (+80.0%). Overall, the company achieved higher revenue and earnings, but the pace of earnings growth at the operating level was moderate, while net income growth was highly dependent on non-operating factors.

Segment Analysis

The four-wheeler business (Automobile) generated revenue of ¥15,416.9B (YoY +22.6%), operating income of ¥1,343.2B (YoY +12.5%), and an operating margin of 8.7%. It is the core business, accounting for 90.4% of total company revenue and more than 85.0% of operating income. The motorcycle business (Motorcycle) generated revenue of ¥1,244.3B (YoY +18.7%), operating income of ¥144.4B (YoY +13.1%), and an operating margin of 11.6%, securing higher profitability than the four-wheeler business. The marine business (Marine) recorded higher revenue of ¥368.5B (YoY +15.6%), but operating income declined to ¥85.4B (YoY -6.8%); its operating margin of 23.2% remained the highest among all segments. Other businesses generated revenue of ¥28.0B (YoY -14.2%) and operating income of ¥7.1B (YoY -7.3%), remaining small in scale. While earnings are highly concentrated in the four-wheeler business and fluctuations in demand for that business have a significant impact on consolidated performance, the high margins of the marine business support the profitability of the overall portfolio.

Key Financial Metrics

【Profitability】The operating margin was 9.3%, down -0.9pt from 10.2% in the previous year. The decline in gross margin (23.5% versus 25.9% in the previous year) was partially offset by the improvement in the SG&A ratio (15.3% versus 16.2% in the previous year). The net margin attributable to owners of the parent was 10.8%, improving from 7.3% in the previous year, supported by the increase in financial income.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥864.3B, only 0.47x net income attributable to owners of the parent of ¥1,836.1B, indicating a moderate pace of cash conversion. The decrease in trade payables (-¥375.5B) and increase in income tax payments (-¥495.0B) were sources of cash outflows related to working capital.【Capital Efficiency】ROE was 4.7% (quarterly basis, before annualization), while total asset turnover remained at 0.251 (quarterly), indicating room for improvement in asset efficiency.【Financial Soundness】The equity ratio was 52.1%, improving from 51.0% in the previous year. The current ratio remained at a sound level of approximately 1.81x (current assets of ¥2,783.6B/current liabilities of ¥1,541.4B). Interest coverage was approximately 24.5x based on operating income (¥1,580.1B/¥64.6B), indicating a minimal interest burden.

Cash Flow Analysis

Cash flow from operating activities was ¥864.3B, an increase of +35.1% YoY. However, its ratio to quarterly net income attributable to owners of the parent of ¥1,836.1B remained at 0.47x, indicating a delay in cash conversion. In terms of working capital, the decrease in inventories generated a cash inflow of +¥204.6B, while the decrease in trade payables of -¥375.5B and income tax payments of -¥495.0B resulted in cash outflows, reducing operating cash flow from the subtotal of ¥1,306.7B. Cash flow from investing activities was a modest outflow of -¥43.6B. This was because proceeds from the sale and collection of other financial assets, including time deposits and securities, exceeded acquisition expenditures, offsetting capital expenditures of -¥1,423.8B. Core capital expenditures therefore were not yet at a level that could be covered solely by OCF. Cash flow from financing activities was -¥548.5B. The company executed long-term borrowings of +¥1,215.0B and repayments of -¥1,112.0B, while also paying dividends of -¥463.2B (payment of the year-end dividend related to the previous fiscal year). Free cash flow (OCF + investing CF) was ¥820.7B, but this was supported in substance by portfolio adjustments in financial assets. Cash and cash equivalents ended the period largely unchanged at ¥1T66.4B (+¥33.4B from the beginning of the period).

Earnings Quality

In terms of earnings quality, against operating income of ¥1,580.1B, which represents recurring business profit, the primary factor boosting Profit Before Tax was financial income of ¥1,306.6B (¥373.2B in the previous year, +250.2%, equivalent to 7.7% of revenue), indicating significant dependence on non-operating items with a high degree of non-recurring nature. Other income of ¥20.1B and expenses of ¥2.6B were minor, each representing less than 1% of revenue. Comprehensive income was ¥2,392.1B (of which ¥2,101.4B was attributable to owners of the parent). The difference of ¥265.3B from net income attributable to owners of the parent of ¥1,836.1B was primarily attributable to foreign currency translation adjustments for foreign operations (+¥311.9B), with foreign exchange movements boosting comprehensive income. The fact that OCF remained at 0.47x quarterly net income indicates relatively large accruals, or a divergence between accrual and cash accounting. Continued monitoring of the cash backing of earnings accompanied by working capital fluctuations would therefore be useful.

Earnings Forecast and Guidance

Progress against the full-year earnings forecast was 24.7% for revenue (¥1,705.8B/¥6,900.0B), 29.3% for operating income (¥158.0B/¥540.0B), and 43.7% for net income attributable to owners of the parent (¥183.6B/¥420.0B). Compared with the simple quarterly progress benchmark of 25%, operating income was slightly ahead of schedule, while net income was substantially ahead. The exceptionally high progress rate for net income was primarily due to the significant contribution from financial income of ¥1,306.6B, which boosted Profit Before Tax. Given that the full-year operating income forecast assumes a YoY decline of -13.3%, the impact of any reversal in financial income and changes in the cost environment through the second half warrants close monitoring. Although the earnings forecast was revised during the quarter, the dividend forecast was not revised.

Shareholder Returns

The full-year dividend forecast is ¥51 per share, resulting in a Payout Ratio of approximately 23.4% against full-year forecast EPS of ¥217.69. The dividend payment of ¥463.2B recorded in the cash flow statement for the quarter represented payment of the year-end dividend related to the previous fiscal year and was covered within OCF of ¥864.3B. No share repurchases were conducted during the quarter, and shareholder returns remain centered on dividends. Compared with the level of OCF and cash and cash equivalents of ¥1T66.4B, the Payout Ratio is not considered to impose a significant constraint on maintaining dividends for the time being.

Risk Factors

1. [Earnings Concentration in the Four-Wheeler Business]: The four-wheeler business (Automobile) accounts for 90.4% of revenue and more than 85.0% of operating income, creating a structure in which demand trends, the competitive environment, and regulatory changes in this business directly affect consolidated performance.

2. [Decline in Gross Margin Due to Cost Increases]: Gross margin was 23.5%, down -2.4pt from 25.9% in the previous year. Increases in costs and changes in product mix may continue to affect profit margins.

3. [Delayed Cash Conversion]: OCF remained at 0.47x net income attributable to owners of the parent, while the decrease in trade payables (-¥375.5B) and increase in income tax payments (-¥495.0B) were sources of cash outflows related to working capital.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

In terms of profitability, both the operating margin and net margin exceed the industry median, placing the company’s margin levels among the higher levels within the industry.

Growth and Capital Efficiency

The revenue growth rate significantly exceeds the industry median and is high relative to industry peers.

Source: Company compilation

Key Takeaways from the Results

1. The substantial increases in Profit Before Tax and net income (+61.2%/+80.0%) were primarily attributable to the sharp increase in financial income (+250.2%), significantly exceeding operating income growth (+11.2%). In evaluating earnings quality, it is necessary to distinguish between the contributions of operating and non-operating factors.

2. While gross margin declined by -2.4pt, the improvement in the SG&A ratio (-0.9pt) partially offset the decline, limiting the contraction in operating margin to 9.3% (-0.9pt). This indicates that cost management measures mitigated the deterioration in profitability.

3. While net income was ahead of schedule at 43.7% of the full-year forecast, the full-year operating income forecast assumes a YoY decline of -13.3%, indicating a difference between the assumptions for the first half and second half that can be inferred from the earnings data.

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

Sensitivity: ¥2,029–¥2,153 at ±1% for the cost of equity, and ¥2,083–¥2,100 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).

(Calculation model: Residual income model / Interest rate reference month: 2026-07 / This value does not predict or guarantee future share prices)

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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 benchmark is reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, and after consulting with a professional adviser as necessary.

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