KOYOSHA (7946) FY2026 Q3 Earnings Report

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Executive Summary

Although cumulative Q3 FY2026 results appear to show increases in revenue and profit, Ordinary Income and Net Income declined, leaving concerns regarding the quality of the revenue and operating profit growth. Revenue increased 3.2% year on year to ¥35.7B, while Operating Income rose 16.0% to ¥0.5B, indicating an improvement in the core business. However, Ordinary Income was ¥0.8B, down 2.1% year on year, and Net Income was ¥0.5B, down 2.6%. Although the Operating Margin improved to 1.4%, its absolute level remains low, while the heavy tax burden is putting downward pressure on Net Income.

Factors Affecting Performance

【Revenue】Revenue was ¥35.7B, an increase of +3.2% year on year. Although the Company operates a single printing-related business and does not disclose a segment breakdown, the progress rate against the full-year forecast was 75.2%, which is a standard level.

【Profitability】Operating Income increased 16.0% year on year to ¥0.5B, and the Operating Margin improved to 1.4%. Meanwhile, Ordinary Income declined 2.1% year on year despite including ¥0.3B in non-operating income, equivalent to approximately 67% of Operating Income. Net Income also declined 2.6% year on year due to the high tax burden, with an effective tax rate of 42.3%. The improvement in Operating Income was offset at the Ordinary Income and Net Income levels, resulting in variability in the quality of the revenue and profit growth. Extraordinary gains and losses were minimal and had no material impact. In summary, the Company recorded higher revenue and Operating Income, but Ordinary Income and Net Income declined.

Key Financial Indicators

【Profitability】The Operating Margin of 1.4% and Net Profit Margin of 1.3% are trending upward from the previous year, but remain low in absolute terms. ROE was 2.6% and ROIC was 3.0%. Considering the Total Asset Turnover of 1.216x and Financial Leverage of 1.62x, the primary cause of the low ROE is the low profit margin.【Cash Flow Quality】Although Operating Cash Flow has not been disclosed, work-in-process inventories of ¥0.6B account for approximately 59% of total inventories, making it necessary to confirm whether there is stagnation in the production process or delays in inspection and acceptance. Accounts receivable of ¥7.7B and electronically recorded monetary claims of ¥1.2B are the principal components of working capital.【Capital Efficiency】The Total Asset Turnover of 1.216x indicates a certain level of revenue-generating capacity, but returns on invested capital remain limited.【Financial Soundness】The Equity Ratio of 61.6% and Current Ratio of 381.0% indicate a stable financial foundation, while cash and deposits of ¥8.0B exceed current liabilities of ¥5.1B. With a Debt-to-Equity Ratio of 0.62x, Financial Leverage remains conservative.

Cash Flow Analysis

As data from the cash flow statement, including Operating Cash Flow, has not been disclosed, an analysis of fund movements based on changes in the balance sheet shows that cash and deposits decreased from ¥10.1B in the same period of the previous year to ¥8.0B. Current assets of ¥19.3B substantially exceed current liabilities of ¥5.1B, indicating ample short-term liquidity. Accounts receivable of ¥7.7B and electronically recorded monetary claims of ¥1.2B account for major portions of working capital, and their collection status will influence the Company’s cash-generation capacity. Work-in-process inventories of ¥0.6B account for approximately 59% of total inventories, suggesting a temporary tying-up of funds in the production process.

Quality of Earnings

Non-operating income of ¥0.3B was equivalent to approximately 67% of Operating Income of ¥0.5B, indicating a high degree of dependence on non-operating items in generating Ordinary Income of ¥0.8B. Extraordinary gains and losses were negligible, and their impact on the recurring earnings structure was limited. Regarding the tax burden, income taxes and other taxes of ¥0.3B were recorded against Profit Before Tax of ¥0.8B, resulting in a high effective tax rate of 42.3% and reducing the efficiency of conversion from pre-tax profit to Net Income. Net Income of ¥0.5B and Comprehensive Income of ¥0.5B were substantially identical, with only a negligible difference attributable to other comprehensive income items such as valuation differences on securities.

Earnings Forecast and Guidance

The full-year forecast is Revenue of ¥47.5B (+0.5% year on year), Operating Income of ¥0.7B (+15.7%), and Ordinary Income of ¥1.0B (-3.8%). The cumulative Q3 progress rates were 75.2% for Revenue, 72.9% for Operating Income, 82.0% for Ordinary Income, and 72.3% for Net Income, generally tracking the standard progress line of 75%. Only the progress rate for Ordinary Income exceeded the standard level by 7.0 points; however, this was attributable to dependence on non-operating income, making improvement in core business profitability the key focus going forward.

Shareholder Returns

The full-year dividend forecast is ¥36 per share, and the Q2 dividend was ¥0, suggesting a policy of paying a single year-end dividend. Based on the full-year forecast EPS of ¥122.28, the Payout Ratio is approximately 29.4%, a conservative level. No information regarding share buybacks has been disclosed, so the evaluation is based only on the Payout Ratio rather than the Total Return Ratio. Cash and deposits of ¥8.0B exceed current liabilities, and financial constraints on executing the dividend appear limited.

Risk Factors

1. Low core business profitability: The Operating Margin of 1.4% and ROIC of 3.0% are both low. If the Company is unable to fully pass on increases in costs such as raw materials and labor, profit could decline sharply.

2. Elevated work-in-process inventories: Work-in-process inventories account for approximately 59.3% of total inventories, embedding risks of stagnation in the production process, delays in inspection and acceptance, and deterioration in project profitability.

3. High effective tax rate and dependence on a single business: If the effective tax rate of 42.3% continues, increases in pre-tax profit will be less likely to flow through to Net Income. In addition, because the Company operates a single printing-related business, fluctuations in demand are likely to have a direct impact on overall performance.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Margin and Net Profit Margin are substantially below the industry median, placing profitability at the lower end of the industry.

Growth and Capital Efficiency

The Revenue Growth Rate is approximately in line with the industry median, placing the Company at a standard level in terms of growth.

※Source: Company analysis

Key Points from the Earnings Results

1. The increase in revenue and 16.0% growth in Operating Income are positive developments. However, the Operating Margin of 1.4% is substantially below the industry median of 8.6%, and the absolute level of profitability improvement remains low.

2. The persistently high work-in-process inventory ratio of 59.3% is a key point requiring assessment of whether stagnation in the production process or delays in inspection and acceptance are temporary or structural factors.

3. Progress toward the full-year forecast is generally on plan, at approximately 75%, and the Payout Ratio is conservative at approximately 29.4%. Accordingly, the trend in profit and cash-generation capacity toward execution of the year-end dividend will be a key focus.

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This report is an earnings analysis document automatically generated by AI through analysis of 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 available earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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AI Financial Analysis

Executive Summary

FY2026 Q3 earnings show modest top-line growth and improved operating profit, but below-the-line profit remains weak because non-operating income declined and the tax burden stayed elevated. Cumulative revenue for the first nine months rose 3.2% year on year to ¥3.574bn. Operating income increased 16.0% to ¥51m, exceeding the pace of sales growth and indicating limited positive operating leverage. Gross profit rose to ¥774m from ¥761m in the prior-year period. The gross margin nevertheless declined by 29bp year on year to 21.7%, indicating that cost of sales rose slightly faster than revenue. SG&A increased only 0.9% to ¥722m, materially slower than revenue growth. Consequently, the SG&A-to-sales ratio improved by 46bp to 20.2%. The operating margin expanded by approximately 16bp to 1.4%, but remains very low for a manufacturing business and leaves limited capacity to absorb cost or demand volatility. Ordinary income declined 2.1% to ¥82m despite higher operating income. This reflected a ¥7m decline in non-operating income, primarily within other non-operating income, while net interest expense was broadly limited. Net income fell 2.6% to ¥47m, and the net margin was only 1.3%. The effective tax rate was 42.3%, reducing the tax burden factor to 0.569 and constraining conversion of pre-tax profit into net income. The balance sheet remains liquid, with cash and deposits of ¥802m, a 381.0% current ratio, and a 380.5% quick ratio. Full-year guidance implies a Q4 revenue contribution of ¥1.176bn and operating income of ¥19m; the nine-month revenue progress rate is 75.2%, broadly in line with the standard 75% seasonal benchmark, while operating-income progress of 72.9% implies a modest fourth-quarter profit acceleration is required. The full-year ordinary-income progress rate is 82.0%, meaning the company has already accumulated most of its planned ordinary income despite the year-on-year decline. Management’s FY2026 forecast calls for 0.5% revenue growth and 15.7% operating-income growth, so sustained SG&A discipline and protection of gross margin are central to delivery. The group operates a single business, manufacturing and selling photoengraving products and related printing products, making results directly exposed to demand conditions in the printing-related market.

Profitability Analysis

The reported annualized ROE is 3.5%, derived from a 1.3% net profit margin, 1.621x annualized asset turnover, and 1.62x financial leverage. The principal constraint is profitability rather than asset utilization or leverage: the net margin is below the 3% caution benchmark, while asset turnover is comparatively sound. Financial leverage is moderate and is not being used aggressively to lift shareholder returns. Operating improvement came from cost discipline below gross profit rather than an improvement in gross margin. Gross margin compressed from approximately 22.0% to 21.7%, a 29bp deterioration, whereas the SG&A ratio improved from approximately 20.7% to 20.2%, a 46bp reduction. This produced an operating-margin expansion of about 16bp, from 1.3% to 1.4%, and operating income growth of 16.0%. SG&A growth of 0.9% was below revenue growth of 3.2%, which is a constructive sign of operating leverage. However, a 1.4% EBIT margin remains a material concern because minor changes in pricing, input costs, utilization, or fixed costs can erase operating profit. The quality alert for low operating efficiency is therefore warranted: the company needs a more durable gross-margin recovery, not only expense restraint, to improve returns. The quality alert for capital efficiency is also warranted, as reported ROIC of 3.0% is below 5%; returns generated from the operating asset base remain modest. The five-factor DuPont analysis shows an interest burden of 1.618, reflecting non-operating income exceeding net interest costs rather than debt-service stress. The tax burden of 0.569 is the most adverse below-the-line factor, as the 42.3% effective tax rate reduced net-income conversion. The ¥0.2m gain on sale of investment securities was immaterial relative to ¥47m net income, so reported profit was not meaningfully supported by extraordinary gains.

Growth Assessment

Revenue growth of 3.2% to ¥3.574bn indicates a modest recovery in the core printing-related business. The full-year revenue forecast is ¥4.750bn, up 0.5% year on year, indicating that management does not assume a significant demand acceleration in Q4. Nine-month revenue represents 75.2% of the annual target, essentially aligned with the 75% standard progress rate. Operating income of ¥51m represents 72.9% of the ¥70m full-year target, 2.1 percentage points below the standard progress rate. Accordingly, Q4 requires ¥19m of operating income, compared with an average quarterly run-rate of ¥17m during the first nine months. Ordinary income has reached 82.0% of the ¥100m annual target, above the standard pace, although this is aided by non-operating income and the annual forecast itself anticipates a 3.8% year-on-year decline. Net income attributable to owners is expected to reach ¥65m, and Q3 progress is approximately 72.3%, requiring ¥18m in Q4. The operating-profit forecast growth rate of 15.7% is consistent with continued SG&A control, but its achievement is sensitive to the narrow operating margin. Manufacturing inventory composition requires attention: work in process was ¥56m, equivalent to 59.3% of the disclosed manufacturing inventory pool. This exceeds the 40% warning threshold and supports the quality alert for a high WIP ratio. The root cause may be production flow or order-timing pressure within the printing-product manufacturing process; regardless of cause, a high WIP share can tie up cash, elevate execution risk, and raise the risk of margin pressure if throughput slows. Raw materials were ¥38m and work in process decreased from ¥71m in the prior-year period, which is directionally favorable in absolute terms, but the elevated WIP mix remains an operating metric to monitor. The single-business structure increases dependence on the trajectory of printing-related demand and limits diversification of revenue drivers.

Financial Health

Financial health is strong from a near-term liquidity perspective. Current assets of ¥1.930bn exceeded current liabilities of ¥507m, producing working capital of ¥1.424bn. The 381.0% current ratio and 380.5% quick ratio are substantially above healthy thresholds, with liquidity supported by ¥802m of cash and deposits and ¥768m of trade receivables. There is no current-ratio warning, as the ratio is well above 1.0x. Reported debt-to-equity is 0.62x, below the 1.0x conservative benchmark and well below the 2.0x level that would signal aggressive leverage. Debt-to-capital is 13.8%, also comfortably below the 40% investment-grade benchmark. Long-term loans were ¥290m, while the current portion of long-term loans was ¥78m; cash alone more than covers the current contractual debt portion. Interest coverage of 22.68x indicates ample ability to service interest costs from operating profit. Total liabilities declined to ¥1.128bn from ¥1.393bn in the prior-year period, while equity increased to ¥1.811bn from ¥1.788bn. The equity ratio improved to 61.6% from 56.2%, strengthening loss-absorption capacity. Accounts payable declined 36.3% year on year to ¥270m from ¥423m. This reduction lowers short-term supplier financing and should be monitored alongside cash usage, although the very high quick ratio means it does not presently create a maturity mismatch. Merchandise inventory increased from ¥1m to ¥3m, but remains immaterial to total assets. Net defined benefit liability was ¥332m, equal to roughly 18% of equity, representing a meaningful long-dated obligation within non-current liabilities. Property, plant and equipment of ¥811m accounted for 27.6% of total assets, appropriate for a manufacturing operation but requiring adequate operating returns and ongoing maintenance investment. Treasury stock was ¥416m, or 14.2% of total assets, and contributes to the gap between reported equity and the company’s issued-share count.

Notable B/S Changes

Accounts payable: -¥153m (-36.3%) to ¥270m — reduced supplier financing; monitor whether this continues to consume operating cash, although immediate liquidity remains ample. Current liabilities: -¥218m (-30.0%) to ¥507m — contributed to the increase in working capital and the 381.0% current ratio. Cash and deposits: -¥204m (-20.3%) to ¥802m — cash remains substantial, but the decline should be monitored in conjunction with lower payables and working-capital movements. Property, plant and equipment: -¥70m (-7.9%) to ¥811m — the lower fixed-asset base increases the importance of monitoring replacement investment and returns on manufacturing assets. Net defined benefit liability: +¥11m (+3.5%) to ¥332m — a material long-term obligation equivalent to roughly 18% of equity.

Cash Flow Quality

Dividend Sustainability

The company paid no interim dividend at Q2 and forecasts a full-year DPS of ¥36. Based on forecast EPS of ¥122.28, the prospective dividend payout ratio is approximately 29.4%, below the 60% sustainability benchmark. Using issued shares less treasury shares of approximately 527,668 shares, the indicated annual cash dividend is approximately ¥19m. This is modest relative to forecast net income attributable to owners of ¥65m and is consistent with retention of earnings for balance-sheet resilience. The low payout leaves flexibility even if earnings fall short of the forecast, although the sustainability of dividends ultimately depends on maintaining positive operating profit given the narrow 1.4% operating margin. Treasury shares amount to 322,432 shares, but no current-period repurchase amount is provided; total return ratio cannot therefore be assessed. The dividend outlook is supported by the company’s strong liquidity and low debt-to-capital ratio.

Risk Assessment

Business risks include Printing-related demand risk: the group has a single business focused on photoengraving and related printing products, concentrating exposure to structural and cyclical changes in the printing market., Margin risk: gross margin declined 29bp year on year to 21.7%, and the 1.4% operating margin leaves earnings highly sensitive to pricing, materials, energy, labor, and factory-utilization changes., Production-flow risk: work in process represented 59.3% of the disclosed manufacturing inventory pool, above the 40% warning threshold. This may indicate a production bottleneck or slower conversion through the manufacturing process; it can increase working-capital needs and create margin risk if inventory conversion is delayed., Fixed-asset return risk: PPE of ¥811m represents 27.6% of assets while reported ROIC is only 3.0%, so inadequate utilization or insufficient pricing could depress returns on the manufacturing asset base..

Financial risks include Tax-conversion risk: the 42.3% effective tax rate resulted in a 0.569 tax burden factor, below the 0.60 warning level, materially reducing conversion of pre-tax income to net income., Pension-obligation risk: net defined benefit liability of ¥332m is a meaningful long-term liability relative to ¥1.811bn of equity., Supplier-credit normalization risk: trade payables declined 36.3% year on year to ¥270m, reducing a source of operating funding; liquidity remains strong, but further reductions would increase cash funding needs..

Key concerns include Highest priority: structurally low operating efficiency, reflected in a 1.4% EBIT margin and 3.0% ROIC. The impact is high because a small adverse cost or volume movement could materially affect profit., High priority: elevated WIP mix. The likelihood of operational friction is increased by the 59.3% WIP ratio, and the impact includes delayed conversion, working-capital pressure, and potential write-down risk., Moderate priority: Q4 delivery. Operating-income progress is 72.9% versus a standard 75%, requiring ¥19m in Q4 to meet the ¥70m full-year target., Moderate priority: below-the-line volatility. Ordinary income fell despite operating-income growth because non-operating income declined, underscoring limited buffer from the small operating-profit base..

Investment Implications

Key takeaways include Revenue rose 3.2% and operating income rose 16.0%, driven by SG&A discipline rather than gross-margin improvement., Operating-margin expansion to 1.4% is positive but insufficient to resolve the low-return profile, with annualized ROE at 3.5% and reported ROIC at 3.0%., Liquidity and solvency are robust: current ratio is 381.0%, interest coverage is 22.68x, and debt-to-capital is 13.8%., The forecast dividend of ¥36 implies a moderate 29.4% payout ratio based on forecast EPS, supporting capital retention., The high 59.3% WIP ratio is the principal operating balance-sheet metric requiring close attention..

Metrics to watch include Gross margin and operating margin, especially whether gross margin recovers from 21.7% while SG&A discipline is maintained., Q4 operating income versus the ¥19m implied requirement to achieve full-year guidance., Work-in-process mix and its conversion into sales and cash., Effective tax rate and tax burden factor, given the current 42.3% tax rate., ROIC and annualized ROE progression from the current 3.0% and 3.5% levels., Trade payable and cash movements following the 36.3% year-on-year decline in accounts payable..

Regarding relative positioning, The company is financially conservative relative to common liquidity and leverage benchmarks, but its profitability profile is weak relative to manufacturing return thresholds. Its investment profile is therefore defined by balance-sheet resilience and modest dividend commitments on one hand, versus low operating margin, low capital efficiency, concentrated end-market exposure, and elevated work-in-process mix on the other.