Shinko Shoji Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

Although the Company secured higher revenue and operating and ordinary income for the period, net income declined due to the recognition of an extraordinary loss. The results therefore reflected a temporary downward pressure superimposed on an underlying trend of revenue and profit growth. Revenue rose to ¥271.4B (+25.1% year on year), Operating Income increased to ¥2.8B (+33.1%), and Ordinary Income rose substantially to ¥6.5B (+67.9%), while Net Income attributable to owners of the parent remained at ¥3.65B (-7.3%). The primary drivers of revenue growth were the expansion of the Electronic Equipment Component Business and the more-than-doubling of Other Businesses year on year. The increase in Ordinary Income was driven by higher non-operating income, including dividend income received and foreign exchange gains. The decline in final profit was mainly attributable to the recognition of an extraordinary loss of ¥1.7B, exceeding the ¥0.6B gain on the sale of investment securities.

Factors Affecting Performance

【Revenue】Revenue was ¥271.4B, up +25.1% year on year, with two of the three segments posting double-digit revenue growth. The core Electronic Equipment Component segment led revenue growth with ¥174.3B (64.2% of total revenue, +16.5%), while Other Equipment expanded sharply to ¥61.4B (22.6% of total revenue, +112.5%). Assembly Product was the only segment to report a revenue decline, at ¥35.7B (13.2% of total revenue, -7.2%).

【Profit and Loss】Operating Income was ¥2.8B (+33.1%), and the Operating Income margin improved to 1.04% from 0.98% in the previous year, an improvement of +6bp. Although the gross margin declined to 9.82% from 10.32% in the previous year, a decrease of -0.5pt, the Company secured higher Operating Income because SG&A expenses grew (+17.6%) at a slower pace than revenue (+25.1%). Ordinary Income was ¥6.5B (+67.9%), driven by an increase in non-operating income of ¥3.9B, including ¥2.0B in dividend income received and ¥0.7B in foreign exchange gains. Although the Company recorded an extraordinary gain of ¥0.6B on the sale of investment securities, the extraordinary loss of ¥1.7B exceeded it, resulting in Profit Before Tax of ¥5.4B, down -3.2% year on year, in contrast to the growth in Ordinary Income. Consequently, Net Income attributable to owners of the parent was ¥3.65B (-7.3%), leading to the conclusion that final profit declined mainly due to the recognition of the extraordinary loss despite higher revenue and profit at the operating and ordinary income levels.

Segment Analysis

Electronic Equipment Component remained the core business, with revenue of ¥174.3B (64.2% of total revenue) and Operating Income of ¥4.6B (2.7% margin). However, its profit growth rate (+8.7%) was below its revenue growth rate (+16.5%), indicating pressure on margins. Other Equipment generated revenue of ¥61.4B (22.6% of total revenue) and Operating Income of ¥1.2B (1.9% margin), showing outstanding growth in both revenue and profit and contributing to portfolio diversification. Assembly Product was the only segment to report a revenue decline, with revenue of ¥35.7B (13.2% of total revenue), but maintained profitability, with a 5.9% margin—the highest among the three segments. Corporate expenses (segment adjustment amount) expanded to -¥5.1B from -¥4.5B in the previous year. Corporate expenses represented approximately 65% of the total segment profit of ¥7.9B, resulting in a substantial reduction after allocation to Company-wide Operating Income of ¥2.8B.

Key Financial Indicators

【Profitability】ROE was 0.7% (quarterly result, calculated as Net Income attributable to owners of the parent of ¥3.65B ÷ average equity of approximately ¥531B). The Operating Income margin was 1.0%, the Ordinary Income margin was 2.4%, and the Net Income margin, based on income attributable to owners of the parent, was 1.3%. 【Cash Quality】Cash and deposits were ¥294.8B, accounting for 35.7% of total assets. The Company remained in a net cash position relative to interest-bearing debt totaling ¥32.3B, including both short-term and long-term debt. 【Investment Efficiency】Total asset turnover was only 0.33x (quarterly result), while the low-margin structure, consisting of a gross margin of 9.8% and an SG&A ratio of 8.8%, was the primary factor restraining ROE. 【Financial Soundness】The Equity Ratio was 65.9%, slightly below 66.3% in the previous year but remaining at a high level. The current ratio was 319% (current assets of ¥722.7B / current liabilities of ¥226.4B), indicating substantial liquidity.

Cash Flow Analysis

Cash and deposits at the end of Q1 were ¥294.8B, a decrease of ¥8.5B (-2.8%) from ¥303.3B in the same period of the previous year. While inventories increased to ¥164.7B (+32.4% year on year, +¥40.3B), notes and accounts receivable declined to ¥178.6B (-7.6% year on year), and annualized days sales outstanding shortened from the 80-day range in the previous year to approximately 60 days. Inventory turnover days lengthened slightly from approximately 58 days in the previous year to approximately 61 days, with inventory accumulation becoming a factor behind increased working capital requirements. Short-term borrowings increased to ¥17.3B (+73.0% year on year, +¥7.3B), suggesting that short-term financing progressed in line with inventory accumulation. Accounts payable turnover days shortened from approximately 67 days in the previous year to approximately 61 days, and the cash conversion cycle (CCC) improved from approximately 73 days in the previous year to approximately 60 days.

Earnings Quality

Of Ordinary Income of ¥6.5B, non-operating income of ¥3.9B—including ¥2.0B in dividend income received, ¥0.8B in interest income received, and ¥0.7B in foreign exchange gains—was a key upward contributor and is influenced by financial conditions and foreign exchange markets. While the Company recorded an extraordinary gain of ¥0.6B on the sale of investment securities, it also recorded an extraordinary loss of ¥1.7B, resulting in a temporary net downward impact of ¥1.1B. Consequently, Profit Before Tax declined to ¥5.4B (-3.2% year on year), in contrast to the growth in Ordinary Income (+67.9%). The significant divergence between Ordinary Income and Profit Before Tax is an important consideration in assessing earnings quality. Comprehensive Income was ¥12.6B, including ¥12.4B attributable to owners of the parent, substantially exceeding Net Income attributable to owners of the parent of ¥3.65B. Non-cash other comprehensive income, including a +¥5.0B valuation difference on other securities and a +¥3.8B foreign currency translation adjustment, contributed to the increase.

Earnings Forecast and Guidance

Progress against the full-year earnings forecast was 21.5% for Revenue (¥271.4B / ¥1260.0B), 15.7% for Operating Income (¥2.8B / ¥18.0B), and 30.8% for Ordinary Income (¥6.5B / ¥21.0B). Assuming a simple quarterly distribution of 25%, progress in Operating Income was somewhat behind schedule, while Ordinary Income was ahead, suggesting that the positive impact of higher non-operating income may also be contributing relative to the full-year plan. As of Q1, there had been no revision to the earnings forecast, and the full-year plan for higher revenue and profit was maintained, calling for Revenue growth of +27.1%, Operating Income growth of +49.8%, and Ordinary Income growth of +35.0%.

Shareholder Returns

As of the earnings release, the full-year dividend forecast was ¥0 per share, compared with actual dividends of ¥6 per share in the previous fiscal year. There was no revision to the dividend forecast during Q1. Based on the information disclosed at this time, the Payout Ratio cannot be calculated.

Risk Factors

1. Segment concentration risk: Electronic Equipment Component accounts for 64.2% of revenue (¥174.3B / ¥271.4B), creating a structure in which demand and pricing trends in this field have a significant impact on overall performance.

2. Foreign exchange sensitivity: The Company recorded foreign exchange gains of ¥0.7B in non-operating income, an amount equivalent to approximately 26% of Operating Income of ¥2.8B. Fluctuations in foreign exchange rates could therefore amplify earnings volatility.

3. Working capital accumulation: Inventories increased to ¥164.7B (+32.4% year on year, +¥40.3B), and short-term borrowings also increased to ¥17.3B (+73.0%) in line with this increase. Inventory valuation and funding requirements therefore require monitoring.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Income margin and Net Income margin, on a consolidated basis, are below the industry median, placing profitability in the lower tier of the industry.

Growth and Capital Efficiency

The Revenue growth rate substantially exceeded the industry median, with top-line growth standing out within the industry.

※Source: Compiled by the Company

Key Points in the Earnings Results

1. The Operating Income margin of 1.0% remained below the industry median of 4.3% (-3.2pt), while the gross margin also declined to 9.8% from 10.3% in the previous year. Against this backdrop, the Company secured higher Operating Income through the effects of revenue growth and control of SG&A expenses.

2. Ordinary Income increased substantially by +67.9%, while Profit Before Tax declined by -3.2%. The Company has a high dependence on non-operating income, and fluctuations in extraordinary gains and losses have created divergence between profit levels.

3. Due to the recognition of an extraordinary loss of ¥1.7B, Net Income attributable to owners of the parent declined by -7.3% despite higher profit at the operating and ordinary income levels. This is an important point in evaluating earnings quality and sustainability.

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

Sensitivity: ¥1,498–¥1,587 at ±1% for the cost of equity, and ¥1,529–¥1,549 at ±0.1 for ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of Q1 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.

(Calculation model: Residual income model / Interest rate reference month: 2026-06 / This value does not predict 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 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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