SEIKA CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

The Company posted higher revenue and higher profits, with a particularly notable improvement in profitability. Revenue was ¥277.4B (+8.5% YoY), Operating Income was ¥25.4B (+59.7%), Ordinary Income was ¥27.3B (+52.3%), and Net Income was ¥27.8B (+54.0%). The primary drivers of profit growth were an improvement in the gross margin (32.0%, +6.9pt YoY) and growth in the high-margin Product and Energy Businesses. In addition, a one-time gain on the sale of investment securities of ¥13.3B boosted Net Income.

Factors Affecting Performance

【Revenue】Revenue was ¥277.4B, up +8.5% YoY. By segment, the Product Business recorded the highest growth rate at ¥87.0B (+14.5%), followed by the Industrial Machinery Business at ¥117.4B (+6.9%) and the Energy Business at ¥79.7B (+6.6%). Revenue composition was 42.3% for Industrial Machinery, 31.4% for Product, and 28.7% for Energy, with Industrial Machinery being the largest segment.

【Profit and Loss】Operating Income was ¥25.4B (+59.7%), while the gross margin improved by +6.9pt YoY to 32.0%. By segment, the Product Business and Energy Business maintained high margins, with Operating Income of ¥11.8B (13.6% margin) and ¥10.1B (12.7% margin), respectively. The Industrial Machinery Business recorded ¥3.0B in Operating Income (2.6% margin), which remained low but improved substantially from the previous year. Ordinary Income of ¥27.3B and Net Income of ¥27.8B both grew at a faster pace than Operating Income, driven by an equity-method investment gain of ¥2.5B and a gain on the sale of investment securities of ¥13.3B (extraordinary income). Even excluding extraordinary income, improvement at the operating level is clear, indicating a solid increase in both revenue and profits.

Segment Analysis

The Product Business maintained the highest profitability, with revenue of ¥87.0B (+14.5%), Operating Income of ¥11.8B (+21.3%), and a 13.6% margin. The Energy Business posted high profit growth, with Operating Income of ¥10.1B (+62.2%) against revenue of ¥79.7B (+6.6%), and its margin also improved to 12.7%. The Industrial Machinery Business was the largest in scale, with revenue of ¥117.4B (+6.9%), but its Operating Income of ¥3.0B (2.6% margin) remained less profitable than the other two businesses, although it is in a phase of improvement from the previous year’s low level. In terms of segment mix, growth in the high-margin Product and Energy Businesses contributed to lifting the Company-wide profit margin.

Key Financial Indicators

【Profitability】Operating margin improved in multiple stages, with Operating Income margin rising to 9.2% (6.2% in the previous year) and Net Income margin to 10.0% (7.1% in the previous year). The expansion of the gross margin to 32.0% (25.1% in the previous year) was the starting point for this improvement.【Cash Flow Quality】Of Net Income of ¥27.8B, ¥13.3B represented a gain on the sale of investment securities recognized as extraordinary income. Core profit excluding this one-time factor is considered to have improved even compared with the previous year.【Investment Efficiency】ROE was 5.2% and the Equity Ratio was 29.5% (27.3% in the previous year). Total assets of ¥1822.0B contracted from the previous year while revenue increased, indicating an improving trend in asset efficiency.【Financial Soundness】Long-term borrowings were ¥147.3B and cash and deposits were ¥145.8B. The coexistence of large customer advances of ¥560.9B and advances paid of ¥540.2B is a distinctive feature of the Company’s project-based funding structure.

Cash Flow Analysis

As detailed disclosure of the cash flow statement was not provided in this earnings release, cash flow trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥145.8B, down 26.1% from ¥197.4B in the previous year. Major uses of funds included share repurchases, which increased from ¥6.1B to ¥17.8B, and a decrease in accounts payable of ¥407.6B, down 27.0% YoY. Customer advances of ¥560.9B and advances paid of ¥540.2B were both substantial, creating a structure in which working capital supply and demand can fluctuate depending on project progress. The ¥13.3B gain on the sale of investment securities was a source of inflow in investing cash flow; it should be noted that the boost to Net Income does not directly indicate an improvement in the quality of Operating Cash Flow.

Quality of Earnings

Recurring earnings were primarily derived from Operating Income and the equity-method investment gain of ¥2.5B. Non-operating income was limited to ¥3.1B (1.1% of revenue), indicating that most recurring earnings originated from the core business. Meanwhile, a ¥13.3B gain on the sale of investment securities was recorded as extraordinary income, meaning that a considerable portion of Net Income of ¥27.8B was attributable to a one-time factor. The difference between Ordinary Income of ¥27.3B and Net Income of ¥27.8B resulted from the relationship between Profit Before Tax of ¥40.6B and income taxes of ¥12.8B, with extraordinary income lifting Profit Before Tax. Accordingly, when assessing the pace of profit growth for the current period, the focus should be on core earnings power after the reversal of extraordinary income, particularly the improvement on an Operating Income basis.

Earnings Forecast and Guidance

Progress against the full-year plan—Revenue of ¥1280.0B, Operating Income of ¥105.0B, and Ordinary Income of ¥110.0B—was 21.7% for Revenue, 24.2% for Operating Income, and 24.9% for Ordinary Income, representing broadly standard progress. The full-year plan assumes higher revenue and profits, with Revenue +18.0%, Operating Income +30.8%, and Ordinary Income +21.8% YoY. Operating Income growth of +59.7% in Q1 is therefore progressing at a pace above the plan. The Company revised its earnings and dividend forecasts during the quarter, which may indicate potential for an upward revision to the full-year outlook.

Shareholder Returns

The Company’s EPS forecast is ¥232.49, and its annual dividend forecast is ¥105, implying a payout ratio of approximately 45% based on a simple calculation. The dividend in the previous year was ¥110; however, after taking into account the October 2025 stock split (1 share → 3 shares), the annual dividend on a post-split basis was equivalent to ¥81.66, requiring caution when making a simple comparison. Treasury shares increased from ¥6.1B in the previous year to ¥17.8B, confirming a capital return policy that complements dividends.

Risk Factors

1. Working Capital Structure Risk: Large customer advances of ¥560.9B and advances paid of ¥540.2B coexist, making funding supply and demand susceptible to fluctuations depending on project progress. Together with accounts receivable of ¥504.6B and inventories of ¥101.2B, the execution of collections and inventory management directly affects the stability of Operating Cash Flow.

2. Risk of Dependence on Extraordinary Income: Of Net Income of ¥27.8B, ¥13.3B represented a gain on the sale of investment securities recorded as extraordinary income. This one-time factor may disappear from the results from the next fiscal year onward. Sustaining growth in core earnings power, measured on an Operating Income basis, will be a key challenge.

3. Goodwill and Intangible Asset Impairment Risk: The Company holds goodwill of ¥95.1B (17.7% of net assets) and intangible assets of ¥125.5B. The recovery of invested capital associated with business combinations—the accounting treatment for the integration with Asahi Sunac was finalized during the current quarter—requires ongoing monitoring.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (trading)

Profitability and Returns

The Company’s Operating Income margin and Net Income margin both significantly exceed the industry median, placing the Company in the upper tier of the industry.

Growth and Capital Efficiency

The Revenue growth rate also exceeds the industry median, but has not reached the upper end of the industry range (11.7%).

※Source: Company analysis

Key Takeaways from the Earnings Results

1. The gross margin improved by +6.9pt YoY to 32.0%, while the Operating Income margin expanded to 9.2%, confirming a structural improvement in profitability. The rising contribution of the high-margin Product and Energy Businesses has lifted the Company-wide profit margin.

2. The increase in Net Income includes the extraordinary gain of ¥13.3B on the sale of investment securities. The level of core profit excluding this one-time factor will be a key point in assessing the sustainability of growth from the next fiscal year onward.

3. The Industrial Machinery Business is the largest in terms of revenue scale (¥117.4B), but its 2.6% margin is low compared with the other businesses. The potential for profitability improvement in this business will be closely watched as a further driver of Company-wide margin expansion.

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: ¥1,729–¥1,829 at Cost of Equity ±1%, and ¥1,772–¥1,788 at ω±0.1.

Notes:

• Net assets as of the quarter-end are used (there is a timing gap relative to the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat on the high side.

(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 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, after consulting with a professional as necessary.

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