[In-Depth Analysis] Toho Zinc FY2026 Q1 Results and Business Revitalization Plan: A Turnaround Story Through Structural Reform and Rebranding to "Toho Metallics"

This report provides a comprehensive analysis of the FY2026 Q1 (period ending March 2027) financial results and the progress of the business revitalization plan announced by Toho Zinc (Securities Code: 5707), based on their earnings presentation materials. The company is currently pushing forward with large-scale structural reforms aimed at building a robust earnings base that is resilient to external market fluctuations. This report covers the Q1 performance highlights, the impact of inventory valuation losses, segment-specific trends, and the growth strategy for the future.

---

1. FY2026 Q1 Financial Highlights and Overall Performance

Toho Zinc's performance for the first quarter of the fiscal year ending March 2027 (FY2026 1Q) showed a solid start with year-on-year growth in both revenue and profit .

• Net Sales : ¥31.1 billion (+¥4.2 billion / 15.6% YoY)
• EBITDA : ¥0.1 billion (vs. -¥0.5 billion in the same period last year; ¥1.5 billion excluding inventory valuation losses)
• Ordinary Profit : -¥0.58 billion (vs. -¥1.08 billion in the same period last year; ¥0.9 billion excluding inventory valuation losses)
• Net Income : ¥0.3 billion (vs. -¥1.1 billion in the same period last year; ¥1.3 billion excluding inventory valuation losses)

While operating and ordinary profits may appear sluggish at first glance, this is largely due to inventory valuation losses (approximately ¥1.4–1.6 billion) resulting from the application of the lower-of-cost-or-market accounting method. The "EBITDA excluding inventory valuation gains/losses," which reflects the company's true underlying earning power, reached a surplus of ¥1.5 billion , marking a significant ¥2.0 billion improvement from the -¥0.5 billion recorded in the same period last year.

Progress against the full-year forecast stands at 17.4% for net sales (full-year forecast: ¥178.5 billion), 19.2% for EBITDA excluding inventory valuation (full-year forecast: ¥8.0 billion), and 19.4% for ordinary profit (full-year forecast: ¥4.5 billion). The company has maintained its full-year earnings guidance .

---

2. EBITDA Variance Analysis and Segment Trends

An analysis of the EBITDA variance in Q1 by segment and factor reveals a structure where headwinds in the smelting business are being offset by the effects of initiatives in the metal recycling business and asset sales.

The slide above is a critical chart illustrating the factors leading from the -¥0.5 billion EBITDA in the same period last year (FY2025 1Q) to the ¥1.5 billion actual EBITDA in FY2026 1Q. Key factors identified include:

1. Smelting Business Profit Decline (-¥2.1 billion) :
   • The recording of inventory valuation losses (-¥1.6 billion) was the primary downward factor.
   • Reduced silver production (-¥0.5 billion) due to extended March maintenance, as well as deteriorating treatment/refining charges (TC/RC) and higher waste battery collection costs (-¥0.6 billion), also weighed on results. Conversely, the positive impact of higher sales prices (+¥0.5 billion) and metal market/exchange rate fluctuations (+¥0.3 billion) partially offset these factors.
2. Environmental Recycling Business (+¥0.3 billion) :
   • Contributed to profit growth against a backdrop of steady processing demand.
3. Metal Recycling Business Profit Contribution (+¥1.7 billion) :
   • Significant contributions came from asset sales including silver (+¥1.0 billion) , alongside the reversal of residual costs associated with the previous year's zinc business restructuring (+¥0.7 billion).
4. Other Cost Reductions (+¥0.6 billion) :
   • Company-wide cost reviews and efficiency improvements are yielding results.

In summary, the actual FY2026 1Q EBITDA, excluding the ¥1.4 billion inventory valuation loss, was ¥1.5 billion , and the company expects the effects of silver production enhancement and business revitalization measures to become more apparent from Q2 onwards.

---

3. Recovery of Financial Base and Improvement in Equity Ratio

The company's financial health is recovering rapidly, driven by the return to net profitability and improvements in deferred hedge gains/losses.

• Net Assets : ¥18.4 billion (up ¥4.7 billion from ¥13.7 billion at the end of FY2025)
• Total Assets : ¥107.8 billion (up ¥8.9 billion from ¥98.9 billion at the end of FY2025)
• Equity Ratio : 17.0% (consistently rising from a low of 2.5% at the end of FY2023, to 10.2% at the end of FY2024, and 13.8% at the end of FY2025)
• Deferred Hedge Gains/Losses : ¥1.8 billion (a significant turnaround from -¥1.6 billion at the end of the previous year)

Even amidst the recent decline in silver prices, the balance sheet structure allows for the recording of hedge gains, demonstrating that risk management has successfully contributed to the stabilization of the financial base (improving the equity ratio to 17.0%).

---

4. External Environment, Market Assumptions, and Sensitivity

The non-ferrous metal industry is heavily influenced by LME/LBMA prices and exchange rate fluctuations. The assumptions and earnings sensitivity for FY2026 are as follows:

• Lead Price Assumption : $1,900/ton (FY2025 actual: $1,953/ton)
  • [Sensitivity] +$100/ton increase = +¥0.25 billion/year in ordinary profit
• Silver Price Assumption : $80/troy ounce (FY2025 actual: $53/troy ounce)
  • [Sensitivity] +$1/troy ounce increase = +¥0.06 billion/year in ordinary profit
• Exchange Rate Assumption : ¥160/USD (FY2025 actual: ¥151/USD)
  • [Sensitivity] ¥1/USD depreciation = +¥0.11 billion/year in ordinary profit

Regarding the external environment, while precious metal prices remain high, TC/RC (treatment/refining charges) for concentrates remain at historically low levels , creating a challenging procurement environment. Furthermore, while rising waste battery collection costs remain a challenge, the progress in proper processing due to stricter regulations on unauthorized yards acts as a tailwind.

---

5. Overview of the Business Revitalization Plan and Progress of Structural Reform

The company is executing a business revitalization plan to break away from excessive dependence on the external environment and transition to a "structure that generates profit through its own efforts."

The slide above shows the timeline and overall picture of the business revitalization plan. The revitalization process is divided into the following phases:

1. Withdrawal/Restructuring of Unprofitable Businesses (~1 year) :
   • Executed withdrawal from the resource business and restructuring of the zinc business.
2. Profit Growth of Core/Growth Businesses (~5 years: Current Stage) :
   • Intensively promoting productivity improvements, sales expansion, and cost reductions in core and growth businesses.
3. Further Growth and Future Vision :
   • Aiming to be reborn as a "Leading Company in Recycling that Supports Social Infrastructure," with goals to increase the recycling ratio of lead smelting and establish a resource circulation system.

Specific Structural Reform Initiatives

• Metal Recycling : Utilizing existing facilities at the Annaka Smelter to strengthen the recovery of crude zinc oxide from recycled materials such as dross.
• Smelting : Expanding waste battery processing lines and broadening the collection area.
• Electronic Components : Relocating part of the production base to Bangladesh to reduce manufacturing costs and enhance price competitiveness.
• Establishment of CTO Organization : Promoting the standardization of technical knowledge, utilization of AI-OCR, and verification of new element recovery technologies in R&D across the company.
• DX Promotion : Obtained "DX Certified Operator" status from the Ministry of Economy, Trade and Industry, implementing smart factory initiatives and business optimization using AI.

---

6. Mid-to-Long-Term Performance Targets and Transformation to "Toho Metallics"

The annual trend and future outlook for ordinary profit under the business revitalization plan depict a clear recovery scenario.

This slide shows the trajectory of the V-shaped recovery from the massive deficit in FY2023 (ordinary profit of -¥10.7 billion) and future profit targets.

• FY2023 Actual : -¥10.7 billion (Bottom due to structural reform/withdrawal costs)
• FY2024 Actual : ¥3.7 billion (Achieved profitability)
• FY2025 Actual : ¥5.7 billion (Profit recovery established)
• FY2026 Forecast : ¥4.5 billion (A year of solidifying the foundation)
• FY2027 Stated Target : ¥6.7 billion
• FY2028 Stated Target : ¥7.2 billion
• FY2029 Stated Target : ¥7.4 billion

(*Figures from FY2027 onwards are as of the time the plan was created and are currently under review.)

Announcement of Trade Name Change

As a historic milestone since its founding, the company has decided to change its name to "Toho Metallics Co., Ltd." effective April 1, 2027 . This change symbolizes its competitiveness as a comprehensive metal recycling and materials manufacturer that handles everything from base metals to rare metals and precious metals, moving away from the image of a single-metal "zinc" company. The new logo embodies the mission: "Turning finite resources into infinite value."

---

7. Summary and Future Focus

Toho Zinc's FY2026 Q1 results, despite market volatility and accounting-based inventory valuation losses, demonstrated a surplus of ¥1.5 billion in actual EBITDA and an improvement in the equity ratio to 17.0% , showing that the revitalization plan is steadily bearing fruit.

Under the leadership of the new President, Yoshikazu Sato, the focus will be on the following points:

1. Boosting smelting and recycling profits by expanding secondary raw material (gold/silver) procurement and strengthening waste battery collection.
2. Structural cost reductions through the effective use of Annaka facilities and relocation to Bangladesh.
3. Establishing an earnings structure independent of the external environment and laying the groundwork for stabilizing ordinary profit in the ¥6–7 billion range from FY2027 onwards.

In preparation for the transformation into "Toho Metallics," the company is expected to continue accumulating steady quarterly results and executing its structural reforms.