TRE HOLDINGS CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

The Company reported a substantial decline in revenue and earnings in Q1, owing to the reaction to a large transaction recorded in the previous year and a sharp slowdown in the Waste Treatment and Resource Recovery Business. Revenue was ¥274.5B (-15.3% YoY), Operating Income was ¥20.0B (-73.8%), Ordinary Income was ¥18.3B (-75.6%), and Net Income was ¥11.5B (-77.4%). The Operating Income margin contracted significantly to 7.3% from 23.6% in the previous year. While increased revenue and earnings in the Resource Recycling Business provided support, the sharp decline in the Waste Treatment and Resource Recovery Business and the Renewable Energy Business's shift into the red put pressure on company-wide profitability.

Factors Behind Performance Changes

【Revenue】Revenue was ¥274.5B, representing a 15.3% YoY decline. By segment, the Resource Recycling Business secured increased revenue of ¥133.7B (+23.8%), while the Renewable Energy Business posted revenue of ¥47.7B (+34.9%). However, the core Waste Treatment and Resource Recovery Business recorded a substantial revenue decline to ¥78.6B (-51.5%), weighing down company-wide revenue. Fluctuations in metal scrap prices and a change in segment classification—the reclassification of a subsidiary's metal recycling revenue from waste treatment to metal scrap—also affected changes in the revenue mix.

【Profitability】Operating Income declined substantially to ¥20.0B (-73.8%), while the Operating Income margin contracted significantly to 7.3% from 23.6% in the previous year. The gross margin also declined to 21.0% from approximately 34.3% in the previous year. SG&A expenses increased to ¥37.5B (¥34.6B in the previous year, +8.4%) despite the decline in revenue, resulting in negative operating leverage. Operating Income in the Resource Recycling Business increased substantially to ¥18.3B (+168.7%), supporting company-wide performance. However, Operating Income in the Waste Treatment and Resource Recovery Business fell sharply to ¥10.5B (-85.2%), while the Renewable Energy Business posted a loss of ¥3.9B. Ordinary Income was ¥18.3B (-75.6%), and Net Income was ¥11.5B (-77.4%). The gap between Ordinary Income and Net Income reflects a tax burden corresponding to an effective tax rate of approximately 34.7%. Extraordinary income was ¥0.5B (gain on sale of fixed assets), while extraordinary loss was ¥1.2B (loss on disposal of fixed assets), resulting in a slight net negative impact that was immaterial. In conclusion, the Company reported lower revenue and earnings.

Segment Analysis

The Resource Recycling Business posted revenue of ¥133.7B (+23.8%), Operating Income of ¥18.3B (+168.7%), and a profit margin of 13.7%, representing substantial earnings growth. It became the largest segment, accounting for 51.4% of company-wide revenue. The Waste Treatment and Resource Recovery Business experienced a sharp slowdown, with revenue of ¥78.6B (-51.5%) and Operating Income of ¥10.5B (-85.2%), reflecting the impact of the substantial decline in revenue from the previous year. The Renewable Energy Business increased revenue to ¥47.7B (+34.9%), but its operating result shifted into a loss of ¥3.9B, diluting the company-wide margin with a margin of -8.2%. The significant disparity in profit margins among segments has increased the sensitivity of company-wide performance to operating conditions and the pricing environment in the Resource Recycling Business.

Key Financial Indicators

【Profitability】The Operating Income margin contracted substantially to 7.3% from 23.6% in the previous year, while the Net Income margin also declined to 4.2% from approximately 15.6% in the previous year. ROE was 1.3% (EPS of ¥25.04, compared with ¥103.84 in the previous year), indicating a substantial deterioration in capital efficiency from the previous year.【Cash Flow Quality】A gap exists between Ordinary Income of ¥18.3B and Net Income of ¥11.5B, primarily due to the ¥6.1B corporate income tax burden. The impact of extraordinary gains and losses was limited to a net loss of ¥0.75B.【Investment Efficiency】Total assets were ¥1703.7B and net assets were ¥853.1B, with no significant change in the asset structure. From an asset efficiency perspective, the asset turnover ratio declined slightly due to lower revenue.【Financial Soundness】The Equity Ratio remained at a stable level of 50.1% (approximately 49.8% in the previous year), while cash and deposits were substantial at ¥340.5B, securing resilience in short-term liquidity management.

Cash Flow Analysis

As detailed information from the cash flow statement is outside the scope of disclosure, cash trends are analyzed based on changes in the balance sheet. Cash and deposits increased to ¥340.5B from ¥336.8B in the same period of the previous year, indicating stable liquidity. Meanwhile, property, plant and equipment increased to ¥1006.4B (¥989.9B in the previous year), and construction in progress rose to ¥114.1B (¥93.3B in the previous year), suggesting that investing activities continued to absorb funds. Long-term borrowings declined to ¥273.6B, but considering the composition of bonds and short-term liabilities, some changes can be observed in the financing structure. Accounts receivable and notes receivable were ¥115.0B, down from ¥128.3B in the previous year, confirming efforts to collect funds in line with the decline in revenue.

Earnings Quality

Current-period earnings were primarily generated by the core business, and the impact of non-operating income of ¥1.6B (including ¥0.1B in dividend income) and non-operating expenses of ¥3.3B (mainly ¥1.6B in interest expenses) was limited. Extraordinary income was ¥0.5B (gain on sale of fixed assets), while extraordinary loss was ¥1.2B (loss on disposal of fixed assets), resulting in a net negative impact of approximately ¥0.7B. Thus, the impact of temporary factors on earnings was small. The approximately -37% gap between Ordinary Income of ¥18.3B and Net Income of ¥11.5B was primarily attributable to the ¥6.1B corporate income tax burden, while profit attributable to non-controlling interests was slightly negative. Comprehensive Income was ¥11.0B, nearly in line with Net Income of ¥11.5B. No significant divergence was observed from OCI items such as valuation difference on available-for-sale securities and foreign currency translation adjustments, indicating that earnings quality was relatively stable.

Earnings Forecast and Guidance

Q1 progress against the full-year forecast was 25.6% for Revenue (¥274.5B/¥1074.0B), 23.0% for Operating Income (¥20.0B/¥87.0B), and 23.5% for Ordinary Income (¥18.3B/¥78.0B). Although Operating Income and Ordinary Income were slightly below the simple 25% benchmark, the deviations were not significant, and progress toward the full-year targets was generally within expectations. The full-year earnings forecast was revised during the current quarter, with Revenue revised downward to -9.9% YoY and Operating Income revised downward to -61.1% YoY. While earnings growth in the Resource Recycling Business is expected to continue, progress in the recovery of the Waste Treatment and Resource Recovery Business and improvement in the Renewable Energy Business's earnings will be key points to monitor toward the second half of the fiscal year.

Shareholder Returns

The full-year dividend forecast is ¥50.00 per share, representing an increase from the previous year's actual dividend of ¥20 (total of interim and year-end dividends; for reference). No revision was made to the dividend forecast during the current quarter. Assuming full-year forecast Net Income attributable to owners of the parent of ¥5000 million and approximately 47.02 million shares outstanding on an average-in-period basis, total dividends would be approximately ¥2.35B, resulting in a Payout Ratio of approximately 47%. Given cash and deposits of ¥340.5B, there is little concern regarding the Company's ability to pay dividends for the time being. However, if the earnings decline continues during the current fiscal year, the potential increase in the Payout Ratio will require monitoring.

Risk Factors

1. Segment Mix Deterioration Risk: Revenue in the Waste Treatment and Resource Recovery Business declined sharply by -51.5% YoY, while Operating Income declined by -85.2%. The Renewable Energy Business also shifted into the red, with an operating loss of ¥3.9B. Although partially offset by earnings growth of +168.7% in the Resource Recycling Business, the disparity in profitability among businesses represents a structural factor that pressures the company-wide margin.

2. Profitability Decline Risk: The Operating Income margin contracted by approximately 16.3 percentage points to 7.3% from 23.6% in the previous year, while SG&A expenses increased by +8.4% despite the decline in revenue. As fixed costs remain rigid relative to the decline in revenue, negative operating leverage continues to pressure earnings.

3. Capital Efficiency Risk: ROE declined substantially from the previous year to 1.3%, making improvement in capital efficiency an issue. The structure of total assets of ¥1703.7B and net assets of ¥853.1B has not changed significantly from the previous year; however, monitoring is necessary from the perspective of efficient capital utilization because of the lower earnings level.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Company's profitability is below the industry median for both metrics and ranks relatively low within the industry.

Growth and Capital Efficiency

The Company's Revenue growth rate is substantially below the industry median, indicating a decline in revenue that contrasts with the industry's growth trend.

Source: Compiled by the Company

Key Points in the Earnings Results

1. Increased revenue and earnings in the Resource Recycling Business (Revenue +23.8%, Operating Income +168.7%) indicate a structural change in the Company's largest segment, and the earnings data confirms that the center of gravity of the business portfolio is shifting toward this business.

2. The sharp slowdown in the Waste Treatment and Resource Recovery Business and the Renewable Energy Business's shift into the red are occurring simultaneously and are the primary reasons for the contraction of the company-wide Operating Income margin to 7.3%. Trends in earnings improvement in both businesses will attract attention in future earnings results.

3. SG&A expenses increased (+8.4%) despite the decline in revenue, and the resulting decline in fixed-cost absorption is reflected in the earnings data as one factor behind the contraction in the profit margin.

Theoretical Share Price (For Reference)

Sensitivity: ¥1,591–¥1,681 at cost of equity ±1%, and ¥1,629–¥1,639 at ω±0.1.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used; therefore, there is a timing difference from 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 / Mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not 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 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 responsibility, after consulting with a professional as necessary.

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