Quick View
| Metric | Current Period | Same Period of Previous Year | YoY |
|---|---|---|---|
| Revenue | ¥88.6B | ¥79.6B | +11.3% |
| Operating Income | ¥10.6B | ¥12.9B | −17.9% |
| Ordinary Income | ¥8.3B | ¥12.1B | −31.2% |
| Net Income | ¥6.0B | ¥8.5B | −29.5% |
| ROE | 0.9% | 1.3% | - |
Executive Summary
The most important point in this earnings report is that operating income declined despite higher revenue, primarily due to deteriorating profitability in the core carbon products business. Revenue was ¥88.6B (+11.3% YoY), operating income was ¥10.6B (△17.9% YoY), ordinary income was ¥8.3B (△31.2% YoY), and net income attributable to owners of the parent was ¥4.8B (△28.6% YoY). Cost pressures exceeding the increase in revenue were exerted on the carbon products business, while higher non-operating expenses further depressed ordinary income.
Factors Affecting Performance
【Revenue】Revenue was ¥88.6B, an increase of +11.3% YoY. Carbon products accounted for ¥74.2B (83.8% of the composition, +10.3% YoY), while silicon carbide products accounted for ¥11.1B (12.6% of the composition, +10.7% YoY), with both segments contributing to revenue growth. Expansion in fine carbon-related products and electrode material-related products drove the increase in revenue from carbon products.
【Profit and Loss】Operating income was ¥10.6B, down △17.9% YoY, and the operating margin declined to 11.9% from approximately 16.2% in the same period of the previous year, a decrease of approximately 4.3pt. Segment income from carbon products deteriorated significantly to ¥5.2B (△34.7% YoY), with a margin of 7.0% (11.9% in the same period of the previous year), making it the primary cause of the decline in consolidated earnings. Silicon carbide products maintained a profit margin of 37.3%, although this was down from 42.6% in the same period of the previous year. Ordinary income deteriorated further to ¥8.3B (△31.2% YoY) as non-operating expenses (¥3.3B, including interest expenses of ¥0.4B) exceeded non-operating income (¥1.1B). In conclusion, the company achieved revenue growth but experienced profit declines.
Segment Analysis
Carbon products generated revenue of ¥74.2B (+10.3% YoY) and segment income of ¥5.2B (△34.7% YoY), resulting in a decline in the profit margin to 7.0%. The deterioration in profitability of this core business, which accounts for 83.8% of the revenue composition, was the central factor behind the decline in consolidated earnings. Silicon carbide products generated revenue of ¥11.1B (+10.7% YoY) and segment income of ¥4.2B (△2.4% YoY), maintaining high profitability with a margin of 37.3%. Although its revenue composition was 12.6%, its share of operating income reached 39.3%. Other businesses achieved both revenue and profit growth, with revenue of ¥3.2B and segment income of ¥1.2B, while their profit margin also improved. Overall, the structure whereby the highly profitable silicon carbide products business supports consolidated earnings remains in place.
Key Financial Indicators
【Profitability】The operating margin was 11.9%, down approximately 4.3pt from approximately 16.2% in the same period of the previous year, while the net profit margin, based on net income attributable to owners of the parent, was 5.4%, down from approximately 8.5% in the same period of the previous year. The gross margin was 26.1%, and the SG&A ratio was 14.2%.【Cash Quality】Accounts receivable of ¥97.0B and inventories of ¥38.4B, of which work-in-process inventory accounted for 61.2%, represent a significant proportion of assets, indicating a structure in which it takes time to convert earnings into cash.【Investment Efficiency】ROE (simple calculation) remained at 0.9%, and capital efficiency remained low even on an annualized basis of quarterly profit. Total asset turnover was low, indicating limited earnings generation relative to the asset base.【Financial Soundness】The equity ratio was high at 75.2% (a disclosure based on note calculations also indicates 64.1%). Current assets of ¥479.2B were approximately 2.8 times current liabilities of ¥173.7B, and cash and deposits were ample at ¥151.7B, indicating that the overall financial foundation remains stable.
Cash Flow Analysis
As detailed disclosure of the statement of cash flows is not included in this earnings report, funding trends are assessed based on movements in the balance sheet. Cash and deposits were ¥151.7B, almost unchanged from ¥151.8B in the same period of the previous year, with no significant cash inflows or outflows observed. Meanwhile, accounts receivable and notes receivable were ¥97.0B, down from ¥113.7B in the same period of the previous year, while work-in-process inventory was ¥123.5B, slightly up from ¥122.3B in the same period of the previous year. The work-in-process inventory ratio was high at 61.2% of total inventories, making the retention of funds in the production process a key issue in terms of capital efficiency. Short-term borrowings remained at approximately the same level as in the same period of the previous year, and the impact of changes in working capital on cash management remained limited.
Quality of Earnings
The adjustment from operating income to ordinary income resulted from non-operating expenses of ¥3.3B (including interest expenses of ¥0.4B) exceeding non-operating income of ¥1.1B, resulting in a reduction of ¥2.3B from operating income to ordinary income. Foreign exchange gains of ¥0.7B, equivalent to approximately 6.9% of operating income, have a temporary nature and should be excluded when assessing recurring earnings power. Comprehensive income was ¥5.7B, slightly below net income of ¥6.0B. The primary factor behind the decrease was a △¥1.0B valuation difference on securities, partially offset by +¥0.6B in the share of OCI of equity-method affiliates. The divergence between net income and comprehensive income was limited, and no significant risk of fluctuations in valuation gains or losses has materialized at this point.
Earnings Forecast and Guidance
The full-year company plan calls for revenue of ¥410.0B (+8.7% YoY), operating income of ¥43.0B (△10.6% YoY), and ordinary income of ¥46.0B (△9.9% YoY). There were no revisions to either the earnings forecast or the dividend forecast for the current quarter. Estimated Q1 progress rates are 21.6% for revenue, 24.6% for operating income, 18.1% for ordinary income, and 17.8% for net income attributable to owners of the parent. While operating income is progressing generally in line with seasonality, progress at the ordinary income and net income levels is relatively low. The company’s full-year plan itself incorporates declines in operating income and ordinary income despite revenue growth, and Q1 results are consistent with this direction. Nevertheless, improvement in the progress of non-operating income and expenses and profit after taxes will be the focus for achieving the full-year plan.
Shareholder Returns
The full-year dividend forecast is ¥200 per share, an increase from ¥100 in the previous year (the combined level of the interim and year-end dividends). The payout ratio against the full-year EPS forecast of ¥244.19 is approximately 81.9%, above the general guideline of 60%. Although the payout ratio is high, the financial foundation—an equity ratio of 75.2% and cash and deposits of ¥151.7B—supports the securing of funds for dividends for the time being. Going forward, the recovery of profitability in the carbon products business and the degree of achievement of the full-year profit plan will be key factors determining the sustainability of the dividend level.
Risk Factors
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Deterioration in profitability of the core business: Despite revenue growth of +10.3% YoY in the carbon products business, segment income declined by △34.7% YoY, and the profit margin fell to 7.0% (11.9% in the same period of the previous year). Recovery in the profitability of this business, which accounts for 83.8% of the revenue composition, is essential for a recovery in consolidated profitability.
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Decline in the profit margin of the highly profitable segment: The profit margin of the silicon carbide products business declined by approximately 5.3pt, from 42.6% to 37.3%. Although the business accounts for 12.6% of revenue, its share of operating income reaches 39.3%; continued deterioration in its profitability would have a significant impact on the company-wide profit margin.
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Accumulation of inventories and work-in-process inventory: Work-in-process inventory accounted for ¥123.5B (61.2% of the composition) of inventories of ¥38.4B and also increased compared with the same period of the previous year. The risk of inventory valuation losses associated with prolonged production processes or fluctuations in demand should be monitored from the perspectives of capital efficiency and earnings quality.
Industry Benchmark (For Reference; Compiled by the Company)
Profitability and Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 11.9% | 7.2% (3.2%–12.5%) | +4.8pt |
| Net Profit Margin | 6.7% | 5.9% (2.9%–12.5%) | +0.9pt |
The company’s operating margin and net profit margin both exceed the industry median, indicating comparatively strong profitability.
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 11.3% | 5.6% (1.1%–13.9%) | +5.7pt |
The revenue growth rate exceeds the industry median but does not reach the upper bound of the IQR (13.9%), placing the company in the upper group within the industry.
※Source: Compiled by the Company
Key Points in the Earnings Report
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While revenue increased +11.3% YoY, operating income decreased △17.9% YoY, making the decline in the conversion of revenue growth into profit in Q1 a key point in the earnings report.
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The core carbon products business saw its segment profit margin decline to 7.0% and was the central factor behind the decline in consolidated earnings. Meanwhile, the silicon carbide products business maintained a profit margin of 37.3% and continued to make a profit contribution exceeding its share of revenue.
-
The full-year company plan incorporates declines in operating income and ordinary income despite revenue growth, and Q1 results are generally consistent with this direction. The structure of funds being tied up, with work-in-process inventory accounting for 61.2% of inventories, will remain a continuing point of focus when assessing capital efficiency.
Theoretical Share Price (Reference Value)
| Scenario | Theoretical Share Price |
|---|---|
| bear (Bearish) | 4,256円 |
| base (Base) | 4,330円 |
| bull (Bullish) | 4,384円 |
| Calculation Assumption | Value |
|---|---|
| Net Assets per Share (BPS) | 4,864円 |
| Adjusted Forecast EPS | 272.7円 |
| Cost of Equity r | 9.77%（10-year Japanese Government Bond 2.77% + Equity Risk Premium 6.00% + Size Premium 1.00%） |
| Residual Income Persistence Factor ω / Explicit Forecast Period | 0.62 / 5 years |
| Assumed Payout Ratio | 81.9% |
| Forecast EPS Confidence Adjustment | ×1.117（based on the track record of guidance achievement rates in the same industry） |
| implied PBR / PER | 0.89x / 15.9x |
Sensitivity: ¥4,217–¥4,449 at a ±1% change in the cost of equity, and ¥4,314–¥4,341 at a change of ±0.1 in ω.
Notes:
- Because forecast ROE is below the cost of equity, the theoretical value will be below net assets per share.
- Net assets as of the end of the quarter 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 value based solely on 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）
This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings summary data. It does not recommend investment in any specific securities. 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 with professionals as necessary.
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AI Financial Analysis
Executive Summary
FY2026 Q1 was a mixed result: revenue growth remained solid, but materially weaker gross profitability and adverse non-operating movements drove a sharp earnings decline. Revenue increased 11.3% YoY to ¥8.86bn. Operating income declined 17.9% YoY to ¥1.06bn despite the higher sales base. Gross profit fell 8.0% YoY to ¥2.32bn as cost of sales rose 20.2% YoY to ¥6.54bn, substantially faster than revenue. Consequently, gross margin compressed by 550bp to 26.1% from 31.6%. SG&A increased only 2.4% YoY to ¥1.26bn, and the SG&A-to-sales ratio was broadly stable at 14.2%, indicating that the principal pressure was in production and procurement costs rather than overhead expansion. Operating margin fell 430bp to 11.9% from 16.2%, although it remains within the good 8-15% profitability range. Ordinary income declined 31.2% to ¥0.83bn, more sharply than operating income, reflecting a deterioration in the non-operating balance. Profit attributable to owners of parent fell 28.6% to ¥0.48bn, and EPS declined to ¥43.58 from ¥60.96. Net margin contracted approximately 310bp to 5.4% from 8.5%. Carbon products, the core business by operating-income contribution, recorded sales growth but a substantial margin decline. The silicon-carbide business also expanded sales while posting a modest profit decrease, showing resilient demand but lower unit profitability. The other segment delivered strong sales and profit growth, but its ¥0.12bn operating profit is too small to offset the decline in the core carbon-products business. Q1 sales reached 21.6% of the full-year forecast, slightly below the standard 25% seasonal progress rate, while operating-income progress of 24.6% was broadly in line. However, ordinary-income and parent-profit progress rates of 18.1% and 17.8%, respectively, leave the full-year earnings target more dependent on improvement in non-operating items and margins over the remaining quarters. The balance sheet remains conservatively capitalized and highly liquid, but its debt structure is heavily concentrated in short-term borrowings. Working-capital intensity is the principal operating-quality concern, with elevated receivable, inventory and cash-conversion-cycle days requiring close monitoring.
Profitability Analysis
Annualized DuPont ROE is 3.1%, comprising a 5.4% net profit margin, 0.424x asset turnover and 1.33x financial leverage. The largest adverse change is the earnings-margin component: operating margin declined to 11.9% from 16.2%, while parent net margin fell to 5.4% from 8.5%. Revenue growth was not converted into gross-profit growth because cost of sales expanded 20.2% YoY, compared with 11.3% revenue growth. SG&A discipline was relatively sound, with expenses rising only 2.4% YoY and slower than sales. Therefore, the operating-margin pressure appears principally attributable to manufacturing cost absorption, product mix, input costs, or pricing rather than operating leverage from fixed selling and administrative costs. The five-factor analysis shows a tax burden of 0.578 and an interest burden of 0.787, both below the stated normal thresholds. The low interest-burden metric is not explained by cash interest alone, which was only ¥0.38bn, or 3.6% of EBIT; rather, it reflects the broader net non-operating burden, including a ¥0.44bn equity-method loss versus ¥0.48bn equity-method income in the prior-year quarter. The high-tax-burden alert is driven by profit attributable to owners relative to pre-tax income, including the allocation of earnings to non-controlling interests; consolidated income-tax expense represented 28.4% of profit before tax. Financial leverage is modest at 1.33x, so the low ROE is principally an operating-profitability and asset-efficiency issue rather than a balance-sheet leverage issue. The annualized asset turnover of 0.424x is low, consistent with a capital-intensive manufacturing model and substantial working-capital commitments. Segment data identify carbon products as the core business, contributing ¥0.52bn of operating income, or approximately 49% of consolidated operating income. Carbon-products sales increased 10.3% YoY to ¥7.42bn, but segment profit declined 34.7% to ¥0.52bn and segment margin compressed to 7.0% from 11.9%. Silicon-carbide sales rose 11.6% to ¥1.11bn, while segment profit slipped 2.4% to ¥0.42bn; its 37.3% margin remains the group’s strongest, albeit below the prior-year 42.6%. Other-segment sales grew 37.4% to ¥0.32bn and operating profit increased 88.7% to ¥0.12bn, lifting its margin to 36.2% from 26.4%.
Growth Assessment
Top-line momentum is positive, led by a ¥0.70bn increase in carbon-products revenue and a ¥0.52bn increase in electrode-material sales to ¥2.60bn. Fine-carbon-related products rose 3.7% YoY to ¥4.82bn, while silicon-carbide-related products increased 11.6% YoY to ¥1.11bn. The revenue composition therefore indicates broad-based growth across the major product categories rather than reliance on a single small segment. Nevertheless, Q1 profit performance does not yet demonstrate that the higher revenue is economically accretive. The carbon-products segment’s profit decline despite double-digit sales growth is the central indicator of unfavorable price-cost or mix dynamics. The full-year plan calls for 8.7% revenue growth to ¥41.0bn, 10.6% operating-income contraction to ¥4.3bn, 9.9% ordinary-income contraction to ¥4.6bn, and ¥2.7bn in parent profit. Q1 sales progress is 21.6%, 3.4 percentage points below the standard 25% first-quarter pace. Operating-income progress is 24.6%, only 0.4 percentage points below the standard pace. Ordinary-income progress of 18.1% and parent-profit progress of 17.8% are 6.9 and 7.2 percentage points below the standard pace, respectively. This indicates that achievement of the annual target requires a more favorable non-operating result and a recovery in post-operating profitability. Management maintained both earnings and dividend guidance, which signals no disclosed change to its full-year planning assumptions.
Financial Health
Liquidity is strong, with a current ratio of 275.9%, a quick ratio of 253.8%, and working capital of ¥30.55bn. Cash and deposits of ¥15.17bn exceed short-term loans of ¥10.23bn by 1.48x, providing meaningful immediate refinancing capacity. Total interest-bearing debt is ¥10.39bn, equivalent to a conservative 0.33x debt-to-equity ratio and 14.2% debt-to-capital ratio. Interest coverage is strong at 27.82x, indicating that current operating earnings cover reported interest expense comfortably. There is no current-ratio or debt-to-equity threshold breach. The material maturity-mismatch consideration is that 98.5% of interest-bearing debt is short-term, with only ¥0.16bn of long-term loans. This short-term funding concentration creates refinancing risk even though cash resources and current assets currently provide substantial coverage. The refinancing-risk alert is therefore a funding-structure concern rather than an immediate liquidity-solvency concern. Accounts payable rose ¥0.84bn, or 28.9% YoY, to ¥3.75bn. The increase partly supports working-capital funding, but it remains modest relative to the group’s annualized inventory and receivable cycle. Total equity was ¥62.88bn, representing 75.2% of total assets, while owners’ equity was ¥53.63bn. Investment securities of ¥10.14bn represent 12.1% of assets and provide balance-sheet value, although they also expose comprehensive income and equity to market-price movements. Asset-retirement obligations of ¥0.63bn are only about 0.3% of total liabilities, indicating limited identified balance-sheet environmental-remediation exposure.
Notable B/S Changes
Accounts payable: +¥0.84bn (+28.9%) YoY to ¥3.75bn - increased supplier financing partly supports working capital, but remains modest relative to the extended receivable and production cycle.
Cash Flow Quality
Working-capital metrics indicate elevated cash-conversion risk for a manufacturing business. Annualized receivable days are 100 days, above the 60-day warning threshold, increasing the risk that reported sales convert to cash slowly. Annualized inventory days are 281 days, well above the 90-day warning threshold and materially above typical metals-sector inventory-cycle norms. The annualized cash conversion cycle is 329 days, substantially above the 120-day warning threshold. These metrics make operating cash generation particularly sensitive to collection timing, production scheduling and inventory normalization. Work in process is ¥12.35bn and represents 61.2% of the stated manufacturing inventory base, exceeding the 40% warning threshold. The high WIP ratio may reflect long production lead times, but it also raises the risk of production bottlenecks, delayed shipments, cost-overruns or inventory valuation pressure if end-market demand softens. Raw materials are ¥3.98bn and finished goods are ¥3.84bn, while the concentration in WIP points to capital being tied up in incomplete production rather than readily saleable stock. Trade receivables were ¥9.70bn and electronically recorded monetary claims were ¥1.89bn, underscoring the importance of collection discipline. Trade payables were ¥3.75bn and electronically recorded obligations were ¥0.35bn; supplier credit does not fully offset the extended customer-collection and production cycle. The combination of high DSO, high DIO, long CCC and high WIP is the most significant earnings-quality alert because it can delay the translation of accounting earnings into operating cash.
Dividend Sustainability
The full-year dividend forecast is ¥200 per share, unchanged from the company’s disclosed plan. Based on forecast EPS of ¥244.19, the implied dividend payout ratio is approximately 81.9%. This exceeds the 60% sustainability benchmark and leaves a narrower earnings buffer than a more conservative payout policy. Q1 EPS of ¥43.58 represents 17.8% of full-year forecast EPS, below the standard 25% first-quarter pace, so dividend coverage depends on earnings improvement through the remainder of the year. The company’s large equity base, cash balance of ¥15.17bn and modest debt-to-equity ratio support near-term financial flexibility. However, the extended working-capital cycle increases the importance of cash discipline when maintaining a high payout ratio. The unchanged dividend forecast indicates management confidence in meeting its annual earnings plan, but the prospective payout remains sensitive to further pressure in the carbon-products margin or non-operating earnings.
Risk Assessment
Business risks include Core carbon-products profitability risk: segment sales increased 10.3% YoY but segment operating profit fell 34.7%, reducing margin to 7.0% from 11.9%., Manufacturing cost and pricing risk: cost of sales increased 20.2% YoY, materially outpacing 11.3% revenue growth and compressing consolidated gross margin by 550bp., Working-capital and production-cycle risk: annualized DSO of 100 days, DIO of 281 days, CCC of 329 days and a 61.2% WIP ratio indicate substantial capital tied up in operations., Industry-specific carbon-materials risk: demand, pricing and utilization can be affected by industrial-production cycles, semiconductor and energy-related investment trends, and customer inventory adjustments., Foreign-exchange exposure: Q1 included ¥0.73bn of foreign-exchange gains, so changes in currency conditions can affect non-operating earnings..
Financial risks include Refinancing risk: ¥10.23bn of short-term loans account for 98.5% of interest-bearing debt, requiring active rollover management., Non-operating earnings volatility: the group recorded a ¥0.44bn equity-method loss compared with ¥0.48bn equity-method income in the prior-year quarter, amplifying the decline from operating income to ordinary income., High payout sensitivity: the forecast dividend payout ratio is approximately 81.9%, limiting the earnings cushion if full-year profit underperforms., Investment-security valuation risk: ¥10.14bn of investment securities, or 12.1% of assets, can affect other comprehensive income and equity through market valuation changes..
Key concerns include Highest priority is restoration of the carbon-products segment margin, as this business remains the largest contributor to consolidated operating income., The high-tax-burden alert should be interpreted carefully: the 0.578 parent-profit tax-burden metric is low, while the consolidated effective tax rate based on income-tax expense and profit before tax was 28.4%; the impact is reduced conversion of pre-tax profit to parent earnings., The high-interest-burden alert reflects the wider non-operating burden and not solely cash interest, since interest expense was ¥0.38bn; the impact is that ordinary-income recovery requires improvement in affiliate and other non-operating results., The short-term-debt alert is material because of debt maturity concentration, although a 275.9% current ratio and 1.48x cash-to-short-term-debt ratio mitigate near-term stress., The receivable-days, inventory-days, long-CCC and high-WIP alerts collectively indicate elevated cash-conversion and inventory-execution risk; this is particularly important if demand decelerates or production lead times extend further..
Investment Implications
Key takeaways include Revenue growth was healthy at 11.3% YoY, but it was not converted into operating-profit growth because gross margin declined to 26.1%., The core carbon-products segment is the main earnings issue, with a 34.7% decline in segment operating profit despite 10.3% sales growth., Silicon carbide remains the highest-margin segment at 37.3%, providing an important profitability offset, though its margin also declined., The balance sheet is strong in aggregate, with 75.2% equity-to-assets, 0.33x debt-to-equity and substantial cash liquidity., Short-term debt concentration and unusually long working-capital cycles are the principal financial and earnings-conversion risks., Full-year operating-income guidance appears broadly attainable on Q1 progress, while ordinary-income, net-income and dividend coverage require stronger subsequent-quarter execution..
Metrics to watch include Carbon-products segment margin and profit conversion, Consolidated gross margin relative to input-cost and selling-price movements, Silicon-carbide segment margin retention, Annualized DSO, DIO, WIP ratio and cash conversion cycle, Short-term loan rollover, cash-to-short-term-debt coverage and interest expense, Equity-method investment income or losses and foreign-exchange effects, Progress against full-year ordinary-income and parent-profit forecasts, Forecast dividend payout ratio relative to revised EPS expectations.
Regarding relative positioning, Japan Carbon combines a solid capital base, strong liquidity and a differentiated high-margin silicon-carbide operation with weaker current earnings conversion in its larger carbon-products business. Its 11.9% operating margin remains respectable for a materials manufacturer, but the annualized 3.1% ROE and extended working-capital cycle are less favorable than would be expected for a consistently efficient, high-return specialty-materials franchise.