HAGIHARA INDUSTRIES INC. FY2026 Q3 Earnings Report

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Executive Summary

The key feature of these results was substantial growth in operating income that significantly outpaced revenue growth, reflecting the emergence of operating leverage driven by improved gross margins and control of selling, general and administrative expenses. Revenue was ¥25.11B (+4.4% YoY), operating income was ¥1.84B (+38.2%), and ordinary income was ¥2.16B (+45.0%). Meanwhile, net income attributable to owners of the parent was ¥1.50B (-3.6%), primarily due to the reversal of the ¥0.80B in subsidy income recorded as extraordinary income in the same period of the previous year, resulting in a trend different from the improvement seen at the operating and ordinary income levels.

Factors Affecting Performance

【Revenue】Revenue was ¥25.11B (+4.4% YoY). The core Processed Synthetic Resin Products Business led growth at ¥21.46B (+8.7% YoY; 85.5% of total revenue), while the Machinery Products Business declined to ¥3.65B (-15.1%). By region, sales to Japan increased to ¥17.87B (+5.6%), South America to ¥1.71B (+40.6%), and North America to ¥1.47B (+15.1%), whereas Asia declined to ¥2.98B (-16.5%), indicating divergent demand trends across regions.

【Profit and Loss】The gross profit margin improved to 27.9% from 27.0% in the same period of the previous year, while the SG&A ratio declined to 20.6% from 21.5%. As a result, the operating margin expanded to 7.3% from 5.5%. Ordinary income reached ¥2.16B (+45.0%), aided by ¥0.24B in foreign exchange gains under non-operating income, equivalent to 13.2% of operating income. Net income remained at ¥1.50B (-3.6%), reflecting the reversal of the temporary ¥0.80B subsidy income recorded in the previous year. This should be evaluated separately from the underlying improvement in profitability through the ordinary income level. Overall, the Company reported higher revenue and higher profit.

Segment Analysis

The Processed Synthetic Resin Products Business generated revenue of ¥21.46B (+8.7% YoY) and segment profit of ¥1.53B (+44.2%; margin of 7.1%), achieving profit growth substantially above revenue growth and accounting for 83.1% of consolidated profit. Although the Machinery Products Business recorded lower revenue of ¥3.65B (-15.1%), segment profit increased to ¥0.31B (+14.8%; margin of 8.6%), indicating improved profitability and securing better earnings even amid declining revenue.

Key Financial Indicators

【Profitability】The operating margin improved to 7.3% from 5.5%, and the gross profit margin improved to 27.9% from 27.0%, while the net profit margin declined slightly to 6.0% from 6.5%. The latter apparent decline reflects the reversal of extraordinary income recorded in the previous year, while the improvement at the operating and ordinary income levels reflects the underlying trend. 【Cash Quality】Ordinary income includes ¥0.24B in foreign exchange gains, equivalent to 13.2% of operating income. Accordingly, it should be noted that the ordinary income growth rate of +45.0% reflects both operating factors and foreign exchange factors. 【Investment Efficiency】Annualized ROE was 6.2%, a level explained by the combination of a 6.0% net profit margin, total asset turnover, and financial leverage (total assets of ¥44.85B / net assets of ¥32.14B). 【Financial Soundness】With an equity ratio of 71.7%, current assets of ¥23.26B, and current liabilities of ¥9.24B, the Company maintains a conservative and substantial financial base.

Cash Flow Analysis

Although a cash flow statement was not disclosed, fund movements can be assessed from changes in the balance sheet. Cash and deposits declined 26.0% to ¥4.33B from ¥5.86B in the same period of the previous year, while accounts payable and notes payable increased 67.1% to ¥2.86B, and inventories also increased to ¥3.24B. This suggests that an accumulation of working capital may have affected the cash balance. Long-term borrowings declined to ¥2.25B, indicating progress in reducing interest-bearing debt. Property, plant and equipment remained broadly flat at ¥18.41B, with no sharp expansion in large-scale capital investment. Overall, the increase in working capital accompanying the expansion of operating activities appears to have contributed to the decline in cash, while debt reduction has also progressed and financial soundness has been maintained.

Earnings Quality

Ordinary income for the current period of ¥2.16B includes ¥0.24B in foreign exchange gains as non-operating income, equivalent to 13.2% of operating income of ¥1.84B. This foreign exchange factor differs in nature from recurring operating business earnings. Accordingly, when evaluating the high ordinary income growth rate of +45.0%, it should be distinguished from operating income growth of +38.2%. Since ¥0.80B in subsidy income was recorded as extraordinary income in the same period of the previous year, the year-on-year comparison for net income (-3.6%) reflects the reversal of a temporary factor and does not accurately represent the underlying improvement at the operating and ordinary income levels. Comprehensive income was ¥2.12B, exceeding net income of ¥1.50B, mainly due to ¥0.70B in foreign currency translation adjustments. Valuation gains from translating overseas subsidiaries into yen contributed to this difference and should be understood separately from the Company’s recurring earning power.

Earnings Forecast and Guidance

The full-year Company forecast is revenue of ¥35.00B (+9.6% YoY), operating income of ¥2.10B (+43.1%), and ordinary income of ¥2.20B (+21.1%), with no revision to the earnings forecast. The progress rates for the nine months ended Q3 were 71.7% for revenue, 87.7% for operating income, 98.0% for ordinary income, and 99.6% for net income, all exceeding the standard progress rate of 75%. The high progress rates for operating income and ordinary income reflect improved profitability. However, ordinary income includes a ¥0.24B contribution from foreign exchange gains, so the reproducibility of foreign exchange trends from Q4 onward should be monitored as a factor affecting achievement of the full-year forecast.

Shareholder Returns

The Q2 dividend was ¥35.00 per share, and the full-year Company forecast for the annual dividend is ¥75.00 per share. Assuming projected full-year net income of ¥1.50B and an annual dividend of ¥75.00 per share, the projected total dividend is approximately ¥1.06B and the projected payout ratio is approximately 70.4%. Since this metric covers dividends only and no share repurchase activity has been disclosed, the total return ratio has not been calculated. The payout ratio of approximately 70.4% exceeds the general sustainability benchmark of 60%, making achievement of the full-year earnings plan a prerequisite for dividend funding. Retained earnings of ¥27.12B and net assets of ¥32.14B provide substantial internal reserves supporting continued dividend payments.

Risk Factors

1. Business concentration risk: The Processed Synthetic Resin Products Business accounts for 85.5% of revenue and 83.1% of segment profit, creating a structure in which demand and raw material price fluctuations in this business have a concentrated impact on consolidated performance.

2. Working capital efficiency risk: Inventories increased to ¥3.24B, while accounts payable also increased 67.1% YoY to ¥2.86B. The balance between inventories and trade payables may affect capital efficiency. Cash and deposits declined 26.0% YoY to ¥4.33B.

3. Regional demand divergence: Revenue in Asia declined 16.5% YoY, and continued weakness in regional demand could constrain the growth rate of the core business. In contrast, South America (+40.6%) and North America (+15.1%) posted growth, indicating differences in demand trends across regions.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the operating margin and net profit margin are slightly below the industry median but remain within the IQR.

Growth and Capital Efficiency

Revenue growth exceeded the industry median, placing the Company’s revenue growth pace in a relatively favorable position within the industry.

※Source: Compiled by the Company

Key Takeaways from the Results

1. The operating margin improved by approximately 1.8pt YoY to 7.3%. This resulted from simultaneous improvement in the gross profit margin and control of SG&A expenses, confirming a change in the earnings structure capable of generating profit growth above revenue growth.

2. The progress rates for ordinary income and net income were 98.0% and 99.6%, respectively, representing high levels relative to the full-year plan. However, ordinary income includes a ¥0.24B contribution from foreign exchange gains, while the year-on-year comparison for net income is affected by the reversal of the ¥0.80B subsidy income recorded in the previous year. Temporary and non-recurring factors should be distinguished when evaluating both profit measures.

3. Contrasting trends were observed, with the Processed Synthetic Resin Products Business reporting higher revenue and higher profit, while the Machinery Products Business reported lower revenue but higher profit. Improved profitability within the business portfolio is driving overall performance.

Theoretical Share Price (For Reference)

Sensitivity: ¥1,942–¥2,050 at ±1% for the cost of equity, and ¥1,986–¥2,001 at ±0.1 for ω.

Notes:

• Since net income progress against the full-year forecast (100%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies whose progress is ahead of plan tend to exceed their forecasts. Adjustments may be excessive for businesses with strong seasonality).
• Since forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).
• Since 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: 2026-08 / Mechanically calculated solely from 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 future share 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 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, in consultation with a professional advisor where necessary.

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