SUGIMOTO & CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

In Q1 of the fiscal year ending April 2026, operating leverage became evident as a result of an improvement in the SG&A ratio, resulting in higher revenue, higher earnings, and substantial profit growth. Revenue was ¥12.13B (+8.6% YoY), Operating Income was ¥0.49B (+75.8%), Ordinary Income was ¥0.61B (+58.0%), and Net Income attributable to owners of the parent was ¥0.38B (+66.7%). The primary factor behind the earnings increase was the decline in the SG&A ratio to 15.2% (17.0% in the previous year), while the gross margin remained almost flat at 19.2% (19.5% in the previous year), resulting in an improvement in the Operating Income margin to 4.0% (2.5% in the previous year). By segment, the core Western Japan segment drove higher revenue and earnings, while the Overseas Business achieved high growth of +31.4% in revenue but recorded a slight decline in Operating Income.

Factors Affecting Business Performance

【Revenue】All segments posted higher revenue, showing growth that varied by region. Western Japan, which has the largest revenue mix, recorded ¥5.34B (44.0% of total, +8.8% YoY), Central Japan recorded ¥3.31B (27.3%, +4.0% YoY), Eastern Japan recorded ¥2.92B (24.1%, +10.2% YoY), and Overseas recorded ¥0.56B (4.6%, +31.4% YoY). Although the Overseas Business has a small base, its growth rate was outstanding and contributed to the company-wide revenue increase.

【Profit and Loss】Operating Income increased in all segments; however, the Overseas Business was the only segment to post a decline, with Operating Income of ¥0.03B (-4.3% YoY), indicating that revenue growth did not translate into profit growth. Western Japan (+73.9%), Central Japan (+116.6%), and Eastern Japan (+82.8%) all recorded profit growth exceeding revenue growth, demonstrating the company-wide operating leverage resulting from the lower SG&A ratio. Ordinary Income exceeded Operating Income due to non-operating income of ¥0.13B (including ¥0.02B in dividends received) and non-operating expenses of ¥0.01B (including ¥0.01B in interest expenses), with the Ordinary Income margin improving to 5.06% (3.47% in the previous year). Extraordinary gains and losses consisted only of an extraordinary gain of ¥0.001B (gain on sale of fixed assets) and were not material. The difference between Profit Before Tax and Net Income was attributable to income taxes and other taxes of ¥0.23B (an effective tax rate of approximately 37.6%). Overall, the company achieved higher revenue and earnings, with profit growth substantially exceeding revenue growth, a defining feature of the current period.

Segment Analysis

All four segments recorded higher revenue, while profit trends diverged. Western Japan generated revenue of ¥5.34B (44.0% of total, +8.8% YoY) and Operating Income of ¥0.26B (+73.9% YoY, 4.8% margin), making it the largest source of earnings and accounting for 52.7% of company-wide Operating Income. Central Japan generated revenue of ¥3.31B (+4.0% YoY) and Operating Income of ¥0.12B (+116.6% YoY, 3.8% margin), with profit expanding more rapidly than revenue. Eastern Japan generated revenue of ¥2.92B (+10.2% YoY) and Operating Income of ¥0.08B (+82.8% YoY, 2.7% margin), the lowest margin among the four segments. Although the Overseas Business recorded the highest growth rate, with revenue of ¥0.56B (+31.4% YoY), it posted lower Operating Income of ¥0.03B (-4.3% YoY), and its 5.0% margin remained second only to Western Japan. The Overseas Business’s combination of higher revenue and lower earnings suggests the impact of upfront costs associated with business expansion, making the sustainability of its 5.0% margin a key focus going forward.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 4.0% (2.5% in the previous year, +154bp), the Ordinary Income margin improved to 5.06% (3.47%, +159bp), and the Net Income margin improved to 3.17% (2.06%, +111bp). The primary factor was the decline in the SG&A ratio to 15.2% (17.0% in the previous year). ROE was 1.1% (0.7% in the previous year), representing an improvement based on quarterly results, although the absolute level remained low. 【Cash Flow Quality】While accounts receivable declined to ¥8.85B (¥9.78B in the previous year, -9.6%), inventories increased to ¥2.24B (¥1.75B, +27.8%), indicating that inventory buildup ahead of anticipated demand was reflected in the change in working capital composition. The gap between Comprehensive Income of ¥1.40B and Net Income of ¥0.38B was attributable to valuation gains, which should be taken into account when assessing earnings quality. 【Investment Efficiency】ROE is determined by the combination of the Net Income margin and asset turnover relative to total assets of ¥44.22B, indicating that asset efficiency remains at a level with room for improvement. Investment securities increased to ¥7.31B (¥5.80B in the previous year, +26.0%), and the expansion of valuation differences contributed to the increase in net assets. 【Financial Soundness】The Equity Ratio was 79.0% (77.9% in the previous year), the current ratio was approximately 330%, and the debt-to-equity ratio (D/E) was approximately 0.27x, all indicating a high level of financial safety. Cash and deposits of ¥7.51B exceeded short-term borrowings of ¥2.30B, providing a substantial liquidity buffer.

Cash Flow Analysis

As the company does not disclose a cash flow statement, cash trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥7.51B, down 10.3% from ¥8.37B in the same period of the previous year, while investment securities increased 26.0% from ¥5.80B to ¥7.31B during the period. In terms of working capital, accounts receivable declined 9.6% from ¥9.78B to ¥8.85B, while inventories increased 27.8% from ¥1.75B to ¥2.24B, indicating that collection progress and inventory buildup occurred concurrently. Accounts payable declined 5.2% from ¥4.16B to ¥3.94B, and the reduction in trade payables also contributed to funding requirements. Net assets increased from ¥34.01B to ¥34.94B, primarily due to the expansion of valuation differences on securities; this does not directly indicate cash-generation capacity from operating activities themselves.

Earnings Quality

Current-period earnings were primarily generated by recurring business activities, with limited impact from temporary factors. Non-operating income was ¥0.13B (approximately 1.1% of revenue), with a stable composition centered on dividends received of ¥0.02B. Extraordinary gains and losses consisted only of an extraordinary gain of ¥0.001B (gain on sale of fixed assets), with no extraordinary loss recorded. The difference between Ordinary Income and Net Income was primarily attributable to income taxes and other taxes (an effective tax rate of approximately 37.6%). Comprehensive Income of ¥1.40B substantially exceeded Net Income of ¥0.38B, with the gap reaching approximately ¥1.02B. The primary factor behind this gap was an increase of +¥1.03B in the valuation difference on available-for-sale securities, representing a valuation gain linked to market fluctuations. Accordingly, although the substantial increase in Comprehensive Income contributes to capital strength, it should be noted that it does not directly indicate an improvement in recurring earnings power.

Earnings Forecast and Guidance

Against the full-year earnings forecast of Revenue of ¥51.10B, Operating Income of ¥2.07B, Ordinary Income of ¥2.56B, and Net Income of ¥1.74B, Q1 progress rates were 23.7% for Revenue, 23.5% for Operating Income, 24.0% for Ordinary Income, and 22.1% for Net Income. Although all indicators were slightly below the simple proportional benchmark of 25%, the deviations were not significant and progress can be considered within the expected range. Neither the full-year earnings forecast nor the dividend forecast has been revised. Compared with the full-year plan of +5.1% revenue growth and +1.1% Operating Income growth, Q1 performance of +8.6% and +75.8%, respectively, is progressing at a faster pace, suggesting that the plan assumes a slowdown in growth rates toward the second half of the fiscal year.

Shareholder Returns

The dividend forecast is ¥27.00 per share, with no revision as of the end of Q1. Based on forecast EPS of ¥99.32, the Payout Ratio is approximately 27.2%. Given cash and deposits of ¥7.51B and an Equity Ratio of 79.0%, there are no significant concerns regarding dividend sustainability. On the balance sheet, treasury shares declined substantially from ¥6.93B to ¥1.20B, while retained earnings also declined from ¥33.42B to ¥27.61B, suggesting a change in the composition of equity due to capital transactions such as the cancellation of treasury shares. It should be noted that this movement does not represent a change in the dividend itself, but rather an accounting reclassification associated with a review of the capital structure.

Risk Factors

1. Inventory accumulation risk: Inventories increased to ¥2.24B, up +27.8% from ¥1.75B in the same period of the previous year. This appears to reflect inventory buildup ahead of anticipated demand, creating potential for valuation losses or excess inventory if demand falls below expectations.

2. Low capital efficiency: ROE was 1.1% (0.7% in the previous year), while the Equity Ratio was high at 79.0%, indicating room for improvement in the efficiency of asset and capital utilization. The structure in which a high Equity Ratio weighs on capital efficiency requires continued monitoring.

3. Volatility in securities valuations: Investment securities increased to ¥7.31B (¥5.80B in the previous year, +26.0%), and approximately ¥1.03B of Comprehensive Income of ¥1.40B was attributable to valuation differences on securities. If market conditions deteriorate, net assets and Comprehensive Income could be pressured through a decline in valuation differences.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Income margin and Net Income margin were slightly below the industry median, placing profitability around the middle of the industry.

Growth and Capital Efficiency

The Revenue growth rate substantially exceeded the industry median, placing the company among the industry leaders in terms of growth.

Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The Operating Income margin improved to 4.0% (2.5% in the previous year), primarily due to the decline in the SG&A ratio to 15.2% (17.0% in the previous year). Operating leverage is driving profit growth at a pace exceeding revenue growth. Whether this structure will remain sustainable from the second half onward will be a key determinant of the margin trend.

2. By segment, Western Japan accounted for more than half of Operating Income (52.7%) and drove company-wide earnings. Meanwhile, despite the Overseas Business’s high revenue growth of +31.4%, Operating Income declined by YoY-4.3%, indicating a time lag between revenue growth and monetization.

3. Inventories increased +27.8%, while the expansion of valuation differences on investment securities—approximately ¥1.03B of Comprehensive Income of ¥1.40B—boosted net assets. It is important to monitor future trends from the perspectives of inventory levels in the former case and the sustainability of valuation gains in the latter.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on 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: ¥1,702–¥1,801 for ±1% in the Cost of Equity, and ¥1,742–¥1,756 for ±0.1 in 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; there is a timing difference relative to the full-year forecast.
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Model: Residual Income Model / Interest Rate Reference Month: 2026-06 / 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 responsibility, after consulting with a professional as necessary.

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