Meiwa (8103) FY2026 FY Earnings Report

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Executive Summary

Although the Company remained on a track of higher revenue and operating income, Ordinary Income declined due to a decrease in equity-method investment income, while Net Income was nearly flat. Revenue increased to ¥164.93B (+5.2% YoY), and Operating Income rose to ¥4.13B (+15.8% YoY), indicating improved profitability in the core business. However, Ordinary Income was ¥4.44B (-1.8% YoY), and Net Income was ¥3.48B (+1.0% YoY). The opposing factors of an improved gross margin and a decline in equity-method investment income (¥0.64B→¥0.13B) resulted in different trends between Operating Income and Ordinary Income and below.

Factors Driving Performance Changes

【Revenue】Revenue increased 5.2% YoY to ¥164.93B. By segment, the largest-scale Third Business grew to ¥66.96B (+11.8%), while the Battery and Automotive Business increased to ¥12.83B (+19.8%). In contrast, the Second Business declined to ¥40.44B (-7.7%). By region, Japan increased to ¥109.87B (+7.0%), while China declined to ¥46.70B (-3.9%); growth in Japan and other regions offset the decline in China.

【Profit and Loss】Operating Income increased 15.8% to ¥4.13B, primarily due to the improvement in the gross margin from 8.0% to 8.7%. However, SG&A expenses increased by +12.4%, exceeding the revenue growth rate, and the SG&A ratio rose to 6.1%. Ordinary Income declined 1.8% to ¥4.44B, pressured by an 80.2% decrease in equity-method investment income from ¥0.64B to ¥0.13B. Net Income was nearly flat at ¥3.48B (+1.0% YoY), while Profit Before Tax was pushed up to ¥5.09B by extraordinary income, including a ¥0.63B gain on the sale of investment securities. In conclusion, the Company achieved higher revenue and operating income, but growth at the Ordinary Income level and below was constrained by the decline in equity-method investment income.

Segment Analysis

Segment profit, on an Ordinary Income basis, was ¥2.50B for the First Business (5.6% margin, +5.5% YoY), maintaining its position as the earnings pillar. The Third Business generated the highest revenue at ¥66.96B, but profit was ¥0.95B (1.4% margin, -7.6% YoY), indicating that the increase in revenue was not converted into profit. The Battery and Automotive Business recorded revenue of ¥12.83B (+19.8%), but profit plunged to ¥0.02B (-94.4% YoY), reflecting a significant deterioration in profitability. Despite a revenue decline of -7.7%, the Second Business improved profit to ¥0.92B (+15.0%, 2.3% margin), resulting in a clear divergence among segments.

Key Financial Metrics

【Profitability】The Operating Income margin was 2.5% (2.3% in the previous year), while the Net Income margin was 2.0%. The improvement in the gross margin accompanying revenue growth lifted the Operating Income margin, but both margins remained low. ROE was 8.3%; asset turnover was under downward pressure against the backdrop of sluggish Net Income growth and a +13.3% increase in total assets. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥4.41B, exceeding Net Income of ¥3.48B, indicating good cash conversion. 【Investment Efficiency】Capital expenditures of ¥0.18B were below depreciation and amortization of ¥0.33B, indicating that replacement investment in tangible assets was below depreciation. Meanwhile, intangible assets increased substantially to ¥2.58B, primarily in the Third Business, suggesting that the focus of investment is shifting from tangible assets toward intangible assets and M&A-related activities. 【Financial Soundness】The Equity Ratio was 49.8%, and BPS increased to ¥1,038.19 from ¥957.04 in the previous year, indicating that the financial foundation remains stable.

Cash Flow Analysis

Operating Cash Flow was ¥4.41B, essentially flat at +1.7% YoY, while remaining above Net Income and indicating good cash conversion. In terms of working capital, a ¥1.56B decrease in inventories contributed positively, while a ¥1.05B increase in trade receivables and a ¥0.70B decrease in trade payables were sources of cash outflow. Investing Cash Flow represented an outflow of ¥3.19B. Although capital expenditures were small at ¥0.18B, funding requirements including long-term loans and acquisitions of subsidiaries were the main components of investing activities. Financing Cash Flow was positive at ¥0.96B, as proceeds from long-term borrowings exceeded share repurchases of ¥0.28B and dividend payments. As a result, Free Cash Flow (OCF + Investing Cash Flow) remained positive at ¥1.21B; however, it did not independently cover total dividends of ¥1.68B and was supplemented through capital allocation involving cash on hand and external financing.

Quality of Earnings

Profit Before Tax was ¥5.09B, 14.7% higher than Ordinary Income of ¥4.44B. Extraordinary income of ¥0.665B, principally comprising a ¥0.63B gain on the sale of investment securities, was the main cause of this gap and should be treated as a temporary factor when evaluating current-period Net Income. Non-operating income was ¥0.58B, equivalent to only 0.4% of revenue, and mainly comprised dividend income of ¥0.24B and equity-method investment income of ¥0.13B. Equity-method investment income declined substantially from ¥0.64B in the previous year, becoming a factor behind the decline in Ordinary Income. Non-operating expenses were ¥0.28B, mainly consisting of foreign exchange losses of ¥0.15B and interest expenses of ¥0.09B. The fact that OCF exceeded Net Income indicates good earnings quality from an accrual perspective, although Net Income was supported to a certain extent by extraordinary income.

Earnings Forecast and Guidance

The Company forecasts Revenue of ¥170.00B (+3.1%), Operating Income of ¥4.20B (+1.6%), Ordinary Income of ¥4.80B (+8.1%), and Net Income of ¥3.70B (+9.7%). The plan assumes that Operating Income growth will fall below revenue growth, possibly reflecting a conservative estimate for the continuation of the gross-margin improvement seen in the current period. Meanwhile, Ordinary Income is projected to grow faster than Operating Income, making a recovery in equity-method investment income and non-operating income and expenses—both of which were factors behind the decline in the current period—key to achieving the plan. The dividend forecast is ¥47.00 per share (full year, +11.9% from ¥42.00 in the previous period), implying a Payout Ratio of approximately 50.2% against forecast EPS of ¥93.53, a level that maintains the current policy.

Shareholder Returns

The annual dividend was ¥42.00 per share (¥0.00 interim dividend, concentrated at fiscal year-end), and the Payout Ratio based on total dividends of ¥1.68B was 50.0%. Including share repurchases of ¥0.28B, total returns amounted to ¥1.96B, resulting in a Total Return Ratio of approximately 56.3% against Net Income of ¥3.48B. Dividend coverage based on Free Cash Flow of ¥1.21B was below 1x, meaning that dividends were not covered solely by current-period Free Cash Flow; however, the Equity Ratio of 49.8% and ample cash on hand support the returns. The Company plans to increase the annual dividend to ¥47.00 per share in the next period.

Risk Factors

1. Widening disparity in segment profitability: The Third Business, which has the highest revenue, recorded revenue growth of 11.8% but a profit margin of 1.4% and a 7.6% decline in profit YoY. The Battery and Automotive Business also recorded revenue growth of 19.8% but a 94.4% decline in profit, indicating a structure in which revenue growth is unlikely to translate into consolidated profit.

2. Volatility risk in equity-method investment income: Equity-method investment income declined 80.2% from ¥0.64B in the previous year to ¥0.13B, becoming a factor behind the decline in Ordinary Income. The performance of investees, resource and energy prices, and foreign exchange movements may continue to affect Ordinary Income.

3. Declining China revenue and regional concentration: Revenue from China was ¥46.70B (28.3% of total revenue), down -3.9% YoY. Demand trends, foreign exchange movements, and regulatory developments in China may affect sales volumes and profitability.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (trading)

Profitability and Returns

The Company’s profitability is below the industry median on both measures, placing it in the low-profitability group within the industry.

Growth and Capital Efficiency

Revenue growth was approximately in line with the industry median, indicating that growth was broadly average within the industry.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Operating Income increased +15.8%, and the Operating Income margin also improved, confirming a positive change in the core business through gross-margin improvement. However, Net Income was nearly flat, requiring an assessment of earnings power that takes into account the decline in equity-method investment income and the temporary nature of extraordinary income.

2. While the First Business is the earnings pillar supporting more than half of segment profit, profitability improvements in the Third Business, which has the largest revenue scale, and the growing Battery and Automotive Business will determine the future direction of the Company-wide profit margin.

3. The next-period plan is conservative, with revenue growth of 3.1% versus Operating Income growth of 1.6%. Growth in Ordinary Income and Net Income is planned to depend on a recovery in non-operating income and expenses, including equity-method investment income.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,001–¥1,058 at ±1% for the cost of equity, and ¥1,028–¥1,029 at ±0.1 for ω.

Notes:

• Amortization of goodwill of ¥1.1 per share is added back to profit (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.

(Valuation model: Residual Income Model (Ohlson-type, with an 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, nor does it forecast or guarantee 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 security. The industry benchmark is reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting a professional as necessary.

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