HANWA CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

The first quarter of the fiscal year ending March 2027 posted increases in both revenue and profit, with improved gross profit and a favorable segment mix driving earnings growth. Revenue was ¥7,185.7B (¥6,398.6B in the previous year, +12.3%), Operating Income was ¥205.7B (¥145.9B in the previous year, +41.0%), Ordinary Income was ¥190.2B (¥140.2B in the previous year, +35.6%), and Net Income attributable to owners of the parent was ¥114.9B (¥99.8B in the previous year, +15.1%). The gross margin improved to 6.0% (5.3% in the previous year), while the Operating Income margin rose to 2.9% (2.3% in the previous year). However, Net Income growth was restrained relative to top-line and Operating Income growth due to the increase in the effective tax rate and the impact of interest and foreign-exchange burdens.

Factors Affecting Business Performance

【Revenue】Revenue increased 12.3% year on year to ¥7,185.7B. By segment, Recycling Metal (+36.4%), Energy and Lifestyle Materials (+32.2%), and Overseas Sales Subsidiaries (+19.4%) posted strong growth, while the core Steel segment was essentially flat at +0.9%. Expansion in the nonferrous metals and circular resources businesses is driving overall growth.

【Profit and Loss】Operating Income rose sharply by 41.0% to ¥205.7B, primarily due to the improvement in the gross margin (6.0%, +66bp year on year). By segment, Energy and Lifestyle Materials increased from ¥24.7B to ¥56.0B (+126.7%), while Recycling Metal turned profitable, improving from a loss of ¥△0.9B to ¥26.2B, making a substantial contribution to earnings growth. In contrast, the core Steel segment’s segment profit declined from ¥97.6B to ¥84.3B (-13.6%). Ordinary Income was ¥190.2B (+35.6%). In non-operating items, dividend income of ¥14.0B provided support, while interest expenses of ¥20.0B and foreign-exchange losses of ¥8.8B were negative factors. Net Income was ¥112.0B (+17.3%, consolidated), while Net Income attributable to owners of the parent was ¥114.9B (+15.1%). With the effective tax rate high at approximately 40.4%, Net Income growth was limited relative to Ordinary Income growth. Overall, the Company achieved increases in both revenue and profit, with improved profitability in non-resource businesses absorbing the decline in the core business.

Segment Analysis

Segment revenue from external customers was ¥2,724.2B for Steel (37.9% of total, +0.9%), ¥1,414.0B for Overseas Sales Subsidiaries (19.7%, +19.4%), ¥1,237.9B for Energy and Lifestyle Materials (17.2%, +32.2%), ¥874.3B for Recycling Metal (12.2%, +36.4%), ¥625.2B for Primary Metal (8.7%, +13.5%), ¥394.0B for Food (5.5%, +10.4%), and ¥332.7B for Other (4.6%, +6.3%). Steel was the largest contributor to segment profit at ¥84.3B, but this represented a year-on-year decline of -13.6%. Energy and Lifestyle Materials increased significantly to ¥56.0B (+126.7%), while Recycling Metal turned profitable at ¥26.2B. Primary Metal remained in the red at ¥△2.6B, although the loss narrowed. Within the business portfolio, the earnings contribution from nonferrous metals, circular resources, and lifestyle materials is increasing, indicating progress in diversification away from an overreliance on steel.

Key Financial Metrics

【Profitability】The Operating Income margin was 2.9%, improving by +0.6pt from 2.3% in the previous year. The gross margin also improved to 6.0% (5.3% in the previous year), indicating continued margin improvement despite the trading-company business model’s structurally thin margins. The Net Income margin was 1.6%, with the tax burden (effective tax rate of approximately 40.4%) weighing on final earnings relative to Ordinary Income growth.【Cash Quality】Cash and deposits were ¥907.3B, accounts receivable were ¥4,318.1B, and inventories were ¥2,895.4B. All increased from the previous year, indicating an expansion in working capital accompanying revenue growth.【Investment Efficiency】ROE was 2.5%, basic EPS was ¥59.23 (¥49.58 in the previous year, +19.5%), and BPS was ¥2,258.41. Asset turnover efficiency relative to total assets of ¥12,360.4B improved gradually.【Financial Soundness】The Equity Ratio was 35.7%, maintaining the same level as the previous year. Although the Company had ¥2,386.2B in long-term borrowings and ¥350.0B in bonds, current assets of ¥9,470.1B exceeded current liabilities of ¥4,765.6B, securing short-term financial stability.

Cash Flow Analysis

As the cash flow statement has not been disclosed, funding trends are assessed based on changes in the balance sheet. Cash and deposits increased to ¥907.3B from ¥856.7B in the previous year. Accounts receivable increased from ¥4,049.8B to ¥4,318.1B, while inventories were largely unchanged at ¥2,895.4B, indicating an expansion in working capital accompanying revenue growth. Accounts payable declined from ¥2,988.5B to ¥2,851.3B, potentially indicating a shortening of the payment cycle on the procurement side. Long-term borrowings were essentially unchanged, rising from ¥2,384.1B to ¥2,386.2B, with no major change in the funding structure. As total assets increased from ¥1,212.7B to ¥1,236.0B, net assets also accumulated, rising from ¥4,329.5B to ¥4,418.6B, indicating progress in capital accumulation primarily through retained earnings.

Earnings Quality

Current-period earnings were centered on recurring business activities. Extraordinary losses were limited, with an impairment loss on investment securities of ¥2.4B, and the impact of one-time factors was limited. Of non-operating income of ¥30.4B, dividend income of ¥14.0B and other income of ¥6.5B were the primary components. Dependence on these items relative to Revenue was low, indicating limited reliance on non-core income. Meanwhile, non-operating expenses of ¥45.9B were primarily attributable to interest expenses of ¥20.0B and foreign-exchange losses of ¥8.8B, resulting in a ¥15.5B decline between Operating Income and Ordinary Income. The significant gap between Ordinary Income of ¥190.2B and consolidated Net Income of ¥112.0B was primarily attributable to the tax burden of ¥75.8B (corresponding to an effective tax rate of approximately 40.4%). This is better interpreted as a tax-related factor than as a qualitative concern regarding accruals. Comprehensive income was ¥166.2B, exceeding Net Income, with increases in deferred hedging gains/losses of ¥28.2B and foreign currency translation adjustments of ¥14.8B generating the difference.

Earnings Forecast and Guidance

Progress toward the full-year forecast in Q1 was 23.0% for Revenue (¥718.6B against ¥3,000B), 32.9% for Operating Income (¥205.7B against ¥625.0B), and 33.4% for Ordinary Income (¥190.2B against ¥570.0B). Operating Income and Ordinary Income are therefore progressing somewhat ahead of the simple one-quarter benchmark of 25%. Revenue progress is somewhat slower, but profitability is advancing ahead of schedule against the backdrop of improved gross profit and a favorable segment mix. Neither the full-year earnings forecast nor the dividend forecast had been revised as of this quarter.

Shareholder Returns

The full-year dividend forecast is ¥66 per share, based on the post-stock-split basis following the April 2026 stock split. Based on the full-year EPS forecast of ¥205.64, the Payout Ratio is approximately 32.1%. As returns are limited to dividends and there has been no disclosure regarding share repurchases, shareholder returns should be evaluated using the Payout Ratio rather than the Total Return Ratio. Given that earnings progress is slightly ahead of plan, together with the Company’s financial foundation, including an Equity Ratio of 35.7% and cash and deposits of ¥907.3B, the sustainability of the current dividend plan is considered relatively stable.

Risk Factors

1. Spread volatility risk arising from thin margins: The gross margin is 6.0% and the Operating Income margin is 2.9%, both of which remain low. As a result, the business structure is highly sensitive to the impact of narrowing spreads in steel, nonferrous metals, and commodity markets.

2. Foreign-exchange and interest burden: Interest expenses of ¥20.0B and foreign-exchange losses of ¥8.8B among non-operating expenses reduced Ordinary Income by a total of ¥15.5B. Rising interest rates and foreign-exchange fluctuations may affect future non-operating income and expenses.

3. Working capital expansion: Accounts receivable increased from ¥4,049.8B in the previous year to ¥4,318.1B, while inventories remained high at ¥2,895.4B. The expansion of working capital accompanying revenue growth requires monitoring from a funding-efficiency perspective.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (trading)

Profitability and Returns

Profitability is below the industry median, positioning the Company as a relatively low-margin player even within the trading-company sector.

Growth and Capital Efficiency

The Revenue growth rate exceeds both the industry median and the upper bound of the IQR, positioning the Company among the industry’s high-growth players.

※Source: Company analysis

Key Points from the Earnings Results

1. The details of the increases in both revenue and profit are noteworthy: while segment profit in the core Steel segment declined -13.6% year on year, Energy and Lifestyle Materials (+126.7%) and Recycling Metal (turning profitable) lifted company-wide earnings, demonstrating progress in diversifying the business portfolio.

2. The gross margin improved to 6.0% (5.3% in the previous year), and the Operating Income margin improved to 2.9% (2.3% in the previous year). However, both remain below the industry medians (Operating Income margin of 4.3% and Net Income margin of 3.8%), leaving room to improve absolute profitability levels.

3. Full-year progress for both Operating Income and Ordinary Income exceeded 30%, indicating a pace slightly ahead of plan. The high tax burden rate (approximately 40.4%) and working capital expansion will be structural factors determining future cash generation and Net Income growth.

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 period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥2,175–¥2,302 at ±1% for the Cost of Equity, and ¥2,236–¥2,238 at ±0.1 for ω.

Notes:

• Because forecast ROE is below the Cost of Equity, the theoretical value is below Book Value per Share.
• Net assets as of the end of the quarter are used; there is a timing difference relative to the full-year forecast.

(Calculation model: Residual Income Model / Interest rate reference month: 2026-07 / This value neither forecasts nor guarantees 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 issue. Industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, and after consulting a professional advisor as necessary.

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