SHOEI (7839) FY2026 Q1 Earnings Report

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Executive Summary

Although the first quarter of the fiscal year ending September 2026 recorded lower revenue and lower earnings, progress against the initial earnings forecast was maintained at a standard level, while profitability itself remained well above the industry average. Revenue was ¥75.1B (down -4.1% YoY), Operating Income was ¥20.5B (down -17.6%), Ordinary Income was ¥21.3B (down -17.0%), and Net Income was ¥14.7B (down -18.4%). The primary reason earnings contracted more than revenue was a change in the sales mix caused by the sharp slowdown in the Chinese market (units sold -69.1%), together with a decline in fixed-cost absorption. Meanwhile, the North American market expanded significantly, with units sold up +22.9% and revenue up +26.8%, indicating progress in geographic portfolio diversification.

Factors Affecting Performance

【Revenue】Revenue was ¥75.1B, down 4.1% YoY. By region, North America increased +26.8% and Europe increased +2.9%, while China decelerated sharply by -63.4%, becoming a factor weighing on overall performance. Japan also recorded lower revenue at -6.4%, and the sharp decline in China significantly changed the regional composition.

【Profit and Loss】Operating Income was ¥20.5B, down 17.6% YoY, representing a decline exceeding the rate of revenue contraction. The gross margin remained high at 46.6%, but the SG&A ratio rose to 19.3%, causing the operating margin to decline to 27.3% (approximately 4.5pt lower than the previous-year estimate). Ordinary Income was ¥21.3B, exceeding Operating Income due to a ¥0.8B foreign exchange gain, while Net Income was limited to ¥14.7B after deducting an extraordinary loss (loss on disposal of fixed assets of ¥0.2B). In conclusion, both revenue and earnings declined.

Segment Analysis

Although operating profit and loss data by segment have not been disclosed, changes in the business structure can be inferred from regional revenue. In terms of revenue composition, Europe was the largest and core region at ¥34.1B, followed by North America at ¥18.0B and Japan at ¥13.0B. North America drove growth with double-digit increases in both units sold and revenue, while China contracted to revenue of ¥4.0B (5.3% of total revenue), and its sharp slowdown from the previous year is believed to have contributed to the deterioration in overall profitability. Europe secured a slight increase in revenue through higher average selling prices, resulting in clear differences in earnings trends among regions.

Key Financial Indicators

Profitability: ROE of 5.0% (quarterly basis, approximately 19.8% on an annualized basis), operating margin of 27.3% (lower than the previous-year estimate)
Cash quality: Cash and deposits of ¥155.1B account for 45.8% of total assets, providing substantial liquidity
Investment efficiency: Property, plant and equipment of ¥75.4B and construction in progress of ¥6.0B indicate that capital investment is continuing
Financial soundness: Equity Ratio of 87.8% and current ratio of 731.4% (current assets of ¥254.1B/current liabilities of ¥34.7B)

Cash Flow Analysis

Cash and deposits were ¥155.1B, a decrease of ¥44.3B from the end of the previous fiscal year. The primary causes of the decline were dividend payments and share repurchases, rather than deterioration in operating activities themselves. Inventories decreased by ¥7.9B and trade receivables decreased by ¥8.8B, indicating that working capital is being compressed and cash efficiency is improving. Current liabilities decreased by ¥14.5B due to reductions in advances received and accounts payable, suggesting progress in procurement and production adjustments. While cash generation is assessed as standard, the significant cash outflow from financing activities requires monitoring.

Quality of Earnings

Ordinary Income of ¥21.3B exceeded Operating Income of ¥20.5B by ¥0.8B, primarily due to a ¥0.8B foreign exchange gain; therefore, non-operating income includes an extraordinary component. A ¥0.2B loss on disposal of fixed assets was recorded as an extraordinary loss, but its impact on Net Income was limited. Net Income of ¥14.7B resulted from deducting an effective tax rate of approximately 30.2% from Profit Before Tax of ¥21.1B. The approximately 31% divergence between Ordinary Income and Net Income was primarily attributable to the burden of corporate income taxes and other taxes.

Earnings Forecast and Guidance

Progress rates against the full-year forecast (Revenue of ¥339.5B, Operating Income of ¥83.7B, and Ordinary Income of ¥83.8B) were 22.1% for Revenue, 24.5% for Operating Income, and 25.4% for Ordinary Income, broadly maintaining a level close to standard progress (Q1=25%). The company plan anticipates full-year revenue growth (+4.9%) alongside a decline in Operating Income (-5.9%), which is consistent with the downward earnings trend as of Q1. The PDF materials assess that “progress against the initial forecast is proceeding above expectations,” and continued growth in North America and the bottoming out of China will be key to maintaining progress in the second half.

Shareholder Returns

The company’s full-year dividend forecast is ¥60.00 per share, and the Payout Ratio based on forecast EPS of ¥116.67 is approximately 51.4%. In addition to dividend payments, share repurchases were conducted during Q1, and the combined amount should be evaluated as the Total Return Ratio. The financial base of ¥155.1B in cash and deposits and an Equity Ratio of 87.8% provides capacity to support this level of shareholder returns.

Catalysts

【Short Term】Whether demand in the Chinese market has bottomed and whether growth in the North American market continues will determine performance from the next quarter onward.

【Long Term】The key areas of focus are the sustainability of the pricing strategy in Europe and whether progress in geographic portfolio diversification leads to earnings stabilization through reduced dependence on China.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Profitability remains well above the industry median, positioning the company as a high-value-added business model within the manufacturing sector.

Growth and Capital Efficiency

The revenue growth rate was below the industry median, placing the company at a relative disadvantage within the industry in terms of growth during the quarter.

※Source: Compiled by the Company

Risk Factors

1. Regional demand concentration: Units sold in the Chinese market declined sharply by -69.1% YoY. Although regional concentration is being reduced, increasing dependence on other regions may heighten earnings volatility.

2. Risk of margin decline: The operating margin has declined from the previous year, while the SG&A ratio has risen to 19.3% against declining revenue, indicating reduced fixed-cost absorption.

3. Foreign exchange sensitivity: Ordinary Income was boosted by a ¥0.8B foreign exchange gain, and this boost may diminish if foreign exchange rates reverse.

Key Earnings Highlights

1. Despite lower revenue and lower earnings, the operating margin of 27.3% and net margin of 19.6% were substantially above the industry median, indicating that the company’s high-profitability structure remains intact.

2. By region, polarization is progressing, with strong growth in North America and a sharp slowdown in China. Changes in the portfolio composition going forward should be monitored as a structural factor that will influence the direction of profitability.

3. Although cash and deposits declined, the primary causes were dividends and share repurchases. Financial soundness, as measured by an Equity Ratio of 87.8%, remains high and unchanged.

Theoretical Share Price (Reference Value)

Sensitivity: ¥747–¥790 at Cost of Equity ±1%, and ¥763–¥775 at ω±0.1.

Notes:

• Net assets as of the end of the quarter are used (there is a time lag relative to the full-year forecast).

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

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This report is an earnings analysis document automatically generated through AI integration and analysis of XBRL earnings summary data and PDF earnings presentation materials. It does not recommend investment in any specific security. 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 with professionals as necessary.

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