SUMCO CORPORATION FY2026 Q2 Earnings Report

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Executive Summary

While the Company secured revenue growth during the period, a sharp deterioration in the cost ratio caused operating income, ordinary income, and net income to all turn from profits in the previous year to losses. The results therefore represent a deterioration in earnings despite higher revenue (a shift from profit to loss). Revenue was ¥215.02B (+4.7% year on year), operating income was ¥-6.36B (previous year: +¥7.46B), ordinary income was ¥-12.18B (previous year: +¥4.72B), and consolidated net income was ¥-12.95B (previous year: +¥3.32B). Net income attributable to owners of the parent was ¥-12.90B (previous year: +¥3.08B), while EPS was ¥-36.87 (previous year: +¥8.81). The primary factor was a decline in the gross profit margin caused by a higher cost-of-sales ratio (10.2%, compared with 18.2% in the previous year), which could not be fully offset by an improvement in the SG&A ratio (13.2%, compared with 14.5% in the previous year).

Factors Affecting Financial Performance

【Revenue】Revenue was ¥215.02B, representing an increase of +4.7% year on year. While volumes appear to have remained on an upward trend against a backdrop of firm demand for semiconductor silicon wafers, improvements in pricing, product mix, and capacity utilization were limited, and the pace of revenue growth remained moderate compared with the previous year's increase.

【Earnings】The gross profit margin declined significantly to 10.2% (previous year: 18.2%) due to the higher cost-of-sales ratio. Although the SG&A ratio improved to 13.2% (previous year: 14.5%), this was insufficient to absorb the deterioration in gross profit, and operating income turned into a loss of ¥-6.36B (previous year: +¥7.46B). In non-operating items, non-operating expenses of ¥7.04B, including interest expenses of ¥1.84B, exceeded non-operating income of ¥1.22B, causing ordinary income to deteriorate to ¥-12.18B (previous year: +¥4.72B). Following the recognition of ¥0.77B in income taxes, consolidated net income was ¥-12.95B (previous year: +¥3.32B). As earnings deteriorated despite higher revenue, the results can be characterized as higher revenue but lower earnings, with a shift from profit to loss.

Key Financial Indicators

【Profitability】The operating margin was -3.0% (previous year: +3.6%), the ordinary income margin was -5.7% (previous year: +2.3%), and the consolidated net profit margin was -6.0% (previous year: +1.6%), with all three shifting from positive to negative territory. ROE was -2.0%.

【Cash Flow Quality】Accounts receivable were ¥94.56B (previous year: ¥89.99B, +5.1%), while inventories were ¥26.49B (previous year: ¥26.17B, +1.2%). Both generally tracked revenue growth, and no sharp expansion in working capital was identified. However, the potential for reducing inventories and accounts receivable should be monitored as operating income has turned negative.

【Investment Efficiency】Total asset turnover was 0.189x (revenue of ¥215.02B ÷ total assets of ¥1,136.69B), remaining at the low level characteristic of capital-intensive industries. The negative ROE is attributable more to the deterioration in profit margins than to asset efficiency.

【Financial Soundness】The equity ratio declined slightly to 56.4% (previous year: 57.4%) but remained high. Cash and deposits increased to ¥89.77B (previous year: ¥67.30B, +33.4%), while long-term borrowings increased to ¥320.84B (previous year: ¥312.20B). Attention should therefore be paid to the continuing burden of ¥1.84B in interest expenses while operating income remains negative.

Cash Flow Analysis

As a standalone cash flow statement has not been disclosed, funding trends are assessed based on changes in the balance sheet. Cash and deposits increased by +¥22.47B (+33.4%) from the end of the previous year to ¥89.77B, while short-term securities also increased to ¥22.00B (previous year: ¥8.00B). Within fixed assets, construction in progress declined by ¥52.66B (▲42.7%) to ¥70.77B from ¥123.43B in the previous year, while machinery and equipment increased to ¥326.34B (+5.2%). This suggests that major investment projects may have entered the operating phase and that capital expenditure may have passed its peak. Interest-bearing debt increased modestly, with long-term borrowings at ¥320.84B (+2.8%) and short-term borrowings at ¥46.30B (+12.3%). Accordingly, liquidity on hand was increased through financing and restraint of investment spending despite operating losses. The increases in accounts receivable and inventories were broadly consistent with revenue growth, and no sharp expansion in working capital has been identified at this time.

Quality of Earnings

The deterioration in earnings during the period was not attributable to temporary factors such as extraordinary gains or losses, but primarily to a change in the recurring earnings structure, namely the decline in the gross profit margin caused by the higher cost-of-sales ratio (10.2%, compared with 18.2% in the previous year). Non-operating income of ¥1.22B, including interest income of ¥0.76B, was exceeded by non-operating expenses of ¥7.04B, including interest expenses of ¥1.84B. As a result, ordinary income was reduced by approximately ¥5.82B from operating income. Against pretax income of ¥-12.18B, income taxes of ¥0.77B were recorded, resulting in consolidated net income of ¥-12.95B. Comprehensive income was ¥-6.79B, and the loss narrowed relative to net income due to a positive contribution of +¥5.29B from foreign currency translation adjustments. The deterioration in earnings was therefore primarily due to weaker profitability in the core business and higher interest expenses, while the benefit from temporary accounting adjustments was limited.

Earnings Forecast and Guidance

First-half progress against the full-year earnings forecast was 64.6% for revenue, at ¥215.02B against the full-year forecast of ¥333.00B, exceeding the simple 50% progress benchmark. In contrast, operating income was ¥-6.36B against the full-year forecast of ¥-6.30B, representing 101% progress; ordinary income was ¥-12.18B against the full-year forecast of ¥-11.10B, representing 110% progress; and net income attributable to owners of the parent was ¥-12.90B against the full-year forecast of ¥-12.80B, representing 101% progress. Thus, all loss items had nearly exhausted or exceeded their full-year forecasts as of the first half. First-half EPS of ¥-36.87 also exceeded the full-year forecast of ¥-36.60 in terms of the loss amount. In light of the earnings forecast revision made during the quarter, improvement in profitability during the second half is a prerequisite for achieving the full-year plan.

Shareholder Returns

The Company paid an interim dividend of ¥10, while the year-end dividend for the fiscal year ending December 2026 remained undecided as of the date of this report. Since the Company recorded a net loss during the period, the payout ratio is mathematically negative and has limited informational value. The Company appears likely to determine the year-end dividend after assessing earnings and cash flow trends during the second half. No disclosure regarding shareholder returns other than dividends, such as share repurchases, has been identified.

Risk Factors

1. Profitability deterioration risk: The gross profit margin declined by approximately 8pt to 10.2% (previous year: 18.2%), and the operating margin deteriorated to -3.0% (previous year: +3.6%). The pace of gross margin deterioration substantially exceeded the improvement in the SG&A ratio (▲1.3pt), making a return to profitability difficult through cost structure improvements alone.

2. Interest burden and non-operating income/loss risk: Non-operating expenses of ¥7.04B, including interest expenses of ¥1.84B, exceeded non-operating income of ¥1.22B by ¥5.82B, causing ordinary income to deteriorate further from operating income. Given the level of interest-bearing debt, including long-term borrowings of ¥320.84B, the interest burden may continue to weigh on ordinary income if operating losses persist.

3. Working capital expansion risk: Accounts receivable increased to ¥94.56B (previous year: ¥89.99B, +5.1%), while inventories increased to ¥26.49B (previous year: ¥26.17B, +1.2%). Although these increases were broadly in line with revenue growth (+4.7%), delayed reductions in working capital while operating income remains negative could affect liquidity on hand.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Return

Both the operating margin and net profit margin were substantially below the industry median, placing the Company in the lower tier of the industry in terms of profitability.

Growth and Capital Efficiency

The revenue growth rate was also below the industry median, indicating that the Company's revenue growth was relatively moderate within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Despite revenue growth of +4.7%, the gross profit margin deteriorated by 7.9pt (18.2%→10.2%), and operating income, ordinary income, and net income all shifted from profit to loss. This was the defining feature of the earnings results.

2. First-half progress against the full-year forecast reached 64.6% for revenue, while operating income, ordinary income, and net income all exceeded 100% in terms of progress toward their respective loss forecasts. Accordingly, improvement in profitability during the second half, including recovery in the gross profit margin, is a prerequisite for achieving the full-year plan.

3. The year-end dividend remains undecided. The Company intends to determine the dividend level after assessing earnings trends during the second half, meaning that the final shareholder return policy will depend on second-half performance.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade period). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥1,258–¥1,331 at ±1% for the cost of equity, and ¥1,277–¥1,305 at ±0.1 for ω.

Notes:

• Since forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).
• Since net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual income model / Interest rate reference month: 2026-07 / This value does not forecast or guarantee the future share price)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary 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 responsibility, after consulting with professionals as necessary.

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