PIGEON CORPORATION FY2026 Q2 Earnings Report

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Executive Summary

The quarter saw higher revenue and earnings, accompanied by an expansion in the operating margin, driven by revenue and earnings growth in the China Business and improved profitability in the Japan, Americas, and Europe Businesses. Revenue was ¥589.8B (up +9.8% YoY), Operating Income was ¥78.8B (up +17.9%), Ordinary Income was ¥79.9B (up +16.2%), and Net Income attributable to owners of the parent was ¥52.2B (up +12.9%). While the operating margin expanded to 13.4% (12.4% in the previous year), the effective tax rate rose to 32.2% (30.1% in the previous year), restraining the growth rate of Net Income relative to the growth rates of Ordinary Income and Profit Before Tax (+16.2–16.7%).

Factors Affecting Earnings

【Revenue】Revenue was ¥589.8B, representing a +9.8% YoY increase. By region, the China Business remained the largest contributor and primary growth driver, at ¥240.7B (39.6% of the composition, +13.2%), followed by continued growth in the Japan Business at ¥197.8B (31.6%, +7.1%) and the Americas and Europe Business at ¥122.4B (20.7%, +15.3%), while the Singapore Business at ¥72.9B (8.1%, +1.2%) showed limited growth.

【Profit and Loss】The gross profit margin improved to 51.1% from 50.7% in the previous year, an improvement of +0.4pt, while SG&A expenses were ¥222.3B (up +8.2% YoY), growing at a slower pace than revenue (+9.8%). As a result, the operating margin expanded by +1.0pt to 13.4% (12.4% in the previous year). Extraordinary income was ¥0.2B and extraordinary losses were ¥1.1B, resulting in a net amount of -¥0.9B; the impact of temporary factors was therefore limited. Ordinary Income increased to ¥79.9B (+16.2%), and Profit Before Tax rose to ¥79.0B (+16.7%). However, as the effective tax rate increased to 32.2% (30.1% in the previous year), Net Income attributable to owners of the parent remained at ¥52.2B (+12.9%). Revenue and earnings increased.

Segment Analysis

The China Business maintained the highest profitability across the Company, with segment profit of ¥61.4B (+7.7%) and a margin of 25.5%, accounting for 62.2% of total segment profit before adjustments (¥98.7B) and remaining the largest source of profit. The Japan Business posted profit of ¥17.4B (+57.5%) and a margin of 8.8%, a marked improvement of +2.8pt from 6.0% in the previous year, indicating continued progress in profitability enhancement. The Americas and Europe Business continued to expand its profit surplus, with profit of ¥9.3B (+90.9%) and a margin of 7.6%, up +3.0pt from 4.6% in the previous year, suggesting a recovery in business profitability. The Singapore Business recorded profit of ¥10.6B (-4.9%) and a margin of 14.5%, down slightly by -0.9pt from 15.5% in the previous year. The simultaneous high dependence on China and improving trends in Japan, the Americas, and Europe are key characteristics of the business mix.

Key Financial Indicators

【Profitability】ROE was 6.1%, while both the operating margin of 13.4% (up +1.0pt from 12.4% in the previous year) and the Net Income margin on an attributable-to-owners-of-the-parent basis of 8.9% (up +0.3pt from 8.6% in the previous year) improved.【Cash Flow Quality】Operating Cash Flow was ¥31.5B, only 0.6x Net Income attributable to owners of the parent of ¥52.2B. The primary factor was the buildup of working capital, with trade receivables increasing +26.3% and inventories increasing +4.7%.【Investment Efficiency】Total asset turnover remained stable at approximately 0.5x, while financial leverage (total assets/equity) was low at 1.35x. Accordingly, the improvement in ROE this period was primarily attributable to higher margins.【Financial Soundness】The Equity Ratio was 74.1% (down -1.2pt from 75.3% in the previous year), the current ratio was 399% (current assets of ¥813.1B/current liabilities of ¥203.6B), and cash and deposits were ¥362.7B. The Company maintained a high level of financial soundness despite growth in total assets and net assets.

Cash Flow Analysis

Operating Cash Flow was ¥31.5B, down -20.7% from ¥39.7B in the same period of the previous year. The subtotal before changes in working capital, including depreciation and amortization of ¥23.9B, was a solid ¥53.1B. However, increases in trade receivables (-¥37.5B) and inventories (-¥18.8B) absorbed cash, and even after being offset by an increase in trade payables (+¥10.6B), the amount declined to ¥31.5B following payment of income taxes and other taxes of ¥23.0B. Investing Cash Flow was -¥19.0B, of which capital expenditures accounted for -¥15.5B. Financing Cash Flow was -¥55.4B, with dividend payments (¥45.5B) and the acquisition of treasury shares (-¥3.6B) serving as the primary sources of cash outflow. Free Cash Flow (Operating CF + Investing CF) was only ¥12.4B, below the amount of dividend payments. Consequently, cash and deposits at the end of the period were ¥362.7B, a decrease of ¥33.8B from the beginning of the period. Despite the phase of revenue and earnings growth, the buildup of working capital constrained cash generation. Trends in the turnover efficiency of trade receivables and inventories will be key to future improvements in cash flow.

Quality of Earnings

Operating Income of ¥78.8B represents recurring profit supported by improvements in the gross profit margin and SG&A efficiency. Extraordinary income of ¥0.2B and extraordinary losses of ¥1.1B resulted in a net amount of -¥0.9B, indicating a limited impact and high earnings quality because the majority of profit was derived from operating activities. On the other hand, while Ordinary Income increased +16.2% and Profit Before Tax increased +16.7%, the effective tax rate rose to 32.2% from 30.1% in the previous year. Consequently, growth in Net Income attributable to owners of the parent was limited to +12.9%, with changes in the tax burden absorbing part of earnings growth. Comprehensive Income was ¥74.8B, and the difference of +¥21.3B from consolidated Net Income of ¥53.5B was primarily attributable to foreign currency translation adjustments (+¥21.3B, reflecting an increase in the yen-converted value of overseas assets due to yen depreciation). Foreign exchange valuation factors, distinct from operating profit and loss, therefore boosted Comprehensive Income. Operating Cash Flow (¥31.5B) was below Net Income attributable to owners of the parent (¥52.2B), indicating accruals—the divergence between accounting profit and cash—resulting from increases in trade receivables and inventories. This requires monitoring from the perspective of cash conversion of earnings.

Earnings Forecast and Guidance

The first-half progress rates against the full-year earnings forecasts (Revenue of ¥1135.0B, Operating Income of ¥139.0B, Ordinary Income of ¥141.5B, and EPS of ¥76.41) were 52.0% for Revenue, 56.7% for Operating Income, 56.5% for Ordinary Income, and 57.1% for EPS (¥43.66/¥76.41), all above the 50% half-year benchmark. No revisions were made to the earnings forecast or dividend forecast in this earnings announcement, and the full-year plan remains unchanged.

Shareholder Returns

The interim dividend was ¥38 per share, unchanged from ¥38 in the same period of the previous year. The full-year dividend forecast is ¥76, resulting in an extremely high Payout Ratio of 99.5% against forecast EPS of ¥76.41. Including the acquisition of treasury shares (-¥3.6B), total shareholder returns exceeded the cash generated during the period when compared with first-half Free Cash Flow of ¥12.4B and dividend payments of ¥45.5B. The Company’s strong financial base, supported by cash on hand of ¥362.7B and an Equity Ratio of 74.1%, provides a foundation for these returns. However, the sustainability of shareholder returns requires monitoring because it will depend on the extent of the recovery in Operating Cash Flow.

Risk Factors

1. Dependence on the China Business for earnings: The China Business accounts for 39.6% of revenue composition (¥240.7B) and ¥61.4B, or 62.2%, of total segment profit before adjustments of ¥98.7B, indicating a high concentration of profit in a single region. Changes in demand trends and the regulatory environment in the region may have a relatively significant impact on the Company’s overall performance.

2. Buildup of working capital and cash-generating capacity: Trade receivables increased +26.3% (+¥49.1B YoY), while inventories increased +4.7%. Operating Cash Flow (¥31.5B) was only 0.6x Net Income attributable to owners of the parent (¥52.2B). Growth in working capital during a period of revenue growth is constraining the conversion of earnings into cash.

3. Divergence between shareholder returns and cash flow: Against Free Cash Flow of ¥12.4B, dividend payments totaled ¥45.5B and treasury share acquisitions totaled ¥3.6B, resulting in total shareholder returns exceeding Free Cash Flow. Cash on hand decreased by -¥33.8B from the beginning of the period, making normalization of working capital a key focus regarding the sustainability of the funding sources for shareholder returns.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Return

Profitability exceeds the industry median, with both the operating and Net Income margins positioned in the upper group.

Growth and Capital Efficiency

The Revenue growth rate was slightly below the industry median, with the rate of revenue growth itself remaining at a mid-range level within the industry.

※Source: Compiled by the Company

Key Takeaways from the Earnings Announcement

1. The operating margin improved by +1.0pt from 12.4% in the previous year to 13.4%. In addition to the high profitability of the China Business (25.5% margin), improved profitability in Japan (+2.8pt) and the Americas and Europe (+3.0pt) contributed to lifting the Company-wide margin. Structural improvement in the regional mix has been confirmed.

2. Full-year progress rates exceeded 50% for both revenue and earnings, while both the earnings forecast and dividend forecast remained unchanged without revision. The current earnings results are tracking consistently with the full-year plan.

3. Operating Cash Flow remains below Net Income attributable to owners of the parent (0.6x). Together with the high Payout Ratio (99.5% on a forecast basis), the balance among earnings growth, cash-generating capacity, and shareholder returns will be a key focus in future earnings announcements.

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 period). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥750–¥790 at ±1% for the cost of equity, and ¥769–¥771 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing gap relative to the full-year forecast).
• Because 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 summary 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 with professionals as necessary.

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