ICHINEN HOLDINGS CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

In the current quarter, the Company reported higher revenue and profit from its core businesses, while net income was significantly boosted by a gain on negative goodwill arising from M&A. Revenue was ¥452.6B (+10.0% YoY), Operating Income was ¥41.6B (+28.0%), Ordinary Income was ¥42.8B (+30.0%), and Net Income attributable to owners of the parent was ¥74.9B (+202.6%). The increase in revenue was primarily driven by the newly consolidated companies (7 companies) in the Agri Solutions Business and improved profitability across each segment, while the sharp increase in net income was attributable to a temporary factor: a ¥47.2B gain on negative goodwill arising from M&A, included in extraordinary income of ¥47.3B.

Factors Affecting Performance

【Revenue】Automotive leasing-related operations (Revenue of ¥168.7B, +4.3%) remained the core business, accounting for approximately 37% of total revenue, and performed steadily. Agri Solutions (¥77.6B, +39.7%) recorded the highest growth rate, supported by the newly consolidated fertilizer-related companies (3 companies). Machinery and Tools (¥100.8B, +6.2%) and Chemicals (¥36.1B, +27.9%) also posted revenue growth, while Synthetic Resins (¥46.9B, -3.1%) was the only segment to record a decline in revenue. Total Company revenue was ¥452.6B (+10.0%).

【Profit and Loss】Operating Income was ¥41.6B (+28.0%), and the Operating Margin improved to 9.2% from approximately 7.9% in the previous year. Both the gross margin of 22.6% (up approximately +0.4pt YoY) and the SG&A ratio of 13.4% (down approximately -0.9pt YoY) contributed to the improvement, indicating the effects of operating leverage. Chemicals (Operating Income +112.2%), Machinery and Tools (+115.4%), and Agri Solutions (+43.4%) led the improvement in profitability. Ordinary Income was ¥42.8B (+30.0%); non-operating income and expenses (non-operating income of ¥2.6B and non-operating expenses of ¥1.4B) remained approximately at the previous-year level, with the improvement at the operating level reflected directly in results. Net Income attributable to owners of the parent was ¥74.9B (+202.6%), substantially exceeding Ordinary Income, due to the recognition of extraordinary income of ¥47.3B, including a ¥47.2B gain on negative goodwill arising from the acquisition of three Agri businesses as subsidiaries. This was a temporary factor. In conclusion, the Company achieved higher revenue and profit.

Segment Analysis

Automotive leasing-related operations recorded Operating Income of ¥21.2B (+10.2%, margin of 12.6%), accounting for approximately 51% of total Company Operating Income of ¥41.6B and remaining the largest source of earnings. Agri Solutions expanded sharply, recording Revenue of ¥77.6B (+39.7%) and Operating Income of ¥8.6B (+43.4%, margin of 11.1%), due to the effects of the newly consolidated Taiyo Fertilizer, Mitsubishi Corporation Agri Services (currently Ichinen MAC), and MC Ferticom. Chemicals recorded Revenue of ¥36.1B (+27.9%) and Operating Income of ¥5.2B (+112.2%, margin of 14.5%), representing a significant improvement in profitability. Machinery and Tools also posted a sharp increase in Operating Income to ¥2.9B (+115.4%), although its margin remained at 2.9%. Parking maintained the highest margin among all segments at 17.6%. Synthetic Resins was the only segment to report lower revenue, at ¥46.9B (-3.1%), while Operating Income remained at ¥0.0B, essentially breakeven.

Key Financial Indicators

【Profitability】ROE was 9.4%, and the Operating Margin improved to 9.2% from approximately 7.9% in the previous year. The Net Margin surged to 16.5% from approximately 6.0% in the previous year, although this included a temporary boost from the recognition of extraordinary income.【Cash Flow Quality】Comprehensive Income of ¥77.1B was approximately in line with Net Income attributable to owners of the parent of ¥74.9B, indicating a small discrepancy. However, the sharp increases in accounts receivable (+48.9%) and inventories (+84.7%) indicate an expansion in working capital and warrant attention when assessing earnings quality.【Investment Efficiency】Total assets expanded to ¥2,585.5B (+22.2% YoY), while BPS increased to ¥3,305.81 from ¥3,021.48 in the previous year.【Financial Soundness】The Equity Ratio declined to 30.6% from 33.8% in the previous year, a decrease of 3.2pt, while short-term borrowings surged to ¥265.3B from ¥45.0B in the previous year, indicating increased reliance on interest-bearing debt. Nevertheless, interest coverage (Operating Income/interest expense) remained high at 42.4x, demonstrating strong resilience to interest payment burdens.

Cash Flow Analysis

As detailed disclosure of the cash flow statement is not available, funding trends are analyzed based on changes in the balance sheet. Cash and deposits increased to ¥172.4B (¥106.4B in the previous year, +62.0%), while accounts receivable increased to ¥310.8B (+48.9%) and inventories to ¥267.2B (+84.7%), both accumulating at rates significantly exceeding revenue growth (+10.0%). Accounts payable also increased to ¥248.6B (+57.4%); however, the increases in accounts receivable and inventories exceeded this amount, suggesting that the expansion of working capital acted to absorb funds. Short-term borrowings surged to ¥265.3B from ¥45.0B in the previous year to meet this funding demand, indicating that working capital requirements associated with the newly consolidated Agri Solutions businesses and debt-based financing progressed simultaneously.

Earnings Quality

Recurring earnings power is reflected in Operating Income of ¥41.6B and Ordinary Income of ¥42.8B, both of which improved steadily from the previous year. Meanwhile, the substantial increase in Net Income attributable to owners of the parent to ¥74.9B was primarily attributable to the temporary factor of extraordinary income of ¥47.3B, including a ¥47.2B gain on negative goodwill, which accounted for most of the amount added to Ordinary Income. Non-operating income was ¥2.6B, equivalent to 0.6% of revenue, and was relatively small; its main components were dividend income of ¥0.6B and foreign exchange gains of ¥0.3B, indicating a low level of reliance on non-core income. Comprehensive Income was ¥77.1B, with only a small discrepancy from Net Income of ¥74.9B; the main adjustment was a ¥2.5B gain on valuation differences on securities. From an accrual perspective, accounts receivable (+48.9%) and inventories (+84.7%) increased at rates exceeding revenue growth (+10.0%), warranting attention to the timing of earnings conversion into cash.

Earnings Forecast and Guidance

Progress against the Full-Year forecast was 22.1% for Revenue (¥452.6B/¥2,050.7B), 34.0% for Operating Income (¥41.6B/¥122.3B), 37.7% for Ordinary Income (¥42.8B/¥113.4B), and 62.9% for Net Income (¥74.9B/¥119.0B). While Revenue was slightly below the simple quarterly progress benchmark of 25%, Operating Income and Ordinary Income were progressing at rates above this benchmark, indicating that improved profitability is also evident relative to the plan. The high progress rate for Net Income was primarily due to a temporary boost from extraordinary income (the gain on negative goodwill), and should be assessed on the assumption of normalization over the full year. The earnings forecast was revised during the current quarter, but there was no revision to the dividend forecast.

Shareholder Returns

The Company’s forecast annual dividend is ¥90.00, with no revision to the dividend forecast during the current quarter. The Payout Ratio against forecast EPS of ¥503.17 is approximately 17.9% (¥90/¥503.17), remaining at a conservative level after taking into account the boost to net income from extraordinary income. No disclosure regarding share repurchases was identified.

Risk Factors

1. Funding demand associated with working capital expansion: Accounts receivable of ¥310.8B (+48.9%) and inventories of ¥267.2B (+84.7%) are increasing at rates significantly exceeding revenue growth (+10.0%). Accordingly, short-term borrowings surged to ¥265.3B from ¥45.0B in the previous year. Progress in reducing working capital will be an important point to monitor for future liquidity management.

2. Increase in financial leverage: The Equity Ratio declined to 30.6% from 33.8% in the previous year, a decrease of 3.2pt. Total liabilities expanded to ¥1,793.1B from ¥1,394.6B in the previous year, and interest-bearing debt increased, including bonds of ¥186.0B and bonds due within one year of ¥152.0B. Interest coverage based on Operating Income was 42.4x, indicating that the Company’s ability to withstand interest payments remained high.

3. Uncertainty associated with M&A integration: In the Agri Solutions Business, a total of 7 companies, including Taiyo Fertilizer, Mitsubishi Corporation Agri Services (currently Ichinen MAC), and MC Ferticom, were newly consolidated, increasing assets by ¥383.2B from the end of the previous fiscal year. A gain on negative goodwill of ¥47.2B was recognized as extraordinary income, and the progress of integrating operations, inventory management, and credit management may affect future earnings stability.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

The Operating Margin is slightly above the industry median, while the Net Margin is substantially above the industry median, partly due to the recognition of extraordinary income.

Growth and Capital Efficiency

The Revenue Growth Rate is approximately in line with the industry median and falls near the middle of the IQR range.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The Operating Margin improved to 9.2% from approximately 7.9% in the previous year, confirming the effects of operating leverage from an improved gross margin and a lower SG&A ratio.

2. The substantial increase in Net Income (+202.6%) was primarily attributable to the temporary factor of extraordinary income of ¥47.3B, including a ¥47.2B gain on negative goodwill. The significant divergence from the growth in Ordinary Income (+30.0%) is an important point to monitor when assessing the quality of the financial results.

3. Following the newly consolidated companies (7 companies) in the Agri Solutions Business, accounts receivable and inventories increased at rates exceeding revenue growth. The trend in working capital and the degree of reliance on short-term borrowings will be key points to monitor in future financial developments.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed 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: ¥3,903–¥4,140 at ±1% for the Cost of Equity, and ¥4,001–¥4,046 at ±0.1 for ω.

Notes:

• Since progress in Net Income against the Full-Year forecast (63%) exceeds the standard benchmark (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies whose progress is ahead of schedule tend to exceed forecasts; adjustments may be excessive for businesses with strong seasonality).
• Net assets as of the end of the quarter are used (there is a timing difference from the Full-Year forecast).

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not 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 benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional adviser as necessary.

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