HIRAKAWA HEWTECH (5821) FY2026 Q3 Earnings Report

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Executive Summary

For the cumulative Q3 period of the fiscal year ending March 2026, revenue and earnings increased, with the significant improvement in the operating margin from the previous year being the key highlight. Revenue was ¥28.54B (+21.6% year on year, +¥5.07B), Operating Income was ¥3.50B (+114.2% YoY, +¥1.87B), Ordinary Income was ¥3.64B (+66.8% YoY, +¥1.46B), and Net Income was ¥2.96B (+84.8% YoY). In addition to expanding demand for automotive applications and North American energy in the Wires and Processed Products segment, the contribution from Yoshinogawa Electric Wire, which was consolidated in July, as well as improved gross margins and more efficient SG&A expenses, drove the growth rate of Operating Income to more than five times the revenue growth rate.

Factors Affecting Performance

【Revenue】Revenue increased 21.6% year on year to ¥28.54B. The core Wires and Processed Products segment grew to ¥24.75B (+23.6%), driven by expanding demand for automotive applications, the North American energy industry, and cables for semiconductor inspection equipment, as well as the consolidation of Yoshinogawa Electric Wire. Electronics and Medical Components generated revenue of ¥3.78B (+10.2%); while large-scale OEM projects for electronic equipment contributed, medical components declined due to inventory adjustments by customers.

【Profit and Loss】Operating Income was ¥3.50B (+114.2% YoY), with the gross margin improving by approximately 3.2pt from the previous year to 26.5%. Strong operating leverage was achieved as revenue growth outpaced the 6.4% increase in SG&A expenses. Ordinary Income was ¥3.64B (+66.8% YoY), while non-operating income and expenses were slightly profitable as interest and dividend income offset foreign exchange losses. Net Income of ¥2.96B includes a gain on negative goodwill of ¥0.44B as extraordinary income, a temporary factor related to the M&A transaction involving Yoshinogawa Electric Wire, which is one reason why the growth rate of Net Income exceeded that of Ordinary Income. In conclusion, both revenue and earnings increased, with contributions from both improvements in core operating margins and temporary extraordinary income.

Segment Analysis

The core Wires and Processed Products segment generated revenue of ¥24.75B (86.7% of total revenue) and Operating Income of ¥3.48B (14.0% margin), leading the overall improvement in Operating Income. Operating Income increased 117.9% year on year, driven by new mass-production automotive products, expanding demand in the North American energy market, and the consolidation of Yoshinogawa Electric Wire. The Electronics and Medical Components segment generated revenue of ¥3.78B (13.3% of total revenue) and Operating Income of ¥0.71B (18.9% margin). Although its margin itself exceeded that of the core business, its smaller scale limited its earnings growth to +3.9%. The impact of inventory adjustments in medical components restrained growth in the Electronics and Medical Components segment.

Key Financial Indicators

Profitability: ROE 8.9% (approximately 4.9% estimated for the previous year), Operating Margin 12.3% (7.0% in the previous year)
Equity Ratio: 76.4% (82.2% in the previous year); interest-bearing debt increased, but the Company maintained net cash
Per-Share Indicators: EPS ¥198.64 (¥107.74 in the previous year, +84.4%)
Working Capital-Related: Cash and deposits of ¥16.64B, accounts receivable of ¥10.32B, and inventories of ¥3.39B increased in line with revenue growth

Cash Flow Analysis

Although explicit data on Operating Cash Flow (OCF) is not available, accounts receivable and inventories increased at rates exceeding the 21.6% revenue growth rate, suggesting a structure in which the conversion of earnings into cash requires a certain amount of time. On the investment side, long-term borrowings increased 121.2% year on year to ¥3.94B, suggesting funding needs related to the consolidation of Yoshinogawa Electric Wire. Cash and deposits stood at ¥16.64B, securing substantial liquidity well in excess of short-term debt of ¥7.28B. Overall, earnings growth is strong, but the accumulation of working capital may constrain cash generation, requiring monitoring.

Earnings Quality

Profit Before Tax was ¥4.08B versus Ordinary Income of ¥3.64B, with the primary reason for the difference being extraordinary income of ¥0.44B, representing a gain on negative goodwill. This extraordinary income was a temporary factor associated with the consolidation of Yoshinogawa Electric Wire and represented approximately 15% of Net Income of ¥2.96B. Non-operating income of ¥0.28B was less than 1.0% of revenue and limited in scale. It should be noted that excluding extraordinary income, underlying earnings growth was somewhat smaller than the reported figure.

Earnings Forecast and Guidance

Progress toward the full-year forecasts of revenue of ¥36.50B, Operating Income of ¥4.00B, and Ordinary Income of ¥4.00B was 78.2%, 87.4%, and 90.9%, respectively. Compared with a standard Q3 progress rate of 75%, progress for both Operating Income and Ordinary Income exceeded the benchmark by more than 10 points, and the full-year forecasts have already been revised upward. The primary reasons for the revision were expanding demand for automotive applications and North American energy, as well as the consolidation effect of Yoshinogawa Electric Wire. In the second half, recovery in demand for cables for semiconductor inspection equipment and the continuation of inventory adjustments in medical components will be the key sources of variability.

Shareholder Returns

The annual dividend forecast is ¥47.00 (interim dividend of ¥23.00 and year-end dividend of ¥24.00), representing an increase from the equivalent of ¥45 in the previous year. Based on the full-year forecast Net Income of ¥3.30B and the dividend forecast, the Payout Ratio is approximately 21.1%, a conservative level well below the general benchmark of 60%. Given retained earnings of ¥33.24B and cash and deposits of ¥16.64B, sufficient resources have been secured to sustain dividend payments. There was no mention of share repurchases, and shareholder returns are centered on dividends.

Catalysts

【Short Term】Trends in the recovery of demand for cables for semiconductor inspection equipment in the second half and the timing of the end of inventory adjustments in medical components. 【Long Term】Full realization of the consolidation benefits from Yoshinogawa Electric Wire, expansion of new mass-production automotive cable products, and sustainability of demand from the North American energy industry.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Margin and Net Profit Margin exceeded the industry median, placing the Company in the upper tier of the industry in terms of profitability.

Growth and Capital Efficiency

The revenue growth rate significantly exceeded the industry median, indicating high growth relative to its industry peers.

※Source: Compiled by the Company

Risk Factors

1. Deterioration in Working Capital Efficiency: Accounts receivable increased 29.2% year on year to ¥10.32B, while inventories increased 31.9% to ¥3.39B; both increased at rates exceeding the 21.6% revenue growth rate. The expansion of funds tied up in connection with revenue growth may affect future cash generation.

2. Raw Material and Foreign Exchange Volatility: Rising copper prices were a factor reducing Operating Income, equivalent to ¥0.318B based on the PDF disclosure, and foreign exchange losses of ¥0.05B were also recorded. The full-year assumption is ¥147/$, and deviations from actual exchange rates may affect second-half performance.

3. Non-Recurrence of Extraordinary Income: The gain on negative goodwill of ¥0.44B included in Net Income was a temporary factor associated with the consolidation of Yoshinogawa Electric Wire and accounted for approximately 15% of Net Income. It is necessary to assess the Company’s underlying earnings power excluding this factor.

Key Points from the Earnings Results

1. The Operating Margin improved by 5.3pt from 7.0% in the previous year to 12.3%, confirming the emergence of operating leverage through improved gross margins and SG&A efficiency. The simultaneous progress of revenue growth and margin improvement is a structural characteristic of this period’s earnings results.

2. Full-year progress was above the standard pace, with Operating Income at 87.4% and Ordinary Income at 90.9%, and the full-year forecasts have already been revised upward. However, accounts receivable and inventories increased faster than revenue, making working capital trends an important focus when assessing the sustainability of earnings growth.

3. Because Net Income includes temporary gain on negative goodwill of ¥0.44B, it is appropriate to use the growth of Ordinary Income and Operating Income (+66.8% and +114.2%, respectively) as the basis for evaluating recurring earnings power.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,815–¥2,982 at ±1% in the cost of equity, and ¥2,893–¥2,899 at ω±0.1.

Notes:

• Because 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 versus the full-year forecast).
• Because 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 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.)

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This report is an earnings analysis document automatically generated by AI through an integrated analysis of XBRL earnings-summary data and PDF earnings presentation materials. 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 professionals as necessary.

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