ONOKEN CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

During the quarter, the Company reported a mixed earnings profile characterized by lower revenue and operating income, while Ordinary Income and Net Income were boosted by non-operating income. Revenue declined to ¥615.6B (¥621.8B in the same period last year, -1.0% YoY), and Operating Income decreased to ¥11.1B (¥12.1B, -8.1%). Meanwhile, Ordinary Income increased to ¥13.8B (¥12.4B last year, +11.4%), and Net Income attributable to owners of the parent rose to ¥8.8B (¥8.1B last year, +9.0%). The increase in profit was primarily attributable to growth in non-operating income, including subsidy income and gains on sales of securities, while the profitability of the core business itself was pressured by higher selling, general and administrative expenses.

Factors Affecting Performance

【Revenue】Revenue was ¥615.6B, a modest decline of -1.0% YoY. By segment, the core Kyushu and Okinawa segment contracted to ¥270.0B (-2.8%), Kanto and Tohoku declined to ¥142.0B (-1.3%), and Kansai and Chukyo decreased to ¥131.8B (-2.0%). In contrast, Chugoku and Shikoku was the only segment to record revenue growth, increasing to ¥84.2B (+11.8%). Overall, market conditions and demand remained stagnant, and only a limited number of segments returned to revenue growth.

【Profit and Loss】Cost of sales decreased to ¥545.8B (¥555.8B last year), resulting in an improvement in gross profit to ¥69.8B (gross margin of 11.3%, +98bp YoY). However, selling, general and administrative expenses increased substantially to ¥58.7B (¥52.4B last year, +12.2%), causing the Operating Income margin to decline to 1.8% (1.94% last year). Ordinary Income was boosted to ¥13.8B by temporary factors, including subsidy income of ¥6.49B and gains on sales of securities of ¥2.35B, exceeding the prior-year level. Net Income of ¥8.8B reflects a tax burden equivalent to an effective tax rate of approximately 34% on Ordinary Income, with the gap from Ordinary Income primarily attributable to income taxes. In conclusion, the results combine lower revenue and lower operating profit with higher Ordinary Income and Net Income. In terms of the underlying earnings structure, however, the results reflect lower revenue and lower operating profit supplemented by temporary income and should not be viewed as a genuine increase in both revenue and profit.

Segment Analysis

By segment, Kansai and Chukyo recorded a substantial improvement in Operating Income to ¥2.9B (+371.0% YoY; margin of 2.2%), supporting overall performance. In contrast, the core Kyushu and Okinawa segment reported Operating Income of ¥5.8B (-19.2%; margin of 2.1%), while Kanto and Tohoku posted ¥2.4B (-38.0%; margin of 1.7%), both recording significant declines. Although Chugoku and Shikoku achieved revenue growth, its Operating Income was only ¥0.3B (-27.5%; margin of 0.3%), indicating weak profitability. Regional performance diverged clearly. While the Company remains highly dependent on revenue from Kyushu and Okinawa, declining profitability in that region is putting pressure on the Company-wide profit margin.

Key Financial Indicators

【Profitability】The Operating Income margin declined to 1.8% from 1.94% last year, as the increase in the SG&A ratio (9.5%, +112bp YoY) offset the improvement in the gross margin (11.3%, +98bp). The Net Income margin improved slightly to 1.4% (1.29% last year), but this was largely driven by temporary non-operating income. 【Cash Flow Quality】The gap between Ordinary Income of ¥13.8B and Net Income of ¥8.8B reflects a ¥4.7B income tax burden. Non-operating income included subsidy income of ¥6.5B and gains on sales of securities of ¥2.4B, meaning that low-recurring items contributed to profit. 【Investment Efficiency】ROE remained low at 1.0%, and the low total asset turnover indicates substantial room for improvement in capital efficiency. 【Financial Soundness】The Equity Ratio was 48.2% (47.9% last year), remaining broadly flat and stable. Total assets of ¥1943.5B and net assets of ¥937.1B also remained broadly in line with the prior-year level.

Cash Flow Analysis

As this report does not include detailed cash flow statement information, funding trends are assessed based on movements in the balance sheet. Cash and deposits increased modestly to ¥67.4B from ¥63.6B in the same period last year, while short-term borrowings remained high at ¥374.2B. Accordingly, the ratio of cash to short-term borrowings remained low. Accounts receivable and notes receivable of ¥383.3B and inventories of ¥273.2B account for significant portions of assets, suggesting that the accumulation of operating assets may be affecting capital efficiency. Subsidy income and gains on sales of securities included in non-operating income appear to have contributed to cash flow, but these factors should be distinguished from cash-generation capacity derived from core operating activities.

Earnings Quality

Ordinary Income of ¥13.8B for the quarter included low-recurring items, namely subsidy income of ¥6.5B and gains on sales of securities of ¥2.4B. These items should therefore be evaluated separately from growth in recurring business earnings power. Non-operating income accounted for 1.6% of Revenue and helped offset weakness at the operating level. At the same time, interest expense increased to ¥1.3B (¥0.8B last year), and the expansion of the interest burden could pressure future earnings. The gap between Ordinary Income and Net Income (¥13.8B versus ¥8.8B, a difference of ¥5.0B) was primarily attributable to income taxes of ¥4.7B, implying an effective tax rate of approximately 34%. Comprehensive Income was ¥7.6B, below Net Income of ¥8.8B, primarily due to a ¥1.8B loss in valuation difference on securities. Changes in the value of marketable assets therefore weighed on Comprehensive Income. Overall, the Company’s profit for the period was highly dependent on temporary non-operating income, indicating that earnings levels could become more volatile from the next period onward if improvement in operating earnings does not continue.

Earnings Forecast and Guidance

Progress against the full-year plan (Revenue of ¥2746.0B, Operating Income of ¥63.0B, and Ordinary Income of ¥62.0B) was 22.4% for Revenue, 17.6% for Operating Income, 22.3% for Ordinary Income, and 21.4% for Net Income. Assuming a simple one-quarter progress level of 25% as the standard, Operating Income was 7.4pt below that level. The delay was attributable to higher SG&A expenses and deteriorating profitability in certain segments. Progress for Ordinary Income and Net Income was broadly close to the standard level, although this includes the effect of temporary non-operating income. Neither the earnings forecast nor the dividend forecast has been revised.

Shareholder Returns

The annual dividend forecast announced by the Company is ¥69. Although an annual comparison with the prior-year final dividend cannot be made (the DPS of ¥34 as of the same period last year is believed to represent the interim dividend), the annual total dividend is estimated at approximately ¥1.69B based on the average number of shares outstanding during the period of approximately 24.43 million shares. Using the full-year Net Income plan of ¥41.0B as the denominator, the Payout Ratio is approximately 41%, indicating a stable dividend policy supported by substantial retained earnings (retained earnings of ¥790.0B). No revision was made to the dividend forecast for the quarter.

Risk Factors

1. Structural pressure on profitability: The Operating Income margin of 1.8% is below the industry median of 4.3%, primarily because the SG&A ratio increased by +112bp YoY. If cost increases, including logistics and personnel expenses, continue, the benefits of gross margin improvement may continue to be offset.

2. Dependence on short-term funding and refinancing risk: Short-term borrowings of ¥374.2B represent a core component of current liabilities of ¥797.2B, while cash on hand is limited relative to cash and deposits of ¥67.4B. Changes in the interest-rate environment could lead to a further increase in interest expense (¥1.3B in the current period versus ¥0.8B in the prior year).

3. Dependence on temporary income: Subsidy income of ¥6.5B and gains on sales of securities of ¥2.4B, which contributed to the increase in Ordinary Income, have low recurrence potential. If these items fall away, Ordinary Income in subsequent periods could fall below the prior-year level.

Industry Benchmark (Reference; Company Research)

Industry Benchmark (trading)

Profitability and Returns

Both the Operating Income margin and Net Income margin were below the industry median, placing the Company toward the lower end of the industry.

Growth and Capital Efficiency

Revenue growth was also below the industry median, indicating that the Company lagged its peers in terms of growth.

※Source: Company research

Key Points from the Earnings Results

1. Although the gross margin improved by +98bp YoY, the +112bp increase in the SG&A ratio offset this improvement, causing the Operating Income margin to decline to 1.8%. The Company’s ability to manage costs will determine future operating leverage.

2. The increase in Ordinary Income and Net Income was supported by low-recurring items such as subsidy income and gains on sales of securities. Viewed together with the decline in operating profit, the quality of earnings requires monitoring.

3. By segment, Kansai and Chukyo achieved a substantial improvement in Operating Income of +371.0%, while the core Kyushu and Okinawa and Kanto and Tohoku segments recorded lower profit. Divergence in regional profitability affected the Company-wide profit margin.

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

Sensitivity: ¥3,201–¥3,385 at ±1% for the cost of equity, and ¥3,273–¥3,303 at ±0.1 for ω.

Notes:

• As 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; there is a timing difference relative to the full-year forecast.
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Model used: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value is not a forecast or guarantee of the future share price)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary 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, with consultation with a professional adviser where necessary.

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