FULUHASHI EPO (9221) FY2026 Q3 Earnings Report

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Executive Summary

While the Company secured increases in both revenue and operating income, ordinary income and net income declined due to an increase in non-operating expenses, making this an earnings period requiring attention to earnings quality. Revenue increased to ¥74.2B (+7.9% YoY), and operating income expanded to ¥8.3B (+10.2%), but ordinary income declined to ¥8.1B (-18.3%), while net income fell to ¥5.8B (-13.6%). The primary factor was deterioration in non-operating expenses, including an increase in interest expenses. The divergence between earnings power at the operating level and earnings from ordinary activities and below is a defining feature of these results.

Factors Driving Earnings Changes

【Revenue】Revenue was ¥74.2B, representing a +7.9% increase YoY. By segment, the Biomaterials Business generated ¥54.0B in revenue (72.8% of total revenue, +8.9% YoY), while the Resource Circulation Business generated ¥12.5B (16.9% of total revenue, +10.6% YoY); both segments posted revenue growth, driven by waste disposal, collection and transportation, and wood chip sales.

【Profit and Loss】Operating income was ¥8.3B (+10.2% YoY), and the operating margin improved to 11.2% from 10.9% in the previous year. Meanwhile, non-operating expenses increased to ¥0.9B, mainly due to an increase in interest expenses (¥0.3B → ¥0.4B), causing ordinary income to decline to ¥8.1B (-18.3% YoY). Although the Company recorded a gain on the sale of fixed assets of ¥0.8B as extraordinary income, resulting in profit before tax of ¥8.9B, the effective tax rate was high at approximately 34.2%, which also contributed to depressing net income to ¥5.8B (-13.6% YoY). In conclusion, the Company achieved increases in both revenue and operating income at the operating level, but posted declines in ordinary income and net income, presenting a pattern of revenue growth but profit declines due to non-operating and tax burden factors.

Segment Analysis

The Biomaterials Business reported revenue of ¥54.0B (+8.9% YoY) and segment profit of ¥7.3B (-0.3% YoY), remaining nearly flat. The Resource Circulation Business reported revenue of ¥12.5B (+10.6% YoY) and segment profit of ¥0.7B (+74.0% YoY), representing substantial profit growth; improved profitability in the Resource Circulation Business supported overall profit. Although the Biomaterials Business achieved revenue growth, its profit remained flat, suggesting the impact of cost increases and lower-margin products.

Key Financial Indicators

【Profitability】The operating margin of 11.2%, net profit margin of 7.9%, and gross margin of 43.9% were all at solid levels, while annualized ROE was 13.3%, indicating favorable returns on equity. 【Cash Quality】A gain on the sale of fixed assets of ¥0.8B as extraordinary income contributed to net income, meaning that the difference between ordinary income and net income includes temporary factors. While inventories were reduced by -37.1% YoY, accounts payable increased by +36.1%, indicating changes in working capital. 【Investment Efficiency】The total asset turnover ratio remained around 0.56x, and the capital-intensive structure continued, with property, plant and equipment accounting for 72.6% of total assets. 【Financial Soundness】The equity ratio was 44.3% (slightly down from 45.9% in the previous year), while short-term borrowings surged +81.1% YoY. The current ratio was 57.8%, below 100%, indicating a need to monitor liquidity and funding conditions.

Cash Flow Analysis

As this material does not disclose a cash flow statement, funding trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥10.5B, slightly down from ¥11.1B in the previous year, while short-term borrowings increased +81.1% from ¥12.5B to ¥22.7B, suggesting increased reliance on external borrowings for funding. Property, plant and equipment increased to ¥96.1B from ¥84.8B in the previous year, indicating continued capital investment. The reduction in inventories (-37.1%) and increase in accounts payable (+36.1%) worked to reduce working capital and may have contributed to containing short-term cash outflows.

Earnings Quality

Operating income, which reflects the profitability of the core business, improved by +10.2% YoY, but ordinary income and net income declined in contrast, warranting attention to earnings quality. Non-operating income remained limited at ¥0.7B, including dividends received, while non-operating expenses increased to ¥0.9B, primarily due to higher interest expenses, placing pressure on profitability at the ordinary income level. In addition, a gain on the sale of fixed assets of ¥0.8B was recorded as extraordinary income, meaning that a certain portion of profit before tax of ¥8.9B relied on temporary factors. Comprehensive income was ¥5.9B, nearly in line with net income of ¥5.8B. Factors other than foreign exchange, such as valuation differences on other securities and retirement benefit adjustments, were limited, and the divergence between comprehensive income and net income was small.

Earnings Forecast and Guidance

The full-year Company forecast calls for revenue of ¥103.2B (+10.0% YoY), operating income of ¥13.0B (+13.1% YoY), ordinary income of ¥13.3B (-6.8% YoY), and EPS of ¥78.22. The Q3 cumulative revenue progress rate was 71.9% (¥74.2B/¥103.2B), while the operating income progress rate was 63.7% (¥8.3B/¥13.0B). Revenue is progressing in line with the plan, whereas operating income is at a level requiring a corresponding buildup in Q4. Even in the full-year forecast, ordinary income is expected to decline -6.8% YoY, suggesting that the trend of increasing non-operating expenses may continue in the second half and thereafter.

Shareholder Returns

The dividend was ¥14 per share for the interim period, while the full-year Company forecast is ¥30 (the previous year’s actual results were ¥14 for the interim dividend and a plan based on the annual dividend results, etc.). An increasing dividend trend is evident. Based on the Company’s forecast EPS of ¥78.22 and the full-year forecast dividend of ¥30, the payout ratio is approximately 38.4%, indicating a moderately progressive shareholder return policy relative to earnings growth. No share repurchase has been disclosed, making evaluation based on the payout ratio, rather than the total return ratio, appropriate.

Risk Factors

1. Liquidity Risk: The current ratio was 57.8% and the quick ratio was 56.9%, both below 100%, while short-term borrowings surged +81.1% YoY (¥12.5B → ¥22.7B). Short-term liabilities are large relative to cash and deposits of ¥10.5B, necessitating ongoing monitoring of funding conditions.

2. Risk of Increased Interest Burden: Interest expenses increased from ¥0.3B to ¥0.4B, becoming the primary factor behind the expansion in non-operating expenses. As reliance on short-term borrowings increases, changes in the interest-rate environment could affect future ordinary income.

3. Tax Burden Risk: The effective tax rate was high at approximately 34.2% (equivalent to corporate income taxes, etc. of ¥3.0B/profit before tax of ¥8.9B), depressing net income relative to profit before tax.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the operating margin and net profit margin exceeded the industry median, placing the Company’s profitability at a relatively advantageous level within the industry.

Growth and Capital Efficiency

The revenue growth rate was below the industry median, indicating that the Company’s growth speed is somewhat less competitive despite its profitability advantage.

※Source: Compiled by the Company

Key Takeaways from the Results

1. Although operating income continued to increase, ordinary income and net income declined due to higher non-operating expenses, making the divergence in earnings trends between the operating level and ordinary income and below a defining feature of these results.

2. Short-term borrowings surged +81.1% YoY, while the current ratio remained at 57.8%. The resulting changes in the funding structure are reflected in the financial indicators, making future repayment and refinancing trends a key area of focus.

3. Segment profit in the Resource Circulation Business increased significantly by +74.0% YoY. The impact of changes in the earnings structure between segments on overall profit will be an important monitoring point going forward.

Theoretical Share Price (Reference Value)

Sensitivity: ¥569–¥602 at ±1% for the cost of equity, and ¥584–¥588 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing difference relative to the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest Rate Reference Month: 2026-07 / These are mechanically calculated values based solely on publicly disclosed data and do not constitute a forecast of the market share price or a recommendation of any specific investment action, nor do they forecast or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI through analysis of 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 professionals as necessary.

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