Hakudo Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

The Company posted higher revenue and income, with profit growth significantly outpacing revenue growth, as operating leverage became evident through improved gross margins and controlled SG&A expenses. Revenue was ¥219.3B (+28.6% YoY), Operating Income was ¥13.8B (+257.7%), Ordinary Income was ¥14.8B (+210.7%), and Net Income was ¥10.2B (+250.2%). The primary driver was increased revenue and improved profitability in the core Japan segment, while profit progress against the Full-Year forecast was also above the 25% level.

Factors Affecting Performance

【Revenue】Revenue was ¥219.3B, up +28.6% YoY. By segment, Japan led consolidated growth with revenue of ¥193.2B (88.1% composition ratio, YoY +32.3%). China grew significantly to ¥6.7B (+57.5%), while North America continued to decline, with revenue of ¥13.6B (△15.7%). Other regions recorded revenue of ¥5.9B (+40.2%).

【Profit and Loss】Operating Income was ¥13.8B (YoY +257.7%), and the Operating Income margin improved significantly to 6.3% from 2.3% in the same period of the previous year. The gross margin increased to 16.4% (13.9% in the previous year), while the SG&A expense ratio declined to 10.1% (11.7% in the previous year), resulting in profit growth substantially exceeding revenue growth. Ordinary Income was ¥14.8B, including ¥0.98B in net non-operating income comprising dividends received, interest received, and foreign exchange gains. Net Income was ¥10.2B; the difference from Ordinary Income was attributable to income taxes and other taxes of ¥4.6B, with no temporary factors identified. In conclusion, the Company achieved higher revenue and profit, with profit growth substantially exceeding revenue growth.

Segment Analysis

The Japan segment recorded revenue of ¥193.2B (YoY +32.3%), segment profit of ¥12.7B (+142.1%), and a profit margin of 6.6% (3.6% in the previous year), reflecting a significant improvement in profitability and making it the central driver of consolidated profit growth. North America continued to experience declining revenue, with revenue of ¥13.6B (△15.7%), but segment profit turned positive at ¥0.8B from a loss of ¥1.1B in the same period of the previous year. China recorded revenue of ¥6.7B (+57.5%) and profit of ¥0.6B (¥0.04B in the previous year), representing substantial profit growth. Other regions recorded revenue of ¥5.9B (+40.2%) and profit of ¥0.6B (+25.1%). While quantitative expansion and improved profitability in the Japanese market drove consolidated performance, North America’s profitability improvement was not accompanied by revenue recovery, and its sustainability requires confirmation.

Key Financial Metrics

【Profitability】The Operating Income margin improved to 6.3% (2.3% in the previous year), the Net Income margin to 4.6% (1.7% in the previous year), and the gross margin to 16.4% (13.9% in the previous year). 【Cash Quality】Non-operating income remained at just 0.5% of revenue, indicating that the primary driver of profit expansion was improved profitability at the operating level. Comprehensive Income was ¥13.7B, exceeding Net Income of ¥10.2B, with an unrealized gain on valuation of securities of ¥2.8B and foreign currency translation adjustments of ¥0.7B contributing positively. 【Investment Efficiency】Annualized ROE of 15.5% was generated by a combination of a Net Income margin of 4.6%, total asset turnover of 1.716 times, and financial leverage of 1.95 times. 【Financial Soundness】The Equity Ratio was 51.2% (53.5% in the previous year), while the current ratio was 161.1% and the quick ratio was 107.8%, indicating sound short-term liquidity. However, inventory days stood at 66 days, above the 60-day level, and the risk of funds being tied up in inventory requires continued monitoring.

Cash Flow Analysis

As the cash flow statement is not directly disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥80.9B, up from ¥76.7B in the previous year. Accounts receivable were ¥132.1B (¥114.0B in the previous year), and inventories were ¥132.3B (¥125.0B in the previous year); both increases remained below the 28.6% growth in revenue, confirming relative restraint in working capital. Accounts payable were ¥96.4B (¥87.2B in the previous year), while electronically recorded obligations were ¥118.9B (¥102.7B in the previous year), indicating that trade payables also increased and that the overall working capital cycle expanded alongside revenue growth. Investment securities were ¥23.0B, an increase of ¥11.2B YoY, suggesting that part of surplus funds was allocated to investment assets.

Quality of Earnings

Of total non-operating income of ¥1.0B, ¥0.5B comprised dividends received, ¥0.1B foreign exchange gains, and ¥0.1B interest received. All are recurring in nature and cannot be regarded as temporary factors. Non-operating income remained at 0.5% of revenue, and the majority of the ¥14.8B increase in Ordinary Income resulted from improvement at the Operating Income level. Comprehensive Income of ¥13.7B exceeded Net Income of ¥10.2B, with the difference attributable to an unrealized gain on valuation of securities of ¥2.8B and foreign currency translation adjustments of ¥0.7B, reflecting an increase in unrealized gains on held shares. From an accrual perspective, increases in accounts receivable and inventories were below revenue growth, and the cash collection cycle supporting earnings can be assessed as relatively sound.

Earnings Forecast and Guidance

The Full-Year forecast calls for revenue of ¥922.0B (YoY +35.4%), Operating Income of ¥50.6B (+76.2%), and Ordinary Income of ¥51.9B (+62.7%), with revisions made to both the earnings and dividend forecasts. Q1 progress rates were 23.8% for revenue, 27.2% for Operating Income, 28.4% for Ordinary Income, and 28.3% for Net Income, exceeding the standard 25% benchmark. However, the Full-Year forecast assumes a +76.2% increase in Operating Income, making the key issue whether the high Q1 Operating Income growth rate of +257.7% can continue throughout the year. Operating Income of approximately ¥36.8B is required over the remaining 3 quarters, with trends in gross margins and inventory levels being key to achievement.

Shareholder Returns

The Full-Year dividend forecast is ¥143.0 per share, following a revision. Based on the average number of shares outstanding during the period of 1,134.2万 shares, the estimated annual total dividend is approximately ¥16.2B. The Payout Ratio against the Full-Year Net Income forecast of ¥35.9B is approximately 45.2%, below the generally accepted guideline of 60%. Assuming achievement of the Company’s forecast, the dividend burden relative to earnings is currently within a sustainable range.

Risk Factors

1. Inventory valuation and turnover risk: Inventory days were 66 days, exceeding the general benchmark of 60 days. Inventories of ¥132.3B account for 25.9% of total assets, and fluctuations in metal and material prices could affect valuation and gross margins.

2. Low-margin structure risk: The gross margin of 16.4% is below 20%, a level generally seen as low for the distribution industry. Although the margin improved during the current period, the structure remains susceptible to margin pressure from fluctuations in purchase prices and delays in passing costs through to selling prices.

3. Continued decline in North American operations: North American revenue was down △15.7% YoY, and consolidated growth depends primarily on the Japanese market. North America returned to profitability, but the improvement was not accompanied by revenue recovery, and its sustainability requires confirmation.

Industry Benchmark (For Reference; Based on Our Research)

Industry Benchmark (trading)

Profitability and Returns

Both the Operating Income margin and Net Income margin are above the industry median.

Growth and Capital Efficiency

The Revenue growth rate is substantially above the industry median and represents an exceptionally high growth rate within the industry.

※Source: Based on our research

Key Points from the Earnings Results

1. Operating Income increased +257.7% against revenue growth of +28.6%, clearly demonstrating operating leverage driven by gross margin improvement (+249bp) and a decline in the SG&A expense ratio (△154bp).

2. Annualized ROE of 15.5% exceeds the industry level, but the gross margin of 16.4% reflects a low-margin structure below 20%. Together with inventory days of 66 days, sensitivity to inventory valuation and market fluctuations is a key structural point of attention.

3. Q1 profit progress against the Full-Year forecast was in the 27–28% range, above the standard level. However, the Full-Year forecast assumes a +76.2% increase in Operating Income, making the sustainability of profitability in the Japan segment and trends in North American revenue recovery key factors to monitor.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,531–¥2,677 at Cost of Equity ±1%, and ¥2,595–¥2,612 at ω±0.1.

Notes:

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

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI through analysis of 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 discretion and responsibility, after consulting a professional as necessary.

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