KOHSOKU (7504) FY2027 Q1 Earnings Report

Quick View

Executive Summary

The first quarter of the fiscal year ending March 2027 delivered higher revenue and profit, with a structural improvement in profit margins, driven by improvements in pricing and product mix and effective cost control. Revenue was ¥33.75B (+10.5% year on year), Operating Income was ¥1.57B (+41.4%), Ordinary Income was ¥1.68B (+39.9%), and Net Income was ¥1.21B (+50.0%). The Operating Income margin improved to 4.65%, up +1.02pt from 3.63% in the same period of the previous year, with improvements in the gross profit margin (+0.58pt) and a decline in the SG&A expense ratio (-0.44pt) serving as the two key drivers. In addition, a ¥0.15B gain on the sale of fixed assets was recorded as extraordinary income, boosting Profit Before Tax; this one-time factor also contributed to the growth in Net Income.

Factors Affecting Results

【Revenue】Revenue was ¥33.75B, representing a year-on-year increase of +10.5%. The Group operates as a single segment, the manufacturing and sale of packaging materials and related products, and steady demand drove overall revenue growth. Cost of sales was ¥26.86B (+9.6%), growing at a slightly slower pace than revenue, and the gross profit margin improved by +0.58pt to 20.43% from 19.85% in the same period of the previous year.

【Profit and Loss】SG&A expenses were controlled at ¥5.32B (+7.5%), below the pace of revenue growth, and the SG&A expense ratio declined by -0.44pt to 15.78% from 16.21% in the previous year. As a result, Operating Income was ¥1.57B (+41.4%), and the Operating Income margin was 4.65% (+1.02pt). Non-operating income and expenses were positive by ¥0.11B, primarily due to ¥0.03B in dividend income, resulting in Ordinary Income of ¥1.68B (+39.9%). Furthermore, the recording of ¥0.15B in gains on the sale of fixed assets as extraordinary income (a one-time factor) boosted Profit Before Tax to ¥1.84B, while Net Income was ¥1.21B (+50.0%). The Company finished the period with higher revenue and profit, primarily due to improved core earning power, excluding extraordinary income, through improvements in both the gross profit margin and SG&A expense ratio.

Segment Analysis

The Group operates as a single segment, the “Manufacturing and Sale of Packaging Materials and Related Products Business,” and does not disclose performance by segment.

Key Financial Indicators

【Profitability】The Operating Income margin was 4.65% (3.63% in the same period of the previous year, +1.02pt), and the Net Income margin was 3.59% (2.64%, +0.95pt). Improvements in the gross profit margin to 20.43% (19.85%, +0.58pt) and control of the SG&A expense ratio at 15.78% (16.21%, -0.44pt) served as the two key drivers.【Cash Flow Quality】Comprehensive Income was ¥1.207B, almost at the same level as Net Income of ¥1.210B, indicating that the impact of valuation-related items such as valuation differences on securities was immaterial. The ¥0.153B in extraordinary income accounted for approximately 8.3% of Profit Before Tax of ¥1.835B and should be evaluated separately as a one-time factor.【Investment Efficiency】ROE improved to 2.8% (1.9% in the same period of the previous year), while Total Asset Turnover improved slightly to 0.516x (0.484x). However, the significant balances of property, plant and equipment, accounts receivable, and inventories continue to constrain asset efficiency.【Financial Soundness】The Equity Ratio was 65.2% (67.3% in the same period of the previous year, -2.1pt), with the decline attributable to total assets growing faster than net assets. The Company held ¥3.56B in cash and deposits against ¥1.50B in interest-bearing debt, resulting in net cash of approximately ¥2.06B. The Current Ratio remained at a favorable level of 155.6%, indicating sound short-term payment capacity.

Cash Flow Analysis

As the statement of cash flows has not been disclosed, funding trends are assessed based on changes in the balance sheet. Cash and deposits were ¥3.56B, down ¥1.12B (-23.9%) from ¥4.68B at the end of the same period of the previous year. Meanwhile, accounts receivable were ¥19.48B (up ¥1.45B, +8.0%), and inventories were ¥8.22B (up ¥1.20B, +17.4%), both increasing at a faster pace than the +10.5% revenue growth rate, suggesting that the accumulation of working capital has tied up funds. During this period, the Company newly raised ¥1.50B in short-term borrowings, indicating that part of the increase in working capital was financed through borrowing. Property, plant and equipment increased by ¥0.56B from the end of the same period of the previous year, indicating progress in capital investment.

Quality of Earnings

Comprehensive Income of ¥1.207B was almost at the same level as Net Income of ¥1.21B, and the effects of valuation differences on other securities and adjustments related to retirement benefits were immaterial. No significant valuation-related divergence that would impair earnings quality was observed. Nevertheless, ¥0.153B in extraordinary income from gains on the sale of fixed assets accounted for approximately 8.3% of Profit Before Tax of ¥1.835B and must be evaluated separately from recurring earning power as a one-time factor. Ordinary Income of ¥1.68B (+39.9%), representing profit at the ordinary income level excluding extraordinary income, reflects core earnings improvement driven by structural factors, namely the improved gross profit margin and controlled SG&A expenses. The Net Income growth rate (+50.0%) slightly exceeded the Ordinary Income growth rate because it includes the contribution from extraordinary income.

Earnings Forecast and Guidance

Progress in Q1 against the full-year earnings forecast (Revenue of ¥135.0B, Operating Income of ¥5.10B, Ordinary Income of ¥5.45B, and Net Income of ¥4.00B) was 25.0% for Revenue, 30.8% for Operating Income, 30.8% for Ordinary Income, and 30.3% for Net Income. Progress for each profit item exceeded the 25% benchmark for even quarterly progress, indicating a solid start relative to the initial plan. No revisions were made to the earnings forecast or dividend forecast during the quarter.

Shareholder Returns

Dividends consist of an ordinary dividend of ¥28 per share for both the interim and year-end dividends, plus a ¥30 commemorative dividend marking the 60th anniversary of the Company’s founding, resulting in a full-year dividend forecast of ¥120.00. The Payout Ratio against the full-year forecast EPS of ¥204.18 is approximately 58.8%. As the commemorative dividend is based on the one-time occasion of the Company’s 60th anniversary, it should be noted that a return to the ordinary dividend level is expected from the following fiscal year onward. No disclosure regarding share buybacks has been made to date, and dividends remain the primary form of shareholder returns.

Risk Factors

1. Accumulation of working capital: Accounts receivable were ¥19.48B (up ¥1.45B year on year, +8.0%), and inventories were ¥8.22B (up ¥1.20B, +17.4%), both increasing at a faster pace than the +10.5% revenue growth rate. The effectiveness of collection and inventory management could affect future cash generation capacity.

2. Recurrence of extraordinary income: The ¥0.153B gain on the sale of fixed assets accounted for approximately 8.3% of Profit Before Tax of ¥1.835B and was a one-time factor; there is no guarantee that extraordinary income at the same level will continue to be recorded in the following quarter or thereafter. Core earning power should be evaluated based on Ordinary Income (¥1.68B, +39.9%).

3. Changes in funding structure: The Company newly raised ¥1.50B in short-term borrowings, making all interest-bearing debt short-term. Although net cash of approximately ¥2.06B remains secured after taking into account cash of ¥3.56B, management of short-term funding will become increasingly important if working capital continues to expand.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (trading)

Profitability and Returns

The Operating Income margin is slightly above the industry median, while the Net Income margin is slightly below the median, placing profitability broadly at an average level within the industry.

Growth and Capital Efficiency

The Revenue growth rate significantly exceeds the industry median and is close to the upper bound of the IQR, indicating a high growth rate within the industry.

※Source: Compiled by the Company

Key Takeaways from the Earnings Report

1. The Operating Income margin improved by +1.02pt to 4.65% from 3.63% in the same period of the previous year, confirming a structural improvement in profitability driven by both the improvement in the gross profit margin (+0.58pt) and control of the SG&A expense ratio (-0.44pt).

2. Progress against the full-year plan was 25.0% for Revenue, 30.8% for Operating Income, and 30.3% for Net Income, exceeding the benchmark for even quarterly progress.

3. Accounts receivable and inventories are increasing faster than the Revenue growth rate, making working capital trends a key point to monitor in assessing future cash generation capacity.

Theoretical Stock Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly available data using a residual income model (Ohlson-type, explicit 5-year fade). It is not a forecast of the market stock price or a recommendation of any specific investment action.

Sensitivity: ¥2,123–¥2,243 at ±1% for the Cost of Equity, and ¥2,182–¥2,182 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end are used (there is a time lag relative to the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

（Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not predict or guarantee the future stock 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 and, where necessary, after consulting with a professional advisor.

---End of Report---

---

AI Financial Analysis

Executive Summary

FY2027 Q1 was a strong start, with revenue growth and a marked expansion in operating profitability. Revenue increased 10.5% YoY to ¥33.75bn. Operating income rose 41.4% YoY to ¥1.57bn, materially outpacing sales growth. Ordinary income increased 39.9% YoY to ¥1.68bn. Net income increased 50.0% YoY to ¥1.21bn. Gross profit rose to ¥6.89bn, and the gross margin expanded by approximately 60bp YoY to 20.4%. The operating margin improved by approximately 102bp YoY to 4.7%, reflecting gross-profit expansion and SG&A growth of only 7.5% YoY, below revenue growth. Net margin increased by approximately 95bp YoY to 3.6%. Personnel costs rose, with salaries and allowances up 10.6% YoY to ¥1.70bn, broadly tracking business expansion. However, other SG&A declined, supporting positive operating leverage. Non-operating income was modest at ¥0.15bn, including ¥0.03bn of dividend income and ¥0.01bn of interest income. Profit before tax was additionally supported by a ¥0.15bn gain on sales of non-current assets. This non-recurring gain represented about 8.3% of profit before tax and explains part of the faster net-income growth relative to ordinary-income growth. The effective tax rate was 34.0%, resulting in a tax burden factor of 0.659. Annualized ROE was 11.4%, placing capital profitability in a sound 10-15% range, although it is driven partly by a thin-margin distribution model with high asset turnover. The balance sheet remains conservatively funded, with equity of ¥42.59bn and interest-bearing debt of ¥1.50bn. Management retained full-year guidance, and Q1 operating-income progress of 30.8% is ahead of the standard 25% seasonal benchmark. The principal issues for the remainder of the year are sustaining the margin improvement, converting higher inventories and receivables into cash, and managing the entirely short-term debt maturity profile.

Profitability Analysis

The annualized DuPont ROE of 11.4% comprises a 3.6% net profit margin, annualized asset turnover of 2.065x, and financial leverage of 1.53x. Asset turnover is the central contributor to ROE, consistent with the company’s packaging-materials manufacturing and sales model, while financial leverage remains moderate. The largest positive earnings change was operating leverage: revenue increased 10.5% YoY whereas SG&A increased 7.5% YoY, enabling operating income growth of 41.4% YoY. Gross margin improved to 20.4% from approximately 19.8% in the prior-year quarter, a gain of about 60bp. Operating margin rose to 4.7% from approximately 3.6%, a gain of about 102bp. Net margin rose to 3.6% from approximately 2.6%, a gain of about 95bp. The margin recovery indicates improved pricing, product mix, procurement conditions, or production/distribution efficiency, although the available figures do not isolate the individual driver. Salaries and allowances increased 10.6% YoY to ¥1.70bn, but this was offset by a reduction in other SG&A to ¥1.09bn from ¥1.15bn. EBIT margin of 4.7% remains below the 5% operating-efficiency benchmark and is therefore a material quality alert; the business needs continued gross-margin discipline to preserve the recent improvement. Interest coverage of 741.27x demonstrates that interest costs are immaterial to current profitability. The 1.169 interest-burden factor exceeds 1.0 because the gain on asset sales lifted profit before tax above EBIT; it should not be interpreted as recurring financing income. The ¥0.15bn asset-sale gain enhanced reported profit before tax and net income, so ordinary income of ¥1.68bn is the more representative measure of underlying quarterly earnings momentum.

Growth Assessment

Revenue growth of 10.5% YoY to ¥33.75bn exceeded the full-year forecast growth assumption of 8.7%. Q1 sales represent 25.0% of the ¥135.00bn full-year revenue forecast, exactly in line with the standard first-quarter progress rate. Operating income represents 30.8% of the ¥5.10bn full-year forecast, 5.8 percentage points ahead of the 25% benchmark. Ordinary income represents 30.9% of the ¥5.45bn forecast, also ahead of a standard Q1 run rate. Net income attributable to owners represents 30.3% of the ¥4.00bn forecast. The strong profit progress suggests that the full-year plan is achievable if the first-quarter margin improvement is retained, but it also leaves sensitivity to normalization in procurement costs, pricing, and sales mix. The company operates a single packaging-materials manufacturing and sales segment, making group earnings directly exposed to demand and margin conditions in its core business. Inventory increased 18.8% YoY to ¥8.22bn, faster than sales, which may support sales availability but increases the importance of stock turnover and inventory valuation discipline. Trade receivables increased 8.1% YoY to ¥19.48bn, broadly below revenue growth. The full-year operating-income forecast calls for 4.8% YoY growth, substantially slower than Q1’s 41.4% increase, implying management has embedded caution around the durability of early-year profitability.

Financial Health

Liquidity is healthy, with a current ratio of 155.6% and a quick ratio of 116.2%. Current assets of ¥32.45bn exceed current liabilities of ¥20.85bn, producing working capital of ¥11.60bn. Cash and deposits of ¥3.56bn cover short-term loans of ¥1.50bn by 2.37x. Interest-bearing debt is limited to ¥1.50bn, equivalent to 3.4% of capital, while reported debt-to-equity is 0.53x. Interest coverage of 741.27x confirms very high capacity to service interest expense. Equity totaled ¥42.59bn, or 65.2% of total assets, providing a substantial capital buffer. Total liabilities increased 10.2% YoY to ¥22.78bn, faster than the 3.5% rise in total assets to ¥65.37bn, but the absolute leverage burden remains low. Current liabilities account for 91.5% of total liabilities, and all reported interest-bearing debt is short-term. This 100% short-term debt ratio is a refinancing-risk alert because debt must be rolled over or repaid within the operating cycle. In context, the risk is moderated by cash exceeding short-term loans, positive working capital, limited debt relative to equity, and exceptional interest-service capacity. Trade payables increased 4.3% YoY to ¥9.40bn and electronically recorded obligations increased 8.6% YoY to ¥4.64bn, broadly supporting working-capital funding. Lease obligations within non-current liabilities were ¥0.37bn, and net defined benefit liabilities were ¥0.86bn; neither is large relative to equity.

Notable B/S Changes

Inventories: +¥1.30bn (+18.8% YoY) to ¥8.22bn - growth exceeded revenue growth, increasing the importance of sell-through, turnover, and valuation discipline. Accounts receivable: +¥1.46bn (+8.1% YoY) to ¥19.48bn - increased with business volume but grew more slowly than revenue, which is comparatively favorable for collection efficiency. Cash and deposits: -¥1.12bn (-23.9% YoY) to ¥3.56bn - cash declined while the operating cycle expanded, though cash still covers short-term loans by 2.37x. Total liabilities: +¥2.12bn (+10.2% YoY) to ¥22.78bn - liability growth exceeded asset growth, mainly increasing current operating funding needs, while leverage remains low in absolute terms. Property, plant and equipment: +¥0.47bn (+2.9% YoY) to ¥24.91bn - fixed assets remain substantial at 38.1% of total assets, highlighting the need for continued asset utilization. Provision for bonuses: -¥0.74bn (-41.3% YoY) to ¥1.06bn - the lower provision reduced current liabilities versus the prior-year quarter.

Cash Flow Quality

Operating cash flow and free cash flow figures are not included in the supplied financial data, so cash-conversion and free-cash-flow coverage measures are not assessed. Balance-sheet working-capital movements nevertheless warrant monitoring. Inventories increased by ¥1.30bn YoY, or 18.8%, to ¥8.22bn, exceeding the 10.5% increase in revenue. Trade receivables increased by ¥1.46bn YoY, or 8.1%, to ¥19.48bn. The combination of inventory accumulation and receivables growth can absorb operating cash even when reported earnings are expanding. Cash and deposits declined by ¥1.12bn YoY to ¥3.56bn. Higher trade payables and electronic payment obligations partly fund the operating cycle, with their combined balance rising by ¥0.75bn YoY to ¥14.04bn. There is no direct evidence from the supplied data of aggressive receivables extension, as receivables grew more slowly than revenue. The principal cash-quality focus is whether inventory growth reflects planned demand support and is converted into sales without margin erosion or obsolescence.

Dividend Sustainability

The full-year dividend forecast is ¥120 per share, with no revision announced. Based on forecast EPS of ¥204.18, the implied dividend payout ratio is approximately 58.8%. This is within the stated sub-60% sustainability benchmark, albeit close to its upper boundary. Forecast net income attributable to owners of ¥4.00bn provides an implied aggregate dividend requirement of roughly ¥2.35bn based on average shares of 19.55m. Retained earnings of ¥38.65bn provide substantial balance-sheet capacity for distributions. The company paid ¥58 per share in the prior period, including ¥30 per share of commemorative dividends at both interim and year-end, so the FY2027 ¥120 forecast should be viewed against a prior-year distribution affected by anniversary-related payments. Dividend sustainability will depend principally on delivery of the ¥4.00bn full-year earnings target and working-capital cash conversion. The low interest-bearing-debt burden and strong liquidity reduce financing pressure on shareholder distributions.

Risk Assessment

Business risks include Packaging-material demand and pricing risk: the single-segment business has concentrated exposure to customer volumes, product mix, raw-material costs, and competitive pricing., Margin sustainability risk: EBIT margin improved to 4.7%, but remains below the 5% efficiency benchmark; a reversal in gross-margin conditions would have a meaningful effect on earnings because the business operates on thin margins., Inventory risk: finished goods rose 18.8% YoY to ¥8.22bn, faster than revenue growth, creating risk of slower turnover, discounting, or valuation pressure if demand softens., Fixed-asset utilization risk: PPE represents 38.1% of total assets, including land of ¥14.45bn, requiring continued adequate operating volumes to support asset productivity..

Financial risks include Refinancing risk: 100% of reported interest-bearing debt is short-term. Although only ¥1.50bn and covered 2.37x by cash, the maturity concentration requires active liquidity management., Working-capital funding risk: cash declined 23.9% YoY while inventories and receivables increased; sustained balance-sheet investment in the operating cycle could constrain financial flexibility., Market-value risk: investment securities total ¥6.15bn, or 9.4% of assets, and therefore expose equity and comprehensive income to market valuation movements..

Key concerns include Highest priority: preservation of the Q1 gross-margin and SG&A leverage gains, as the 4.7% operating margin leaves limited cushion against cost inflation or pricing pressure., High priority: conversion of the ¥1.30bn YoY inventory increase into revenue and cash without deterioration in inventory quality., Moderate priority: the ¥0.15bn gain on sale of non-current assets lifted profit before tax; underlying recurring performance should be evaluated primarily through operating and ordinary income., Moderate priority: full-year guidance assumes only 4.8% operating-income growth despite a strong Q1, indicating potential seasonality or a cautious outlook for later quarters..

Investment Implications

Key takeaways include Q1 demonstrated strong operating leverage: operating income grew 41.4% YoY versus 10.5% revenue growth., Gross margin expanded about 60bp and operating margin about 102bp YoY, providing evidence of improved earnings efficiency., Annualized ROE of 11.4% is solid and is supported by high annualized asset turnover rather than aggressive debt usage., Q1 progress against full-year operating-income guidance was strong at 30.8%, above the standard 25% benchmark., The balance sheet is robust, with 65.2% equity capitalization, low interest-bearing debt, and cash exceeding short-term loans., Reported net income includes a ¥0.15bn non-recurring gain on sales of non-current assets, which should be separated from recurring earnings assessment..

Metrics to watch include Gross profit margin and EBIT margin, particularly whether the 4.7% EBIT margin can move sustainably above 5%., Inventory growth and inventory turnover following the 18.8% YoY increase in finished goods., Cash balance and operating-cycle funding, given the YoY decline in cash and increase in working-capital balances., Q2 operating-income progress versus the full-year ¥5.10bn forecast., Short-term loan refinancing and the maintenance of cash coverage above short-term debt., Dividend payout ratio versus the approximately 58.8% implied level from the FY2027 forecast..

Regarding relative positioning, 高速 exhibits a financially conservative profile for a packaging-materials manufacturer and distributor, characterized by strong liquidity, minimal interest-bearing debt, and high annualized asset turnover. Its main relative limitation is thin operating profitability: the 4.7% EBIT margin is below the stated 5% threshold, making sustained gross-margin execution more important than balance-sheet leverage in determining earnings quality.