SUMCO CORPORATION FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥304.44B
• Operating Income: ¥5.87B
• Net Income: ¥18.65B
• EPS: ¥-2.85

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: Weak quarter with severe margin compression and a small consolidated net loss despite modest revenue growth. Revenue rose 2.6% YoY to 3,044.36, but operating income fell 80.4% YoY to 58.69 as gross margin sat at 18.5% and operating margin deteriorated sharply to 1.9%. Ordinary income plunged 91.6% YoY to 21.75, reflecting a sizable non-operating drag of -39.72 (non-op income 34.70 vs non-op expenses 74.42). Net income was -9.95, translating to a net margin of -0.3% and EPS of -2.85 JPY. The operating margin compressed by an estimated 816 bps YoY (from ~10.1% to 1.9%). Interest burden remains noticeable with interest expense of 19.01, yielding interest coverage of 3.09x—adequate but not robust. Balance sheet liquidity is strong (current ratio 311%, quick ratio 292%) and leverage moderate (D/E 0.76x), with cash of 645.29 comfortably exceeding short-term loans of 374.57. Asset turnover is low at 0.266, and financial leverage at 1.76x yields a DuPont ROE of -0.1%. ROIC is 0.4%, well below a typical 7–8% cost-of-capital target, underscoring weak capital efficiency. Earnings quality assessment is constrained due to unreported cash flows; consequently, the sustainability of any dividend or FCF generation cannot be verified this quarter. The large gap between operating income and ordinary income suggests headwinds from non-operating items (e.g., FX, financial costs) that further suppress bottom-line performance. The reported profit before tax figure (260.03) appears inconsistent with ordinary income and net loss; we base core conclusions on operating and ordinary income while acknowledging possible extraordinary items or classification differences. Forward-looking, margin normalization hinges on wafer ASPs, mix, and utilization recovery; near-term visibility remains limited given the depressed ROIC and non-operating headwinds. Management focus should be on cost discipline, selective capex, and improving pricing/mix to restore double-digit operating margins. Overall, the quarter signals cyclical trough-like profitability with a stable liquidity buffer but insufficient returns on capital.

Profitability Analysis

DuPont decomposition: ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-0.3%) × 0.266 × 1.76 ≈ -0.1%. The largest swing is in Net Profit Margin, driven by a collapse in operating profitability (operating income -80.4% YoY) and additional non-operating expenses. Business drivers include weaker wafer pricing/mix and/or underutilization (reflected in low operating margin of 1.9% and gross margin of 18.5%), plus higher financial/FX costs. The severity suggests cyclical pressures rather than a structural impairment; however, the scale of compression (operating margin down ~816 bps YoY) implies that a full recovery would require both demand normalization and pricing power. Sustainability: current margin levels are unlikely to be sustainable mid-cycle; recovery is plausible with semiconductor cycle improvement, but timing is uncertain. Expense discipline bears watching—SG&A ratio is 8.7%; if SG&A growth outpaces revenue into recovery, operating leverage will be muted. Non-operating drag (-39.72) reduced ordinary income to 0.7% of sales, indicating earnings sensitive to financial and currency items that may persist while leverage and FX volatility remain.

Growth Assessment

Top-line growth of 2.6% YoY to 3,044.36 was modest and likely mix-driven rather than broad-based expansion given the severe margin deterioration. Profit declines are driven by price/mix and utilization pressure typical of a downcycle, not by SG&A inflation alone. With operating income down 80.4% YoY and ordinary income down 91.6% YoY, incremental revenues are not currently translating to profit—negative operating leverage is evident. Non-operating headwinds (net -39.72) exacerbate the profit compression. Without cash flow disclosure, we cannot validate whether working capital absorption (e.g., receivables 848.13, inventories 264.64) is easing or tightening; hence revenue quality/sustainability cannot be fully assessed. Outlook hinges on wafer ASP resilience, node/mix shifts to larger diameter/advanced-grade wafers, and utilization normalization as inventory digestion at customers concludes. Near term, profit growth visibility remains limited given sub-2% operating margin and depressed ROIC (0.4%). Medium term, recovery potential exists if pricing stabilizes and capacity utilization improves, enabling operating margins to revert towards historical mid-to-high single digits or above.

Financial Health

Liquidity is strong: current ratio 311.2% and quick ratio 291.5%, with cash 645.29 covering short-term loans 374.57. No warning on current ratio (<1.0) or D/E (>2.0): D/E is 0.76x, indicating moderate leverage. Interest-bearing debt (short + long) totals ~3,592.26; net debt approximates 2,947. Maturity profile shows limited near-term pressure—current liabilities are 1,339.88 vs current assets 4,170.33; short-term debt is lower than cash. Long-term loans of 3,217.69 dominate liabilities, implying low maturity mismatch risk near term but sustained interest burden. Equity base is solid at 6,494.14 with retained earnings of 2,712.14 providing loss absorption. Off-balance sheet obligations are not disclosed; no guarantees/commitments are available in this dataset.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income cannot be assessed; we cannot judge accrual intensity or the cash realization of earnings this quarter. Free cash flow and capex are unreported; given the industry’s capital intensity, capex could be material and a key determinant of FCF and leverage trajectory. Working capital signals are mixed but limited: receivables 848.13 and inventories 264.64 against payables 327.87 are not excessive versus sales, but without period-over-period deltas, we cannot identify manipulation or timing effects. With net loss and non-operating drag, cash generation likely relied on balance sheet strength rather than profits; however, confirmation awaits OCF disclosure. We therefore flag earnings quality as indeterminate due to missing cash flow data rather than as a negative.

Dividend Sustainability

Dividend data are unreported this quarter; the calculated payout ratio of -739.1% reflects a net loss and should not be interpreted as a steady-state payout. Without OCF and FCF, coverage cannot be evaluated. Balance sheet capacity (retained earnings 2,712.14 and strong liquidity) could support a maintained dividend in the short term if policy prioritizes stability, but interest coverage at 3.09x and ROIC at 0.4% argue for cautious cash returns until margins normalize. Policy outlook hinges on cycle recovery and capex needs; a conservative stance to preserve balance sheet flexibility would be prudent in the absence of clear FCF visibility.

Risk Assessment

Business Risks:

• Semiconductor cycle downturn impacting wafer ASPs and utilization, compressing margins.
• Customer inventory adjustments leading to volatile order intake and shipment timing.
• Product mix shifts (200mm vs 300mm, advanced vs standard grades) affecting pricing power.
• Competitive pressure from global peers, constraining ASP recovery.

Financial Risks:

• Moderate leverage with long-term loans of 3,217.69 and net debt ~2,947 sustaining interest burden.
• Non-operating volatility (FX, financial costs) subtracting ~39.72 from income this quarter.
• ROIC at 0.4% well below typical WACC, indicating value dilution if prolonged.
• Potential capex requirements for technology upgrades could strain FCF in a weak margin environment.

Key Concerns:

• Operating margin collapsed to 1.9% (down ~816 bps YoY), signaling severe negative operating leverage.
• Ordinary income margin at 0.7% underscores sensitivity to non-operating items.
• Lack of OCF/FCF disclosure limits assessment of cash earnings and dividend coverage.
• Apparent inconsistency between profit before tax and net income suggests possible extraordinary items; clarity needed to gauge recurring profitability.

Investment Implications

Key Takeaways:

• Top line grew 2.6% YoY but profitability deteriorated sharply; net loss posted.
• Operating margin at 1.9% and ROIC at 0.4% indicate trough-like returns.
• Non-operating expenses materially eroded earnings despite adequate interest coverage (3.09x).
• Balance sheet liquidity is strong; near-term refinancing risk is low.
• Recovery depends on wafer ASP/mix improvement and utilization normalization.

Metrics to Watch:

• Operating margin and gross margin trajectory by quarter.
• Order backlog, utilization rates, and wafer ASPs by diameter/grade.
• OCF, FCF, and capex once disclosed; OCF/NI ratio (>1.0 desirable).
• Net debt and interest coverage trend as rates and earnings evolve.
• ROIC vs WACC; target to return above 7–8% mid-cycle.

Relative Positioning: Within global silicon wafer peers, the company currently exhibits weaker profitability and capital efficiency versus the sector leader, with moderate leverage but strong liquidity; successful recovery hinges on pricing/mix and utilization improvements to narrow the margin gap.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis