C.Uyemura & (4966) FY2026 Q3 Earnings Report

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Executive Summary

This earnings period saw higher revenue and profits centered on the Surface Treatment Materials Business, with profitability improving further through the realization of operating leverage. Revenue was ¥659.6B (+4.2% YoY), Operating Income was ¥155.6B (+7.2%), Ordinary Income was ¥159.7B (+3.7%), and Net Income was ¥113.5B (+4.0%). Operating Income growth exceeded Revenue growth due to improved margins in the core Surface Treatment Materials Business and restrained growth in SG&A expenses (+3.8%). Meanwhile, the Net Income margin remained approximately at the previous-year level, not because of core operating factors, but due to non-operating factors, namely the absence of subsidy income recorded in the previous year and the recognition of foreign exchange losses in the current period.

Factors Affecting Business Performance

【Revenue】The primary driver of Revenue of ¥659.6B (+4.2% YoY) was growth in the Surface Treatment Materials Business, which generated Revenue of ¥560.6B (+6.8%) and accounted for 85.0% of the Company-wide total. By region, Japan (+6.5%), Taiwan (+10.0%), North America (+25.2%), and Thailand (+19.3%) led growth, while China (-5.9%) and South Korea (-0.7%) recorded declines, indicating mixed demand conditions in East Asia. The Surface Treatment Machinery Business recorded lower Revenue of ¥56.9B (-19.2%) due to the timing of acceptance inspections, while the Plating Processing Business posted higher Revenue of ¥35.5B (+11.8%).

【Profit and Loss】Operating Income of ¥155.6B (+7.2% YoY) benefited from an improvement in the gross profit margin to 39.8% (39.3% in the previous year) and restraint in the SG&A ratio to 16.3%. The profit margin of the Surface Treatment Materials Business rose to 26.8% (26.1% in the previous year), making it the central contributor to the improvement in the Company-wide margin. The Plating Processing Business turned from an operating loss in the previous year to an operating profit of ¥1.4B, while the Real Estate Leasing Business recorded an operating loss of ¥1.4B on Revenue of ¥0.6B, turning unprofitable. Ordinary Income was limited to ¥159.7B (+3.7%), below Operating Income growth, due to the absence of subsidy income recorded in the previous year (¥3.1B in the previous year → ¥0.03B in the current period) and the recognition of foreign exchange losses of ¥1.5B in the current period. Net Income was ¥113.5B (+4.0%). In conclusion, the Company achieved higher revenue and profits.

Segment Analysis

The Surface Treatment Materials Business is the core business, generating Revenue of ¥560.6B (85.0% composition ratio) and Operating Income of ¥150.4B (26.8% margin), equivalent to 96.6% of Company-wide Operating Income. Although the Surface Treatment Machinery Business recorded Revenue of ¥56.9B (-19.2%), its margin improved from 7.1% to 8.8%, indicating improved profitability. The Plating Processing Business recorded Revenue of ¥35.5B (+11.8%) and turned from an operating loss in the previous year to an operating profit of ¥1.4B. The Real Estate Leasing Business recorded Revenue of ¥6.5B and an operating loss of ¥1.4B (margin of -21.4%), turning from a profit in the previous year (margin of 58.8%) to a loss. Although small in scale, it warrants attention as a factor affecting performance.

Key Financial Indicators

【Profitability】The Company maintained a high level of profitability, with an Operating Income margin of 23.6% (+0.65pt from 22.9% in the previous year) and a Net Income margin of 17.2% (essentially flat from 17.3% in the previous year). The gross profit margin also improved to 39.8% (39.3% in the previous year). 【Cash Quality】Against Cash and Deposits of ¥522.6B, Interest-Bearing Debt was only ¥3.5B, indicating a balance sheet structure close to net debt-free. Trade Receivables were ¥270.5B, an increase of ¥39.0B YoY, exceeding the increase in Revenue. 【Investment Efficiency】Annualized ROE was 13.4%, driven by the high Net Income margin, while Total Asset Turnover was 0.654x, remaining at a standard level for a high-margin company. BPS was ¥6,981 (¥6,578.64 in the previous year). 【Financial Soundness】The Equity Ratio was 83.8% (81.3% in the previous year), while the Current Ratio was approximately 6.0x, calculated as Current Assets of ¥899.6B / Current Liabilities of ¥149.5B, an extremely high level. Total Liabilities were ¥218.5B, or only 16.2% of Total Assets, indicating conservative financial leverage.

Cash Flow Analysis

Although the statement of cash flows is not directly disclosed, funding trends can be inferred from changes in the balance sheet. Cash and Deposits were ¥522.6B, essentially flat from ¥521.5B in the same period of the previous year, confirming the accumulation of retained earnings (Retained Earnings were ¥1,036.4B, up +¥68.4B from ¥968.0B in the previous year). Meanwhile, Trade Receivables increased by ¥39.0B YoY to ¥270.5B, exceeding the ¥26.4B increase in Revenue. This suggests that profit growth has not translated directly into cash realization and that funds may be tied up in working capital. Inventories were ¥39.4B, down ¥3.4B YoY, indicating that the funds tied up in inventory have instead eased. Contract Liabilities (advances received) were ¥31.8B, down ¥12.8B YoY, indicating that the release of advances received is progressing. In terms of capital expenditures, Construction in Progress increased 6.8x, suggesting an expected expansion in future capital expenditure outlays.

Quality of Earnings

Operating Income growth (+7.2%) exceeded Ordinary Income growth (+3.7%), with the difference attributable to fluctuations in non-operating income and expenses. In the same period of the previous year, the Company recorded non-operating income of ¥9.2B, including subsidy income of ¥3.1B, whereas in the current period subsidy income nearly disappeared (¥0.03B) and non-operating income declined to ¥6.0B. In addition, the Company recorded foreign exchange losses of ¥1.5B in the current period, resulting in non-operating expenses of ¥2.0B. Extraordinary gains and losses were minimal, consisting of an extraordinary gain of ¥0.1B and an extraordinary loss of ¥0.1B, and their impact on Profit Before Tax was limited. Accordingly, even after the temporary boost from subsidy income present in the previous year had disappeared, current-period earnings were supported by the expansion of core Operating Income, indicating that the quality of earnings is relatively high and driven by the core business. Comprehensive Income was ¥110.0B, slightly below Net Income of ¥113.5B, due to an OCI movement of -¥7.3B in foreign currency translation adjustments.

Earnings Forecasts and Guidance

The full-year Company forecast is Revenue of ¥860.0B (+2.6% YoY), Operating Income of ¥197.0B (+4.6%), Ordinary Income of ¥200.0B (-0.2%), and Net Income of ¥135.0B. The progress rates for the cumulative Q3 were 76.7% for Revenue, 79.0% for Operating Income, 79.8% for Ordinary Income, and 84.1% for Net Income, all exceeding the standard progress rate of 75%. Net Income has achieved particularly high progress; however, this level has already absorbed the disappearance of subsidy income present in the same period of the previous year and the recognition of foreign exchange losses. Operating Income required in Q4 is calculated at ¥41.4B, below the average quarterly Operating Income of the most recent three quarters. Nevertheless, the timing of order recognition in the Surface Treatment Machinery Business, demand trends in China and South Korea, and foreign exchange movements will be factors affecting the full-year outcome.

Shareholder Returns

The full-year dividend forecast is ¥290 per share, resulting in a forecast Payout Ratio of 34.7% against the full-year forecast EPS of ¥836.65. The Q2 dividend was ¥0, reflecting a dividend structure focused on the year-end dividend. Given cumulative Q3 EPS of ¥703.61, Retained Earnings of ¥1,036.4B, and Cash and Deposits of ¥522.6B, sufficient financial resources have been secured to fund the full-year dividend forecast. No data on share repurchases has been disclosed.

Risk Factors

1. Concentration of earnings in the core business: The Surface Treatment Materials Business accounts for 96.6% of Company-wide Operating Income. If customers in the semiconductor and electronic components industries adjust production or reduce capital expenditures, the impact on Company-wide performance could be significant.

2. Regional differences in East Asian demand: Revenue from China was ¥131.4B (-5.9% YoY), while South Korea recorded ¥39.8B (-0.7%), both declining in contrast to growth in Japan, Taiwan, North America, and Thailand. Delayed demand recovery by region could constrain the growth rate.

3. Funds tied up in working capital: Trade Receivables increased by ¥39.0B YoY to ¥270.5B, expanding at a pace exceeding the increase in Revenue. Contract Liabilities also declined by ¥12.8B YoY, indicating a slowdown in the conversion of earnings growth into cash.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Income margin and Net Income margin are substantially above the industry median, indicating a superior level of profitability within the industry.

Growth and Capital Efficiency

The Revenue growth rate is slightly above the industry median but does not reach the upper bound of the IQR; the growth rate itself is therefore not exceptionally high within the industry.

Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. The Operating Income margin of 23.6% and Net Income margin of 17.2% are substantially above the industry median. Operating Income increased 7.2% against Revenue growth of 4.2%, confirming the realization of operating leverage accompanied by restrained SG&A expenses.

2. While the Company has a strong financial foundation, with an Equity Ratio of 83.8% and a balance sheet structure close to net debt-free, Trade Receivables are increasing at a pace exceeding Revenue growth, making the funds tied up in working capital a contrasting factor to profit growth.

3. Progress rates against the full-year forecast exceed the standard progress rate of 75% for all profit indicators. However, Ordinary Income has not grown as much as Operating Income due to the disappearance of subsidy income recorded in the previous year and the recognition of foreign exchange losses. Fluctuations in non-operating factors should therefore be noted for their impact on Ordinary Income and Net Income.

Theoretical Share Price (Reference Value)

Sensitivity: ¥7,196–¥7,610 at Cost of Equity ±1%; ¥7,389–¥7,412 at ω±0.1.

Notes:

• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).

(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 summary data. It does not recommend investment in any specific security. The industry benchmark is reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting a professional as necessary.

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