EXEDY (7278) FY2027 Q1 Earnings Report

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Executive Summary

For Q1 of the fiscal year ending March 2026, revenue and profit increased; however, attention should be paid to the high degree of dependence of net income growth on improvements in net finance income. Revenue was ¥751.4B (+4.5% YoY), operating income was ¥49.5B (+0.8%), profit before tax was ¥55.4B (+33.3%), and net income attributable to owners of the parent was ¥34.0B (+24.8%). Gross profit margin improved to 20.6% from 19.4% in the previous year period, while the SG&A ratio increased from 12.8% to 14.6%, restraining operating income growth. The structure was one in which improved net finance income pushed up profit before tax and net income.

Factors Affecting Results

【Revenue】Revenue was ¥751.4B, up +4.5% YoY. By segment, MT grew to ¥192.8B (+9.7%) and Other Businesses grew to ¥80.7B (+28.2%), while AT, the largest segment, declined slightly to ¥446.6B (-0.4%), and TS decreased to ¥31.3B (-2.5%). Overall revenue growth was driven by the expansion of MT and Other Businesses.

【Profit and Loss】Operating income was limited to ¥49.5B (+0.8% YoY), and the operating margin declined to 6.6% from 6.8% in the previous year period. Although the gross profit margin improved due to a decline in the cost-of-sales ratio, the main cause of the decline in the operating margin was the increase in SG&A expenses to ¥109.8B (+19.1% YoY), significantly exceeding revenue growth. By segment, profitability improved markedly at AT, with segment profit of ¥36.6B (+34.2%), and at TS, with segment profit of ¥4.8B (+52.4%); however, Other Businesses shifted to a loss of ¥15.6B from a profit of ¥0.4B in the previous year, while MT also recorded a decline in profit to ¥26.9B (-2.0%). Profit before tax increased significantly to ¥55.4B (+33.3%), primarily due to an improvement in net finance income resulting from the increase in finance income to ¥12.2B from ¥1.4B in the previous year and the decrease in finance costs to ¥3.3B from ¥9.6B. Share of profit or loss of investments accounted for using the equity method deteriorated to a loss of ¥3.1B from a profit of ¥0.6B in the previous year, partially offsetting this improvement. Net income of ¥38.0B (+22.4%) significantly exceeded operating income growth (+0.8%); thus, although the company achieved both revenue and profit growth, improvement in the earning power of the core business was limited, and dependence on the highly volatile factor of net finance income was substantial.

Segment Analysis

AT posted segment profit of ¥36.6B (+34.2%) and a margin of 8.2% (6.1% in the previous year), despite revenue of ¥446.6B (-0.4%), demonstrating a significant improvement in profitability and becoming the largest contributing segment to consolidated profit. MT grew revenue to ¥192.8B (+9.7%), but segment profit declined to ¥26.9B (-2.0%) and the margin decreased to 13.9% (15.6% in the previous year), resulting in a combination of revenue growth and profit decline. TS posted revenue of ¥31.3B (-2.5%), but profit increased to ¥4.8B (+52.4%) and the margin improved to 15.3% (9.8% in the previous year). Other Businesses expanded to revenue of ¥80.7B (+28.2%), but segment profit or loss deteriorated to a loss of ¥15.6B from a profit of ¥0.4B in the previous year, becoming a factor weighing on consolidated operating income.

Key Financial Indicators

【Profitability】The operating margin was 6.6%, approximately 24bp below 6.8% in the previous year period. The gross profit margin improved to 20.6% (19.4% in the previous year), but this was offset by an increase in the SG&A ratio to 14.6% (12.8% in the previous year). The net profit margin improved to 5.1% (4.3% in the previous year). 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥107.6B, approximately 2.8 times net income of ¥38.0B, indicating strong cash conversion. 【Investment Efficiency】Annualized ROE was 7.5%, and the Equity Ratio was 60.2%; both remained unchanged from the previous year period and at high levels. 【Financial Soundness】Current assets were ¥1740.7B compared with current liabilities of ¥702.2B, resulting in a current ratio of approximately 248%. Cash and cash equivalents of ¥688.4B exceeded total bonds and borrowings of ¥542.1B, placing the company in a net cash position and indicating a stable financial foundation.

Cash Flow Analysis

Cash flows from operating activities were ¥107.6B (+2.6% compared with the previous year period), demonstrating sufficient cash-generation capacity relative to net income of ¥38.0B. This amount was determined by deducting income taxes paid of ¥28.9B and interest paid of ¥2.6B from the subtotal of ¥137.0B. In terms of working capital, a decrease in trade receivables resulted in a cash inflow of ¥32.5B, while an increase in inventories resulted in an outflow of ¥6.2B and an increase in trade payables resulted in an inflow of ¥9.2B. Cash flows from investing activities were an outflow of ¥37.1B, with the primary uses being capital expenditures of ¥18.0B, deposits into time deposits, and the acquisition of investment securities. As a result, free cash flow, calculated as the sum of OCF and investing cash flow, was ¥70.5B. Cash flows from financing activities were an outflow of ¥120.1B, primarily due to dividend payments of ¥53.9B, the acquisition of treasury shares of ¥30.0B, and dividends paid to non-controlling interests of ¥31.8B. Consequently, cash and cash equivalents decreased by ¥56.4B from ¥74.5B at the beginning of the period to ¥68.8B, primarily reflecting increased cash uses for shareholder returns and investments.

Earnings Quality

Profit before tax for the quarter was ¥55.4B, a substantial +33.3% YoY increase; however, operating income from the core business was limited to ¥49.5B (+0.8%), with the primary driver of profit growth being the improvement in net finance income. Finance income increased to ¥12.2B from ¥1.4B in the previous year period, while finance costs decreased to ¥3.3B from ¥9.6B, resulting in net finance income of ¥8.9B. Meanwhile, share of profit or loss of investments accounted for using the equity method shifted to a loss of ¥3.1B from a profit of ¥0.6B in the previous year period. The significant impact of non-operating profit and loss items on profit before tax should therefore be noted when evaluating earnings quality. OCF of ¥107.6B substantially exceeded net income of ¥38.0B, indicating a small accrual (the difference between accounting profit and cash flow) and good earnings quality from the perspective of cash conversion. Comprehensive income was ¥54.9B, and the difference from net income of ¥38.0B was primarily attributable to foreign currency translation adjustments for foreign operations of ¥16.9B, a factor with low recurrence due to foreign exchange fluctuations.

Earnings Forecast and Guidance

The full-year earnings forecast is revenue of ¥3050.0B, operating income of ¥245.0B (+10.2% YoY), EPS of ¥391.72, and dividends of ¥350, with no revision made during the quarter. The Q1 progress rates were 24.6% for revenue and 20.2% for operating income, with operating income 4.8pt below the 25% simple progress benchmark. The full-year forecast assumes an operating margin of 8.0%, compared with the actual quarterly margin of 6.6%. Controlling the increase in SG&A expenses over the remaining 3 quarters, reducing losses in Other Businesses, and continuing to improve profitability in the AT Business will be key to achieving the forecast.

Shareholder Returns

The full-year dividend forecast is ¥350 per share, resulting in a Payout Ratio of approximately 89.3% based on full-year forecast EPS of ¥391.72. Dividend payments during the quarter were ¥53.9B, and share repurchases were ¥30.0B, bringing total shareholder returns to ¥83.9B. This exceeded free cash flow of ¥70.5B, and the Total Return Ratio combining dividends and share repurchases was above 1x relative to quarterly free cash flow. Cash and cash equivalents of ¥688.4B and the net cash financial structure support shareholder returns for the time being; however, a full-year Payout Ratio of approximately 89% leaves limited room to absorb earnings volatility, and future earnings progress will determine the sustainability of shareholder returns.

Risk Factors

1. Deterioration in the profitability of Other Businesses: Revenue from Other Businesses expanded to ¥80.7B (+28.2%), but segment profit or loss shifted from a profit of ¥0.4B in the previous year period to a loss of ¥15.6B. Continued or expanded losses would weigh on consolidated operating income.

2. Decline in the MT Business margin: The MT Business posted segment profit of ¥26.9B (-2.0%) against revenue of ¥192.8B (+9.7%), with the margin declining to 13.9% (15.6% in the previous year). Product mix and cost trends will be key to recovery.

3. High shareholder return burden: The full-year forecast Payout Ratio is approximately 89.3%, and the combined dividends and share repurchases of ¥83.9B during the quarter exceeded free cash flow of ¥70.5B. Although the net cash position provides support, return capacity is expected to decline if earnings progress falls below plan.

Industry Benchmark (Reference; Prepared by the Company)

Industry Benchmark (manufacturing)

Profitability and Return

Both the operating margin and net profit margin are below the industry median, indicating that profitability is relatively low within the industry.

Growth and Capital Efficiency

The revenue growth rate is slightly below the industry median but falls within the IQR, indicating that growth is at a mid-range level within the industry.

Source: Prepared by the Company

Key Points from the Financial Results

1. The improvement in gross profit margin, improved profitability in the AT and TS Businesses, and strong OCF generation (OCF of ¥107.6B exceeded net income of ¥38.0B) are positive observations from the financial results.

2. The operating margin remained at 6.6%, while the increase in SG&A expenses (+19.1% YoY) substantially exceeded revenue growth (+4.5%), constraining improvement in profitability. The increase in net income was highly dependent on the improvement in net finance income, making the trend in operating income important for evaluating the earning power of the core business.

3. Q1 progress against the full-year operating income forecast was 20.2%, below the standard progress benchmark of 25%; absorption of SG&A expenses and reduction of losses in Other Businesses over the remaining 3 quarters will be the focus for achieving the full-year target.

Theoretical Share Price (Reference Value)

Sensitivity: ¥4,922–¥5,189 at ±1% for the cost of equity, and ¥5,046–¥5,057 at ±0.1 for ω.

Notes:

• Because forecast ROE is below the cost of equity, the theoretical value will be below book value per share.
• 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 (Ohlson-type; explicit 5-year fade) / Interest rate base month: 2026-07 / 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 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 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 professionals as necessary.

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