IWATANI CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

This quarter delivered higher revenue and higher earnings, with profitability at the ordinary income and net income levels significantly exceeding the growth in operating income. In addition to improved earnings power at the operating level, non-recurring items—including a reversal in equity-method investment gains and gains on the sale of investment securities—contributed to the results. Revenue increased to ¥2,333.6B (+13.1% year on year), while operating income achieved double-digit growth of ¥134.1B (+109.0%). Ordinary income rose substantially to ¥342.9B (+361.3%), and net income attributable to owners of the parent increased significantly to ¥317.2B (+569.6%). However, much of this upside was dependent on highly non-recurring items, including an equity-method investment gain of ¥187.7B (compared with an equity-method investment loss of ¥0.7B in the previous year) and a gain on the sale of investment securities of ¥84.2B.

Factors Affecting Results

【Revenue】Company-wide revenue increased 13.1% year on year to ¥2,333.6B. By segment, the Energy Business accounted for the largest share at ¥1,009.2B (43.3% of total revenue, +9.1% year on year), followed by Industrial Gases & Machinery at ¥705.6B (30.2%, +13.1%) and Materials at ¥634.7B (27.2%, +21.8%). Materials recorded the highest growth among all segments, driven by an expansion in demand on a volume basis.

【Profit and Loss】The gross margin improved to 27.7% from 26.4% in the previous year, an improvement of +126bp, while the SG&A ratio declined to 22.0% from 23.3%, a decrease of -135bp. As a result, the operating margin improved by +264bp to 5.7% from 3.1% in the previous year. By segment, the Energy Business secured substantial earnings growth, with segment profit of ¥76.7B (+271.8%), while Industrial Gases & Machinery recorded ¥48.4B (+129.8%). In contrast, Materials posted segment profit of ¥23.0B (-23.1%), resulting in lower earnings despite higher revenue. The growth in ordinary income and net income exceeding that of operating income was primarily attributable to the reversal of the equity-method investment gain included in non-operating income, which was ¥187.7B compared with a loss of ¥0.7B in the previous year, as well as the recognition of extraordinary income of ¥88.7B, including a gain on the sale of investment securities of ¥84.2B. The contribution from temporary factors was therefore substantial. In conclusion, the company delivered higher revenue and higher earnings at the operating income, ordinary income, and net income levels, although the uplift from non-recurring items became particularly pronounced from the ordinary income level onward.

Segment Analysis

The Energy Business was the largest earnings-growth segment, with revenue of ¥1,009.2B (43.3% of total revenue, +9.1%) and operating income of ¥76.7B (+271.8%, 7.6% margin). Industrial Gases & Machinery maintained double-digit growth in both revenue and earnings, with revenue of ¥705.6B (30.2% of total revenue, +13.1%) and operating income of ¥48.4B (+129.8%, 6.9% margin). Materials recorded the highest revenue growth rate at ¥634.7B (27.2% of total revenue, +21.8%), but operating income declined to ¥23.0B (-23.1%, 3.6% margin), making it the only segment to report lower earnings and resulting in higher revenue but lower earnings. Other segments were broadly flat, with revenue of ¥98.1B (+9.9%) and operating income of ¥4.3B (-6.3%). Profitability disparities among segments have widened. While Energy and Industrial Gases are driving earnings growth, improving the profitability of Materials remains an issue to be addressed.

Key Financial Indicators

【Profitability】The operating margin improved to 5.7% from 3.1% in the previous year, an improvement of +264bp, while the net margin based on net income attributable to owners of the parent was 13.6% (¥317.2B/¥2,333.6B), and ROE was 6.6%. 【Cash Quality】Of pretax income of ¥423.5B, the equity-method investment gain accounted for ¥187.7B, or approximately 44.3%. In addition, extraordinary income of ¥88.7B was recognized, primarily comprising a gain on the sale of investment securities of ¥84.2B. Accordingly, the earnings growth at the ordinary income and net income levels was supported by highly non-recurring items. 【Investment Efficiency】Against revenue of ¥2,333.6B and total assets of ¥9,273.6B, the total asset turnover ratio for the quarter was 0.252x, while financial leverage (total assets/equity) was equivalent to 1.90x. 【Financial Soundness】The equity ratio improved to 51.3% from 48.6% in the previous year, an improvement of +2.7pt. Interest-bearing debt, comprising total short-term borrowings, long-term borrowings, and bonds, declined to ¥2,155.6B from ¥2,282.9B in the previous year.

Cash Flow Analysis

Cash and deposits were broadly flat at ¥283.4B compared with ¥276.7B in the previous year, while interest-bearing debt continued to trend downward. Short-term borrowings declined to ¥299.9B, down ¥80.5B year on year (-21.2%), while long-term borrowings decreased to ¥1,155.8B, down ¥46.8B year on year. Bonds remained flat at ¥700.0B. Trade receivables, comprising notes and accounts receivable, declined to ¥1,332.9B, down ¥175.8B year on year, while inventories increased to ¥676.1B, up ¥21.6B year on year. Investment securities increased to ¥2,690.7B, up ¥314.9B (+13.2%) year on year. The accumulation of unrealized gains due to rising market values contributed to the increase in equity (+8.9% year on year) and the improvement in the equity ratio. Overall, the company’s funding structure indicates that it is reducing trade receivables and interest-bearing debt while increasing its balance of investment securities.

Quality of Earnings

Compared with operating income of ¥134.1B, which represents recurring business earnings, ordinary income of ¥342.9B and pretax income of ¥423.5B show a high degree of dependence on non-recurring items. Equity-method investment gains accounted for ¥187.7B of non-operating income of ¥220.2B, equivalent to approximately 44.3% of pretax income of ¥423.5B. As the company recorded an equity-method investment loss of ¥0.7B in the same period of the previous year, this reversal significantly boosted ordinary income growth (+361.3%). Extraordinary income of ¥88.7B was primarily attributable to a gain on the sale of investment securities of ¥84.2B and was a one-time factor. Comprehensive income was ¥440.4B, exceeding net income attributable to owners of the parent of ¥317.2B by ¥119.8B. The primary reason for this difference was an increase of +¥103.2B in the valuation difference on available-for-sale securities. This divergence was caused by changes in the market value of held shares and does not indicate a change in the underlying business structure.

Earnings Forecasts and Guidance

Against the full-year company forecasts of revenue of ¥9,600B, operating income of ¥488.0B, ordinary income of ¥590.0B, and net income of ¥455.0B, Q1 progress rates were 24.3% for revenue and 27.5% for operating income, remaining at broadly standard levels. In contrast, ordinary income reached 58.1% and net income reached 69.7%, representing substantial front-loaded progress. The high progress rates at the ordinary income and net income levels were attributable to the recognition of non-recurring items such as equity-method investment gains and gains on the sale of investment securities. The reproducibility of gains of a similar scale will therefore be an issue toward the full year. As of the current quarter, no revisions had been made to either the earnings forecasts or the dividend forecasts.

Shareholder Returns

The company’s full-year dividend forecast is ¥47.00 per share, representing an expected increase from the previous fiscal year’s actual dividend of ¥23.5 (combined interim and year-end dividends). The payout ratio based on forecast EPS of ¥197.67 is approximately 23.8%, and the estimated total annual dividend based on the average number of shares outstanding during the period is approximately ¥108B. The payout ratio relative to forecast net income of ¥455.0B remains at a conservative level. Together with the equity ratio of 51.3% and the declining trend in interest-bearing debt, this confirms a financial foundation supporting dividend sustainability.

Risk Factors

1. Dependence of earnings composition on non-recurring items: The substantial increases in ordinary income and net income were supported by highly non-recurring items, namely the equity-method investment gain of ¥187.7B (approximately 44.3% of pretax income) and the gain on the sale of investment securities of ¥84.2B. Consequently, the increase in earnings substantially exceeded operating income growth (+109.0%).

2. Profitability disparities among segments: Despite revenue growth of +21.8%, the Materials Business reported a -23.1% decline in operating income, with its margin falling to 3.6%, the lowest level among the segments.

3. Market sensitivity of held assets: Investment securities totaled ¥2,690.7B, accounting for 29.0% of total assets, and increased +13.2% year on year. The valuation difference on available-for-sale securities also increased +24.5% year on year, resulting in an asset composition in which fluctuations in equity markets are likely to affect financial indicators.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Profitability exceeds the industry median. In particular, the net margin ranks among the higher levels in the industry, partly due to the contribution of non-recurring items.

Growth and Capital Efficiency

The revenue growth rate places the company in the industry’s upper group, with revenue growth substantially exceeding the industry average.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The operating margin improved to 5.7% from 3.1% in the previous year, an improvement of +264bp. This confirms an improvement in underlying earnings power driven by both an improvement in the gross margin (+126bp) and a decline in the SG&A ratio (-135bp).

2. The substantial increases in ordinary income and net income were supported by highly non-recurring items, namely the reversal of the equity-method investment gain and the gain on the sale of investment securities. The high full-year progress rates—58.1% for ordinary income and 69.7% for net income—reflect this structure.

3. Although the Materials Business recorded higher revenue, operating income declined -23.1%, indicating variability in profitability within the business portfolio.

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

Sensitivity: ¥2,119–¥2,246 at ±1% for the cost of equity, and ¥2,180–¥2,183 at ±0.1 for ω.

Notes:

• Because net income progress against the full-year forecast (70%) exceeds the standard level (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies progressing ahead of schedule tend to exceed 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 relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value is not a forecast or guarantee of 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 available earnings data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

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