■Performance trends of Hagiwara Electric Holdings <7467>

1. Overview of Results for the Second Quarter of the Fiscal Year Ending March 2025

(1) P/L

For the second quarter of the fiscal year ending March 2025, the consolidated performance showed revenue of 131,780 million yen (up 22.0% year-on-year), operating profit of 3,728 million yen (down 18.8% year-on-year), ordinary profit of 3,209 million yen (down 30.6% year-on-year), and interim net profit attributable to parent company shareholders of 2,066 million yen (down 31.9% year-on-year).

Revenue was affected by production adjustments from automobile-related customers and stagnation in the China market (mainly for industrial machinery manufacturers), but it reached a record high due to acquiring new business channels, the impact of the weaker yen, and demand for capital investments. The gross profit margin decreased from 9.7% in the same period last year to 8.0%, due to a relative increase in the proportion of lower-margin device businesses affecting the product mix. As a result, the gross profit amount remained at 10,513 million yen (up 0.6% year-on-year). On the other hand, selling, general and administrative expenses increased by 15.7% year-on-year due to continuous increases in hiring and ongoing investments in new fields, leading to a decrease in operating profit. By segment, although both the device and solution businesses experienced revenue growth, they faced declines in profit due to investment burdens. Additionally, due to foreign exchange losses of 394 million yen (compared to a profit of 127 million yen in the same period last year) recognized as non-operating expenses, the declines in ordinary profit and interim net profit were substantial.

The financial foundation is stable, with abundant cash and deposits amounting to 13.5 billion yen. Inventory is being increased in preparation for future growth.

(2) Financial Situation

As of the end of the second quarter of the fiscal year ending March 2025, current assets amounted to 123,356 million yen (an increase of 11,784 million yen compared to the previous period), primarily due to a decrease in cash and deposits of 992 million yen, an increase in notes receivable, accounts receivable, and contract assets (including electronic recorded claims) of 273 million yen, and an increase in inventories of 11,756 million yen. Regarding the increase in inventories, the company stated, "It is due to appropriate inventory adjustments accompanying business growth, and we consider it a positive increase in inventory." Fixed assets stood at 11,385 million yen (an increase of 3,251 million yen) due to an increase of 97 million yen in tangible fixed assets, an increase of 3,003 million yen in intangible fixed assets, and an increase of 151 million yen in investments and other assets. The primary factor for the increase in intangible assets was the goodwill of 2,914 million yen related to the subsidiary Belladati (details to follow). As a result, total assets amounted to 134,741 million yen (an increase of 15,035 million yen).

On one hand, total liabilities amounted to 82,772 million yen (an increase of 13,427 million yen from the end of the previous period), mainly due to an increase in current liabilities, with an increase of 2,014 million yen in accounts payable and accrued expenses (including electronic recorded obligations), an increase of 13,067 million yen in short-term loans, and a decrease of 1,301 million yen in long-term loans within fixed liabilities. Total net assets reached 51,968 million yen (an increase of 1,607 million yen), attributable to an increase in retained earnings of 1,170 million yen due to the recognition of interim net profit attributable to shareholders of the parent company, and an increase of 523 million yen in foreign currency translation adjustments. As a result, the equity ratio at the end of the second quarter of the fiscal year ending in March 2025 was 37.0% (compared to 40.3% at the end of the previous period).

(3) Status of Cash Flow

Cash flow from operating activities for the second quarter of the fiscal year ending in March 2025 resulted in an outflow of 8,761 million yen. The main sources of income included the recognition of interim net profit before tax adjustments of 3,220 million yen, depreciation expenses of 199 million yen, and an increase in accounts payable of 2,004 million yen. The main expenditure items included an increase in accounts receivable of 265 million yen and an increase in inventory of 11,719 million yen.

Cash flow from investing activities resulted in an outflow of 3,408 million yen, primarily due to expenditures of 85 million yen for the acquisition of tangible fixed assets and 2,947 million yen for the acquisition of subsidiary shares accompanied by changes in the scope of consolidation. Cash flow from financing activities resulted in an inflow of 10,763 million yen, primarily due to an increase in short-term and long-term borrowings of 11,765 million yen, while the main expenditure items included dividend payments of 900 million yen. As a result, cash and cash equivalents decreased by 991 million yen, leading to a closing balance of 13,530 million yen at the end of the second quarter of the fiscal year ending in March 2025.

(Written by FISCO guest analyst Noboru Terashima)