SANSHIN ELECTRONICS CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

Revenue, operating income, and ordinary income increased year on year, but net income attributable to owners of the parent declined due to the reversal of a large extraordinary gain recorded in the previous year. Revenue increased to ¥43.61B (+8.0% YoY), operating income to ¥1.13B (+20.5%), and ordinary income to ¥0.94B (+31.8%), indicating continued improvement at the operating earnings level. However, net income attributable to owners of the parent declined to ¥0.806B (-12.4%). The primary drivers of earnings growth were an improved business mix resulting from strong growth in the Solution Business and lower interest expenses. The primary reason for the decline in net income was the reduction in pretax income caused by the smaller extraordinary gain recorded this period—an investment securities disposal gain of ¥0.318B versus a ¥1.082B gain on the sale of fixed assets in the previous year.

Factors Affecting Performance

【Revenue】Revenue of ¥43.61B increased +8.0% YoY. The Device Business, which accounts for 90.4% of the revenue mix, grew +5.8%, while the Solution Business, accounting for 9.6%, continued to achieve strong growth of +32.9%, driving company-wide growth.

【Profit and Loss】The gross profit margin improved to 9.6% (+0.5pt from 9.1% in the previous year), while the SG&A ratio increased to 7.1% (+0.3pt from 6.8%). However, the effect of higher revenue more than offset the increase in expenses, and the operating margin expanded to 2.6% (+0.3pt from 2.3%). Ordinary income increased +31.8%, supported by lower interest expenses (¥0.099B versus ¥0.126B in the previous year), although a foreign exchange loss of ¥0.148B remained a negative factor. Pretax income was ¥1.26B, down -18.2% YoY, reflecting the reversal of the decline in extraordinary gains from ¥1.082B in the previous year (gain on sale of fixed assets) to ¥0.318B this period (gain on sale of investment securities). The effective tax rate declined to 35.5% from 40.2% in the previous year. The decline in net income was therefore driven primarily not by a higher tax burden but by the reversal of the extraordinary gain. Overall, the company experienced higher revenue and earnings at the operating and ordinary income levels, while final earnings declined due to a temporary factor.

Segment Analysis

The Device Business (90.4% of revenue) generated revenue of ¥39.41B (+5.8% YoY) and segment profit of ¥0.708B (+26.0%), resulting in a segment margin of approximately 1.8%. The Solution Business (9.6% of revenue) generated revenue of ¥4.19B (+32.9%) and segment profit of ¥0.233B (+52.3%), resulting in a segment margin of approximately 5.6%, approximately 3.8pt higher than that of the Device Business. Total segment profit of ¥0.942B is consistent with consolidated ordinary income, indicating that the Solution Business is driving improvement in the company-wide margin in terms of both growth and profitability. However, the Device Business still accounts for more than 90% of revenue, and business concentration remains high.

Key Financial Metrics

【Profitability】The operating margin improved to 2.6% from 2.3% in the previous year, while the net profit margin, based on net income attributable to owners of the parent, declined to 1.8% from 2.3%. This reflected the reduction in pretax income resulting from the reversal of the extraordinary gain.【Cash Flow Quality】Comprehensive income was ¥1.33B, exceeding net income attributable to owners of the parent of ¥0.806B. The primary reason for the difference was an increase in other comprehensive income, including foreign currency translation adjustments of +¥0.43B and valuation differences on available-for-sale securities. This should be assessed separately from the company’s recurring earning power.【Investment Efficiency】ROE was 1.8%, based on net income attributable to owners of the parent, remaining at a level that can be explained as the product of the net profit margin, total asset turnover, and financial leverage.【Financial Soundness】The equity ratio improved to 55.1%, up +4.6pt from 50.5% in the previous year. Short-term payment capacity remained sound, with a current ratio of 202.2% and a quick ratio of 145.1%. Short-term borrowings declined -25.7% to ¥14.68B from ¥19.75B in the previous year, indicating an improving financial position.

Cash Flow Analysis

Although the company does not disclose a statement of cash flows, its funding trends can be assessed based on changes in the balance sheet. Cash and deposits declined -10.3% to ¥8.68B from ¥9.68B in the previous year, while short-term borrowings declined -25.7% to ¥14.68B from ¥19.75B, suggesting that interest-bearing debt was reduced through the use of cash on hand. Accounts receivable declined -9.0% YoY to ¥38.56B, while inventories declined -3.1% to ¥20.32B, indicating that working capital reduction may have contributed to cash generation. Total assets declined -9.3% YoY to ¥82.59B, with a substantial -61.6% decrease in other current assets also contributing to the reduction in assets.

Earnings Quality

Pretax income for the current period includes a temporary extraordinary gain of ¥0.318B from the sale of investment securities, while the previous year also included a temporary gain of ¥1.082B from the sale of fixed assets. Accordingly, final earnings in both periods cannot be explained solely by recurring business earnings. Non-operating income was ¥0.08B, or slightly less than 0.2% of revenue, and was therefore immaterial, indicating a low degree of dependence on non-operating income as a driver of ordinary income. In contrast, non-operating expenses included a foreign exchange loss of ¥0.148B, which pressured ordinary income, indicating a structure susceptible to non-recurring market factors. Comprehensive income of ¥1.33B significantly exceeded net income attributable to owners of the parent of ¥0.806B, primarily due to the increase in foreign currency translation adjustments. From an accruals perspective, this should be noted as not representing the underlying earning power of the business itself.

Earnings Forecast and Guidance

Progress toward the full-year earnings forecast in Q1 was 23.4% for revenue, 20.3% for operating income, 18.8% for ordinary income, and 22.4% for net income attributable to owners of the parent. All remained slightly below the simple seasonal allocation of 25%. Progress in operating income and ordinary income was particularly low relative to the full-year plan, potentially reflecting the impact of the foreign exchange loss. The full-year earnings forecast itself calls for revenue growth of +7.9%, but declines of -19.7% in operating income and -17.7% in ordinary income, differing in direction from the earnings growth seen in Q1. Although the full-year earnings forecast was revised during the quarter, the dividend forecast was not revised.

Shareholder Returns

The full-year dividend forecast is ¥140 per share. Based on the average number of shares outstanding during the period of 12.2426M shares, the estimated annual dividend amount is approximately ¥1.71B. The payout ratio against the full-year net income forecast attributable to owners of the parent of ¥3.60B is approximately 47.6%, which is not an excessive burden relative to earnings. There was no revision to the dividend forecast, and the dividend policy for the current period remains unchanged from the previous year.

Risk Factors

1. Foreign Exchange Sensitivity: The company recorded a foreign exchange loss of ¥0.148B during the quarter, which pressured ordinary income. Fluctuations in foreign exchange rates can increase the volatility of ordinary income through non-operating gains and losses.

2. Business Concentration Risk: The Device Business accounts for 90.4% of revenue, and the business portfolio remains highly dependent on the Device Business. Although the Solution Business has high growth and profitability, it accounts for only 9.6% of revenue, limiting its impact on company-wide performance.

3. Funding Structure: Short-term borrowings were ¥14.68B, down -25.7% from the previous year. However, borrowings exceeded cash and deposits of ¥8.68B, and the company continues to have a funding structure dependent on current assets, including accounts receivable and inventories.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (trading)

Profitability and Returns

Both the operating margin and net profit margin were below the industry median, indicating that profitability was relatively low within the industry.

Growth and Capital Efficiency

The revenue growth rate exceeded the industry median, indicating that top-line growth was relatively strong within the industry.

Source: Compiled by the Company

Key Points from the Earnings Results

1. Operating income increased +20.5% and ordinary income increased +31.8%, indicating continued improvement at the earnings level, while net income attributable to owners of the parent declined -12.4%. The primary reason for the difference was the reversal of the large extraordinary gain recorded in the previous year—a ¥1.082B gain on the sale of fixed assets. The effective tax rate actually declined to 35.5%. Operating earning power and final net income should therefore be evaluated separately.

2. The Solution Business achieved strong growth, with revenue up +32.9% and segment profit up +52.3%. Its segment margin of approximately 5.6% exceeded the approximately 1.8% margin of the Device Business. Continued expansion of the Solution Business’s revenue mix could support an improvement in the company-wide margin over the medium term.

3. The full-year earnings forecast calls for declines of -19.7% in operating income and -17.7% in ordinary income, differing in direction from the growth trend seen in Q1. The subsequent quarterly progress against the plan will be an important point to monitor.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly available 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: ¥3,457–¥3,655 at ±1% for the cost of equity, and ¥3,548–¥3,557 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, resulting in a timing mismatch with 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: 2026-07 / This value does not forecast or guarantee the future share price.)

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This report is an earnings analysis document automatically generated by AI based on 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 discretion and responsibility, after consulting with a professional as necessary.

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