Hakudo (7637) FY2026 FY Earnings Report

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Executive Summary

The key feature of this period’s results was a decline in earnings despite higher revenue, due to a lower gross margin. Revenue increased to ¥681.1B (+2.6% year on year), while Operating Income declined to ¥28.7B (△3.7%), Ordinary Income to ¥31.9B (△0.8%), and Net Income attributable to owners of the parent to ¥21.5B (△4.1%). The primary factor was the contraction in the gross margin to 15.6% from the previous year, preventing the increase in revenue from translating into earnings growth.

Factors Affecting Performance

【Revenue】Revenue was ¥681.1B, up +2.6% year on year. By region, Japan, which accounted for 87.2% of revenue, generated ¥593.7B (+2.5%), North America ¥50.9B (△0.2%), China ¥19.3B (+9.9%), and Other ¥17.2B (+4.6%). While China continued to achieve high growth, North America remained flat, indicating that growth was uneven across regions.

【Profit and Loss】Gross profit was limited to ¥106.1B (+0.6% year on year), while SG&A expenses increased by ¥77.4B (+1.9%), resulting in a decline in Operating Income to ¥28.7B (△3.7%). The gross margin contracted to 15.6% from approximately 15.9% in the previous year, suggesting higher costs or deterioration in selling price spreads. Non-operating income of ¥3.4B, including dividend income of ¥1.4B, supported Ordinary Income, which declined by only △0.8% to ¥31.9B, narrowing the decline from Operating Income. Net Income was ¥21.5B (△4.1%). In conclusion, the Company recorded higher revenue but lower earnings.

Segment Analysis

Segment profit is based on Ordinary Income, and it should be noted that its measurement basis differs from consolidated Operating Income. Japan recorded higher revenue but lower earnings, with revenue of ¥593.7B (+2.5%) and segment profit of ¥30.8B (△4.8%); its profit margin also declined to 5.2%. Deteriorating profitability in the domestic business was the primary factor weighing on Company-wide earnings. North America recorded revenue of ¥50.9B (△0.2%) and continued to post a segment loss of ¥0.8B, but the loss narrowed from ¥1.8B in the previous year, indicating an improving trend. China achieved higher revenue and higher earnings, with revenue of ¥19.3B (+9.9%) and segment profit of ¥0.3B (+116.5%), making progress toward profitability despite its small scale. The Other segment maintained relatively high profitability, with revenue of ¥17.2B and a profit margin of 9.2%.

Key Financial Indicators

【Profitability】Operating margin was 4.2% (4.5% in the previous year), net profit margin was 3.1% (approximately 3.4% in the previous year), and gross margin was 15.6% (approximately 15.9% in the previous year). All contracted from the previous year, indicating margin deterioration amid revenue growth. ROE was 8.4%, down from 9.7% in the previous year, primarily due to the decline in the net profit margin.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥44.9B, equivalent to 2.1 times Net Income of ¥21.5B, indicating strong cash conversion. However, the increase in OCF also included contributions from changes in working capital, such as ¥4.3B from the collection of accounts receivable and ¥0.9B from a decline in inventories.【Investment Efficiency】Capital expenditures of ¥7.9B remained within depreciation and amortization expense of ¥11.1B, indicating a level centered on maintenance and replacement investment. Total asset turnover was approximately 1.43 times.【Financial Soundness】The Equity Ratio was 53.5% (53.1% in the previous year), while the current ratio was 168.2% and the quick ratio was 111.2%, all representing healthy levels. The debt-to-equity ratio was 0.87 times, below 1 time.

Cash Flow Analysis

OCF was ¥44.9B, a substantial increase from ¥17.8B in the previous year and equivalent to 2.1 times Net Income of ¥21.5B. Investing Cash Flow was an outflow of ¥13.7B, primarily consisting of ¥7.9B in capital expenditures, while Financing Cash Flow was an outflow of ¥10.5B, mainly due to dividend payments and other items. As a result, the Company secured positive Free Cash Flow of ¥31.2B. The breakdown of the increase in OCF shows that cash inflows of ¥4.3B from the collection of accounts receivable, ¥0.9B from a decline in inventories, and ¥3.5B from an increase in trade payables contributed to the result, indicating that temporary improvements in working capital played a role. To assess the sustainability of the Company’s ongoing earnings power, it will be necessary to continue monitoring the sustainability of cash generation from the core business excluding these working-capital factors.

Earnings Quality

Ordinary Income of ¥31.9B exceeded Operating Income of ¥28.7B, with the difference attributable to non-operating income of ¥3.4B, including dividend income of ¥1.4B and foreign exchange gains of ¥0.1B. This indicates a structure in which stable non-operating income partly offsets the decline in core operating earnings. No extraordinary gains or losses were recorded, and the impact of temporary factors on earnings was limited. Comprehensive Income was ¥26.9B, exceeding Net Income of ¥21.5B by ¥5.5B, mainly due to increases of ¥2.8B in foreign currency translation adjustments and ¥2.7B in valuation difference on securities. These differences reflect items susceptible to market and foreign exchange fluctuations and should be distinguished from the Company’s recurring core earnings power. Since OCF exceeded Net Income, there was no indication of excessive earnings remaining uncollected or reliance on accruals.

Earnings Forecast and Guidance

The Full-Year forecast calls for Revenue of ¥840.0B (+23.3% year on year), Operating Income of ¥43.1B (+50.1%), Ordinary Income of ¥47.0B (+47.3%), and Net Income of ¥29.1B (+40.7%), representing expectations for substantial revenue and earnings growth compared with the current-period results. Considerable increases from the current-period results of Revenue of ¥681.1B and Operating Income of ¥28.7B will be required, and improvement in the gross margin of the domestic business and continued reduction of the North American loss are considered prerequisites for achieving the plan. Forecast EPS is ¥283.03 and forecast dividends are ¥128, both expected to increase from the current-period results of EPS of ¥189.24 and dividends of ¥86.

Shareholder Returns

Annual dividends were ¥86 per share, consisting of an interim dividend of ¥28 and a year-end dividend of ¥58. Total dividends were ¥9.75B, and the Payout Ratio against Net Income of ¥21.5B was 45.4%. This figure is calculated by dividing dividends alone by Net Income; because share repurchases were minimal, the Total Return Ratio was effectively at a similar level. Dividend coverage against Free Cash Flow of ¥31.2B was approximately 3.2 times, and OCF of ¥44.9B also substantially exceeded total dividends, indicating sufficient cash capacity to fund dividends. The Full-Year forecast dividend of ¥128 indicates an increase from the previous year’s actual dividend of ¥86, although this is premised on achieving the earnings forecast.

Risk Factors

1. Deterioration in domestic business profitability: Profit in the Japan segment, which accounted for 87.2% of revenue, declined by △4.8% year on year, while its profit margin also fell to 5.2%. Recovery of the domestic gross margin will be a key inflection point for Company-wide earnings.

2. Low-margin structure: With a gross margin of 15.6% and an Operating margin of 4.2%, both at low levels, the business structure is such that fluctuations in metal market conditions and procurement prices can have an amplified impact on earnings.

3. Working capital efficiency: Accounts receivable and inventories account for approximately 50% in total of total assets, and fluctuations in inventory levels and collection periods could affect the sustainability of OCF. Although North America continues to narrow its loss, it has not yet achieved profitability.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Return

Profitability metrics exceeded the industry median and were at relatively high levels.

Growth and Capital Efficiency

The Revenue growth rate was below the industry median, indicating a relatively moderate pace of revenue growth.

Source: Compiled by the Company

Key Takeaways from the Results

1. Coexistence of higher revenue and lower earnings: Revenue increased by 2.6%, while Operating Income declined by 3.7% due to the contraction in the gross margin. Whether the Company can convert revenue growth into earnings growth will be the focus going forward.

2. Divergence between cash generation and accounting earnings: OCF was ¥44.9B, equivalent to 2.1 times Net Income, and Free Cash Flow was also ample at ¥31.2B. However, since these figures include the contribution from changes in working capital, it is useful to verify their sustainability.

3. Regional earnings structure: Japan recorded higher revenue but lower earnings, North America narrowed its loss, and China achieved higher revenue and higher earnings, with different trends by region. Improvement in domestic profitability and progress toward profitability in North America will be key points of focus when assessing the achievement of the Full-Year forecast.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,400–¥2,538 at ±1% for the cost of equity, and ¥2,463–¥2,475 at ±0.1 for ω.

Notes:

• Amortization of goodwill of ¥4.0 per share has been added back to earnings (as a non-cash expense and for comparability with IFRS companies).

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade-out) / Interest rate reference month: 2026-07 / Mechanically calculated values based solely on publicly disclosed data; these do not constitute forecasts of market prices or recommendations of any specific investment action and do not predict or guarantee future share prices.)

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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 professionals as necessary.

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