Sekisui Jushi (4212) FY2026 Q3 Earnings Report

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Executive Summary

The results reflected improving profit margins, with operating income growth outpacing revenue growth. Revenue was ¥54.58B (+5.5% YoY), operating income was ¥3.25B (+19.7%), ordinary income was ¥3.70B (+20.1%), and net income attributable to owners of the parent was ¥2.44B (+49.0%). The operating margin improved from approximately 5.3% in the previous year to 6.0%, driven by the effects of higher revenue as well as improvements in the cost structure. The reason net income growth exceeded operating income growth was that extraordinary income, including a ¥0.36B gain on the sale of investment securities, provided an upward boost.

Factors Affecting Results

【Revenue】Revenue was ¥54.58B, representing a 5.5% increase YoY. Progress against the full-year company forecast of ¥79.00B was 69.1%, slightly below the 75% benchmark for progress through three quarters.

【Profit and Loss】Operating income was ¥3.25B (+19.7%), and ordinary income was ¥3.70B (+20.1%), securing profit growth rates above the revenue growth rate. The gross margin was 31.1% and the SG&A ratio was 25.1%; the operating margin is viewed as having improved by approximately 0.7pt from the previous year through gross margin improvement and/or SG&A control. Non-operating income and expenses provided a net gain of ¥0.45B, mainly from dividend income of ¥0.30B, boosting ordinary income. Extraordinary income and expenses provided a net gain of ¥0.27B, comprising a ¥0.36B gain on the sale of investment securities and a ¥0.09B loss on the disposal and sale of fixed assets, providing a temporary boost to net income. As a result, net income increased significantly to ¥2.44B (+49.0%), although it should be noted that part of the growth rate depended on non-recurring extraordinary income. Overall, the results represent higher revenue and higher profit.

Key Financial Indicators

【Profitability】The operating margin was 6.0%, improving from the same period of the previous year, while the net profit margin was 4.4%. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥5.38B, approximately 2.2 times net income attributable to owners of the parent of ¥2.44B, indicating strong cash backing for earnings. Although a decrease in trade receivables boosted cash flow, an increase in inventories and a decrease in trade payables restrained part of cash flow. 【Investment Efficiency】ROE was 2.5% (cumulative basis), and the equity ratio was 69.0%; profitability remains relatively low compared with the substantial capital base. Capital expenditures were ¥3.41B, exceeding depreciation and amortization of ¥1.86B, indicating capital allocation that prioritizes future investment. 【Financial Soundness】The equity ratio of 69.0% and cash and deposits of ¥15.27B are both at high levels, indicating a stable financial foundation.

Cash Flow Analysis

Operating Cash Flow was ¥5.38B, a substantial increase of +62.9% YoY, with cash generation strengthening at a pace exceeding net income growth. Investing Cash Flow was negative ¥3.79B, of which capital expenditures accounted for ¥3.41B, indicating continued growth and replacement investment. Financing Cash Flow was negative ¥2.24B, mainly due to share buybacks of ¥2.00B, resulting in a cash outflow while shareholder returns were advanced. As a result, free cash flow (OCF + investing cash flow) remained positive at ¥1.59B, indicating that the balance between cash generation, investment, and shareholder returns was maintained.

Earnings Quality

Current-period earnings include non-recurring extraordinary income in addition to improvements in recurring business earnings. Extraordinary income of ¥0.36B resulted from gains on the sale of investment securities; after deducting extraordinary losses of ¥0.09B (losses on the disposal and sale of fixed assets), the net gain of ¥0.27B boosted profit before tax. This was equivalent to approximately 11% of net income of ¥2.44B, indicating that the net income growth rate (+49.0%) included a certain degree of non-recurring factors. Non-operating income was ¥0.76B, including dividend income of ¥0.30B, exceeding non-operating expenses of ¥0.31B (including interest expense of ¥0.16B) and providing a stable contribution as a recurring source of income. Meanwhile, OCF remained above net income, and the divergence between accounting earnings and cash earnings was not significant. Overall, earnings quality can be assessed as favorable.

Earnings Forecast and Guidance

The full-year company forecast is revenue of ¥79.00B (+6.4% YoY), operating income of ¥6.40B (+27.7%), and ordinary income of ¥6.70B (+23.0%). Progress against cumulative actual results was 69.1% for revenue, 50.8% for operating income, and 55.2% for ordinary income, all below the 75% benchmark typically expected after three quarters. The delay in operating income progress is particularly significant, and the plan assumes a fourth-quarter finish at a profit margin exceeding that of the same period of the previous year. Since the delay in profit progress is greater than the delay in revenue progress, the extent to which profitability improvement can be achieved in the second half will be the key focus going forward.

Shareholder Returns

Regarding dividends, the Q2 dividend was ¥36.00 per share, and the full-year forecast dividend is ¥72.00. Based on forecast net income attributable to owners of the parent of ¥4.30B and the average number of shares outstanding during the period, the forecast payout ratio is estimated at approximately 51%. In addition, the Company conducted share buybacks of ¥2.00B; the total return ratio, combining dividends and share buybacks, is high relative to cumulative net income of ¥2.44B. The financial foundation, including cash and deposits of ¥15.27B and an equity ratio of 69.0%, supports these shareholder returns.

Risk Factors

1. Deterioration in working capital efficiency: While inventories increased by ¥1.63B, trade payables decreased by ¥0.71B, and the funding burden from inventory accumulation and payment terms restrained part of OCF. Continued monitoring of trade receivables collection and inventory levels is necessary.

2. Achievement of the full-year plan: The full-year progress rate for operating income was only 50.8%, making a high-margin finish in Q4 a prerequisite. Given the gap between this figure and the revenue progress rate of 69.1%, the key issue will be the extent to which the second-half profitability improvement plan is achieved.

3. Amortization burden of goodwill: Goodwill of ¥12.07B accounts for 8.6% of total assets, creating a structure in which amortization continuously weighs on operating income and net income. If the earnings contribution from acquired businesses falls below plan, the amortization burden could become relatively heavier.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the operating margin and net profit margin are below the industry median, indicating that profitability is relatively low within the industry.

Growth and Capital Efficiency

Revenue growth exceeded the industry median, indicating that top-line growth is relatively favorable within the industry.

※Source: Compiled by the Company

Key Points from the Results

1. Operating income increased +19.7% against revenue growth of 5.5%, securing profit growth above revenue growth and confirming the direction of profitability improvement. However, both the operating margin and net profit margin remain low relative to the industry median.

2. Net income growth (+49.0%) included a contribution from extraordinary income, primarily gains on the sale of investment securities. The degree of improvement in recurring earnings power should therefore be assessed based on the growth in operating income and ordinary income.

3. The profit progress rate against the full-year forecast (operating income: 50.8%) was below the revenue progress rate (69.1%), making the extent to which profitability improvement can be achieved in the second half a key point of focus in the results.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,856–¥3,018 at ±1% for the cost of equity, and ¥2,925–¥2,942 at ±0.1 for ω.

Notes:

• Goodwill amortization of ¥48.6 per share has been added back to earnings (due to its non-cash nature and to improve comparability with IFRS companies).
• 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 have been 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 (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated using only publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict 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 a professional as necessary.

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