SANKO GOSEI (7888) FY2026 FY Earnings Report

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Executive Summary

The current period results reflected the coexistence of higher revenue and operating income in the core business and a substantial decline in net income due to the recording of extraordinary losses. Revenue was ¥97.98B (+7.6% YoY), Operating Income was ¥7.09B (+25.4%), and Ordinary Income was ¥6.35B (+22.3%), with the operating margin improving to 7.2% from 6.2% in the previous year. Meanwhile, Net Income attributable to owners of the parent was limited to ¥0.76B (-80.3%). The primary cause of the sharp decline in net income was the recording of ¥3.77B in extraordinary losses, which compressed Profit Before Tax to ¥2.61B. Although the profitability of the core business is improving, final profit has been significantly impaired by temporary factors.

Factors Affecting Results

【Revenue】Revenue increased 7.6% YoY to ¥97.98B. By region, North America recorded the strongest growth at +16.4%, followed by Japan at +5.3%, Asia at +6.2%, and Europe at +2.6%. By product, molded products totaled ¥81.79B (+7.6%) and molds totaled ¥16.19B (+7.5%), with the core molded-products business driving revenue growth. The overseas revenue ratio reached approximately 67.8%, and the expansion of overseas operations, particularly in North America, was the primary driver of the revenue increase.

【Profit and Loss】Operating Income increased 25.4% YoY to ¥7.09B, and the operating margin improved to 7.2% from 6.2% in the previous year. The gross margin also increased to 17.3%, while the SG&A ratio declined to 10.1%, indicating that operating leverage associated with higher revenue contributed to the improvement in profitability. By region, North America posted a substantial 85.7% increase in Operating Income and led the improvement in profitability, whereas Europe recorded a 3.3% decline in Operating Income despite higher revenue. Ordinary Income was ¥6.35B (+22.3%), indicating solid performance in the core business; however, the recording of ¥3.77B in extraordinary losses compressed Profit Before Tax to ¥2.61B, resulting in Net Income attributable to owners of the parent of ¥0.76B (-80.3%). In conclusion, the company achieved higher revenue and operating profit at the operating level, while final profit declined due to extraordinary losses. The results can therefore be characterized as higher revenue and profit, with only net income declining due to temporary factors.

Segment Analysis

Japan made the largest contribution to segment profit, with Revenue of ¥31.82B (+5.3%), Operating Income of ¥4.52B (+17.4%), and an operating margin of 14.2%, accounting for 57.6% of total segment profit. North America recorded the highest profit growth, with Revenue of ¥22.25B (+16.4%) and Operating Income of ¥1.73B (+85.7%), while its margin also improved to 7.8%. Asia posted Revenue of ¥31.48B (+6.2%) and Operating Income of ¥1.12B (+11.9%), with a margin of only 3.6%. Europe recorded higher Revenue of ¥12.42B (+2.6%), but Operating Income declined to ¥0.47B (-3.3%), resulting in a 3.8% margin, the lowest among the four regions. While Japan maintains high margins, low profitability in Asia and Europe persists, and the gap in regional margins remains a challenge to expanding the company-wide margin.

Key Financial Metrics

【Profitability】Operating margin improved to 7.2% from 6.2% in the previous year, and the gross margin improved to 17.3% from approximately 16.5% in the previous year. In contrast, the net margin declined to 0.8% from approximately 4.2% in the previous year. This decline resulted from the recording of extraordinary losses and must be evaluated separately from the improvement in core-business profitability.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥8.41B, substantially exceeding Net Income attributable to owners of the parent of ¥0.76B. However, this also resulted from the temporary compression of net income due to extraordinary losses and should not be directly extrapolated as the conversion capacity of a normal year.【Investment Efficiency】ROE was 2.3%, and the Equity Ratio was 40.1% (equivalent to 42.3% in the previous year), indicating that the company is in an investment phase in which capital expenditures exceed depreciation and amortization.【Financial Soundness】Long-term borrowings increased 33.7% YoY to ¥16.48B. While interest-bearing debt requires monitoring as a burden within the capital structure, Cash and deposits of ¥14.96B provide a certain buffer against Current liabilities of ¥31.11B.

Cash Flow Analysis

Operating Cash Flow was ¥8.41B, nearly flat at -1.8% YoY. After capital expenditures of ¥6.25B, the company secured Free Cash Flow of ¥1.93B, indicating that growth investments are being funded to a certain extent with internal funds. Investing Cash Flow represented an outflow of ¥6.48B, most of which consisted of capital expenditures focused on North America. Financing Cash Flow was an inflow of ¥0.24B, as funding through long-term borrowings exceeded repayments of short-term borrowings and dividend payments. In terms of working capital, trade receivables increased by ¥1.11B and inventories increased by ¥0.24B, while trade payables decreased by ¥0.64B, indicating that the buildup of working capital associated with higher revenue is partially tying up cash. Capital expenditures were approximately 1.45 times depreciation and amortization of ¥4.32B, indicating an investment phase involving the expansion and renewal of production capacity.

Earnings Quality

Ordinary Income of ¥6.35B increased 22.3% YoY and remained at a solid level reflecting the underlying strength of the core business. However, Profit Before Tax was compressed to ¥2.61B due to the recording of ¥3.77B in extraordinary losses, resulting in a significant divergence between Ordinary Income and Net Income. The extraordinary losses included losses on the disposal of fixed assets and other items, although the full details are limited based on the disclosed information. Achieving the Full-Year Net Income forecast of ¥4.50B, which assumes the nonrecurrence of these extraordinary losses, depends on avoiding a recurrence of exceptional factors. In non-operating income and expenses, interest expense of ¥0.53B was the primary non-operating expense and weighed on earnings as a recurring financial cost. The fact that OCF substantially exceeded net income indicates strong cash-generation capacity; however, this also resulted from the temporary decline in net income caused by extraordinary losses and should not be interpreted simply as a permanent improvement in earnings quality.

Earnings Forecast and Guidance

Progress toward the Full-Year forecast was high for Revenue at 93.3%, Operating Income at 89.8%, and Ordinary Income at 89.5%, while progress for Net Income was limited to 16.8%. The company forecasts Revenue of ¥105.00B (+7.2%), Operating Income of ¥7.90B (+11.4%), Ordinary Income of ¥7.10B (+11.8%), and Net Income of ¥4.50B (+493.6%), incorporating the continuation of the growth trend at the operating level and a sharp recovery in net income based on the nonrecurrence of the extraordinary losses recorded in the current period. The forecast operating margin is 7.5%, implying gradual improvement from the current-period result of 7.2%. Whether the Net Income forecast can be achieved will depend primarily on whether extraordinary losses recur.

Shareholder Returns

The annual dividend is ¥28 per share (¥14 interim and ¥14 year-end), with total dividends of ¥0.85B. The Payout Ratio based on current-period Net Income attributable to owners of the parent of ¥0.76B is approximately 112.6%, meaning that dividends were not covered by current-period earnings alone. However, this was primarily due to the temporary compression of net income caused by extraordinary losses, and Free Cash Flow of ¥1.93B exceeded total dividends. No share buybacks were confirmed, so this should be evaluated based on the Payout Ratio rather than the Total Return Ratio. The company plans to increase the annual dividend to ¥32 per share, implying a Payout Ratio of approximately 21.7% against forecast EPS of ¥147.61.

Risk Factors

1. Risk related to the nonrecurrence of extraordinary losses: The recording of ¥3.77B in extraordinary losses during the current period compressed Net Income attributable to owners of the parent to ¥0.76B. The Full-Year Net Income forecast of ¥4.50B assumes that these losses will not recur, making it important to confirm their nature and the possibility of recurrence.

2. Working capital efficiency: Trade receivables were ¥18.32B, up 16.4% YoY, while inventories were ¥2.47B, up 39.3% YoY. Both increased at a faster pace than the 7.6% growth in Revenue. Work-in-process inventory accounted for approximately 42.3% of inventories, indicating a risk that funds may be tied up due to stagnation in the production process or fluctuations in project progress.

3. Regional profitability gap and financial leverage: Europe recorded a 3.3% decline in Operating Income despite higher revenue, and its margin of 3.8% was the lowest among the four regions. In addition, long-term borrowings increased 33.7% YoY to ¥16.48B, while the Equity Ratio declined to 40.1%. The trend in financial leverage associated with continued overseas capital expenditures therefore requires close monitoring.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The operating margin was broadly in line with the industry median, while the net margin was substantially below the industry median due to the impact of extraordinary losses.

Growth and Capital Efficiency

The Revenue growth rate exceeded the industry median and was positioned in the upper range.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The operating margin improved by 100bp to 7.2%, confirming operating leverage driven by the increase in gross margin and decline in the SG&A ratio. The improvement in core-business profitability must be distinguished from the temporary decline in net income caused by extraordinary losses.

2. North America achieved both growth and improved profitability, with Revenue up +16.4% and Operating Income up +85.7%. In contrast, Europe recorded higher revenue but lower profit, while Asia remained at a low margin. The gap in regional margins is observed as a structural challenge to company-wide profitability.

3. Trade receivables and inventories are increasing faster than Revenue, making trends in working capital efficiency and financial leverage associated with the increase in long-term borrowings key points for assessing the company’s future earnings and financial structure.

Theoretical Share Price (For Reference)

Sensitivity: ¥1,244–¥1,319 at ±1% for the cost of equity, and ¥1,277–¥1,286 at ±0.1 for ω.

(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 are not forecasts of the market share price or recommendations of any specific investment action and do 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 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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