YOROZU (7294) FY2026 FY Earnings Report

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Executive Summary

The key takeaway for the current period is a substantial increase in profit despite lower revenue, marking a recovery phase from the large impairment loss recorded in the previous period. Revenue declined slightly to ¥176.33B (-1.2% YoY), while Operating Income recovered sharply to ¥3.98B (+114.7%), Ordinary Income turned profitable at ¥3.78B (from a loss of ¥-2.08B in the previous year), and Net Income turned profitable at ¥2.45B (from a loss of ¥-14.31B in the previous year). The main drivers of the profit increase were an improved gross margin and reductions in selling, general and administrative expenses, in addition to the rebound effect from the large impairment loss of ¥9.15B recorded in the previous period, which fell to ¥0.11B in the current period.

Factors Affecting Performance

【Revenue】Revenue declined 1.2% YoY to ¥176.33B. By region, Japan secured revenue growth of ¥54.48B (+3.4%), while Asia declined significantly to ¥34.55B (-11.2%), weighing on company-wide results. The Americas were nearly flat at ¥87.30B (+0.5%) and represented the largest segment, accounting for 49.5% of total revenue.

【Profit and Loss】Operating Income increased 114.7% YoY to ¥3.98B, driven by an improvement in the gross margin to 11.4% (from 9.4% in the previous period) and a decline in the SG&A ratio to 9.1% (from 9.2%). Ordinary Income was ¥3.78B. Non-operating items included interest expense of ¥0.97B and a foreign exchange loss of ¥0.55B, both of which weighed on earnings. Extraordinary income was ¥0.48B, including a gain on the sale of property, plant and equipment of ¥0.37B, while extraordinary losses were ¥0.63B, including an impairment loss of ¥0.11B, resulting in a net negative impact of ¥0.16B. This was substantially lower than the ¥0.91B impairment loss in the previous period. Net Income was ¥2.45B, representing a return to profitability from the ¥14.31B loss in the previous period. In conclusion, the company recorded lower revenue but higher profit.

Segment Analysis

Segment Operating Income was ¥2.83B in Japan (+20.8% YoY; 5.2% margin), ¥0.15B in the Americas (+105.8%; 0.2% margin), and ¥0.89B in Asia (+1411.9%; 2.6% margin). Japan was the largest contributor to profit, while Asia’s margin recovered to 2.6% through a sharp improvement from the previous period’s low profitability despite an 11.2% decline in revenue. Meanwhile, the Americas, which accounted for 49.5% of total revenue, posted an Operating Income margin of only 0.2% and remained a drag on company-wide profitability. Whether the low profitability in the Americas improves is a structural issue that will determine the direction of the company-wide profit margin going forward.

Key Financial Metrics

【Profitability】The Operating Income margin improved by approximately 2.1pt to 2.3% from 0.2% in the previous period, but the gross margin of 11.4% remains low, indicating limited ability to pass on increases in raw-material and labor costs through pricing. ROE was 3.8%; as the company has just returned to profitability from a substantial loss in the previous period, capital efficiency remains in the process of improving. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥8.03B, equivalent to 3.3 times consolidated Net Income of ¥2.45B, indicating good cash conversion. However, OCF included temporary cash generation from working capital, such as a ¥1.32B decrease in inventories. 【Investment Efficiency】Capital expenditures of ¥5.20B were below depreciation and amortization of ¥6.11B, resulting in CapEx/depreciation of 0.85x and indicating that capital spending remained focused primarily on replacement investment. 【Financial Soundness】The Equity Ratio improved to 46.3% from 44.8% in the previous period, but long-term borrowings increased 44.1% YoY to ¥25.05B, making the increase in interest-bearing debt a point to monitor.

Cash Flow Analysis

Operating Cash Flow increased substantially by 69.4% YoY to ¥8.03B, supported by the recovery in Net Income as well as cash generation from working capital, including a ¥1.32B decrease in inventories. Investing Cash Flow was ¥-1.85B, mainly reflecting capital expenditures of ¥5.20B, although the scale of investment decreased from ¥-11.81B in the previous period. Free Cash Flow was ¥6.19B, sufficiently covering Financing Cash Flow of ¥-3.14B, which included share repurchases of ¥3.83B and debt repayments. Overall, the recovery in cash generation from operating activities and the more selective approach to investment enabled the company to allocate funds to both shareholder returns and debt reduction during the current period.

Earnings Quality

Of consolidated Net Income of ¥2.45B, extraordinary items had a net negative impact of ¥0.16B, meaning that the impact of one-time factors declined substantially compared with the ¥0.91B impairment loss in the previous period. Non-operating income and expenses included interest and dividend income totaling ¥0.50B, interest expense of ¥0.97B, and a foreign exchange loss of ¥0.55B. The structure in which finance-related costs pressure profit at the Ordinary Income stage therefore remains in place. Comprehensive Income was ¥7.38B, substantially exceeding Net Income. The difference was mainly attributable to foreign currency translation adjustments of ¥4.22B. The fact that the yen translation effect on the local-currency assets of overseas subsidiaries boosted Comprehensive Income should be distinguished from the company’s underlying earning power.

Earnings Forecast and Guidance

For the next period, the company forecasts revenue of ¥166.00B for the fiscal year ending March 2027 (-5.9% compared with the current period), Operating Income of ¥3.30B (-17.1%), and Ordinary Income of ¥2.10B (-44.4%), indicating expectations for lower revenue and lower profit. Although profit increased in the current period due to the rebound from the previous period’s impairment loss and gross-margin improvement, the next-period forecast assumes that this pace of improvement will partially reverse. Key points to monitor include whether the low profitability in the Americas can be resolved and whether the improvement in Asia’s profitability becomes established. Forecast EPS is ¥53, expected to decline from the current-period actual result of ¥90.79.

Shareholder Returns

The annual dividend was ¥33 (¥15 interim and ¥18 year-end), more than doubling from the previous period’s annual dividend (equivalent to ¥15 interim and ¥18 year-end). The Payout Ratio based on Net Income attributable to owners of the parent was 36.3%, within a range generally considered sustainable. The company also repurchased ¥3.83B of treasury shares during the current period, bringing total shareholder returns, including dividends, to ¥4.58B. The dividend-only Payout Ratio of 36.3% should be clearly distinguished from the Total Return Ratio, including share repurchases, of approximately 221% based on profit attributable to owners of the parent. Against forecast EPS of ¥53 for the next period, the ¥33 dividend implies an expected Payout Ratio of approximately 62.3%, higher than the current-period actual result.

Risk Factors

1. Low profitability in the Americas: The Americas account for 49.5% of total revenue, but the segment’s Operating Income margin is only 0.2%. The structure makes company-wide profit highly sensitive to changes in the segment’s capacity utilization and pricing negotiations.

2. Increase in interest-bearing debt: Long-term borrowings increased 44.1% YoY to ¥25.05B, while interest expense of ¥0.97B was equivalent to 24.4% of Operating Income of ¥3.98B. The increasing debt burden in a low-margin environment requires monitoring.

3. Dependence on temporary factors: The recovery in Net Income includes the rebound effect from the impairment loss, which declined from ¥9.15B in the previous period to ¥0.11B in the current period. The gross margin remains low at 11.4%, and earnings volatility could increase if the company is unable to pass on increases in raw-material and logistics costs through pricing.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Income margin and Net Profit margin are substantially below the industry median, placing profitability toward the lower end of the industry.

Growth and Capital Efficiency

Revenue growth also falls below the industry median, placing top-line growth capacity toward the lower end of the industry.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The Operating Income margin improved from 0.2% in the previous period to 2.3%, mainly due to the rebound from the large impairment loss of ¥9.15B in the previous period and gross-margin improvement. However, a substantial gap with the industry median of 7.6% remains.

2. The Americas account for 49.5% of total revenue but have an extremely low Operating Income margin of 0.2%, creating a structure in which the balance of profitability by region determines company-wide profitability.

3. The dividend was increased to ¥33, and total shareholder returns, including share repurchases of ¥3.83B, reached ¥4.58B. OCF of ¥8.03B and FCF of ¥6.19B covered the source of funds for current-period shareholder returns. However, if the company continues returns at a similar scale under its plan for lower profit in the next period, changes in financial capacity will need to be monitored.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,049–¥2,164 at ±1% for the cost of equity; ¥2,089–¥2,116 at ±0.1 for ω.

Notes:

• Net Income is substantially compressed relative to Operating Income due to tax burdens, acquisition-related expenses, minority interests, and other factors (Net Income ÷ Operating Income 33%). This value reflects that compression at face value; if these factors are temporary, the underlying normalized value may be higher.
• Because forecast ROE is below the cost of equity, the theoretical value is below Book Value per Share.

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest-rate reference 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 forecast or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI through analysis of 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 a professional as necessary.

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