Cleanup Corporation FY2027 Q1 Earnings Report

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Executive Summary

The Company achieved higher revenue and earnings in Q1, with a particularly significant improvement in the operating margin. Revenue increased to ¥34.49B (¥32.10B in the previous year same period, YoY+7.4%), operating income to ¥1.07B (¥0.58B, YoY+85.2%), ordinary income to ¥1.26B (¥0.79B, YoY+59.7%), and net income attributable to shareholders of the parent to ¥0.75B (¥0.46B, YoY+64.6%). The operating margin improved to 3.1% from 1.8% in the previous year same period, a +1.3pt improvement, primarily because the improvement in the gross margin resulting from a lower cost-of-sales ratio exceeded the increase in selling, general and administrative expenses. Meanwhile, operating cash flow shifted from +¥0.65B in the previous year same period to -¥0.13B, indicating a divergence between earnings improvement and cash-generation capacity.

Factors Affecting Business Performance

【Revenue】Revenue was ¥34.49B, representing YoY+7.4% growth. As the Company has a single-segment structure centered on housing and equipment-related businesses for stores and business establishments, it does not disclose business-specific drivers of changes. However, progress against the full-year plan was 24.3%, broadly in line with the Q1 benchmark of 25%, indicating performance in line with initial expectations.

【Profit and Loss】The cost-of-sales ratio declined to 66.8% from 67.6% in the previous year same period, while the gross margin improved to 33.2% (32.4% in the previous year, +0.8pt). SG&A expenses increased to ¥10.38B (YoY+5.8%), but the SG&A ratio declined to 30.1% from 30.6% in the previous year. As the improvement in the gross margin absorbed the increase in SG&A expenses, the operating margin rose to 3.1% (1.8% in the previous year, +1.3pt). In non-operating items, non-operating income of ¥0.24B, including dividend income of ¥0.11B, exceeded non-operating expenses of ¥0.05B, resulting in ordinary income of ¥1.26B (YoY+59.7%). Extraordinary losses were minimal at ¥0.02B, and the impact of temporary factors was limited. The effective tax rate declined to 39.0% from 41.2% in the previous year, contributing to net income of ¥0.75B (YoY+64.6%). Overall, the quarter can be characterized as one of higher revenue and earnings.

Key Financial Metrics

【Profitability】The operating margin improved to 3.1% (1.8% in the previous year same period, +1.3pt), while the net profit margin improved to 2.2% (1.4% in the previous year same period, +0.8pt). ROE was 1.2%, remaining at a level calculated by dividing net income of ¥0.75B by average equity of approximately ¥60.4B. 【Cash Flow Quality】Operating cash flow was -¥0.13B, representing a significant divergence from net income of ¥0.75B. The OCF-to-net-income multiple was negative, indicating weak cash-generation capacity relative to earnings during the quarter. 【Investment Efficiency】Capital expenditures were ¥0.27B, and the ratio to depreciation and amortization of ¥1.07B was only 0.25x, indicating that replacement investment remained restrained. 【Financial Soundness】The equity ratio was 64.4% (64.7% in the previous year same period), remaining nearly flat and at a high level, while the current ratio was 231.2%, indicating ample liquidity. Short-term borrowings increased to ¥4.04B, up +40.6% year on year, indicating a shift toward shorter maturities in the interest-bearing debt structure.

Cash Flow Analysis

Operating cash flow was -¥0.13B, a significant deterioration from +¥0.65B in the previous year same period. The primary factors were increases in trade receivables (+¥0.77B negative contribution) and inventories (+¥0.61B negative contribution), as well as a reversal in working capital associated with the decline in the provision for bonuses. In addition, corporate income taxes paid increased to ¥0.88B from ¥0.41B in the previous year, also exerting downward pressure. Investing cash flow was -¥0.75B, primarily reflecting ¥0.27B in acquisitions of property, plant and equipment and ¥0.47B in acquisitions of intangible assets. Financing cash flow was -¥0.09B, as a ¥1.50B increase in short-term borrowings partially offset ¥0.80B in repayments of long-term borrowings and ¥0.71B in dividend payments. Free cash flow, defined as the sum of operating cash flow and investing cash flow, was -¥0.87B. Cash and cash equivalents decreased by ¥0.92B during the period to ¥18.46B at the end of the period. In contrast to the earnings improvement, the quarter was characterized by an accumulation of working capital that pressured cash generation.

Earnings Quality

Profit during Q1 was primarily generated by recurring business activities. Extraordinary losses were ¥0.02B, equivalent to only around 2% of net income, and the impact of temporary factors was immaterial. Dividend income accounted for ¥0.11B of non-operating income of ¥0.24B, supporting ordinary income as a stable source of earnings. The effective tax rate declined to 39.0% from 41.2% in the previous year same period, causing the net income growth rate (+64.6%) to slightly exceed the pretax income growth rate (+58.7%). On the other hand, operating cash flow of -¥0.13B was significantly below net income of ¥0.75B, as the accumulation of working capital through increases in trade receivables and inventories delayed the conversion of earnings into cash. Comprehensive income was ¥0.61B, slightly below net income of ¥0.75B, primarily due to a -¥0.18B change in the valuation difference on securities; this does not undermine the quality of the underlying business earnings. Overall, profitability on the income statement improved, but the divergence from cash flow warrants monitoring going forward.

Earnings Forecast and Guidance

The full-year plan calls for revenue of ¥142.0B (YoY+5.6%), operating income of ¥4.90B (YoY+24.1%), and ordinary income of ¥5.35B (YoY+20.1%). There were no revisions to the earnings forecast or dividend forecast as of the quarter. Progress rates were 24.3% for revenue, 21.8% for operating income, 23.5% for ordinary income, and 21.2% for net income (against the net income forecast of ¥3.55B). Revenue was close to the simple progress benchmark of 25% for Q1, while the profit items were slightly behind. The fact that profit progress slightly trailed revenue progress appears attributable to the growth in SG&A expenses and the increased working capital burden. Improvement in profitability and cash conversion during the second half of the year will be key areas for future confirmation.

Shareholder Returns

The full-year dividend forecast is ¥33.00 per share, with no revision to the dividend forecast as of the quarter. The payout ratio calculated against forecast EPS of ¥100.67 is approximately 32.8%. Share repurchases were zero during the period, and shareholder returns remain centered on dividends. Given the financial base of cash and deposits of ¥18.46B and an equity ratio of 64.4%, although operating cash flow was negative during the quarter, the level of on-hand liquidity suggests no significant constraints on securing funds for dividends.

Risk Factors

1. Expansion of working capital and decline in cash conversion: Operating cash flow was -¥0.13B, representing a significant divergence from net income of ¥0.75B. Trade receivables increased +6.1% year on year, while inventories increased +32.5%, suggesting a lengthening of the cash collection cycle.

2. Increased reliance on short-term funding: Short-term borrowings increased to ¥4.04B, up +40.6% year on year, raising the proportion of short-term debt within interest-bearing liabilities. Although liquidity itself is ample, with cash of ¥18.46B, sensitivity to changes in the interest-rate environment requires monitoring.

3. External environmental risks associated with the business characteristics: As the Company is primarily engaged in housing and equipment-related businesses for stores and business establishments, fluctuations in housing demand and raw material costs may affect the cost of sales and gross margin.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the operating margin and net profit margin were below the industry median, placing profitability relatively low within the industry.

Growth and Capital Efficiency

The revenue growth rate was slightly above the industry median, placing the pace of revenue growth at a standard level within the industry.

※Source: Company compilation

Key Points in the Earnings Results

1. The +1.3pt year-on-year improvement in the operating margin was driven by the +0.8pt improvement in the gross margin exceeding the increase in SG&A expenses (+5.8%). Whether cost improvements and changes in the product mix continue will determine future profitability trends.

2. While the income statement showed higher revenue and earnings, operating cash flow shifted to -¥0.13B, widening its divergence from net income. The accumulation of working capital through increases in trade receivables and inventories is the underlying factor and is an important point of focus in assessing earnings quality.

3. Progress against the full-year plan was 24.3% for revenue, compared with approximately 21–24% for the profit items, indicating a slight delay. Improvement in profitability and cash conversion during the second half of the year will be key areas for future monitoring.

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 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: ¥1,498–¥1,585 at ±1% in the cost of equity, and ¥1,535–¥1,545 at ω±0.1.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used; there is a timing difference from 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 through analysis of XBRL earnings summary 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, and you should consult a professional as necessary.

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