TAIYO BUSSAN KAISHA (9941) FY2026 Q1 Earnings Report

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Executive Summary

The Company achieved higher profit despite lower revenue during the quarter, with improved profitability supported by reductions in selling, general and administrative expenses. Although revenue declined to ¥48.7B (△17.2% YoY), Operating Income increased to ¥0.8B (+58.3% YoY), Ordinary Income to ¥0.6B (+43.8% YoY), and Net Income to ¥0.5B (+40.4% YoY). While gross profit remained broadly flat, the approximately 21% reduction in selling, general and administrative expenses from ¥1.5B to ¥1.2B was the primary driver of the profit increase.

Factors Affecting Performance

【Revenue】Revenue decreased 17.2% YoY to ¥48.7B. By segment, New Business Department accounted for the largest share at ¥15.4B and secured Operating Income of ¥0.3B (profit margin: 2.0%). Agricultural Prodcts Dept generated ¥5.1B with a profit margin of 2.4%, while Living Materials Department generated ¥1.9B with a profit margin of only 1.0%. The overall decline in transaction volume is believed to have been the primary cause of the revenue decrease.

【Profit and Loss】Gross profit remained broadly flat at ¥1.99B, compared with approximately ¥2.0B in the same period of the previous year, while the gross profit margin improved to 4.1% from the previous year. Meanwhile, selling, general and administrative expenses decreased 21.4% from ¥1.47B to ¥1.16B, and Operating Income increased to ¥0.8B (+58.3% YoY). The Operating Income margin improved by approximately 80bp to 1.7%, from approximately 0.9% in the previous year. However, interest expense, an operating outside expense, increased from ¥0.16B to ¥0.22B, and the interest burden somewhat constrained the growth of Ordinary Income. The difference between Ordinary Income and Net Income was primarily attributable to income taxes and other taxes of ¥0.1B, with no impact from extraordinary gains or losses. In conclusion, the Company achieved higher profit despite lower revenue.

Segment Analysis

Among the three segments, New Business Department contributed the most to earnings, with Revenue of ¥15.4B and Operating Income of ¥0.3B (profit margin: 2.0%). Agricultural Prodcts Dept recorded the highest profit margin among the segments at 2.4%, on Revenue of ¥5.1B. Living Materials Department had relatively low profitability, with Revenue of ¥1.9B and a profit margin of 1.0%. The Company-wide adjustment of △¥0.55B consists of general and administrative expenses not attributable to the reporting segments and is deducted from total segment profit to reconcile to Company-wide Operating Income of ¥0.8B.

Key Financial Indicators

【Profitability】The Operating Income margin of 1.7% (approximately 0.9% in the previous year), gross profit margin of 4.1% (approximately 3.4% in the previous year), and Net Income margin of approximately 1.0% all improved, although absolute levels remain indicative of a low-margin business. 【Cash Quality】Cash and deposits increased 32.3% YoY to ¥3.5B, while accounts receivable stood at ¥55.3B, representing 67.1% of total assets and indicating a high degree of dependence on the collection cycle. 【Investment Efficiency】ROE (annualized) was 19.1%, while ROIC (annualized) was 4.3%; the gap between the two indicates dependence on financial leverage of 7.87x. 【Financial Soundness】The Equity Ratio improved slightly to 12.7% (11.6% in the previous year), but all interest-bearing debt of ¥56.1B consists of short-term borrowings, and the current ratio remained at 108.3%.

Cash Flow Analysis

Although there is no separate disclosure of the cash flow statement, movements in funds can be inferred from changes in the balance sheet. Cash and deposits increased by ¥0.9B (+32.3%) from ¥2.7B in the same period of the previous year to ¥3.5B. This increase was attributable in part to the decrease in accounts receivable from ¥58.9B to ¥55.3B, indicating progress in collections. Meanwhile, short-term borrowings decreased from ¥59.1B to ¥56.1B, suggesting that funds may have been used for debt repayments. Inventories remained broadly flat at ¥13.0B, with no significant change in inventory levels. Although the cash balance improved, the cash coverage ratio relative to short-term borrowings of ¥56.1B remained at only 0.06x, indicating that liquidity continues to depend on the collection of accounts receivable and the ongoing refinancing of borrowings.

Quality of Earnings

The improvement in profit during the period was primarily attributable to recurring cost management through reductions in selling, general and administrative expenses, with no temporary boost from extraordinary gains or losses. Non-operating income was small at ¥0.1B and included foreign exchange gains of ¥0.0B, but its contribution to earnings was limited. Meanwhile, non-operating expenses were ¥0.3B, of which interest expense of ¥0.2B increased approximately 44% from the previous year, with financial expenses offsetting part of the improvement in Operating Income. Because profit increased while the gross profit margin was flat to slightly improved, the quality of earnings remains highly dependent on reductions in selling, general and administrative expenses. The risk of renewed cost increases during a revenue recovery phase should therefore be monitored.

Earnings Forecast and Guidance

Q1 progress against the Full-Year plan was 19.5% for Revenue, 28.3% for Operating Income, 26.8% for Ordinary Income, and 27.5% for Net Income, with progress on the profit side slightly exceeding the standard 25% run rate. On the other hand, Revenue progress was below 25%, and recovery in transaction volume in subsequent quarters will be necessary to achieve the Full-Year plan of a 27.4% YoY increase in Revenue. The Full-Year Operating Income margin is estimated at approximately 1.2% based on the plan, below the Q1 actual result of 1.7%. Accordingly, whether the effect of restrained selling, general and administrative expenses in Q1 will continue throughout the Full Year will be a key focus going forward.

Shareholder Returns

The dividend for both the current period and the Full-Year forecast is ¥0, and there is no disclosure of a dividend payment. No revision to the dividend forecast has been made as of the end of the quarter.

Risk Factors

1. Low-Profitability Structure Risk: The Company has a low-margin structure, with a gross profit margin of 4.1% and an Operating Income margin of 1.7%. Even small fluctuations in selling prices or logistics and procurement costs could therefore cause significant changes in profit.

2. Accounts Receivable Collection and Credit Risk: Accounts receivable of ¥55.3B account for 67.1% of total assets, and delays in collection or deterioration in the creditworthiness of business partners could directly affect liquidity and profitability.

3. High-Leverage and Refinancing Risk: All interest-bearing debt of ¥56.1B consists of short-term borrowings, and the cash coverage ratio is only 0.06x compared with cash and deposits of ¥3.5B. Interest expense has increased approximately 44% YoY, resulting in high sensitivity to rising interest rates and changes in refinancing conditions.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (trading)

Profitability and Returns

The Net Income margin is significantly below the industry median, placing the Company’s profitability at the lower end of the industry.

Growth and Capital Efficiency

The Revenue growth rate is also significantly below the industry median, with the Company’s revenue decline standing out within the industry during the period.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Despite lower revenue, Operating Income increased +58.3% due to reductions in selling, general and administrative expenses, and the Operating Income margin improved by approximately 80bp YoY. Whether this improvement can be maintained during a revenue recovery phase is a key point of focus.

2. Annualized ROE of 19.1% is at a high level, but it depends heavily on financial leverage of 7.87x rather than on the Net Income margin of 1.0%. The gap from annualized ROIC of 4.3% is an important point to observe when evaluating capital efficiency.

3. The structure comprising short-term borrowings of ¥56.1B, a cash coverage ratio of 0.06x, and accounts receivable representing 67.1% of total assets indicates that the stability of liquidity depends on the collection of accounts receivable and the ongoing refinancing of short-term borrowings.

Theoretical Share Price (Reference Value)

Sensitivity: ¥648–¥688 at ±1% for the cost of equity, and ¥664–¥673 at ±0.1 for ω.

Note:

• 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 (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings report data. It does not recommend investment in any specific issue. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with professionals as necessary.

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