Kyodo Printing Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

Although revenue remained broadly flat during the quarter, the Company delivered an earnings growth result marked by significant improvement at the profit level. Revenue was ¥239.5B (+0.3% YoY), essentially in line with the prior year, while Operating Income increased substantially to ¥7.5B (+62.2%), Ordinary Income to ¥11.2B (+43.8%), and Net Income to ¥12.0B (+48.5%). An improvement in the gross margin (22.9%, approximately +2pt YoY) and extraordinary income, including ¥8.4B in gains on the sale of investment securities, drove the increase in earnings.

Factors Affecting Performance

【Revenue】Revenue of ¥239.5B was essentially flat, increasing +0.3% YoY. By segment, the Living and Industrial Materials Business grew to ¥89.6B (+6.7%), while Information Security declined to ¥78.7B (-0.8%) and Information Communication declined to ¥71.1B (-3.8%). Continued growth in the Living and Industrial Materials Business provided overall support.

【Profit and Loss】Operating Income increased substantially to ¥7.5B (+62.2% YoY). Operating Income in the Living and Industrial Materials Business increased to ¥7.3B (+56.7% YoY; margin 8.1%), while Information Security increased to ¥5.7B (+22.3% YoY; margin 7.2%), with the high-margin businesses expanding. Meanwhile, Information Communication continued to record a loss of ¥-4.2B, partially offsetting the Company-wide operating leverage. Ordinary Income was ¥11.2B after adding ¥4.3B in non-operating income, including ¥1.8B in dividends received and ¥1.9B in insurance dividends. Net Income of ¥12.0B benefited from ¥8.4B in extraordinary income, including ¥8.4B in gains on the sale of investment securities. It is important to note that a considerable portion of Net Income was attributable to temporary factors. In conclusion, the Company achieved revenue and earnings growth.

Segment Analysis

The Living and Industrial Materials Business was the Company's largest profit-contributing segment, with revenue of ¥89.6B (+6.7%), Operating Income of ¥7.3B (+56.7%), and a margin of 8.1%. The Information Security Business improved profit despite lower revenue, with revenue of ¥78.7B (-0.8%), Operating Income of ¥5.7B (+22.3%), and a margin of 7.2%. The Information Communication Business continued to operate at a loss, with revenue of ¥71.1B (-3.8%) and Operating Income of ¥-4.2B (margin -5.8%); the loss remained approximately at the prior-year level (¥-4.2B), indicating that structural issues remain. Other Businesses recorded revenue of ¥17.5B (-0.6%) and Operating Income of ¥0.5B (+39.4%). Of the Company's total Operating Income of ¥7.5B, the combined contribution from the Living and Industrial Materials Business and Information Security Business reached ¥13.0B, absorbing the loss in Information Communication and Company-wide expenses (adjustment of ¥-1.7B).

Key Financial Indicators

【Profitability】The Operating Income margin improved to 3.1% from 1.9% in the prior year, while the Net Income margin rose to 5.0% from 3.4%. The gross margin improved to 22.9% YoY, supported by price pass-through and a favorable shift in the segment mix. Meanwhile, the SG&A ratio was 19.8%, broadly in line with the prior year, indicating that the primary driver of operating leverage was improvement on the cost side.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥-5.8B, substantially below Net Income of ¥12.0B. The primary causes were deterioration in working capital, including an increase in inventories (¥-10.9B) and an increase in accounts receivable (¥-3.5B), resulting in a divergence between earnings and cash flow.【Capital Efficiency】ROE was 1.7% (quarterly basis), while total asset turnover was low, indicating room for improvement in asset efficiency.【Financial Soundness】The Equity Ratio was a robust 54.2% (up from 52.7% in the prior year), and liquidity was sound, with current assets of ¥460.3B compared with current liabilities of ¥260.2B.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥-5.8B, creating a significant divergence from Net Income of ¥12.0B. The main causes were deterioration in working capital, including an increase in inventories (¥-10.9B), an increase in trade receivables (¥-3.5B), a decrease in trade payables (¥-2.6B), and a decrease in the provision for bonuses (¥-9.3B), indicating that improved earnings did not translate into cash generation. Investing Cash Flow was a modest ¥-0.2B, resulting in free cash flow of ¥-6.0B. Financing Cash Flow was ¥-22.5B; while the Company raised ¥20.0B through long-term borrowings, repayments of long-term borrowings of ¥30.2B and dividend payments of ¥11.4B were sources of cash outflow. During the quarter, the increase in working capital was the primary source of funding demand, and the recovery of inventories and receivables will determine the Company's future cash-generation capacity.

Earnings Quality

Of Current Period Net Income of ¥12.0B, extraordinary income of ¥8.4B—primarily ¥8.4B in gains on the sale of investment securities—represented a significant component of Profit Before Tax of ¥19.2B and should be evaluated separately from recurring earnings power. Non-operating income of ¥4.3B consisted primarily of dividends received of ¥1.8B and insurance dividends of ¥1.9B, both of which are relatively stable items. Comprehensive Income was ¥55.6B, substantially exceeding Net Income of ¥12.0B; the difference was almost entirely attributable to valuation differences on securities of ¥43.2B, a non-recurring factor subject to market fluctuations. Given that OCF was below Net Income, the increase in earnings during the period included not only improvement in the core business but also contributions from temporary gains on asset sales and valuation gains. When assessing normalized earnings levels from the next period onward, it is therefore advisable to confirm underlying earnings excluding extraordinary gains and losses.

Earnings Forecast and Guidance

Against the full-year plan, Revenue was ¥1010.0B (progress 23.7%), Operating Income was ¥25.0B (progress 30.1%), Ordinary Income was ¥29.5B (progress 38.0%), and Net Income was ¥42.0B (progress 28.6%). Operating Income and Ordinary Income were ahead of the simple quarterly progress benchmark of 25%; the particularly high progress for Ordinary Income was largely attributable to the contribution of extraordinary income of ¥8.4B. Against full-year Operating Income growth of +17.1% and Ordinary Income growth of +8.2%, the current quarter progressed at substantially higher rates of +62.2% and +43.8%, respectively. However, given the temporary nature of extraordinary income, the pace of progress over the remaining 3 quarters may normalize. In light of the revision to the earnings forecast during the current quarter, confirmation of full-year results will be important.

Shareholder Returns

The full-year dividend forecast is ¥80 per share, an increase from the previous fiscal year's actual dividend of ¥38, and no revision to the dividend forecast was made during the current quarter. Based on the full-year Net Income plan of ¥42.0B and the average number of shares outstanding during the period of 27,653 thousand shares, the annual total dividend amount is calculated at approximately ¥22.1B, resulting in a Payout Ratio of approximately 52.7%. Dividend payments during the current quarter were ¥11.4B, exceeding free cash flow of ¥-6.0B for the same quarter, indicating that dividends were supported not by OCF but in part by existing cash and assets held. No share repurchases were confirmed during the current quarter.

Risk Factors

1. Expansion of working capital and weak cash conversion: Inventories increased +25.1% YoY and trade receivables also increased, while OCF of ¥-5.8B was substantially below Net Income of ¥12.0B. If inventory and receivables are not reduced, there is a risk that the decline in cash-generation capacity will continue.

2. Structural weakness in the profitability of the Information Communication Business: The segment continued to record a loss approximately at the prior-year level, with revenue of ¥71.1B (-3.8%), Operating Income of ¥-4.2B (margin -5.8%), and remains a factor weighing on the Company's Operating Income margin of 3.1%.

3. Dependence on extraordinary income and volatility in valuation differences: Extraordinary income of ¥8.4B, consisting of gains on the sale of investment securities, contributed to Net Income of ¥12.0B, while investment securities increased to ¥241.1B (+36.6% YoY). The magnitude of valuation gains and gains on sales may fluctuate depending on market conditions.

Industry Benchmark (Reference; Based on Company Research)

Profitability and Returns

Both the Operating Income margin and Net Income margin were below the industry median, placing the Company's profitability in the lower tier of the industry.

Growth and Capital Efficiency

Revenue growth was substantially below the industry median, indicating that top-line growth was relatively low within the industry.

※Source: Based on Company research

Key Points in the Earnings Results

1. Although the Operating Income margin improved YoY, it remained below the industry median of 8.7%. The Company's position within the industry will depend on the growth of the Living and Industrial Materials Business and Information Security Business and the reduction of losses in the Information Communication Business.

2. The increase in Net Income was significantly supported by extraordinary income of ¥8.4B, consisting of gains on the sale of investment securities. Given that OCF was below Net Income, the current-period earnings level includes the effects of temporary factors and working-capital movements.

3. The financial base is solid, with an Equity Ratio of 54.2% and an implied current ratio of 176.9%. The impact of growth in investment securities and fluctuations in their valuation differences on future Comprehensive Income and equity will be a key point to monitor.

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 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥2,002–¥2,115 at Cost of Equity ±1%; ¥2,043–¥2,067 at ω±0.1.

Notes:

• Normalized EPS calculated from Ordinary Income and other items is used to exclude the impact of temporary gains and losses (the Company's forecast EPS is ¥151.9).
• As forecast ROE is below the Cost of Equity, the theoretical value is below Book Value Per Share.
• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not forecast 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 discretion and responsibility, with consultation with a professional advisor as necessary.

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