| Indicator | This Period | Prior Year | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥7585.3B | ¥7123.4B | +6.5% |
| Operating Income | ¥1309.1B | ¥747.4B | +75.1% |
| Ordinary Income | ¥1367.4B | ¥764.1B | +78.9% |
| Net Income | ¥844.3B | ¥404.6B | +108.7% |
| ROE | 20.1% | 11.9% | - |
FY2026 results recorded Revenue ¥7,585.3B (YoY +¥461.9B +6.5%), Operating Income ¥1,309.1B (YoY +¥561.7B +75.1%), Ordinary Income ¥1,367.4B (YoY +¥603.3B +78.9%), and Net Income attributable to owners of parent ¥844.3B (YoY +¥439.7B +108.7%), achieving higher sales and substantial profit growth. Operating margin improved to 17.3% (from 10.5% year-ago, +6.8pt), gross margin expanded to 26.7% (from 21.1%, +5.6pt), and SG&A ratio decreased to 9.5% (from 10.6%, -1.1pt), reflecting material profitability improvement. The Metals sector drove results with External Sales ¥2,902.3B (YoY +15.9%), Functional Materials sector with ¥3,195.5B (YoY +33.4%), and Equity-method investment income ¥73.7B lifted ordinary income. Extraordinary loss ¥237.3B (including loss on sale of equity-method affiliates ¥190.7B) weighed on net income but is largely non-recurring. ROE reached a strong 20.1% and Equity Ratio was solid at 60.3%. Operating Cash Flow was ¥875.4B and Free Cash Flow ¥630.8B, sufficiently covering CapEx ¥344.9B and dividends ¥108.7B. For the Full Year guidance, Revenue is projected at ¥8,300.0B (+9.4%) while Operating Income is forecast at ¥910.0B (-30.5%), implying normalization of margins to roughly 11.0% (down ~6.3pt from this period).
[Revenue] Revenue reached ¥7,585.3B (+6.5%). By segment, Functional Materials expanded significantly to External Sales ¥3,195.5B (from ¥2,394.2B, +33.4%), driven by higher demand and price pass-through for high value-added products such as copper foil, catalysts, and battery materials. Metals was steady at ¥2,902.3B (from ¥2,504.0B, +15.9%) supported by favorable zinc, copper and precious metals markets and strengthened resource recycling. Other businesses were nearly flat at ¥985.9B (from ¥983.0B, +0.4%). Automotive Parts declined significantly to ¥512.2B (from ¥959.4B, -46.6%) due to weaker external environment and lower orders. Gross margin expanded to 26.7% (from 21.1%, +5.6pt), with lower cost of goods sold accelerating profit growth.
[Profitability] Operating Income was ¥1,309.1B (+75.1%) with Operating Margin 17.3% (+6.8pt), a marked improvement. Gross profit totaled ¥2,026.5B (from ¥1,502.4B, +¥524.1B), and the expansion in gross margin was the largest driver, supported by healthy metal spreads and improved product mix in Functional Materials. SG&A decreased in absolute terms to ¥717.4B (from ¥754.9B, -¥37.5B), lowering the SG&A ratio to 9.5% (-1.1pt) and improving cost efficiency. Ordinary Income rose to ¥1,367.4B (+78.9%), exceeding operating-level growth, supported by Equity-method investment income ¥73.7B (from ¥46.2B, +¥27.5B) and dividend income ¥5.0B. Interest expense declined to ¥21.1B (from ¥26.2B, -¥5.1B), contributing to lower financial costs. Extraordinary items worsened to a net -¥192.8B (prior year +¥43.6B), primarily due to loss on sale of equity-method affiliates ¥190.7B within Extraordinary Losses ¥237.3B, partially offset by Extraordinary Gains ¥44.7B including gain on sale of subsidiary shares ¥21.9B. Pre-tax profit was ¥1,174.8B (from ¥807.7B, +45.5%), and after income taxes ¥232.4B (effective tax rate 19.8%) and non-controlling interests ¥29.7B, Net Income attributable to owners of parent was ¥844.3B (+108.7%), about double the prior year, with Net Margin 11.1% (from 5.7%, +5.4pt). In conclusion, higher sales and substantial profit growth were achieved as gross margin expansion and SG&A efficiency translated into operating leverage.
On an ordinary income basis by segment, Metals contributed the most with ¥750.9B (from ¥445.1B, +68.7%), while Functional Materials delivered high profitability at ¥665.4B (from ¥403.4B, +65.0%). Other businesses improved significantly to ¥39.9B (from ¥16.8B, +137.5%), reflecting better margins in plant engineering and others. Automotive Parts incurred a loss of ¥-8.5B (from a profit of ¥7.1B last year), pressured by a 46.6% drop in external sales and under-absorption of fixed costs. Segment assets were concentrated in Functional Materials ¥2,580.6B, Metals ¥3,273.1B, and Other ¥800.9B, with Automotive Parts excluded from external capital. Profitability gaps between Metals and Functional Materials are limited; both segments secure high profitability exceeding 20% relative to external sales. Recovery of Automotive Parts profitability will be a focus for portfolio optimization.
[Profitability] ROE 20.1% reflects the company’s financial strength and profit levels, and Operating Margin 17.3% (from 10.5%, +6.8pt) is the result of favorable market conditions and product mix improvement. Gross Margin 26.7% (+5.6pt) and SG&A ratio 9.5% (-1.1pt) indicate substantial improvement in cost structure. EPS ¥1,595.45 (from ¥1,130.95, +41.1%) rose significantly per share. [Cash Quality] Operating Cash Flow / Net Income is 0.96x, generally healthy, but Operating Cash Flow ¥875.4B vs. EBITDA (Operating Income + Depreciation) ¥1,606.7B yields an OCF/EBITDA ratio of 0.54x; inventory increase -¥504.1B and receivables increase -¥237.2B absorbed working capital and suppressed cash efficiency. Free Cash Flow ¥630.8B is 1.83x CapEx ¥344.9B, indicating ample investment headroom. [Investment Efficiency] Total Asset Turnover is 1.09x (Revenue ¥7,585.3B ÷ Total Assets ¥6,974.8B), typical for manufacturing, and CapEx/Depreciation is 1.16x, indicating a growth investment stance. [Financial Soundness] Equity Ratio 60.3% (from 50.4%, +9.9pt) is robust, and Interest Coverage 61.9x (Operating Income ÷ Interest Expense) shows very high tolerance to interest burden. BPS ¥7,202.10 (from ¥5,798.07, +24.2%) reflects accumulation of shareholder capital.
Operating Cash Flow was ¥875.4B (from ¥767.0B, +14.1%), but despite subtotal (pre-tax profit + non-cash items) of ¥1,038.8B, large working capital increases occurred with inventory -¥504.1B and trade receivables -¥237.2B cash outflows, partially offset by trade payables +¥232.7B inflow. Corporate tax payments -¥190.6B also pressured cash. Investing Cash Flow was -¥244.7B, driven by CapEx -¥344.9B (capacity expansion and renewal investments centered on Functional Materials and Metals) and intangible asset acquisitions -¥14.8B, partially offset by proceeds from sale of subsidiary shares ¥63.5B. Financing Cash Flow was -¥531.6B as net repayments progressed: short-term borrowings net decrease -¥102.4B, long-term borrowings repayment -¥204.6B, redemption of corporate bonds -¥100.0B, and dividends paid -¥108.7B (to owners of parent -¥102.9B, to non-controlling interests -¥5.0B). Free Cash Flow (Operating CF + Investing CF) was ¥630.8B, ample to cover dividends, share buybacks and debt repayments, and Cash and Cash Equivalents at period-end increased to ¥582.7B (from ¥444.7B, +¥138.0B). Working capital expansion reduced cash conversion efficiency, but inventories can be interpreted as responses to market and demand variability; subsequent sales absorption and normalization of inventory turnover will be key.
Ordinary Income ¥1,367.4B comprises Operating Income ¥1,309.1B plus Equity-method investment income ¥73.7B, dividend income ¥5.0B, and interest income ¥7.0B, less interest expense -¥21.1B, foreign exchange losses -¥14.3B and other non-operating expenses -¥45.6B; non-operating income amounted to ¥103.9B, only 1.4% of revenue, indicating high dependence on core business. Extraordinary items were net -¥192.8B: within Extraordinary Losses ¥237.3B, loss on sale of equity-method affiliates ¥190.7B is a temporary factor related to portfolio review, impairment loss on fixed assets ¥30.0B and impairment losses ¥4.8B are also non-recurring. Extraordinary Gains ¥44.7B (gain on sale of subsidiary shares ¥21.9B, other ¥56.7B) are also highly one-off. Net Income ¥844.3B shows a -38.3% divergence from Ordinary Income, mainly due to extraordinary items and tax burden (effective tax rate 19.8%). Operating Cash Flow ¥875.4B is 0.96x of Net Income ¥912.6B (including non-controlling interests), indicating strong cash generation, but inventory increase -¥504.1B deteriorated working capital quality. Accrual (Net Income - Operating CF) is slightly positive, so divergence between profit and cash is limited; however, OCF/EBITDA 0.54x indicates inventory build-up suppressed cash conversion. Comprehensive Income ¥947.7B (owners of parent ¥913.5B) slightly exceeds Net Income ¥912.6B, with foreign currency translation adjustment +¥17.9B, retirement benefit adjustments +¥6.0B, and valuation difference on available-for-sale securities +¥2.4B contributing positively, while deferred hedge losses -¥21.3B detracted; overall OCI impact is limited.
Full Year guidance expects Revenue ¥8,300.0B (YoY +9.4%) while forecasting Operating Income ¥910.0B (YoY -30.5%) and Ordinary Income ¥930.0B (YoY -32.0%), anticipating profit contraction and normalization of operating margin to about 11.0% (from 17.3% this period). Compared to current-period results, sales growth pace is maintained but margin compression is pronounced, assumed to reflect narrower metal spreads, cyclical tapering in Functional Materials demand, loss of inventory valuation gains, and cost increases. EPS forecast ¥1,311.14 (from ¥1,595.45, -17.8%), and dividend forecast ¥140 (from ¥245, -¥105 reduction) indicate more conservative shareholder returns. Achievement rates at the half-year point versus guidance were: Revenue 91.4%, Operating Income 143.8%, Ordinary Income 147.0%, so current results substantially exceed full-year guidance, and differences in market conditions and reversal of one-off profit drivers have been incorporated into next year’s guidance. Both Functional Materials and Metals hint at a phase of price/mix adjustment, and continued losses in Automotive Parts will exert downward pressure on profitability. Implied forward PER (price assumption unspecified) derived from payout policy is slightly above 10%, reflecting a conservative return stance given decelerating profit growth.
Annual dividend is ¥245 (interim ¥100 + year-end ¥145), with Payout Ratio 15.9% (on Net Income base ¥912.6B), which is highly conservative. Prior year dividend was ¥180 (interim ¥90 + year-end ¥90), representing a ¥65 increase year-on-year. Total dividends amounted to ¥108.7B (dividend to owners of parent only), representing 17.2% of Free Cash Flow ¥630.8B, so FCF coverage is ample. Share buybacks were ¥1.9M, negligible, and Total Return Ratio is approximately at the same level as Payout Ratio. DOE (Dividend on Equity) is about 3.4% (Total Dividends ÷ Equity ¥4,120.5B), low, suggesting room for increased returns from a capital efficiency perspective. Next-year dividend forecast is ¥140 (reduction of ¥105), implying a payout ratio of just over 10% on projected Net Income ¥75.0B basis and an adjusted dividend aligned with normalized profit levels. Given low payout ratio and high FCF generation, dividend sustainability is very high and the company has financial capacity to maintain stable dividends even under market downturns. Shareholders’ equity increased by ¥805.0B during the period, indicating accumulation of retained earnings.
Volatility of non-ferrous metal prices and earnings fluctuation risk: The Metals sector is a core business with External Sales ¥2,902.3B and Segment Income ¥750.9B; zinc, copper and precious metal market swings directly affect spreads and valuation gains/losses. While favorable markets boosted profits this period, guidance assumes Operating Margin contraction from 17.3% to ~11.0%, premised on spread compression. Inventory increase ¥504.1B carries valuation loss risk if markets reverse, and trade receivables increase ¥237.2B raises potential collection delays and credit risk. Prolonged metal market headwinds could further compress gross margins and reverse operating leverage.
Structural deterioration of Automotive Parts segment profitability: Automotive Parts recorded External Sales ¥512.2B (from ¥959.4B, -46.6%) and Segment Loss ¥-8.5B, signaling structural weakness and under-absorption of fixed costs. Declining orders and external environment deterioration underpin the uncertainty of recovery. This segment’s assets are excluded from segment asset disclosure, and possibilities of restructuring or withdrawal are suggested. Continued losses would drag on consolidated margins and impair portfolio-wide profitability.
Working capital expansion and deterioration of cash conversion efficiency: Inventory increase -¥504.1B and receivables increase -¥237.2B limited Operating CF to ¥875.4B and resulted in OCF/EBITDA 0.54x. Slower inventory turnover raises risks of valuation losses in a demand or market downturn and obsolescence, while rising receivables indicate longer collection cycles and potential credit issues. Failure to adequately reduce inventories and collect receivables next year could further weaken Operating CF and financial flexibility.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 17.3% | 7.8% (4.6%–12.3%) | +9.5pt |
| Net Margin | 11.1% | 5.2% (2.3%–8.2%) | +5.9pt |
The company significantly outperforms industry medians, with Operating and Net Margins above the upper quartile and at a high-quality level.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 6.5% | 3.7% (-0.4%–9.3%) | +2.8pt |
Revenue growth exceeds the industry median, positioning the company to lead manufacturing sector growth.
※ Source: Company compilation
Peak-out of margins and transition to normalization: Operating Margin 17.3% this period exceeded historical levels due to favorable metal markets and product mix improvements, but guidance to 11.0% next year indicates market normalization and the loss of one-off uplift. The combination of +5.6pt gross margin expansion and -1.1pt SG&A ratio decline in this period is unlikely to be sustainable; attention is needed on margin pressure and reduced fixed-cost absorption. Trajectory of demand for Functional Materials and metal spreads will determine margin trends.
Urgent need to strengthen working capital management: Inventory increase -¥504.1B and receivables increase -¥237.2B produced low OCF/EBITDA 0.54x and worsened cash conversion. While some inventory is a market-response, lower turnover hurts capital efficiency and cash flow. Priority is on inventory destocking and receivables collection next year; without working capital normalization, sustainable FCF generation will be difficult.
Automotive Parts profitability improvement and portfolio optimization: Automotive Parts saw sales -46.6% and loss -¥8.5B, exposing structural weakness and suggesting possible restructuring. High profits from Metals and Functional Materials are being eroded by Automotive Parts losses; achieving group-level profitability improvement requires either turnaround of this segment or decisions on divestiture/withdrawal. Allocation and concentration of management resources will be the inflection point for medium-term capital efficiency improvement.
This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It is not a recommendation to invest in any particular security. Industry benchmarks are reference information compiled by the company from public financial statements. Investment decisions should be made at your own responsibility and, if necessary, after consulting a professional advisor.