FUJI SEAL INTERNATIONAL,INC. FY2027 Q1 Earnings Report

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Executive Summary

In Q1 (April–June 2026), the Company posted higher revenue and income, with top-line expansion supplemented by non-operating factors that boosted growth from the ordinary income level downward. Revenue was ¥60.35B (+9.8% YoY), Operating Income was ¥6.24B (+3.9%), Ordinary Income was ¥6.84B (+21.4%), and Net Income attributable to owners of the parent was ¥4.95B (+14.3%). The improvement in gross margin to 24.1% (+118bp), driven by lower cost of sales, contributed to earnings growth, while the SG&A ratio rose to 13.8% (+177bp), resulting in a slight decline in the Operating Income margin to 10.3% (-60bp). Ordinary Income substantially outpaced Operating Income growth, mainly due to foreign exchange gains of ¥0.42B and an increase in interest income.

Factors Affecting Results

【Revenue】Revenue increased 9.8% YoY to ¥60.35B. By segment (on an unadjusted basis), JAPAN maintained its position as the core segment, accounting for approximately 45% of the composition, followed by AMERICA at approximately 29%, EUROPE at approximately 16%, and ASEAN at approximately 10%. ASEAN achieved high growth of +32.8%, while AMERICA also expanded by +9.9%; EUROPE, however, remained at +1.0%, widening the growth disparity among regions.

【Profit and Loss】Operating Income increased 3.9% to ¥6.24B. The improvement in gross margin (+118bp) was offset by the increase in the SG&A ratio (+177bp), causing the Operating Income margin to narrow to 10.3% (-60bp). Ordinary Income rose 21.4% to ¥6.84B, exceeding Operating Income growth, mainly due to a boost from total non-operating income of ¥0.68B, including foreign exchange gains of ¥0.42B and interest income of ¥0.14B. Non-operating expenses of ¥0.08B, primarily interest expense, were limited. Extraordinary income was ¥0.03B versus extraordinary losses of ¥0.07B, including ¥0.03B in impairment losses on fixed assets in ASEAN, resulting in a small net loss of ¥0.04B. After deducting income taxes of ¥1.85B, the effective tax rate was 27.2%, and Net Income was ¥4.95B (+14.3%). Although the Company recorded higher revenue and income, the Operating Income growth rate (+3.9%) remained modest compared with growth at the Ordinary Income and Net Income levels (+21.4% and +14.3%, respectively), which included non-operating factors.

Segment Analysis

JAPAN generated revenue of ¥28.05B (+6.1%) and Operating Income of ¥3.36B (+10.8%), maintaining the highest profitability among all segments with a margin of 12.0% and driving overall earnings growth. AMERICA recorded higher revenue of ¥18.11B (+9.9%), but Operating Income declined 13.4% to ¥1.91B, with the margin falling to 10.5% as higher costs pressured profitability. EUROPE’s revenue was broadly flat at ¥9.95B (+1.0%), while Operating Income declined 72.0% to ¥0.25B and the margin fell sharply to 2.6%, weighing on the Company-wide margin. ASEAN achieved revenue of ¥6.12B (+32.8%) and Operating Income of ¥0.60B (+84.7%), with a margin of 9.8%, combining high growth with a substantial improvement in profitability and contributing to a more favorable regional mix. The deterioration in EUROPE’s profitability and the decline in AMERICA’s earnings offset the strong performance of JAPAN and ASEAN, limiting the Company-wide increase in Operating Income.

Key Financial Metrics

【Profitability】The Operating Income margin was 10.3%, down -60bp from 10.9% in the prior-year period, while the Net Income margin was 8.2%, up +32bp from 7.9% in the prior year. The results showed contrasting trends: improvements in gross margin were insufficient to absorb the increase in SG&A expenses, resulting in a slight deterioration at the operating level, while non-operating income led to improvements at the Ordinary Income and Net Income levels.【Cash Flow Quality】Operating Cash Flow (OCF) of ¥6.38B was approximately 1.29 times Net Income of ¥4.95B, indicating that cash generation underpinning earnings remained secured.【Investment Efficiency】ROE was 3.0% (based on quarterly results), and total asset turnover was approximately 0.25x (quarterly), with no significant change in asset efficiency.【Financial Soundness】The Equity Ratio was 67.7%, down -3.6pt from 71.3% in the prior-year period. This reflected a 7.6% increase in total assets, while net assets rose only +2.1%. The increase in trade receivables, inventories, and property, plant and equipment was partially funded by increases in short-term borrowings and trade payables.

Cash Flow Analysis

Cash flow from operating activities was ¥6.38B, down -17.3% YoY. Although the subtotal before changes in working capital, including depreciation and amortization of ¥2.12B, was substantial at ¥7.10B, the increase in trade receivables (-¥6.00B) and the increase in inventories (-¥2.27B) constrained cash conversion. Even after the offset provided by the increase in trade payables (+¥4.91B), the amount remained below the prior-year level. Cash flow from investing activities was -¥3.04B, including capital expenditures of -¥2.82B, which exceeded depreciation and amortization and indicated continued investment in production capacity and efficiency improvements. Cash flow from financing activities was -¥1.52B. While the Company proceeded with repayments of long-term borrowings (¥5.61B → ¥4.05B), it increased short-term borrowings from ¥4.0B to ¥5.0B, shortening the maturity structure of its financing. Free cash flow was ¥3.34B, maintaining a level that broadly covered cash dividends of ¥2.47B and capital expenditures of ¥2.82B.

Quality of Earnings

Against Operating Income of ¥6.24B, which represents recurring earning power, non-operating income was ¥0.68B (1.1% of revenue), primarily consisting of foreign exchange gains of ¥0.42B and interest income of ¥0.14B, both of which contain non-recurring characteristics. Extraordinary income was ¥0.03B and extraordinary losses were ¥0.07B, including ¥0.03B in impairment losses on fixed assets in ASEAN, resulting in a net loss of ¥0.04B and a limited impact on Net Income. Total comprehensive income was ¥5.77B, and the ¥0.82B difference from Net Income of ¥4.95B was primarily attributable to foreign currency translation adjustments (+¥0.82B). This represented a substantial increase from total comprehensive income of ¥1.44B in the prior-year period, when foreign currency translation adjustments were -¥2.86B. This divergence reflects yen translation differences in the net assets of overseas subsidiaries and should be viewed separately from recurring operating earnings power. OCF was approximately 1.29 times Net Income, confirming cash support for earnings; however, the increase in working capital restrained growth in cash generation. Overall, earnings quality remained stable, although continued monitoring of working capital trends remains useful.

Earnings Forecast and Guidance

Progress against the full-year Company plan was 26.4% for Revenue (¥60.35B/¥228.60B), 28.1% for Operating Income (¥6.24B/¥22.20B), 30.5% for Ordinary Income (¥6.84B/¥22.40B), and 32.4% for Net Income (¥4.95B/¥15.30B, based on forecast EPS of ¥286.82). Compared with the benchmark of 25% for evenly distributed quarterly progress, progress for Ordinary Income and Net Income was particularly high, supported by non-operating factors such as foreign exchange gains and interest income. While the full-year Ordinary Income plan calls for only +1.8% YoY growth, Ordinary Income in Q1 increased sharply by +21.4% YoY, suggesting that the plan may have been set conservatively in anticipation of a reversal in the second half. No revisions were made to the earnings forecast or dividend forecast for the quarter.

Shareholder Returns

The annual dividend forecast is ¥87.00, with no revision to the dividend forecast during the quarter. Based on forecast EPS of ¥286.82, the Payout Ratio is approximately 30.3%, a level consistent with earnings growth. No share repurchases were conducted during the quarter (compared with ¥1.08B of repurchases in the prior-year period), making dividends the primary form of shareholder returns at present. Free cash flow of ¥3.34B exceeded cash dividend payments of ¥2.47B during the quarter, securing financial support for the dividend.

Risk Factors

1. Deterioration in EUROPE segment profitability: EUROPE’s Operating Income declined 72.0% YoY to ¥0.25B, and its margin fell to 2.6%, weighing on the Company-wide Operating Income margin by offsetting earnings growth in other segments. Monitoring the improvement trend will be useful.

2. Accumulation of working capital: Trade receivables increased by ¥5.96B (approximately +¥2.98B YoY), while inventories also remained high at ¥10.97B, contributing to the -17.3% decline in OCF relative to the growth in Net Income. The pace of increases in credit exposure and inventory associated with revenue expansion could affect future cash-generation capacity.

3. Dependence of Ordinary Income on non-recurring factors: A substantial portion of the +21.4% growth in Ordinary Income was attributable to non-operating factors, including foreign exchange gains of ¥0.42B and higher interest income, resulting in a significant divergence from Operating Income growth of +3.9%. The boost from these factors could reverse depending on foreign exchange movements.

Industry Benchmark (For Reference; Compiled by the Company)

Key Takeaways from the Earnings Results

1. While the gross margin improved to 24.1% (+118bp), the SG&A ratio rose to 13.8% (+177bp), causing the Operating Income margin to narrow slightly to 10.3% (-60bp). The effects of cost improvements continue to be partially offset by higher SG&A expenses.

2. Progress against the full-year plan was 30.5% for Ordinary Income and 32.4% for Net Income, exceeding the 25% benchmark for evenly distributed quarterly progress. However, the primary drivers were items with relatively high non-recurring characteristics, such as foreign exchange gains and interest income. The gap with Operating Income progress of 28.1% is a point to note when assessing the underlying earnings trend of the business.

3. The decline in the EUROPE segment margin to 2.6%, representing a substantial deterioration from the prior year, is a notable feature observable in the earnings data as a change in the regional profitability structure. This should be closely monitored in conjunction with whether the strong performance of JAPAN and ASEAN continues in subsequent quarters.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥3,001–¥3,177 at ±1% for the cost of equity capital, and ¥3,087–¥3,087 at ±0.1 for ω.

Notes:

• Goodwill amortization of ¥1.6 per share is added back to earnings (as a non-cash expense and for comparability with IFRS companies).
• Net assets as of the end of the quarter are used (there is a timing difference relative to the full-year forecast).

(Calculation model: Residual income model / Interest rate reference month: 2026-07 / This value 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 benchmark is reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional advisor as necessary.

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