Shinsho (8075) FY2026 FY Earnings Report

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Executive Summary

FY2026 was characterized by lower revenue and operating income, resulting in a decline in both revenue and earnings, with profitability in the core business deteriorating. Revenue was ¥6,081.4B (YoY -1.5%), operating income was ¥115.8B (down 12.4%), ordinary income was ¥110.2B (down 6.3%), and net income was ¥83.4B (down 1.2%). The operating margin declined to 1.9% from 2.1% in the previous year, primarily because the increase in SG&A expenses more than offset the slight deterioration in the gross margin. The decline in ordinary income was smaller than that in operating income because non-operating expenses decreased as foreign exchange losses narrowed.

Factors Affecting Earnings

【Revenue】Revenue was ¥6,081.4B, a 1.5% YoY decline. The core Metals segment, which accounted for 84.8% of revenue, declined 2.1% YoY, with Steel (-3.0%) and Raw Materials & Recycling (-3.7%) weighing on results. In contrast, the Machinery & Welding segment increased revenue by 2.1%.

【Profitability】Operating income was ¥115.8B (YoY -12.4%), while ordinary income was ¥110.2B (down 6.3%). The 6.5% gross margin declined slightly from the previous year, while SG&A expenses increased to ¥278.9B (YoY +2.6%). Consequently, lower revenue and the deterioration in gross margin significantly compressed operating income. The smaller decline in ordinary income relative to operating income was attributable to foreign exchange losses narrowing from ¥17.6B to ¥2.3B, reducing non-operating expenses. Net income was ¥83.4B (down 1.2%), remaining nearly in line with the previous year; however, this was supported by ¥2.19B in extraordinary gains, primarily the ¥2.09B gain on the sale of investment securities, rather than by an improvement in core-business profitability. In conclusion, the Company reported lower revenue and earnings.

Segment Analysis

The Metals segment recorded revenue of ¥5,156.9B (YoY -2.1%), profit of ¥75.1B (down 15.3%), and a profit margin of 1.5%, showing a notable earnings decline. By subsegment, Steel profit fell to ¥47.4B (down 15.4%), while Aluminum & Copper profit declined to ¥28.4B (down 8.3%). Raw Materials & Recycling fell into a loss of ¥0.6B. These results indicate a business structure that is highly exposed to raw-material market conditions and supply-demand trends.

In contrast, the Machinery & Welding segment performed well, with revenue of ¥922.5B (up 2.1%), profit of ¥36.9B (up 23.3%), and a profit margin of 4.0%. Machinery alone recorded a profit margin of 4.8% and profit of ¥30.5B (up 33.3%), making it a growth area that offset the decline in overall earnings. The profit-margin gap between Metals (1.5%) and Machinery (4.8%) was approximately 3.3pt, indicating room to improve the business mix.

Key Financial Metrics

【Profitability】The operating margin declined to 1.9% from 2.1% in the previous year, while the net profit margin remained broadly unchanged at 1.4%. ROE was 8.3%, down from approximately 9.7% in the previous year, primarily due to the deterioration in gross margin and the increase in SG&A expenses.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥84.5B, approximately 1.0 times net income of ¥83.4B, indicating that earnings were adequately supported by cash generation. However, the ¥26.6B increase in inventories and ¥15.3B decrease in accounts payable put pressure on cash, resulting in somewhat low cash-conversion efficiency.【Investment Efficiency】EPS was ¥313.65 (previous year ¥324.24, down 3.3%), while BPS was ¥3,745.99, up 8.2% YoY, reflecting the accumulation of equity.【Financial Soundness】The equity ratio improved from the previous year to 26.3%. However, with current assets of ¥3,302.2B against current liabilities of ¥2,573.7B, the current ratio was approximately 128%, indicating a relatively high degree of reliance on short-term borrowing.

Cash Flow Analysis

Operating Cash Flow was ¥84.5B, up 20.9% YoY, demonstrating cash-generation capacity nearly equivalent to net income of ¥83.4B. In terms of working capital, the ¥16.5B decrease in trade receivables was a source of funds, while the ¥26.6B increase in inventories and ¥15.3B decrease in trade payables absorbed cash and offset the net increase. Investing Cash Flow was -¥15.8B. Capital expenditures of ¥10.8B were below depreciation and amortization of ¥14.9B, indicating that investment remained slightly below the level required for maintenance and replacement. As a result, free cash flow was positive at ¥68.7B, providing ample coverage of dividend payments. Financing Cash Flow was a substantial outflow of -¥109.1B, primarily used to reduce interest-bearing debt, including the reduction of short-term borrowings. Consequently, cash and cash equivalents decreased from the previous year.

Earnings Quality

Against ordinary income of ¥110.2B, pretax income was ¥130.7B, ¥20.5B higher. This difference was attributable to ¥2.19B in extraordinary gains, primarily the ¥2.09B gain on the sale of investment securities. Extraordinary losses were limited to ¥0.15B, including ¥0.11B in impairment losses. Net income of ¥83.4B was nearly flat YoY, declining 1.2%; however, this stability was supported by extraordinary gains, while recurring earning power in the core business weakened, as shown by the declines in operating income and ordinary income. Non-operating income was centered on dividend income of ¥18.4B, while equity-method investment income fell significantly to ¥5.8B from ¥15.9B in the previous year, indicating a decline in earnings contributions from investees. Although the near-equivalence of OCF and net income indicates that consistency between accounting earnings and cash flow was maintained, attention is required when assessing underlying earning power excluding extraordinary gains.

Earnings Forecast and Guidance

The Company’s FY2027 forecast calls for revenue of ¥6,860.0B (YoY +12.8%), operating income of ¥121.0B (up 4.5%), ordinary income of ¥115.0B (up 4.3%), EPS of ¥340.00, and a dividend of ¥130.00. The plan assumes that revenue growth will exceed profit growth, with the forecast operating margin expected to decline further to approximately 1.8% from the FY2026 actual result of 1.9%. Whether revenue growth can be converted into margin improvement will be the key focus of the next plan.

Shareholder Returns

The FY2026 annual dividend was ¥106 per share (interim ¥53, year-end ¥53), resulting in a payout ratio of 33.8%. No share repurchases were conducted, and shareholder returns consisted solely of dividends; therefore, returns are evaluated based on the payout ratio. Total dividends of approximately ¥2.74B provided ample coverage against free cash flow of ¥68.7B. For FY2027, the Company forecasts an annual dividend of ¥130, comprising a regular dividend of ¥52 and a commemorative dividend of ¥13. The forecast payout ratio against forecast EPS of ¥340 is approximately 38.2%.

Risk Factors

1. Deterioration in profitability of metals and raw-material transactions: Profit in the core Metals segment declined 15.3% YoY, while Raw Materials & Recycling fell into a loss of ¥0.6B. The segment is highly sensitive to fluctuations in steel, nonferrous metal, and raw-material prices, as well as supply and demand.

2. Low-margin business structure: With a gross margin of 6.5% and an operating margin of 1.9%, the business structure is thinly margined, making earnings highly susceptible to even modest fluctuations in selling prices, logistics costs, and foreign exchange rates.

3. High leverage and reliance on short-term funding: Although the equity ratio improved to 26.3%, current liabilities remained substantial at ¥2,573.7B, and reliance on short-term borrowing continues. Fluctuations in working capital, including inventories and trade receivables, can readily affect liquidity.

Industry Benchmark (For Reference; Company Research)

Profitability and Returns

Profitability is below the industry median, positioning the Company among the lower-profitability group within the trading-company sector.

Growth and Capital Efficiency

Revenue growth was well below the industry median, and the decline in revenue compares unfavorably with peers that achieved revenue growth.

※Source: Company research

Key Takeaways from the Financial Results

1. The Machinery segment’s 4.8% profit margin (profit growth of 33.3% YoY) has widened its gap with the Metals segment’s 1.5% profit margin, making Machinery a high-profitability area within the business portfolio.

2. Although net income remained nearly in line with the previous year, the primary reason was the one-time gain of ¥2.09B on the sale of investment securities. The deterioration in recurring core-business profitability—operating income -12.4% and ordinary income -6.3%—is therefore an important fact when evaluating the quality of the results.

3. The payout ratio was 33.8%, and dividend coverage against FCF was also sufficient. The planned dividend increase to ¥130, including the commemorative dividend for the next period, is consistent with the current dividend track record and cash flow.

Theoretical Share Price (Reference Value)

Sensitivity: ¥3,615–¥3,824 at a cost of equity of ±1%, and ¥3,716–¥3,718 at ω±0.1.

Notes:

• Amortization of goodwill of ¥3.4 per share is added back to earnings (due to its non-cash nature and for comparability with IFRS companies).
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee the future share price.)

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This report is an earnings analysis document automatically generated by AI through analysis of 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 responsibility, after consulting with professionals as necessary.

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