SHOFU INC. FY2027 Q1 Earnings Report

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Executive Summary

Revenue and profits increased, while net income was significantly boosted by higher revenue from the core dental-related business and the one-time gain on the sale of investment securities. Revenue was ¥107.9B (¥95.1B in the same period of the previous year, YoY +13.5%), Operating Income was ¥19.4B (¥14.9B, YoY +30.0%), and Ordinary Income was ¥20.7B (¥14.8B, YoY +39.7%). Net Income attributable to owners of the parent increased significantly to ¥21.5B (¥8.5B, YoY +151.3%); however, the gain on the sale of investment securities of ¥11.2B (extraordinary income) made a substantial contribution, and the underlying increase in profit excluding this one-time factor is considered to have been close to the growth rates at the Operating Income and Ordinary Income levels.

Factors Affecting Performance

【Revenue】The core DentalRelated business generated revenue of ¥102.5B (YoY +14.3%), accounting for 95.0% of total company revenue and driving the increase. NailRelated was nearly flat at ¥5.2B (YoY -0.4%). By region, overseas markets grew at a faster pace than Japan (+11.5%), with Europe up +18.7% and North America, Central America, and South America up +15.0%; Asia also remained solid at +11.7%.

【Profit and Loss】The gross margin improved by +1.5pt to 62.3% (60.9% in the previous year), while the SG&A ratio declined to 44.3% (45.1% in the previous year), expanding the Operating Income margin by +2.3pt to 18.0% (15.7% in the previous year). Ordinary Income increased +39.7%, supported by improved non-operating income and expenses, including dividend income of ¥1.1B and foreign exchange gains of ¥0.6B. Net Income increased significantly by +151.3%, boosted by the one-time gain on the sale of investment securities of ¥11.2B. In conclusion, both revenue and profits increased.

Segment Analysis

DentalRelated generated revenue of ¥102.5B (YoY +14.3%) and Operating Income of ¥20.0B (YoY +30.6%), with its margin improving by +2.5pt to 19.6% (17.1% in the previous year), generating virtually all of the company-wide profit. NailRelated reported revenue of ¥5.2B (YoY -0.4%) and an Operating Loss of ¥0.6B (¥-0.4B in the previous year), with the loss widening and its margin at -11.8%, acting as a drag on the company-wide margin. The profitability gap between the segments remains significant, leaving room for a reduction in losses in the Nail business to improve the company-wide operating leverage.

Key Financial Indicators

【Profitability】The Operating Income margin improved by +2.3pt to 18.0% from 15.7% in the previous year, while the Net Income margin attributable to owners of the parent expanded to 19.9% (9.0% in the previous year). However, much of this increase was a temporary boost from the gain on the sale of investment securities. ROE was 4.2%. 【Cash Flow Quality】Extraordinary income of ¥11.2B accounted for 52.4% of Net Income of ¥21.5B, and the increase in Net Income (+151.3%) was highly dependent on one-time factors compared with the growth in Operating Income and Ordinary Income (+30.0% and +39.7%, respectively), which indicate recurring earnings power. 【Investment Efficiency】Quarterly revenue of ¥107.9B remained modest relative to total assets of ¥623.5B at period-end, and the asset turnover ratio remained low. 【Financial Soundness】Although the Equity Ratio declined slightly to 82.1% (84.1% in the previous year), it remained high. Interest-bearing debt was limited to long-term borrowings of ¥9.9B, indicating a conservative financial base.

Cash Flow Analysis

As cash flow statement data has not been disclosed, cash flow trends are analyzed based on changes in the balance sheet. Cash and deposits increased to ¥124.0B (¥101.2B in the previous year, +¥22.5B), indicating an increase in liquidity on hand. Inventories declined to ¥98.2B (¥101.3B in the previous year, -¥3.0B), while accounts receivable declined to ¥42.9B (¥46.0B in the previous year, -¥3.1B); accounts payable also declined to ¥11.4B (¥13.0B in the previous year, -¥1.6B). Inventory days, calculated by dividing inventories by annualized cost of sales (quarterly cost of sales ×4), were approximately 220 days, while collection days, calculated by dividing accounts receivable by annualized revenue, were approximately 36 days. Thus, inventory levels were relatively high, while the collection period was comparatively short. Investment securities increased to ¥121.6B (¥101.1B in the previous year, +¥20.5B), confirming an increase in securities investments, while the newly recorded ¥9.9B in long-term borrowings suggests diversification of financing sources.

Earnings Quality

Recurring earnings power consisted of Operating Income of ¥19.4B and net non-operating income and expenses of ¥1.3B, including dividend income of ¥1.1B and foreign exchange gains of ¥0.6B. Non-operating income of ¥2.8B represented only 2.6% of revenue, indicating no excessive dependence on non-recurring items. Meanwhile, extraordinary income of ¥11.2B (gain on the sale of investment securities) fully explains the +¥11.2B gap between Profit Before Tax of ¥32.0B and Ordinary Income of ¥20.7B, and accounted for 52.4% of Net Income attributable to owners of the parent of ¥21.5B, indicating a high degree of dependence on one-time factors. Comprehensive Income of ¥39.2B exceeded Net Income by ¥17.8B, primarily due to accumulated other comprehensive income consisting of +¥14.6B in valuation differences on securities and +¥3.6B in foreign currency translation adjustments; valuation gains on securities were the main contributor. From an accruals perspective, both inventories and accounts receivable declined year on year, suggesting that the direction of revenue recognition and cash collection was consistent.

Earnings Forecast and Guidance

Progress against the full-year plan was 25.1% for Revenue (¥107.9B/¥429.6B), 32.3% for Operating Income (¥19.4B/¥60.0B), 35.2% for Ordinary Income (¥20.7B/¥58.9B), and 45.1% for Net Income (¥21.5B/¥47.6B, attributable to owners of the parent). Operating Income and Ordinary Income were ahead of the simple progress benchmark (25%), while the degree of outperformance in Net Income was particularly large, mainly due to the early recognition of the ¥11.2B gain on the sale of investment securities. Although the earnings forecast itself was not revised during the quarter, the dividend forecast was revised upward.

Shareholder Returns

The full-year dividend forecast is ¥67.00, including a special dividend of ¥12.00 in the interim dividend for the fiscal year ending March 2027. The Payout Ratio against forecast EPS of ¥133.66 is approximately 50.1% (¥67.00 ÷ ¥133.66). The year-end dividend for the previous fiscal year (fiscal year ending March 2026) also included a special dividend of ¥5.00, indicating continued increases in dividend levels accompanied by special dividends. Given the financial base of cash and deposits of ¥124.0B and an Equity Ratio of 82.1%, the company has sufficient capacity to pay this dividend level.

Risk Factors

1. Business concentration risk: DentalRelated accounts for 95.0% of revenue and generates virtually all of the company-wide profit, while NailRelated continues to report an Operating Loss of ¥0.6B, indicating a high degree of dependence on a single segment.

2. Working capital efficiency: Inventories of ¥98.2B correspond to approximately 220 days of annualized cost of sales, representing a relatively high inventory level. Accounts receivable of ¥42.9B equates to approximately 36 days of annualized revenue; however, progress in reducing inventories will determine future cash generation efficiency.

3. Earnings quality: The gain on the sale of investment securities of ¥11.2B (extraordinary income) accounted for 52.4% of Net Income attributable to owners of the parent of ¥21.5B, indicating a high degree of dependence on one-time factors. Market fluctuations in the ¥121.6B balance of investment securities could affect net assets and Comprehensive Income going forward.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Income margin and Net Income margin were well above the industry median, placing profitability at a high level within the industry. However, it should be noted that the advantage in the Net Income margin includes the one-time gain on the sale of investment securities.

Growth and Capital Efficiency

The Revenue growth rate also exceeded the industry median, showing strong growth close to the upper limit of the IQR.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The margin of the core DentalRelated business improved to 19.6% (17.1% in the previous year), suggesting the emergence of operating leverage through improvements in pricing and product mix and greater SG&A efficiency.

2. The Net Income progress rate of 45.1% significantly exceeded the Ordinary Income progress rate of 35.2%; however, this was due to the early recognition of the ¥11.2B gain on the sale of investment securities. The divergence from growth at the Ordinary Income level is therefore an important point when assessing earnings quality.

3. Both inventories and accounts receivable declined year on year, confirming a direction toward working capital reduction. However, inventory days remained high at approximately 220 days on an annualized basis, making future trends a key point of focus.

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

Sensitivity: ¥1,413–¥1,494 at Cost of Equity ±1%, and ¥1,452–¥1,453 at ω ±0.1.

Notes:

• Because the progress of Net Income against the full-year forecast (45%) exceeds the standard benchmark (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies ahead of plan tend to outperform forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Net assets as of the quarter-end have been used (there is a timing difference from the full-year forecast).

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This figure does not forecast or guarantee future share prices)

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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 responsibility, and you should consult a professional as necessary.

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