ZACROS Corporation FY2027 Q1 Earnings Report

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Executive Summary

Revenue increased while profit declined during the quarter. Although operating profitability decreased somewhat, Net Income increased due to the recognition of extraordinary income. Revenue was ¥414.2B (+5.4% YoY), Operating Income was ¥33.6B (-2.9% YoY), and Ordinary Income was ¥34.4B (-4.6% YoY), with core operating profit below the previous year. Consolidated Net Income was ¥27.8B (+2.9% YoY), while Net Income attributable to owners of the parent was ¥25.4B (+3.7% YoY), supported by the recognition of ¥7.3B in extraordinary income. The primary drivers of revenue growth were expansion in Information Electronics and Environmental Solutions, while the main factor behind the decline in Operating Income was the lower gross profit margin.

Factors Affecting Results

【Revenue】Revenue increased 5.4% YoY to ¥414.2B. By segment, on a total basis, Information Electronics was the largest at ¥156.1B (36.5% composition ratio, +11.7%), followed by Environmental Solutions at ¥94.8B (22.2%, +9.8%), with both segments driving revenue growth. Industrial Infrastructure was ¥109.9B (25.7%, +0.8%), essentially flat, while Wellness was ¥66.6B (15.6%, -9.4%) and was the only segment to report a revenue decline.

【Profit and Loss】Operating Income was ¥33.6B (-2.9% YoY), and the Operating Income margin declined to 8.1% from 8.8% in the previous year, a decrease of 0.7pt. The gross profit margin declined to 23.8% from 24.7%, a decrease of 0.9pt, and was the primary cause of the deterioration in profitability. Meanwhile, the SG&A ratio improved by 0.2pt to 15.7% from 15.9%, but this was insufficient to offset the deterioration in the gross profit margin. Non-operating income and expenses amounted to a net gain of ¥0.8B due to the recognition of interest income and foreign exchange gains, reversing the foreign exchange loss recognized in the previous year. However, Ordinary Income of ¥34.4B (-4.6% YoY) was insufficient to offset the decline in core operating profit. As a result of recognizing ¥7.3B in extraordinary income, compared with no such item recorded in the previous year, Profit Before Tax was ¥41.5B (+16.8% YoY), Consolidated Net Income was ¥27.8B (+2.9% YoY), and Net Income attributable to owners of the parent was ¥25.4B (+3.7% YoY), securing an increase in final profit. The results represent higher revenue but lower profit at the Operating Income and Ordinary Income levels, with final profit increasing due to extraordinary factors.

Segment Analysis

By segment, Information Electronics recorded Operating Income of ¥14.5B (9.3% margin, +8.0%) and remained the core contributor to company-wide profit. Industrial Infrastructure ranked second at ¥11.4B (10.3% margin, -14.8%) but reported lower profit. Environmental Solutions achieved a substantial increase in profit to ¥8.8B (9.3% margin, +90.7%), while Wellness posted a loss of ¥1.1B (-1.7% margin), falling into the red from profit of ¥3.2B in the previous year. Environmental Solutions delivered profit growth exceeding its revenue growth (+9.8%), indicating progress in improving profitability. In contrast, Industrial Infrastructure reported a double-digit decline in profit despite nearly flat revenue (+0.8%), with its profit margin declining from 12.2% in the previous year to 10.3%, highlighting challenges in absorbing costs. Wellness fell below its break-even point in addition to reporting lower revenue (-9.4%), resulting in a widening gap in profitability among the segments.

Key Financial Indicators

【Profitability】The Operating Income margin was 8.1%, down 0.7pt from 8.8% in the previous year, while the Net Income margin, based on Net Income attributable to owners of the parent, was 6.1%, essentially flat from 6.2% in the previous year. ROE was 2.6% for the quarter, not annualized. 【Cash Quality】Comprehensive Income was ¥30.8B, ¥3.0B above Consolidated Net Income of ¥27.8B. Foreign currency translation adjustments of +¥1.3B and valuation difference on available-for-sale securities of +¥1.8B were the primary causes of the difference. 【Investment Efficiency】Total asset turnover was 0.259x, nearly unchanged from 0.251x in the previous year, while total assets increased by ¥30.0B YoY to ¥1,597.9B. 【Financial Soundness】The Equity Ratio was 60.2%, nearly unchanged from 60.5% in the previous year, maintaining a high level. The Current Ratio was 211.6% and the Quick Ratio was 189.2%, indicating ample short-term payment capacity. Interest-bearing debt was ¥104.8B, compared with cash and deposits of ¥163.8B, placing the company in a net cash position.

Cash Flow Analysis

Cash and deposits increased by ¥15.4B (+10.4%) YoY to ¥163.8B, indicating an increase in available liquidity. Trade receivables were ¥364.8B, an increase of ¥10.8B, reflecting an expansion in working capital accompanying revenue growth. Meanwhile, inventories were ¥88.8B, down ¥6.5B from ¥95.4B in the previous year, indicating progress in inventory reduction. Trade payables were ¥199.3B, up ¥6.5B from ¥192.7B in the previous year, also contributing to the stability of funding through payment terms. Construction in progress was ¥142.6B, down ¥33.0B from ¥175.6B in the previous year, suggesting that some capital investments may have reached the completion and transfer-to-property, plant and equipment stage. Interest-bearing debt was nearly flat, comprising short-term debt of ¥32.6B and long-term debt of ¥72.2B, with limited activity in additional financing.

Earnings Quality

Against Operating Income of ¥33.6B, which indicates recurring earning power, extraordinary income of ¥7.3B, versus extraordinary losses of ¥0.1B, increased Profit Before Tax. Extraordinary income represented 17.5% of Profit Before Tax. The divergence between the 4.6% YoY decline in Ordinary Income and the 2.9% YoY increase in Consolidated Net Income was primarily attributable to the recognition of this extraordinary income and the reversal of the foreign exchange loss recorded in the previous year. Non-operating income comprised interest income of ¥0.4B, foreign exchange gains of ¥0.3B, and other items, indicating limited dependence on recurring financial income. Comprehensive Income of ¥30.8B exceeded Consolidated Net Income of ¥27.8B by ¥3.0B, with increases in foreign currency translation adjustments and valuation difference on securities contributing to the difference, indicating favorable unrealized gains and losses.

Earnings Forecast and Guidance

Progress against the full-year plan was 23.5% for Revenue (¥414.2B/¥1,760.0B), 30.0% for Operating Income (¥33.6B/¥112.0B), 29.9% for Ordinary Income (¥34.4B/¥115.0B), and 39.1% for Net Income attributable to owners of the parent (¥25.4B/¥65.0B). Revenue progress was slightly below the simple progress benchmark of 25%, while Operating Income and Net Income exceeded the benchmark. In particular, the high progress rate for Net Income was supported by the recognition of extraordinary income. The full-year Ordinary Income plan anticipates a 6.5% YoY decline, indicating that the company has incorporated stagnant growth in core operating profit into its outlook. During Q1, there were no revisions to either the earnings forecast or the dividend forecast.

Shareholder Returns

The full-year dividend forecast is ¥36.00, resulting in a Payout Ratio of approximately 39.7% against the full-year EPS forecast of ¥90.79. However, the company conducted a 4-for-1 stock split of its common shares effective October 1, 2025. The notes state that the annual dividend total is not presented because dividend amounts before and after the stock split cannot simply be aggregated. Caution is therefore required when making a simple comparison with the actual dividend paid in the previous fiscal year.

Risk Factors

1. Deterioration in the profitability of the Wellness Business: In addition to a revenue decline to ¥66.6B (-9.4% YoY), Operating Income and loss was -¥1.1B, compared with profit of +¥3.2B in the previous year.

2. Decline in profit in the Industrial Infrastructure segment: Although Revenue was essentially flat at ¥109.9B (+0.8% YoY), Operating Income declined by double digits to ¥11.4B (-14.8% YoY), and the profit margin declined from 12.2% in the previous year to 10.3%.

3. Risk related to the commissioning of capital investments: Construction in progress was ¥142.6B, equivalent to 20.5% of property, plant and equipment. Although it declined by ¥33.0B from the previous year, it remains at a high level, and progress in commissioning investment projects could affect asset efficiency going forward.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Profitability is slightly below the industry median but remains within the IQR range, with no significant deviation.

Growth and Capital Efficiency

The Revenue growth rate is also slightly below the industry median but remains within the IQR range.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The Operating Income margin declined to 8.1% from 8.8% in the previous year, a decrease of 0.7pt, primarily due to the deterioration in the gross profit margin (-0.9pt). The SG&A ratio improved by 0.2pt, indicating progress in cost efficiency, but the company was unable to fully absorb fluctuations in costs. This will be an important point when assessing future trends in the profit margin.

2. While Ordinary Income declined by 4.6%, Consolidated Net Income increased by 2.9%, primarily due to the recognition of ¥7.3B in extraordinary income. Extraordinary income represented 17.5% of Profit Before Tax, making it important to distinguish this factor from core earnings trends when assessing the sustainability of the increase in final profit.

3. By segment, Environmental Solutions reported a substantial 90.7% increase in Operating Income, while Information Electronics also increased profit by 8.0%, driving company-wide profit. In contrast, Wellness fell into the red and Industrial Infrastructure reported a 14.8% decline in profit, resulting in a widening gap in profitability among the segments.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly available data using a residual income model (Ohlson type, explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,222–¥1,293 at ±1% for the cost of equity, and ¥1,254–¥1,258 at ±0.1 for ω.

Notes:

• Because Net Income progress against the full-year forecast (39%) exceeds the standard benchmark (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies ahead of schedule in their progress tend to outperform their 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 at the end of the quarter are used, resulting in a timing gap relative to the full-year forecast.

(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 issue. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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