DAIICHI JITSUGYO CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

Although core earnings (Operating Income and Ordinary Income) deteriorated significantly, Net Income remained at approximately the previous-year level due to the recognition of ¥0.137B in gain on the sale of investment securities as extraordinary income. This was a financial result that appeared stable but reflected a decline in underlying earnings. Revenue was ¥4.123B (-16.7% YoY), Operating Income was ¥0.106B (-57.7%), and Ordinary Income was ¥0.129B (-48.1%), all representing substantial declines, while Net Income was ¥0.176B (¥0.175B in the previous year, +0.6%), essentially flat. The primary factors behind the revenue decline were substantial decreases in the Energy Solutions Business (-60.2%) and Automotive Business (-39.4%), which offset revenue growth in the Electronics Business and Industrial Machinery Business.

Factors Affecting Performance

【Revenue】Revenue was ¥4.123B, a decline of -16.7% YoY. By segment, the Electronics Business was the largest at ¥1.284B (31.2% of total, +10.2%), followed by the Automotive Business at ¥0.685B (16.6% of total, -39.4%), Industrial Machinery Business at ¥0.552B (+6.4%), Healthcare Business at ¥0.662B (+1.2%), Plant & Energy Business at ¥0.448B (+1.8%), Energy Solutions Business at ¥0.367B (-60.2%), and Aviation & Infrastructure Business at ¥0.137B (-4.5%). The overall revenue decline was primarily attributable to substantial decreases in sales in the Energy Solutions Business and Automotive Business, apparently due to shifts in the timing of project recognition.

【Profit and Loss】The gross profit margin improved to 18.3% from 17.4% in the previous year, an improvement of +0.9pt. However, the SG&A expense ratio increased to 15.7% (from 12.3% in the previous year, +3.4pt), and the Operating Income margin declined to 2.6% (from 5.1% in the previous year, -2.5pt), mainly due to the increased fixed-cost burden arising from lower sales (negative operating leverage). Ordinary Income was ¥0.129B (-48.1%). Although non-operating income of ¥0.037B, including ¥0.023B in dividend income, provided support, foreign exchange losses of ¥0.005B partially offset this. Profit before tax increased to ¥0.266B (+6.9%), but this was attributable to the recognition of ¥0.137B in gain on the sale of investment securities as extraordinary income and does not indicate an improvement in recurring earnings power. Net Income of ¥0.176B (+0.6%) was similarly supported by temporary factors. In conclusion, the results should be assessed as lower revenue and lower earnings on a core earnings basis.

Segment Analysis

Segment profit was highest in the Healthcare Business at ¥0.058B (8.7% margin, -12.2% YoY), followed by the Electronics Business at ¥0.041B (3.2% margin, -35.8%) and the Energy Solutions Business at ¥0.024B (6.5% margin, -27.3%). Meanwhile, the Plant & Energy Business reported a loss of ¥0.010B (-2.3% margin), and the Aviation & Infrastructure Business reported a loss of ¥0.005B (-3.9% margin), both falling from profits in the previous year to losses (each declining by more than -170% YoY) and becoming major factors behind the deterioration in profitability. The Industrial Machinery Business posted a loss of ¥0.003B (-0.5% margin), but the loss narrowed by +78.9% YoY. The Automotive Business maintained profitability at ¥0.002B (0.3% margin), but profit declined sharply by -96.4% YoY. Overall, dependence on the Healthcare and Electronics businesses has increased.

Key Financial Indicators

【Profitability】The Operating Income margin was 2.6% (from 5.1% in the previous year, -2.5pt), while the Net Income margin was 4.3% (from 3.5% in the previous year, +0.7pt). The improvement in the Net Income margin was an apparent effect of the recognition of extraordinary income, while recurring earnings power deteriorated, as indicated by the decline in the Operating Income margin.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥0.545B (+11.2% YoY), equivalent to 3.1 times Net Income of ¥0.176B, indicating a small gap between earnings and cash generation. Capital expenditures were limited to ¥0.016B compared with depreciation and amortization of ¥0.030B, indicating restrained investment.【Investment Efficiency】ROE was 1.9%. Given that the increase in Profit before tax was dependent on extraordinary income, recurring capital efficiency is likely below this level.【Financial Soundness】The Equity Ratio was 50.2% (from 51.5% in the previous year, -1.3pt). Cash and deposits of ¥5.741B exceeded interest-bearing debt of ¥0.697B (short-term borrowings of ¥0.652B + long-term borrowings of ¥0.045B), maintaining ample liquidity with net cash of approximately ¥5.044B.

Cash Flow Analysis

Operating Cash Flow was ¥0.545B (+11.2% YoY), equivalent to 3.1 times Net Income of ¥0.176B. In terms of working capital, the decrease in trade receivables contributed +¥1.248B, while the increase in inventories contributed -¥0.531B and the decrease in trade payables contributed -¥0.163B; income taxes paid of ¥0.265B were also deducted. Cash flow from investing activities was +¥0.079B, as proceeds from the sale of investment securities and other items exceeded capital expenditures of ¥0.016B. Cash flow from financing activities was -¥0.284B, with dividend payments and share repurchases of ¥0.037B being the primary sources of outflow. Free cash flow was ¥0.624B (Operating CF + Investing CF). Although cash generation sufficient to fund dividends and share repurchases was secured, the rising trend in inventories warrants attention as a factor that may affect future working capital efficiency.

Earnings Quality

Of Profit before tax of ¥0.266B for the current period, extraordinary income (gain on the sale of investment securities) of ¥0.137B accounted for more than half (approximately 51%). It is therefore important to note that the recurring earnings base remained limited to Operating Income of ¥0.106B and an Operating Income margin of 2.6%. Non-operating income of ¥0.037B was primarily composed of dividend income of ¥0.023B and was relatively recurring in nature. However, foreign exchange losses of ¥0.005B were recorded under non-operating expenses, and the overall impact of non-operating gains and losses on Net Income was limited. Comprehensive income was ¥0.450B, exceeding Net Income of ¥0.176B by ¥0.274B. The primary factors were valuation differences on securities of +¥0.235B and foreign currency translation adjustments of +¥0.045B, both resulting from the fair-value measurement of held assets rather than realized gains or losses. Given that Net Income growth (+0.6%) was supported by extraordinary income and valuation gains, earnings quality (accruals) can be assessed as a situation in which temporary factors are masking deterioration in recurring earnings.

Earnings Forecast and Guidance

The Q1 progress rates against the Full-Year plan for both Operating Income and Ordinary Income were well below the 25% benchmark for evenly distributed quarterly progress, indicating a plan weighted toward the second half. Revenue progress was 19.6% (¥4.123B/¥21.000B), Operating Income progress was 8.8% (¥0.106B/¥1.200B), and Ordinary Income progress was 10.4% (¥0.129B/¥1.240B). Net Income progress was relatively high at 18.7% (¥0.176B/¥0.940B), but this was due to a temporary boost from the recognition of extraordinary income and differs in nature from the delays on an Operating and Ordinary Income basis. No revisions were made to the earnings forecast or dividend forecast during the current quarter.

Shareholder Returns

The Full-Year dividend forecast is ¥125 per share, implying a Payout Ratio of approximately 42.4% based on forecast EPS of ¥294.79. During Q1, the Company conducted share repurchases of ¥0.037B, advancing shareholder returns in addition to dividends. No revisions were made to the dividend forecast for the current quarter.

Risk Factors

1. Risk of fluctuations in the timing of revenue recognition for project-based businesses: Revenue in the Energy Solutions Business declined substantially to ¥0.367B, down -60.2% YoY, with shifts in the timing of project revenue recognition being the primary factor behind performance fluctuations.

2. Deterioration in working capital efficiency due to increased inventories: Inventories increased to ¥2.304B (+28.5% YoY, +¥0.510B), while trade receivables decreased to ¥2.763B (-29.2% YoY, -¥1.140B), and changes in the working capital composition are affecting Operating Cash Flow.

3. Variability in segment profitability and a low-profitability structure: The Plant & Energy Business (-¥0.010B) and Aviation & Infrastructure Business (-¥0.005B) fell into the red, while the Company-wide Operating Income margin of 2.6% was below the industry median of 4.3%.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

While the Operating Income margin was below the industry median, the Net Income margin was slightly above the industry median due to the contribution of extraordinary income.

Growth and Capital Efficiency

The Revenue Growth Rate was substantially below the industry median, with the magnitude of the revenue decline standing out even within the industry.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. The maintenance of Net Income at approximately the previous-year level (+0.6%) depended on extraordinary income of ¥0.137B from the sale of investment securities, while the Operating Income margin, which reflects recurring earnings power, declined from 5.1% in the previous year to 2.6%.

2. Progress against the Full-Year plan was 8.8% for Operating Income and 10.4% for Ordinary Income, substantially below the standard quarterly progress benchmark of 25%. The earnings plan’s weighting toward the second half is a structural characteristic that can be identified from the earnings data.

3. Inventories increased +28.5% YoY while trade receivables decreased -29.2%, indicating a change in the working capital composition from the perspectives of project progress and inventory turnover.

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 of any specific investment action.

Sensitivity: ¥2,906–¥3,074 at Cost of Equity ±1%, and ¥2,986–¥2,991 at ω±0.1.

Notes:

• Amortization of goodwill of ¥3.5 per share has been added back to earnings (due to its non-cash nature and for comparability with IFRS companies).
• Net assets as of the end of the quarter are used (there is a timing difference relative to the Full-Year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual income model / Interest rate reference month: 2026-06 / This value does not predict 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, and you should consult a professional as necessary.

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