KYODO PAPER HOLDINGS (9849) FY2026 Q3 Earnings Report

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Executive Summary

Against a backdrop of lower revenue and a low gross-margin structure, both operating income (loss) and net income (loss) deteriorated from the same period of the previous year. Revenue was ¥121.4B (¥125.3B in the previous year, YoY -3.1%), operating income was -¥0.8B (previous year: -¥0.6B), ordinary income was -¥0.5B (previous year: -¥0.2B), and net income attributable to owners of the parent was -¥0.4B (previous year: -¥0.2B). As the gross profit margin declined to 11.6%, reductions in SG&A expenses failed to keep pace, and the resulting expansion of the operating loss was the primary cause of the deterioration in bottom-line results.

Factors Affecting Performance

【Revenue】Revenue was ¥121.4B, down 3.1% year on year. The core Wholesale Business Western-Style Paper segment generated ¥120.7B, accounting for 99.4% of total revenue, and demand trends in this business determine overall revenue. Leasing/Logistics was small, with combined revenue of ¥3.0B, and its impact on the total was limited.

【Profit and Loss】Cost of sales was substantial at ¥107.3B, leaving the gross profit margin at 11.6%. Although SG&A expenses decreased 2.1% year on year to ¥15.0B, they were insufficient to absorb the declines in revenue and gross profit, resulting in an operating loss expanding to ¥0.8B (a loss of ¥0.6B in the previous year). The ordinary loss was ¥0.5B, partially offset by non-operating income, including ¥0.3B in dividend income. The net loss expanded to ¥0.4B from ¥0.2B in the previous year. Although extraordinary gains, including a ¥0.2B gain on the sale of fixed assets, contributed to reducing the loss, they were insufficient to offset the decline in the profitability of the core business. This was a decline in both revenue and earnings.

Segment Analysis

By segment, the core Wholesale Business Western-Style Paper segment generated ¥120.7B in revenue and ¥1.4B in operating income, representing a low profit margin of 1.2%. Leasing Business Real Estate was small, with revenue of ¥0.7B, but highly profitable with a margin of 38.0%, while Logistics generated ¥2.3B in revenue with a profit margin of 8.1%. Total segment operating income was ¥1.9B, whereas company-wide operating income was -¥0.8B, indicating that the allocation of corporate headquarters expenses and other costs substantially offset segment profits.

Key Financial Indicators

【Profitability】The operating margin deteriorated to -0.7% (previous year: -0.5%), while the net profit margin also deteriorated to approximately -0.3% (previous year: -0.2%). The gross profit margin was 11.6%, slightly lower than in the previous year, indicating the continuation of a low-margin structure.【Cash Flow Quality】Extraordinary gains of ¥0.2B (a ¥0.2B gain on the sale of fixed assets and a ¥0.03B gain on the sale of investment securities) contributed to reducing the net loss, indicating reliance on temporary factors outside the core business. Comprehensive income was positive at ¥0.4B, as the increase in the valuation difference on securities exceeded the net loss.【Investment Efficiency】ROE (annualized) was -1.4%. As earnings were negative against net assets of ¥39.1B, capital efficiency remained low.【Financial Soundness】The equity ratio was 40.1% (40.9% in the previous year), remaining at approximately the same level. Cash and deposits increased substantially from the previous year to ¥15.5B, improving liquidity. Meanwhile, trade liabilities account for most of current liabilities, with accounts payable amounting to ¥51.6B.

Cash Flow Analysis

As no statement of cash flows was available, fund movements are analyzed based on changes in the balance sheet. Cash and deposits increased substantially to ¥15.5B from ¥7.8B in the same period of the previous year, improving on-hand liquidity. Meanwhile, property, plant and equipment declined from the previous year to ¥12.2B, suggesting that asset sales, particularly land sales, progressed and contributed to securing funds together with the recognition of a ¥0.2B gain on the sale of fixed assets. Accounts receivable declined from the previous year to ¥23.9B, while inventories increased to ¥15.8B, potentially affecting capital efficiency through inventory accumulation. Accounts payable amounted to ¥51.6B and accounted for most of current liabilities, indicating a high degree of dependence on short-term funding associated with purchasing transactions.

Earnings Quality

At the ordinary income level, non-operating income of ¥0.4B, mainly consisting of ¥0.3B in dividend income, partially offset the operating loss and limited the ordinary loss to ¥0.5B. The ¥0.2B in extraordinary gains resulted from gains on the sale of fixed assets and investment securities and should be distinguished from the sustainable earnings power of operating activities. Of the ¥0.4B net loss, the loss would have been larger without these temporary gains, indicating that improvement in the profitability of the core business remains an issue in terms of earnings quality. Comprehensive income turned positive at ¥0.4B, but this was largely attributable to an increase in the valuation difference on securities and does not indicate an improvement in the business activities themselves.

Earnings Forecasts and Guidance

The full-year forecasts are revenue of ¥163.0B (down -3.5% from the previous fiscal year), an operating loss of -¥0.8B, an ordinary loss of -¥0.5B, net income attributable to owners of the parent of ¥0.2B, EPS of ¥29.59, and a dividend of ¥50. While Q3 cumulative revenue progress was approximately 74.5%, broadly in line with the standard progress level (approximately 75%), the cumulative operating loss had already reached ¥0.8B, approximately the same level as the full-year forecast loss, indicating severe progress on the earnings front. Against the full-year net income forecast of ¥0.2B, Q3 cumulative results were a net loss of ¥0.4B, requiring a substantial increase in earnings in Q4.

Shareholder Returns

The Q2 dividend was ¥0 per share, while the full-year dividend forecast is ¥50 per share. Based on approximately 676 thousand shares, calculated by deducting treasury shares from the number of shares issued, the estimated total full-year dividend is approximately ¥0.34B. Dividing this by the full-year net income forecast of ¥0.2B gives a payout ratio of approximately 169%, a level at which dividends cannot be covered by forecast net income alone. Cash and deposits of ¥15.5B and net assets of ¥39.1B could provide the resources for dividend payments; however, dividend sustainability will depend on the recovery of core business earnings going forward.

Risk Factors

1. Declining profitability: With a gross profit margin of 11.6% and an operating margin of -0.7%, profitability is thin, and even small fluctuations in purchase or selling prices can have a significant impact on earnings.

2. Uncertainty regarding achievement of the full-year plan: Against a full-year forecast operating loss of ¥0.85B, the Q3 cumulative loss has already reached ¥0.83B. In addition, against a full-year net income forecast of ¥0.2B, Q3 cumulative results were a net loss of ¥0.4B, requiring substantial earnings improvement in Q4.

3. Dependence on inventory and non-operating income: Inventories increased 16.7% year on year, warranting attention from the perspective of inventory efficiency. In addition, dividend income accounts for approximately 71% of non-operating income, and changes in the dividend policies of investee companies could affect ordinary income.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (trading)

Profitability and Returns

Compared with the industry median, both the operating margin and net profit margin are substantially lower, placing the company at a low level of profitability within the industry.

Growth and Capital Efficiency

While the industry median indicates revenue growth, the company recorded a decline in revenue, placing it behind its industry peers in terms of growth.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. While revenue progress is broadly in line with the full-year plan, operating income (loss) and net income (loss) have deteriorated ahead of the plan, making improvement in Q4 profitability the key factor determining whether the full-year plan will be achieved.

2. The full-year dividend forecast of ¥50 results in a payout ratio of approximately 169% relative to forecast net income, providing limited coverage from earnings. Assessing dividend sustainability requires monitoring the level of cash on hand together with the recovery trend in core business earnings.

3. The contribution of extraordinary gains, such as gains on asset sales, to reducing the net loss is an important point to monitor when assessing the degree of reliance on temporary factors in earnings quality.

Theoretical Share Price (Reference Value)

Sensitivity: ¥4,168–¥4,394 at ±1% for the cost of equity, and ¥4,237–¥4,306 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 the quarter 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 / This is a 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, nor does it predict 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 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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