VALQUA,LTD. FY2027 Q1 Earnings Report

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Executive Summary

The trend of higher revenue and earnings continued, and the operating margin improved by +4.0pt from the previous year. However, the sharp increase in net income was largely attributable to the one-time gain on the sale of fixed assets, and therefore needs to be assessed separately from the growth in ordinary income. Revenue was ¥17.19B (¥13.95B in the same period of the previous year, +23.2%), operating income was ¥2.90B (¥1.80B, +61.1%, operating margin of 16.9%), ordinary income was ¥2.98B (¥1.80B, +65.2%), and net income was ¥3.28B (¥1.26B, +159.9%). The increase in revenue was driven by double-digit growth in both the core Sealing Products Business and Functional Resin Products Business, while the increase in earnings was primarily attributable to operating leverage resulting from improved gross margin and a lower SG&A ratio.

Factors Affecting Financial Performance

【Revenue】Revenue was ¥17.19B, up +23.2% year on year. By segment, the Sealing Products Business generated ¥12.42B (72.3% of total, +20.4%), while the Functional Resin Products Business generated ¥4.77B (27.7% of total, +31.3%), with both segments driving revenue growth.

【Profit and Loss】The gross margin was 43.9%, improving by +0.7pt from 43.2% in the previous year, while the SG&A ratio declined by -3.2pt from 30.3% to 27.0%. As a result, the operating margin increased to 16.9% (12.9% in the previous year, +4.0pt). Non-operating income and expenses resulted in a net gain of ¥0.075B, primarily due to foreign exchange gains of ¥0.10B, and ordinary income was ¥2.98B (+65.2%). The Company recorded extraordinary income of ¥1.66B (gain on sale of fixed assets, equivalent to 36.2% of pretax income of ¥4.59B), resulting in pretax income of ¥4.59B and net income of ¥3.28B (+159.9%). In addition to higher core earnings resulting from improved gross margin and a lower SG&A ratio, one-time factors boosted net income; overall, the Company achieved higher revenue and earnings.

Segment Analysis

The Sealing Products Business recorded revenue of ¥12.42B (+20.4%), operating income of ¥2.53B (+51.0%), and a margin of 20.4% (16.3% in the previous year, +4.1pt). It improved profitability as the core business, generating 87.2% of total operating income. The Functional Resin Products Business recorded revenue of ¥4.77B (+31.3%), operating income of ¥0.37B (+198.4%), and a margin of 7.8% (3.4% in the previous year, +4.3pt), showing significant improvement, although the profitability gap with the Sealing Products Business remains substantial. Both segments achieved improved margins in addition to higher revenue, and no deterioration in the business mix was observed.

Key Financial Indicators

【Profitability】The operating margin was 16.9% (12.9% in the previous year, +4.0pt), the net margin was 19.1% (9.1% in the previous year, +10.1pt), and ROE was 5.8%. 【Cash Quality】Comprehensive income was ¥3.98B, exceeding net income of ¥3.28B by +¥0.70B. The difference was primarily attributable to +¥0.73B in valuation differences on securities resulting from the increase in the fair value of investment securities. Accounts receivable were ¥13.31B (+3.8%), and inventories were ¥6.85B (-0.9%), both remaining controlled relative to revenue growth of +23.2%. 【Investment Efficiency】Investment securities increased to ¥5.30B (¥4.19B in the previous year, +26.6%), while property, plant and equipment decreased to ¥22.43B (¥23.58B in the previous year). The ratio of current-period revenue to total assets remained low at approximately 19.8%. 【Financial Soundness】The equity ratio was 64.7% (64.1% in the previous year), the current ratio was 328.7%, and the quick ratio was 284.7%, indicating ample liquidity. Short-term borrowings were substantially reduced to ¥1.69B (¥3.65B in the previous year, -53.7%).

Cash Flow Analysis

As a standalone cash flow statement has not been disclosed, funding trends are assessed based on changes in the balance sheet. Cash and deposits increased by +¥1.86B (+23.5%) from the end of the previous fiscal year to ¥9.77B. Property, plant and equipment decreased by -¥1.15B from the end of the previous fiscal year to ¥22.43B, consistent with the ¥1.66B gain on the sale of fixed assets recorded as extraordinary income. Short-term borrowings decreased by ¥1.96B to ¥1.69B, while long-term borrowings decreased by ¥0.32B to ¥11.16B, reducing reliance on interest-bearing debt. Meanwhile, investment securities increased by +¥1.11B to ¥5.30B. Retained earnings increased by +¥1.96B from the end of the previous fiscal year to ¥33.89B, a level close to net income of ¥3.28B for the period after deducting dividend payments and other items. Overall, cash inflows from the sale of fixed assets and the reduction of borrowings progressed, and on-hand liquidity increased from the end of the previous fiscal year.

Earnings Quality

Recurring earning power is centered on operating income of ¥2.90B. Non-operating income and expenses resulted in a net gain of ¥0.075B, primarily due to foreign exchange gains of ¥0.10B, representing only 0.4% of revenue. Extraordinary income of ¥1.66B (gain on sale of fixed assets) accounted for 36.2% of pretax income of ¥4.59B, and attention should be paid to the significant contribution of non-recurring factors to net income. The difference between ordinary income of ¥2.98B and net income of ¥3.28B was +10.1%, with the extraordinary income and tax effects accounting for the divergence. Comprehensive income was ¥3.98B, exceeding net income by +¥0.70B, primarily due to +¥0.73B in valuation differences on securities resulting from the increase in the fair value of investment securities. Accounts receivable increased by +3.8% and inventories decreased by -0.9%, remaining controlled relative to revenue growth of +23.2%; from an accrual perspective, signs of impediments to the conversion of earnings into cash appear limited.

Earnings Forecast and Guidance

Progress against the full-year plan was 24.9% for revenue (¥17.19B/¥69.00B), 26.4% for operating income (¥2.90B/¥11.00B), 27.6% for ordinary income (¥2.98B/¥10.80B), and 37.7% for net income (¥3.28B/¥8.70B). Compared with a simple quarterly allocation of 25%, revenue, operating income, and ordinary income are generally tracking in line with the plan. The disproportionately high progress in net income is attributable to the one-time recognition of extraordinary income of ¥1.66B, and normalization is expected for the full year. Although the earnings forecast was revised during the quarter, there was no revision to the dividend forecast.

Shareholder Returns

The Company’s forecast for annual dividends is ¥85.00 (¥75 in the previous fiscal year). In addition, a commemorative dividend of ¥30 is scheduled in addition to the ordinary dividend of ¥85 as part of the year-end dividend for the fiscal year ending March 2027, resulting in an expected total of ¥115. Based on the total dividend of ¥115, the payout ratio against forecast EPS of ¥493.76 is approximately 23.3%. With an equity ratio of 64.7% and a current ratio of 328.7%, the Company has a strong financial base and a high degree of stability in its dividend funding capacity. No disclosure regarding share repurchases has been made, and dividends remain the primary form of shareholder returns at this time.

Risk Factors

1. Segment concentration risk: The Sealing Products Business accounts for 72.3% of revenue and 87.2% of operating income, creating a structure in which demand trends in this business have a significant impact on consolidated performance.

2. Reliance on extraordinary income: Extraordinary income of ¥1.66B (gain on sale of fixed assets) accounted for 36.2% of pretax income, and the increase in net income (+159.9%) was significantly affected by non-recurring factors. A similar level of extraordinary income may not continue in the following periods.

3. Raw material and foreign exchange fluctuations: The Company recorded foreign exchange gains of ¥0.10B in non-operating income, and fluctuations in foreign exchange rates may affect earnings. In addition, the cost of sales ratio was 56.1%, and fluctuations in raw material prices may affect gross margin.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Profitability, as measured by both operating margin and net margin, is substantially above the industry median.

Growth and Capital Efficiency

Revenue growth also substantially exceeds the industry median, positioning the Company among the higher-growth group within the industry.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. The operating margin improved to 16.9% (+4.0pt), confirming operating leverage resulting from improved gross margin (+0.7pt) and a lower SG&A ratio (-3.2pt). The key feature of these earnings results was improved core earning power excluding extraordinary income.

2. The increase in net income (+159.9%) includes the impact of the ¥1.66B gain on the sale of fixed assets (36.2% of pretax income); therefore, it is useful to assess performance while taking into account the difference from the increase in ordinary income (+65.2%).

3. The Functional Resin Products Business improved its operating margin to 7.8% (+4.3pt). Although the profitability gap with the Sealing Products Business (20.4%) remains, a recovery trend has been confirmed.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on 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 to take any specific investment action.

Sensitivity: ¥3,805–¥4,038 at ±1% for the cost of equity, and ¥3,900–¥3,948 at ±0.1 for ω.

Notes:

• Because progress in net income against the full-year forecast (38%) exceeds the standard level (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies progressing ahead of forecast tend to exceed their forecasts. The adjustment may be excessive for businesses with strong seasonality).
• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Model: Residual Income Model / Interest Rate Reference Month: 2026-06 / 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. Industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, consulting with professionals as necessary.

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