KAWASE COMPUTER SUPPLIES (7851) FY2026 Q3 Earnings Report

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Executive Summary

The cumulative results for Q3 of the fiscal year ending March 2026 reflected declines in both revenue and earnings, with deteriorating profitability being the key focus. Revenue was ¥20.8B (¥21.1B in the previous year, YoY -1.3%), Operating Income was ¥0.5B (¥0.8B in the previous year, YoY -33.4%), Ordinary Income was ¥0.7B (¥1.0B in the previous year, YoY -27.3%), and Net Income was ¥0.7B (¥0.9B in the previous year, YoY -29.3%). Although the decline in revenue was limited, SG&A expenses increased to ¥5.1B (approximately 4% higher than the previous year), causing the Operating Income margin to decline from 3.6% in the previous year to 2.4%, with the rate of earnings decline substantially exceeding the rate of revenue decline.

Factors Affecting Performance

【Revenue】Revenue was ¥20.8B, representing a 1.3% decline year on year and remaining broadly flat. By segment, revenue consisted of ¥11.5B from BusinessForm and ¥9.3B from InformationProcessing, with the latter’s profit margin of 17.7% exceeding the former’s 9.8%. The gross profit margin was 26.8%, maintaining the level of the same period in the previous year, and no rapid deterioration in costs was observed.

【Profit and Loss】Operating Income was ¥0.5B, down 33.4% year on year, while the Operating Income margin declined by approximately 116bp from 3.6% in the previous year to 2.4%. The primary factor was an increase in SG&A expenses. The SG&A ratio rose from 23.1% to 24.4%, and the increase in costs exceeding the modest decline in gross profit pressured earnings. Non-operating income and expenses generated a surplus of ¥0.22B, supported by ¥0.09B in interest income and ¥0.07B in dividend income, thereby underpinning Ordinary Income of ¥0.7B. Extraordinary gains and losses were almost fully offset, and the low effective tax rate of 9.4% also resulted in Net Income of ¥0.7B, close to Ordinary Income. In conclusion, the company recorded declines in both revenue and earnings, as the decline in earnings exceeded the decline in revenue.

Segment Analysis

The BusinessForm segment recorded revenue of ¥11.5B and Operating Income of ¥1.1B, for a profit margin of 9.8%. The InformationProcessing segment recorded revenue of ¥9.3B and Operating Income of ¥1.6B, for a profit margin of 17.7%, giving InformationProcessing superior profitability. Company-wide expenses are included in adjustments as general and administrative expenses not attributable to reportable segments, and the difference from consolidated Operating Income of ¥0.5B is attributable to these company-wide expenses.

Key Financial Metrics

【Profitability】The Operating Income margin of 2.4% (3.6% in the previous year) and Net Income margin of 3.1% (4.4% in the previous year) both declined from the previous year, while the gross profit margin remained broadly flat at 26.8%. Accordingly, the primary cause of deteriorating profitability was the increase in the SG&A ratio (23.1%→24.4%). 【Cash Quality】Non-operating income consisted of ¥0.09B in interest income and ¥0.07B in dividend income, totaling approximately 1.4% of revenue, and was not large enough to materially offset the earning power of the core business. 【Investment Efficiency】Annualized ROE was 3.5%, while ROIC was also 3.5%. Based on a decomposition into Net Income margin, asset turnover, and financial leverage, none of these factors showed a significant upside. 【Financial Soundness】The Equity Ratio was 73.2%, the Current Ratio was 245.3%, and the D/E ratio was 0.37x, indicating a conservative capital structure. However, interest-bearing debt of ¥3.0B consisted entirely of short-term borrowings, resulting in a short-term debt ratio of 100.0%.

Cash Flow Analysis

Cash and deposits were ¥10.1B, down approximately ¥0.98B (8.8%) from ¥11.1B in the same period of the previous year, but remained substantially above short-term borrowings of ¥3.0B. Current assets of ¥15.5B versus current liabilities of ¥6.3B resulted in a high Current Ratio of 245.3%, with positive working capital of ¥9.2B. Inventories increased 39.3% from ¥0.32B in the previous year to ¥0.45B. If this is not accompanied by a recovery in sales, funds tied up in inventory may affect capital efficiency. Net assets were ¥24.5B, up from ¥23.9B in the previous year, with accumulated retained earnings and an increase in valuation differences on other securities supporting the capital base.

Earnings Quality

Current-period earnings comprised core-business Operating Income of ¥0.5B plus ¥0.22B in non-operating income, including ¥0.09B in interest income and ¥0.07B in dividend income, to generate Ordinary Income of ¥0.7B. This structure indicates that reliance on financial income partially masks the weakness of the core business. Extraordinary income of ¥0.01B (gain on the sale of investment securities) and extraordinary loss of ¥0.01B (loss on disposal of fixed assets, etc.) were almost fully offset, limiting the impact of one-time factors. The effective tax rate was low at 9.4%, resulting in a high conversion rate from pretax income of ¥0.7B to Net Income of ¥0.7B. The 39.3% increase in inventories is a point to note from an accrual perspective, and increasing inventory amid declining revenue entails a risk of future inventory adjustments.

Earnings Forecasts and Guidance

The full-year company forecasts are revenue of ¥27.5B (YoY -2.9%), Operating Income of ¥0.2B (YoY -74.7%), Ordinary Income of ¥0.4B (YoY -63.3%), and Net Income of ¥0.3B (YoY -70.0%). The cumulative Q3 progress rate was 75.6% for revenue, a standard level, while Operating Income, Ordinary Income, and Net Income reached 250.0%, 180.0%, and 216.7%, respectively, substantially exceeding the full-year forecasts. This is because the full-year forecasts themselves anticipate substantial earnings declines from the previous year; working backward, the forecasts incorporate an Operating Loss and Net Loss for Q4 alone. Expense recognition at the fiscal year-end and changes in project composition will be important factors determining the final full-year results.

Shareholder Returns

The Q2 dividend was ¥0, while the year-end dividend is scheduled to total ¥5, consisting of an ordinary dividend of ¥3 plus a ¥2 commemorative dividend marking the company’s 70th founding period. Against forecast full-year EPS of ¥6.43, the Payout Ratio based on the total dividend of ¥5 is approximately 77.8%, exceeding the generally regarded sustainability guideline of 60%. Based solely on the ordinary dividend of ¥3, the Payout Ratio is approximately 46.7%, indicating a relatively lighter burden excluding the commemorative dividend. Cash and deposits of ¥10.1B and net assets of ¥24.5B support financial stability for dividend payments.

Risk Factors

1. Deteriorating profitability: While revenue declined only 1.3% year on year, Operating Income decreased 33.4% due to higher SG&A expenses. The SG&A ratio rose from 23.1% to 24.4%, and if the decline in fixed-cost absorption continues, recovery from the 2.4% Operating Income margin may be delayed.

2. Q4 performance volatility risk: Cumulative progress against the full-year forecast has reached 250.0% for Operating Income and 216.7% for Net Income. Assuming the full-year forecast, this implies that an Operating Loss and Net Loss are incorporated for Q4. Year-end order composition and expense recognition trends could significantly affect annual results.

3. Dependence on short-term debt: Interest-bearing debt of ¥3.0B consists entirely of short-term borrowings, resulting in a short-term debt ratio of 100.0%. Cash and deposits exceed short-term borrowings by ¥7.1B, indicating ample liquidity; however, changes in refinancing conditions could affect funding costs.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Income margin and Net Income margin were below the industry median, indicating that profitability was relatively low within the industry.

Growth and Capital Efficiency

The revenue growth rate was also below the industry median, indicating that top-line growth was comparatively weak within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. While revenue declined only 1.3% year on year, Operating Income decreased 33.4%, making the deterioration in earnings leverage caused by the higher SG&A ratio the central feature of the results. The gross profit margin was maintained at approximately 26.8%, indicating that the cost-structure issue lies in fixed-cost absorption.

2. The full-year forecast anticipates a substantial earnings decline from the previous year, and cumulative Q3 progress rates for both Operating Income and Net Income have reached levels well above the full-year forecasts. Conversely, this structure means that Q4 earnings trends will determine the final annual results, making it important to monitor year-end developments.

3. The ¥5 year-end dividend includes a ¥2 commemorative dividend marking the company’s 70th founding period, resulting in a Payout Ratio of approximately 77.8% against forecast full-year EPS. The future trend in the company’s ongoing shareholder-return policy excluding the one-time commemorative dividend will be a key point to monitor.

Theoretical Share Price (Reference Value)

Sensitivity: ¥387–¥409 at Cost of Equity ±1%, and ¥394–¥400 at ω±0.1.

Notes:

• Because cumulative Net Income progress against the full-year forecast (217%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with progress ahead of forecasts tend to outperform forecasts. The adjustment may be excessive for businesses with strong seasonality).
• Because forecast ROE is below the Cost of Equity, the theoretical value is below Book Value per Share.
• Net assets as of the quarter-end have been 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 predict or guarantee the future share price.)

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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 a professional advisor as necessary.

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