ALCONIX (3036) FY2026 FY Earnings Report

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Executive Summary

The Company posted higher revenue and earnings, with operating leverage driven by an improved gross margin and a lower SG&A ratio representing the key takeaway. Revenue was ¥219.72B (+11.5% YoY), Operating Income was ¥9.74B (+40.8%), Ordinary Income was ¥8.95B (+18.9%), and Net Income attributable to owners of the parent was ¥5.60B (+16.5%). The Operating Income margin improved from 3.5% to 4.4%; however, deterioration in non-operating expenses and the high effective tax rate of 46.5% compressed the growth rates at the Ordinary Income and Net Income levels.

Factors Affecting Business Performance

【Revenue】Revenue was ¥219.72B (+11.5% YoY), with all four businesses recording higher revenue. The Electronic Functional Materials Business grew the most, at +24.1%, followed by the Metal Processing Business at +11.9%, the Aluminum and Copper Business at +9.8%, and the Equipment Materials Business at +5.7%. By region, Japan generated ¥133.16B (+13.6%) and China generated ¥35.51B (+23.3%), driving growth, while Europe declined to ¥3.45B (-20.6%).

【Profit and Loss】Operating Income was ¥9.74B (+40.8%), primarily due to improvement in the gross margin to 13.9% (13.2% in the previous period) and a decline in the SG&A ratio to 9.5% (9.7% in the previous period). By segment, based on Ordinary Income, the Metal Processing Business performed strongly at ¥4.63B (+42.9%), as did the Electronic Functional Materials Business at ¥2.88B (+28.6%). In contrast, the Aluminum and Copper Business turned unprofitable at -¥0.07B, while the Equipment Materials Business posted ¥1.48B (-8.0%), representing lower earnings. Ordinary Income was limited to ¥8.95B (+18.9%), as net non-operating expenses of ¥0.795B (interest expense of ¥1.05B and foreign exchange losses of ¥0.25B) partially offset the increase in Operating Income. Net Income benefited from extraordinary income of ¥3.45B, including a gain on the sale of investment securities of ¥2.02B and a gain on the sale of fixed assets of ¥1.34B; after deducting extraordinary losses of ¥1.80B, net one-time gains of ¥1.65B were included. Although revenue and earnings increased, the slowdown in earnings growth below the Ordinary Income level was attributable to non-operating and tax-related factors.

Segment Analysis

Segment profit, based on Ordinary Income, was ¥4.63B for the Metal Processing Business (profit margin of 11.3%, +42.9% YoY), making it the core contributor to Company-wide earnings. The Electronic Functional Materials Business increased earnings to ¥2.88B (profit margin of 7.2%, +28.6%), supported by expanding demand for semiconductors and electronic materials. The Equipment Materials Business reported ¥1.48B (profit margin of 3.1%, -8.0%), representing a decline in earnings. The Aluminum and Copper Business, which had the highest revenue at ¥90.60B, accounting for 41.2% of Company-wide revenue, recorded segment losses of -¥0.07B, indicating the impact of nonferrous metal prices and supply-demand conditions. There is a significant disparity among businesses in terms of Company-wide earnings, and the profitability improvement of the Aluminum and Copper Business will determine the Company-wide profit margin going forward.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 4.4% (3.5% in the previous period), while the gross margin also increased to 13.9% (13.2% in the previous period). The Net Income margin improved only slightly, to 2.6% (2.5% in the previous period). 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥2.42B, and its ratio to Net Income of ¥5.67B was low at approximately 0.4x, primarily due to an increase of ¥10.28B in inventories and an increase of ¥4.16B in accounts receivable. Free Cash Flow (FCF) was -¥0.79B. 【Investment Efficiency】ROE was 7.1%, and the total asset turnover ratio was approximately 1.0x. Financial leverage (total assets/net assets) was approximately 2.78x, providing support for ROE. 【Financial Soundness】The Equity Ratio was 35.9% (improved from 35.4% in the previous period), interest-bearing debt was approximately ¥50.0B, and cash and deposits were ¥21.54B. Current assets were ¥162.29B versus current liabilities of ¥120.43B, resulting in a current ratio of approximately 134.8%.

Cash Flow Analysis

OCF was ¥2.42B, a substantial decrease from ¥7.00B in the previous year, indicating weaker cash generation despite higher earnings. The primary factors were a ¥10.28B increase in inventories and a ¥4.16B increase in accounts receivable, which exceeded the cash-generation effect of a ¥6.38B increase in trade payables. Investing Cash Flow was -¥3.22B. Capital expenditures of ¥8.45B were approximately 1.9x depreciation and amortization expense of ¥4.40B, indicating a continued commitment to growth investment. As a result, FCF was -¥0.79B, while Financing Cash Flow was +¥3.34B, primarily due to a net increase in short-term borrowings. Whether the accumulation of inventories and accounts receivable accompanying revenue growth is temporary or reflects stagnation caused by changes in demand will become clearer from working capital trends in subsequent periods.

Quality of Earnings

Of Net Income of ¥5.67B, extraordinary income of ¥3.45B, including a gain on the sale of investment securities of ¥2.02B and a gain on the sale of fixed assets of ¥1.34B, made a contribution. After deducting extraordinary losses of ¥1.80B, net one-time gains amounted to ¥1.65B. This represents approximately three-tenths of Net Income and should be evaluated in comparison with Operating Income of ¥9.74B and Ordinary Income of ¥8.95B, which indicate recurring earning power from the core business. Non-operating income of ¥1.37B, including dividend income of ¥0.37B, was more than offset by expenses of ¥2.17B, including interest expense of ¥1.05B and foreign exchange losses of ¥0.25B, resulting in net expenses of ¥0.79B. Corporate income taxes of ¥4.93B were recorded against Profit Before Tax of ¥10.60B, resulting in a high effective tax rate of approximately 46.5%, with the tax burden restraining Net Income growth. Including the fact that OCF was below Net Income, the period’s earnings should be assessed somewhat conservatively in terms of the speed and sustainability of cash conversion relative to the accounting increase in earnings.

Earnings Forecast and Guidance

Cumulative progress against the full-year Company forecasts (Revenue of ¥235.00B, Operating Income of ¥10.70B, Ordinary Income of ¥10.00B, and EPS of ¥219.95) was 93.5% for Revenue, 91.1% for Operating Income, and 89.5% for Ordinary Income. Revenue progress is ahead of profit progress, and the key to achieving the plan will be whether profit margins can be maintained or improved during the remaining period. In particular, as Net Income includes one-time gains, achievement of the full-year forecast for Net Income attributable to owners of the parent should be evaluated on an underlying basis, excluding the repeatability of extraordinary gains and losses.

Shareholder Returns

The annual dividend was ¥87.00 per share (¥42.00 interim and ¥45.00 year-end), representing an increase from the previous year (¥32 plus a small additional amount). The Payout Ratio was 46.6% based on Net Income, below the 60% level generally regarded as an indicator of sustainability. No share repurchases were conducted; therefore, the Company is evaluated based on its Payout Ratio rather than its Total Return Ratio. The actual annual dividend of ¥87.00 was 96.7% of the Company’s forecast annual dividend of ¥90.00. However, FCF for the period was -¥0.79B, and cash dividend payments of ¥2.56B were not directly covered by current-period FCF. Dividend funding was therefore supported by retained earnings of ¥50.35B and cash and deposits of ¥21.54B.

Risk Factors

1. Deterioration in working capital: OCF declined from ¥7.00B in the previous year to ¥2.42B, and its ratio to Net Income was approximately 0.4x. The primary factors were a ¥10.28B increase in inventories and a ¥4.16B increase in accounts receivable. If inventory stagnation or delays in collection continue, dependence on additional borrowing may increase.

2. Profitability of the Aluminum and Copper Business: Although the business accounts for the largest revenue base Company-wide at ¥90.60B, segment profit and loss turned negative at -¥0.07B. Nonferrous metal prices, supply-demand fluctuations, and delays in passing through price increases structurally affect the Company-wide profit margin.

3. Dependence on short-term financing: Short-term borrowings increased to ¥36.55B, and the ratio of short-term liabilities, including commercial paper and long-term borrowings due within one year, is high. Compared with cash and deposits of ¥21.54B, the Company is not structured to cover short-term financial obligations solely with cash, making continued access to refinancing important.

Industry Benchmark (Reference; Prepared by the Company)

Industry Benchmark (trading)

Profitability and Returns

The Company’s Operating Income margin exceeds the industry median, while its Net Income margin remains at the same level as the industry median.

Growth and Capital Efficiency

The Revenue growth rate is close to the upper-quartile level for the industry, indicating a high rate of revenue growth within the industry.

※Source: Prepared by the Company

Key Takeaways from the Earnings Results

1. The Operating Income margin improved to 4.4%, confirming positive operating leverage from the higher gross margin and lower SG&A ratio. The substance of the higher revenue and earnings was an improvement in core-business profitability.

2. There is a significant disparity in profitability among businesses. While the Metal Processing and Electronic Functional Materials Businesses led earnings growth, the Aluminum and Copper Business, the largest business by revenue, turned unprofitable. The sustainability of Company-wide earnings depends on eliminating disparities within this business portfolio.

3. Net Income includes net one-time gains of ¥1.65B, including gains on the sale of investment securities and fixed assets. Accordingly, Operating Income and Ordinary Income should be emphasized when assessing recurring earning power. The weakness of OCF (0.4x Net Income) is also a structural point to monitor as a gap between earnings growth and cash-generation capacity.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,516–¥2,662 at ±1% for the Cost of Equity, and ¥2,586–¥2,588 at ±0.1 for ω.

Notes:

• Goodwill amortization of ¥12.3 per share is added back to earnings (due to its non-cash nature and to facilitate comparability with IFRS companies).
• As forecast ROE is below the Cost of Equity, the theoretical value is below Book Value per Share.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and 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. 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 professionals as necessary.

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