Rigaku Holdings Corporation FY2026 Q2 Earnings Report

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Executive Summary

Q2 of FY2026 resulted in both lower revenue and lower profit, rather than higher revenue and lower profit, with deteriorating profitability representing the key focus. Revenue was ¥395.6B (-2.9% YoY), Operating Income was ¥25.8B (-54.9%), and Net Income was ¥16.3B (-56.9%). The gross margin declined by approximately 1pt from the prior year to 54.8%, while the SG&A expense ratio rose by approximately 6.5pt to 47.9%, causing the Operating Income margin to contract sharply from 14.0% to 6.5%. Increased finance costs also pressured Profit Before Tax, confirming a structural decline in profitability.

Factors Affecting Business Performance

【Revenue】Revenue was ¥395.6B, representing a modest 2.9% YoY decline. Although the primary reason for the year-on-year decline cannot be conclusively determined from the disclosed information, the decrease in trade receivables and lengthening DSO suggest a change in the pace of project acceptance and revenue recognition.

【Profit and Loss】Operating Income was ¥25.8B (-54.9% YoY), and the Operating Income margin declined significantly to 6.5% from 14.0% in the prior year. While the gross margin deteriorated slightly to 54.8% from 55.8%, the SG&A expense ratio increased substantially to 47.9% from 41.4%, becoming the primary factor behind the deterioration in the Operating Income margin. Below operating income, finance costs of ¥6.9B pressured Profit Before Tax, which amounted to ¥20.4B (-62.6% YoY), while Net Income remained at ¥16.3B (-56.9%). In conclusion, both revenue and profit declined.

Key Financial Indicators

【Profitability】The Operating Income margin of 6.5% and Net Income margin of 4.1% both declined significantly from the prior year’s levels of 14.0% and 9.3%, respectively. The gross margin was 54.8%, only slightly lower than the prior year’s 55.8%, indicating that the increase in SG&A expenses, rather than the cost structure, was the primary factor behind the deterioration in margins.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥29.2B, approximately 1.8 times Net Income of ¥16.3B, indicating relatively solid cash-generation capacity; however, OCF decreased significantly by 57.7% YoY. The increase in inventories (-¥46.3B) and decrease in trade payables (-¥30.2B) pressured working capital, resulting in slightly negative Free Cash Flow of -¥1.3B.【Investment Efficiency】ROE was 1.8%, reflecting the decline in the Net Income margin and the low total asset turnover ratio, with total assets of ¥1876.5B against revenue of ¥395.6B. Goodwill of ¥518.8B represents 27.6% of total assets and 58.2% of net assets, structurally reducing asset efficiency.【Financial Soundness】The Equity Ratio was 47.5%, remaining broadly unchanged from 47.7% in the prior year. Interest-bearing debt, including long-term borrowings of ¥495.1B, is trending upward, making the development of interest-payment burdens, together with the increase in finance costs, a key monitoring point.

Cash Flow Analysis

OCF was ¥29.2B, down 57.7% YoY. Although it remained above Net Income of ¥16.3B, the magnitude of the decline was substantial. From a working capital perspective, inventories increased by ¥46.3B and trade payables decreased by ¥30.2B, putting pressure on cash, while contract liabilities increased by ¥14.1B, partially offsetting the impact. Investing Cash Flow was -¥30.5B, of which capital expenditures accounted for ¥27.1B, indicating that investment in existing businesses is continuing. Financing Cash Flow was positive at ¥24.9B, apparently driven primarily by an increase in short-term borrowings, with financing exceeding dividend payments of ¥21.2B. As a result, Free Cash Flow, the sum of OCF and Investing Cash Flow, was -¥1.3B, indicating a structure in which dividends and capital expenditures could not be funded solely through operating activities and the Company depended on external financing. Cash and cash equivalents remained substantial at ¥272.5B, securing short-term financial flexibility.

Earnings Quality

Current-period earnings were primarily generated by recurring business activities, while the scale of non-recurring items was limited, with other income of ¥0.5B and other expenses of ¥1.9B. However, finance costs of ¥6.9B were equivalent to approximately 27% of Operating Income of ¥25.8B, materially pressuring Profit Before Tax and representing the primary reason for the divergence between Net Income and Operating Income. OCF of ¥29.2B exceeded Net Income of ¥16.3B, indicating that earnings conversion into cash was favorable from an accrual perspective. Nevertheless, OCF was also affected by changes in working capital, including the increase in inventories and decrease in trade payables. These working capital trends should therefore be considered when evaluating earnings quality.

Earnings Forecast and Guidance

The full-year plan calls for Revenue of ¥1010.0B, Operating Income of ¥194.0B, and Net Income of ¥125.0B, representing expected increases of 16.1% and 9.6% YoY in Operating Income and Net Income, respectively. As of the first half, progress rates were 39.2% for Revenue, 13.3% for Operating Income, and 13.0% for Net Income, all substantially below the simple quarterly progress rate of 50%. This appears to assume a plan weighted toward the second half, making the pace of profit recovery in the second half an important confirmation point for achieving the plan. No revisions were made to either the earnings forecast or the dividend forecast.

Shareholder Returns

The interim dividend for Q2 was ¥9.5 per share, broadly flat compared with ¥9.4 in the same period of the prior year. The full-year dividend forecast is ¥19.0 per share. Based on estimated total dividends of approximately ¥43.0B, calculated from forecast full-year Net Income of ¥125.0B and 226.5 million shares outstanding, the full-year Payout Ratio is approximately 34.4%. Although the ratio of first-half total dividends of approximately ¥21.2B to first-half actual Net Income of ¥16.3B is high, this reflects the profit weighting between the first and second halves. It is therefore appropriate to evaluate the Payout Ratio on a full-year basis. No disclosure regarding share repurchases was made, and shareholder returns are centered on dividends.

Risk Factors

1. Profitability deterioration risk: The SG&A expense ratio rose from 41.4% in the prior year to 47.9%, lowering the Operating Income margin from 14.0% to 6.5%. If this cost structure does not improve in the second half, achievement of the full-year plan could be affected.

2. Working capital and liquidity risk: Inventories increased 23.6% YoY to ¥258.0B, while trade payables decreased 25.4% to ¥87.2B. As a result, short-term borrowings increased 64.3% YoY to ¥112.7B, confirming heightened short-term funding needs.

3. Goodwill impairment sensitivity: Goodwill of ¥518.8B represents 27.6% of total assets and 58.2% of net assets. If profitability continues to decline, impairment risk could materialize depending on the profitability of the relevant CGUs, requiring monitoring.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Income margin and Net Income margin were below the industry median, indicating that profitability was relatively low within the industry.

Growth and Capital Efficiency

The Revenue growth rate was substantially below the industry median, confirming that the Company also lagged its industry peers in terms of growth.

※Source: Compiled by the Company

Key Takeaways from the Earnings Release

1. The primary factor behind the deterioration in margins was the increase in the SG&A expense ratio, while the deterioration in the gross margin was limited. The simultaneous increase in SG&A expenses and decline in revenue created negative operating leverage, which can be viewed as the structural characteristic of this earnings release.

2. Inventories increased while trade payables declined, resulting in deteriorating working capital efficiency. This led to a decline in OCF and negative Free Cash Flow, making the future trend in cash-generation capacity a key point for monitoring.

3. Progress toward the full-year plan was approximately 13% for both Operating Income and Net Income, substantially below the simple progress rate of 50%. The plan assumes a second-half weighting, making the realization of profit recovery in the second half the key focus in assessing full-year performance.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly available data using a residual income model (Ohlson-type model with an explicit five-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥444–¥470 at ±1% for the Cost of Equity, and ¥455–¥459 at ±0.1 for ω.

Notes:

• Goodwill represents a high proportion of net assets, and the assumptions would change significantly if an impairment were recognized.
• Net assets as of the quarter-end were used; there is a timing difference relative to the full-year forecast.

(Calculation model: Residual Income Model / Interest rate reference month: 2026-07 / This value does not forecast or guarantee future share prices.)

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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. Industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting professionals as necessary.

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