MARUBUN (7537) FY2026 FY Earnings Report

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Executive Summary

Although Revenue increased slightly, this earnings period resulted in a significant decline in profit due to deterioration in the gross margin and increased foreign exchange and interest-rate burdens. Revenue secured growth at ¥213.42B (+1.2% YoY), but Operating Income was ¥7.76B (-15.2%), Ordinary Income was ¥4.22B (-35.5%), and Net Income attributable to owners of the parent was ¥3.30B (-25.1%), continuing the downward earnings trend. The primary factors were a decline in the gross margin accompanying higher cost of sales (11.6%, compared with 12.4% in the previous year) and an increase in non-operating expenses, mainly interest expense of ¥2.11B and foreign exchange losses of ¥1.87B.

Factors Driving Earnings Changes

【Revenue】Revenue was ¥213.42B, an increase of +1.2% YoY. By segment, the Device Business, which accounts for 71.3% of total revenue, increased by +1.1%, while the System Business increased by +2.2%; the Entrepreneur Business, however, declined by -14.1%. By region, sales to China grew substantially by +36.5% YoY, while sales to Japan declined by -3.0%. Revenue from major customer Nintendo was ¥32.49B, representing approximately 15.2% of total revenue, down -2.1% YoY.

【Profit and Loss】Operating Income was ¥7.76B (-15.2% YoY), primarily because the gross margin declined to 11.6% from 12.4% in the previous year. SG&A expenses were ¥16.94B, controlled at -0.8% YoY; therefore, an increase in fixed costs was not a factor behind the decline in profit. Ordinary Income deteriorated further to ¥4.22B (-35.5% YoY), as non-operating expenses of ¥4.19B, including interest expense of ¥2.11B and foreign exchange losses of ¥1.87B, pressured earnings. Net Income was ¥3.30B (-25.1% YoY), with extraordinary income of ¥0.98B, including a gain on the sale of investment securities of ¥0.89B, partially mitigating the decline. The results reflect higher revenue but lower profit.

Segment Analysis

Segment profit has been changed to an Ordinary Income basis from the current period, and its definition differs from consolidated Operating Income; this distinction should be noted. The Device Business was the largest segment, with Revenue of ¥152.25B, representing 71.3% of total revenue and an increase of +1.1% YoY. However, segment profit fell to ¥0.56B (-81.0% YoY), and the profit margin declined sharply to 0.4% from 2.0% in the previous year, highlighting significant profitability challenges. The System Business generated Revenue of ¥58.62B (+2.2% YoY) and segment profit of ¥3.67B (+9.8% YoY), maintaining a high profit margin of 6.3% and serving as the core earnings pillar responsible for the majority of consolidated Ordinary Income of ¥4.22B. The Entrepreneur Business recorded Revenue of ¥2.56B (-14.1% YoY) and a segment loss of ¥0.01B, making a return to profitability an issue.

Key Financial Indicators

【Profitability】The Operating Income margin of 3.6% declined by approximately 70bp from 4.3% in the previous year, while the gross margin also fell to 11.6% from 12.4%. The Net Income margin narrowed to 1.6% from 2.1%, and ROE was 5.9%. 【Cash Quality】Operating Cash Flow (OCF) was ¥6.38B, approximately 1.9 times Net Income of ¥3.30B, indicating sufficient cash backing for accounting earnings; however, it decreased substantially from ¥18.62B in the previous year. 【Investment Efficiency】Capital expenditures of ¥1.03B exceeded depreciation and amortization expense of ¥0.72B, indicating continued investment above maintenance levels. Total asset turnover was approximately 1.47x, calculated by dividing annual Revenue of ¥213.42B by total assets of ¥145.00B. 【Financial Soundness】The Equity Ratio improved to 43.3% from approximately 41.9% in the previous year, while the current ratio was approximately 169.8%, securing short-term liquidity. On the other hand, interest-bearing debt remained high, centered on short-term borrowings of ¥44.77B, resulting in a financial structure highly dependent on short-term liabilities.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥6.38B, a substantial decrease from ¥18.62B in the previous year. Although a decrease in inventories generated ¥6.07B in cash, increases in advances paid and accounts receivable of ¥1.66B consumed funds and reduced the level of OCF. Investing Cash Flow was an inflow of ¥0.73B, mainly from proceeds from the sale of investment securities, effectively covering capital expenditures of ¥1.03B. As a result, Free Cash Flow of ¥7.11B was secured, providing ample coverage for annual dividends of ¥1.31B. Financing Cash Flow was an outflow of ¥6.65B, reflecting a ¥4.36B reduction in short-term borrowings and dividend payments, while cash and cash equivalents increased by ¥0.77B to ¥24.30B. The cash inflow from inventory reduction was a factor specific to the current period, and a contribution of the same scale should not be assumed going forward.

Quality of Earnings

Current-period Net Income includes extraordinary income of ¥0.98B, primarily consisting of a ¥0.89B gain on the sale of investment securities. Accordingly, it is appropriate to use Ordinary Income of ¥4.22B as the basis for evaluating recurring earnings power. Non-operating expenses were significant, with interest expense of ¥2.11B and foreign exchange losses of ¥1.87B, creating a structure in which approximately half of Operating Income of ¥7.76B was lost through non-operating items. On the other hand, OCF of ¥6.38B exceeded Net Income of ¥3.30B, and there was no significant divergence between accounting profit and cash generation; accrual-related concerns are therefore limited. However, inventory reduction, a temporary working-capital effect, contributed to the increase in OCF, and it should be noted that recurring cash-generation capacity declined from the previous year.

Earnings Forecast and Guidance

The forecast for the next period is Revenue of ¥225.00B (+5.4% YoY), Operating Income of ¥7.80B (+0.5% YoY), and Ordinary Income of ¥6.00B (+42.2% YoY). The forecast Operating Income margin is approximately 3.5%, almost in line with the current period’s 3.6%; therefore, the plan does not significantly incorporate an improvement in profitability at the operating level. Meanwhile, Ordinary Income is expected to increase substantially by 42.2%, suggesting that the plan assumes normalization of non-operating burdens such as foreign exchange losses and interest expense. Achievement of this plan will depend importantly on a recovery in the profitability of the Device Business, which was a factor behind the current-period decline, as well as improvement in the foreign exchange and interest-rate environment.

Shareholder Returns

The annual dividend is ¥50 per share (¥25 interim and ¥25 year-end), with total dividends of ¥1.31B. The Payout Ratio against Net Income attributable to owners of the parent of ¥3.30B is approximately 39.6%. No share repurchases were conducted, and the Payout Ratio and Total Return Ratio are therefore at the same level. Dividend coverage against Free Cash Flow of ¥7.11B is approximately 5.4x, securing sufficient capacity to pay dividends for the current period. The dividend forecast for the next period is scheduled to increase to ¥77 per share, resulting in a forecast Payout Ratio of approximately 50.5% against forecast EPS of ¥152.42.

Risk Factors

1. Profitability deterioration in the Device Business: Segment profit of the Device Business, the largest segment accounting for 71.3% of the revenue mix, declined by -81.0% YoY to ¥0.56B, and its profit margin fell to 0.4% from 2.0% in the previous year. The impact on company-wide earnings is substantial.

2. Foreign exchange and interest-rate sensitivity: The Company has a high proportion of foreign-currency-denominated transactions and recorded foreign exchange losses of ¥1.87B and interest expense of ¥2.11B in the current period. The combined amount is equivalent to approximately 51% of Operating Income of ¥7.76B, creating a structure in which non-operating income and expenses significantly influence Ordinary Income.

3. Dependence on short-term funding: Short-term borrowings of ¥44.77B account for the majority of interest-bearing debt. Although the current ratio is sound at approximately 169.8%, the funding structure is dependent on short-term refinancing.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Growth and Capital Efficiency

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Although revenue growth was secured, the approximately 87bp decline in the gross margin to 11.6% was the primary cause of the 15.2% decline in Operating Income, indicating that changes in gross margin, rather than the cost structure, are driving profitability.

2. While the profit margin of the Device Business, which accounts for more than 70% of revenue, declined to 0.4%, the System Business supported the majority of Ordinary Income with a profit margin of 6.3%, widening the profitability gap between businesses.

3. Although Ordinary Income for the next period is planned to increase by 42.2%, forecast Operating Income is almost flat, creating a structure in which achievement of the plan depends significantly on improvements in non-operating income and expenses, particularly foreign exchange and interest rates.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥1,966–¥2,078 for a ±1% change in the cost of equity, and ¥2,016–¥2,024 for a ±0.1 change in 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 51%). This value reflects that compression at face value; if these factors are temporary, intrinsic earnings power 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 stock price or a recommendation of any specific investment action, and does not predict or guarantee future stock prices.)

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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 securities. 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 professionals as necessary.

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