Quick View
| Metric | Current Period | Same Period of Previous Year | YoY |
|---|---|---|---|
| Revenue | ¥445.5B | ¥414.3B | +7.5% |
| Operating Income | ¥7.5B | ¥3.4B | +121.2% |
| Ordinary Income | ¥8.1B | ¥2.9B | +177.4% |
| Net Income | ¥6.6B | −¥1.1B | +690.2% |
| ROE | 1.0% | −0.2% | - |
Executive Summary
The Company posted a significant increase in profit in Q1, but its operating margin remained low, indicating that earnings are still in the process of recovery. Revenue was ¥445.5B (+7.5% YoY), Operating Income was ¥7.5B (¥3.4B in the same period of the previous year, +121.2%), Ordinary Income was ¥8.1B (+177.4%), and Net Income attributable to owners of the parent was ¥5.7B, representing a turnaround from a loss of ¥-1.6B in the same period of the previous year. The primary drivers of the increase in profit were the return to profitability of the Japan segment and higher profit in the Americas, while the increase in Ordinary Income also included a ¥3.5B contribution from foreign exchange gains.
Factors Affecting Earnings
【Revenue】Revenue was ¥445.5B, up +7.5% YoY. By region, the Americas at ¥234.6B (+5.2%) and Japan at ¥150.0B (+16.6%) were the main drivers, while Asia declined slightly to ¥75.4B (△0.6%). The Americas account for more than half of external sales, and most of the increase in consolidated revenue was attributable to growth in the Americas and Japan.
【Profit and Loss】Operating Income was ¥7.5B (¥3.4B in the same period of the previous year, +121.2%), with the operating margin improving to 1.7% from approximately 0.8% in the previous year. By region, segment profit in the Americas of ¥4.8B (+45.0%) was the largest contributor, while Japan returned to a profit of ¥1.1B from a loss in the same period of the previous year. Ordinary Income of ¥8.1B benefited from foreign exchange gains of ¥3.5B, equivalent to 46.4% of Operating Income, indicating a relatively high degree of dependence on non-operating income and expenses. Although an impairment loss of ¥1.0B was recorded as an extraordinary loss, weighing on profit before tax, Net Income improved substantially from the previous year's loss to ¥6.6B. Revenue and profit both increased.
Segment Analysis
The Americas generated Revenue of ¥234.6B (+5.2%) and segment profit of ¥4.8B (+45.0%), with a profit margin of 2.0%, the highest level among the three regions. It is the core business, accounting for approximately 70% of total reported segment profit of ¥6.8B. Japan generated Revenue of ¥150.0B (+16.6%) and segment profit of ¥1.1B, turning profitable from a loss of ¥-1.2B in the same period of the previous year. Asia saw Revenue decline to ¥75.4B (△0.6%), but segment profit increased to ¥0.9B, improving its profit margin to 1.2%. Profitability improved despite the decline in revenue, possibly due to cost management and a review of the product mix.
Key Financial Indicators
【Profitability】The operating margin of 1.7% improved by approximately 0.9pt YoY, but, together with a gross profit margin of 11.4%, remains at a level that provides limited capacity to absorb profit fluctuations as a manufacturing company. ROE remained at just 1.0%, indicating that capital profitability continues to be low.【Cash Quality】Cash and deposits amounted to ¥268.6B, approximately 3.3 times short-term borrowings of ¥81.1B, providing a solid short-term liquidity position. Inventories consisted of raw materials of ¥14.6B, work in process of ¥58.7B, and finished goods of ¥45.6B. The high proportion of work in process suggests a possible accumulation of working capital. 【Investment Efficiency】The Company has a capital-intensive business structure, holding ¥452.7B in property, plant and equipment. Combined with the low operating margin, this suggests room for improvement in return on invested capital.【Financial Soundness】The Equity Ratio was 47.8%. Current assets of ¥793.7B compared with current liabilities of ¥393.0B resulted in a healthy current ratio of approximately 202%. Interest-bearing debt is weighted toward long-term borrowings, primarily long-term borrowings of ¥242.7B.
Cash Flow Analysis
This analysis is based not on disclosures in the statement of cash flows but on funding trends observed from the balance sheet. Cash and deposits declined to ¥268.6B from ¥297.7B at the end of the same period of the previous year, while total assets decreased from ¥1356.7B to ¥1382.6B. Although liquidity remains strong, with current assets of ¥793.7B against current liabilities of ¥393.0B, accounts receivable and notes receivable increased to ¥283.9B from the previous year. Together with the high level of inventories, including work in process of ¥58.7B, this may indicate that funds are tied up in working capital. Long-term borrowings stood at ¥242.7B, down from the previous year, indicating progress in reducing interest-bearing debt.
Earnings Quality
Foreign exchange gains of ¥3.5B contributed to the increase in Ordinary Income of ¥8.1B, equivalent to 46.4% of Operating Income of ¥7.5B. Total non-operating income was ¥6.0B, primarily comprising dividend income of ¥1.3B and foreign exchange gains of ¥3.5B. These components should be evaluated separately from recurring business earnings. In extraordinary items, the Company recorded a gain on the sale of fixed assets of ¥0.2B and an impairment loss of ¥1.0B, with total extraordinary losses of ¥1.0B weighing on profit before tax. Comprehensive income was ¥12.0B, exceeding Net Income of ¥6.6B, with foreign currency translation adjustments of ¥4.1B and valuation difference on available-for-sale securities of ¥2.1B being the primary reasons for the difference. The improvement in Operating Income (+121.2%) resulted from improved regional profitability and is reasonably high quality; however, it should be noted that the substantial increases in Ordinary Income and Net Income included dependence on foreign exchange factors.
Earnings Forecast and Guidance
The full-year earnings forecast calls for Revenue of ¥1660.0B (△5.9% YoY), Operating Income of ¥33.0B (△17.1%), and Ordinary Income of ¥21.0B (△44.4%), representing a plan for lower revenue and lower profit than in the previous fiscal year. Q1 progress rates were 26.8% for Revenue and 22.9% for Operating Income. While Operating Income progress was slightly below the standard level of 25%, progress rates were high at 38.6% for Ordinary Income and 52.0% for Net Income attributable to owners of the parent. This difference resulted from non-operating income and expenses, including foreign exchange gains, boosting Q1 profit, and the full-year plan may be based on conservative assumptions. Neither the earnings forecast nor the dividend forecast was revised during the quarter.
Shareholder Returns
The full-year dividend forecast is ¥33.0 per share, resulting in a Payout Ratio of 62.3% based on the full-year EPS forecast of ¥53.0. The dividend in the same period of the previous year was ¥15, and the full-year forecast of ¥33 indicates an increase in the annual dividend. The Company holds 4,457,684 treasury shares, but the implementation status of share repurchases cannot be confirmed from the disclosed data; accordingly, the Payout Ratio should be evaluated based solely on dividends. Cash and deposits of ¥268.6B provide a certain level of capacity to support continued dividend payments. However, given that the full-year plan assumes lower Operating Income and lower Ordinary Income, the future trend in dividend resources should be monitored as the Payout Ratio exceeds 60%.
Risk Factors
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Structurally low profitability: The operating margin of 1.7% and gross profit margin of 11.4% are both below typical manufacturing industry levels, creating a structure in which fluctuations in raw material costs, labor costs, and foreign exchange rates can have an amplified impact on profit.
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Dependence on foreign exchange gains: Foreign exchange gains of ¥3.5B are equivalent to 46.4% of Operating Income of ¥7.5B, and part of the substantial increases in Ordinary Income and Net Income was attributable to currency movements. A reversal in foreign exchange trends could become a factor contributing to future earnings volatility.
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High level of inventories (work in process): Work in process amounted to ¥58.7B, accounting for approximately half of total inventories including raw materials and finished goods. If stagnation in the production process or fluctuations in demand arise, this could lead to a working capital burden or the risk of inventory valuation losses.
Industry Benchmark (Reference; Company Research)
Industry Benchmark (manufacturing)
Profitability and Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 1.7% | 8.7% (4.2%–14.3%) | −7.0pt |
| Net Profit Margin | 1.5% | 7.1% (3.2%–10.6%) | −5.6pt |
The Company's profitability is substantially below the industry median and is also below the lower bound of the IQR.
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 7.5% | 6.2% (-1.1%–14.6%) | +1.3pt |
The revenue growth rate is slightly above the industry median, but the contrast with the low level of profitability is pronounced.
※Source: Company research
Key Points in the Earnings Results
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In Q1, consolidated Operating Income improved substantially by +121.2% YoY, driven by the Japan segment's return to profitability and higher profit in the Americas. The earnings data indicate that regional profitability is improving.
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The high progress rates for Ordinary Income and Net Income (38.6%, 52.0%) exceeded the Operating Income progress rate (22.9%), with the difference attributable to non-operating factors such as foreign exchange gains. Progress on an Operating Income basis should also be reviewed when assessing the likelihood of achieving the full-year plan.
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The full-year plan assumes lower revenue and lower profit than in the previous fiscal year, suggesting from the earnings data that the substantial increase in profit in Q1 does not necessarily indicate an improvement in the earnings structure for the full year.
Theoretical Share Price (Reference Value)
| Scenario | Theoretical Share Price |
|---|---|
| bear (bearish) | ¥2,479 |
| base (baseline) | ¥2,492 |
| bull (bullish) | ¥2,506 |
| Calculation Assumption | Value |
|---|---|
| Book Value per Share (BPS) | ¥3,150 |
| Adjusted Forecast EPS | ¥58.5 |
| Cost of Equity r | 9.77% (10-year government bond 2.77% + equity risk premium 6.00% + size premium 1.00%) |
| Residual Income Persistence Factor ω / Explicit Forecast Period | 0.62 / 5 years |
| Assumed Payout Ratio | 62.3% |
| Forecast EPS Confidence Adjustment | ×1.103 (based on the peer industry's historical guidance achievement rate) |
| Implied PBR / PER | 0.79x / 42.6x |
Sensitivity: ¥2,426–¥2,562 at ±1% for the cost of equity, and ¥2,472–¥2,506 at ±0.1 for ω.
Notes:
- 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 33%). This value reflects that compression at face value; if the factors are temporary, underlying earnings may be higher.
- Because forecast ROE is below the cost of equity, the theoretical value is below Book Value per Share.
- Net assets at the end of the quarter are used, resulting in a timing difference from the full-year forecast.
- Because net assets include non-controlling interests, the theoretical value may be calculated at a somewhat high level.
(Calculation model: Residual Income Model (Ohlson type; explicit 5-year fade) / Interest rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, nor does it predict or guarantee the future share price.)
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 a professional as necessary.
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AI Financial Analysis
Executive Summary
FY2027 Q1 was a clear earnings-recovery quarter, with revenue growth translating into a substantial improvement in operating and bottom-line profit. Revenue increased 7.5% YoY to ¥44.55bn. Operating income more than doubled, rising 121.2% YoY to ¥0.76bn. Ordinary income rose 177.4% YoY to ¥0.81bn. Profit attributable to owners of parent rebounded to ¥0.57bn from a ¥0.16bn loss in the prior-year quarter. Gross profit increased 28.4% YoY to ¥5.06bn, materially outpacing sales growth. The gross margin expanded to 11.4% from 9.5%, a 190bp improvement. Operating margin expanded to 1.7% from 0.8%, an 87bp improvement, although it remains low for a manufacturing business. SG&A expenses increased 19.6% YoY to ¥4.30bn, faster than revenue growth, limiting the conversion of gross-profit improvement into operating profit. The Americas remained the core business by segment profit contribution, producing ¥0.48bn of segment profit, or 71% of aggregate segment profit. Japan returned to segment profitability, while Asia also increased its segment profit. Non-operating income of ¥0.60bn was substantial at 13.4% of revenue and included ¥0.35bn of foreign-exchange gains, making ordinary-income growth partly currency-sensitive. FX gains alone equaled 46.4% of operating income, leaving reported earnings meaningfully exposed to exchange-rate movements. A ¥0.10bn impairment loss and a ¥0.01bn gain on asset sales resulted in a net extraordinary loss of ¥0.09bn. The annualized ROE was 3.5%, driven by a 1.3% net margin, and remains below a level that would indicate adequate capital efficiency. The full-year forecast implies Q1 progress of 26.8% for sales, 22.9% for operating income, 38.6% for ordinary income, and 52.0% for profit attributable to owners. Management has not revised either earnings or dividend guidance, suggesting that the Q1 profit outperformance is not yet being treated as fully repeatable. The central forward implication is that the company needs to sustain gross-margin recovery, improve Japan's profitability, and reduce reliance on FX gains to deliver its full-year target.
Profitability Analysis
The annualized DuPont ROE is 3.5%, decomposed into a 1.3% net profit margin, 1.313x asset turnover, and 2.09x financial leverage. The low net margin is the principal constraint on shareholder returns, rather than asset utilization or leverage alone. The annualized asset turnover of 1.313x is reasonable for a capital-intensive automotive-parts manufacturer with PPE representing 33.4% of total assets. Financial leverage of 2.09x supports ROE mechanically but does not offset the weak operating return. Gross-margin expansion of 190bp was the most important positive operating development, with gross profit rising 28.4% against 7.5% sales growth. However, SG&A rose 19.6% YoY, materially faster than revenue, which points to unfavorable operating-cost leverage below gross profit. Consequently, operating margin improved by 87bp but remained only 1.7%, triggering the low-operating-efficiency alert and leaving limited protection against volume, pricing, labor, or materials-cost volatility. The quality alert for a 11.4% gross margin is also relevant: even after improvement, the margin is below the 20% reference level and offers a narrow cushion for an automotive supplier. The reported ROIC of 3.9% is below 5%, indicating that the operating recovery has not yet lifted returns above a basic cost-of-capital threshold. Interest coverage is only 2.80x, so the ¥0.27bn interest expense absorbs a meaningful portion of EBIT. The five-factor DuPont tax burden of 0.790 and interest burden of 0.959 indicate that the Q1 ROE outcome was more constrained by operating profitability than by tax or interest burden. The effective tax rate was 8.7%, which supported net income in the quarter, but such a low rate should not be assumed to recur without further evidence. Recurring operating earnings are improving, but the durability of the margin recovery will depend on cost control and segment-level execution rather than financial leverage.
Growth Assessment
Sales growth was led by Japan, where external revenue rose 17.1% YoY to ¥13.60bn. Americas external revenue rose 5.3% YoY to ¥23.40bn and remained the largest regional revenue contributor. Asia external revenue declined 0.6% YoY to ¥7.54bn. The Americas was the core business by operating-profit contribution, with segment profit increasing 45.0% YoY to ¥0.48bn and segment margin improving to 2.1% from 1.5%. Japan improved from a ¥0.12bn segment loss to a ¥0.11bn profit, representing a meaningful turnaround, although its 0.8% segment margin remains thin. Asia segment profit increased to ¥0.09bn from ¥0.03bn, and its margin rose to 1.2% from 0.4%, despite slightly lower revenue. Aggregate segment profit rose to ¥0.68bn from ¥0.24bn, while the reconciliation contribution increased operating income to ¥0.76bn. The current-quarter recovery is therefore broad-based in profits, but Americas remains the most consequential contributor to consolidated earnings. The full-year sales forecast of ¥166.0bn implies a 5.9% YoY decline, despite Q1 sales growth, signaling management caution around later-period volumes, customer programs, or pricing. Q1 sales progress is 26.8%, only modestly above the standard 25% quarterly pace. Operating-income progress is 22.9%, 2.1 percentage points below the standard pace, meaning operating-margin improvement must continue through the remainder of the year. Ordinary-income progress is 38.6%, 13.6 percentage points above the standard pace, but this is partly influenced by FX gains. Profit attributable to owners has already reached 52.0% of the ¥1.10bn full-year forecast, yet this should not be extrapolated mechanically because the first-quarter tax rate was unusually low and FX contributed materially. The unchanged forecast appropriately indicates that management does not view the Q1 earnings strength as sufficient evidence for a guidance increase.
Financial Health
Liquidity is strong, with a 202.0% current ratio and 202.0% quick ratio. Current assets of ¥79.37bn exceed current liabilities of ¥39.30bn by ¥40.07bn. Cash and deposits of ¥26.86bn cover short-term loans of ¥8.11bn by 3.31x. Short-term debt accounts for 25.0% of interest-bearing debt, limiting immediate refinancing pressure. Total interest-bearing debt is ¥32.38bn, comprising ¥8.11bn of short-term loans and ¥24.27bn of long-term loans. Debt-to-equity is 1.09x, which is moderately leveraged but below the 2.0x level associated with aggressive balance-sheet risk. Debt-to-capital is 33.3%, remaining within the stated 40% investment-grade reference threshold. Total equity increased 1.3% YoY to ¥64.88bn, while the capital adequacy ratio improved to 40.3% from 39.2%. Short-term loans declined by ¥3.05bn, or 27.3% YoY, to ¥8.11bn; this is a favorable refinancing and liquidity development. Long-term loans also declined by ¥0.78bn YoY to ¥24.27bn, indicating a modest overall deleveraging trend. Cash declined by ¥2.91bn YoY to ¥26.86bn, but cash remains ample relative to near-term borrowings. The main financial-health constraint is not liquidity but debt service capacity, as interest coverage of 2.80x is below the 3.0x concern threshold. Lease obligations total ¥4.20bn, consisting of ¥0.29bn current and ¥3.91bn non-current, and should be considered alongside borrowings when assessing fixed financial commitments.
Notable B/S Changes
Short-term loans: -¥3.05bn (-27.3%) YoY to ¥8.11bn - favorable reduction in near-term refinancing exposure; cash still covers short-term debt by 3.31x. Finished goods: +¥1.02bn (+28.7%) YoY to ¥4.56bn - higher finished-goods holdings warrant monitoring against customer demand and production schedules. Provision for bonuses: +¥0.69bn (+50.4%) YoY to ¥2.05bn - raises current-liability obligations and may reflect a higher expected personnel-cost burden. Electronically recorded obligations: -¥0.33bn (-30.9%) YoY to ¥0.75bn - reduced electronic supplier-financing obligations may affect the mix and timing of trade-payable funding. Contract liabilities: +¥0.21bn (+90.6%) YoY to ¥0.45bn - increased customer advances or contractual obligations provide limited support to near-term working-capital funding.
Cash Flow Quality
Dividend Sustainability
The full-year dividend forecast is ¥33 per share, unchanged from management guidance. Based on the full-year EPS forecast of ¥53, the implied dividend payout ratio is 62.3%. This is slightly above the stated 60% sustainability reference point, but remains below a level that would imply distribution in excess of forecast earnings. The annual dividend commitment implied by average shares of 20.60 million is approximately ¥0.68bn, compared with the ¥1.10bn forecast for profit attributable to owners. The forecast therefore leaves an earnings buffer of approximately ¥0.42bn before considering capital expenditure, debt reduction, or other capital-allocation requirements. Q1 EPS of ¥27.80 has already reached 52.5% of the full-year EPS forecast, but the quarter benefited from low tax expense and material FX gains. Dividend sustainability consequently depends on delivery of recurring operating profit rather than extrapolation of first-quarter net income. The unchanged dividend forecast alongside unchanged earnings guidance indicates a stable near-term shareholder-return policy.
Risk Assessment
Business risks include Automotive production and customer-program risk: the full-year sales forecast calls for a 5.9% YoY decline despite Q1 growth, leaving the company exposed to weaker vehicle volumes or model-cycle changes in later quarters., Regional concentration risk: Americas generated ¥23.40bn of external revenue and ¥0.48bn of segment profit, making consolidated earnings particularly sensitive to North American customer demand, production schedules, and local cost conditions., Low-margin manufacturing risk: the 11.4% gross margin and 1.7% operating margin provide limited capacity to absorb raw-material, energy, logistics, labor, quality, or customer-pricing pressure., Production-process risk: work in process was ¥5.87bn, equal to 49.4% of inventory and above the 40% warning benchmark, potentially indicating production bottlenecks, longer manufacturing cycles, or elevated execution risk., Foreign-exchange risk: FX gains of ¥0.35bn equaled 46.4% of operating income, so currency swings can materially alter ordinary income and reported earnings..
Financial risks include Debt-service risk: interest coverage of 2.80x is below the 3.0x concern threshold, so a decline in EBIT or rise in financing costs would pressure earnings and covenant headroom., Moderate leverage risk: interest-bearing debt of ¥32.38bn and a 1.09x debt-to-equity ratio are manageable, but weak operating margins reduce tolerance for earnings volatility., Capital-efficiency risk: reported ROIC of 3.9% and annualized ROE of 3.5% remain low, indicating that the capital base and asset footprint are not yet generating satisfactory returns., Non-operating-income dependence: non-operating income was ¥0.60bn, equivalent to 78.9% of operating income, making ordinary income less representative of underlying operating performance..
Key concerns include Highest priority: sustaining the operating recovery while lifting the 1.7% EBIT margin, because low operating efficiency is the primary limitation on ROIC, interest coverage, and equity returns., High priority: reducing the WIP concentration and converting inventory into sales efficiently, as a 49.4% WIP ratio can reflect manufacturing-flow constraints., High priority: separating recurring earnings momentum from currency benefits, since FX gains provided nearly half of operating income on a comparative basis., Moderate priority: controlling SG&A, which increased 19.6% YoY versus 7.5% revenue growth and diluted gross-profit leverage., Moderate priority: monitoring impairment exposure, as the ¥0.10bn impairment loss reduced pre-tax earnings in the quarter..
Investment Implications
Key takeaways include Q1 showed a material operational turnaround: revenue rose 7.5%, gross margin expanded 190bp, and operating income increased 121.2% YoY., The recovery was geographically broad, with Japan returning to profit and profit growth in both Americas and Asia., Americas is the core business, contributing ¥0.48bn of ¥0.68bn aggregate segment profit., Underlying profitability remains weak, with a 1.7% operating margin, 3.9% ROIC, and 3.5% annualized ROE., The ordinary-income result includes ¥0.35bn of FX gains, so recurring earnings strength is less pronounced than headline profit growth suggests., The balance sheet has strong short-term liquidity and reduced short-term borrowings, but 2.80x interest coverage requires continued operating-profit improvement., The forecast embeds caution: Q1 operating-income progress is below a straight-line full-year pace despite strong reported earnings..
Metrics to watch include Operating margin and gross margin, particularly whether the 1.7% and 11.4% Q1 levels can improve sustainably., Americas segment revenue, segment margin, and profit contribution., Japan segment margin after its return to profitability., FX gains or losses relative to operating income., Interest coverage and the trajectory of interest-bearing debt., Work-in-process inventory ratio and total inventory composition., SG&A growth relative to revenue growth., Progress against the ¥3.30bn operating-income and ¥1.10bn owner-profit forecasts..
Regarding relative positioning, Yorozu presents as a capital-intensive automotive supplier in early-stage earnings recovery: liquidity is stronger than its low-margin earnings profile would suggest, but return metrics and interest coverage remain below preferred manufacturing benchmarks. The lack of a meaningful intangible-asset burden, with intangibles at only 0.1% of assets, limits goodwill-related accounting and impairment concerns; however, operating execution, WIP control, customer demand, and currency exposure are more relevant determinants of relative performance.