SHIBAURA MACHINE (6104) FY2026 Q3 Earnings Report

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Executive Summary

This earnings period saw a rapid deterioration in profitability, as a significant decline in revenue was compounded by delays in adjusting fixed costs. Revenue was ¥927.2B (-30.3% YoY), Operating Income was ¥18.8B (-85.7%), Ordinary Income was ¥28.1B (-79.3%), and Net Income was ¥19.4B (-84.2%). SG&A expenses declined by only 12.0%, below the rate of revenue decline, causing operating leverage to work strongly in the opposite direction and reducing the Operating Income margin to 2.0% (9.9% in the previous year). Non-operating income, including dividend income and interest income, supported Ordinary Income, meaning that the decline in the earnings power of the core business is the fundamental issue in these results.

Factors Affecting Earnings

【Revenue】Revenue was ¥927.2B, down 30.3% YoY. Progress against the full-year company forecast of ¥1400.0B was only 66.2%, below the standard benchmark of 75%. Contract liabilities (advance payments) were ¥204.3B, down 43.8% YoY, suggesting that a slowdown in orders and project progress was behind the revenue decline.

【Profit and Loss】The gross margin declined to 31.0% (32.8% in the previous year), while the SG&A ratio increased to 29.0% (22.9% in the previous year), reducing the Operating Income margin to 2.0% (9.9% in the previous year). Although a one-time gain on the sale of property, plant and equipment of ¥40.4B was recorded in the same period of the previous year, extraordinary income was only ¥1.2B in the current period, contributing to the decline in Net Income. However, Operating Income itself decreased by ¥112.4B, indicating that the central cause of the earnings deterioration was the worsening profitability of the core business rather than the absence of one-time gains. Non-operating income of ¥12.6B (including dividend income of ¥5.4B and foreign exchange gains of ¥1.2B) supplemented approximately 50% of Operating Income of ¥18.8B, requiring caution because Ordinary Income of ¥28.1B appears stronger than the actual earnings power of the core business. Accordingly, the current period represents a decline in both revenue and earnings.

Key Financial Indicators

【Profitability】The Operating Income margin of 2.0% and Net Income margin of 2.1% both declined significantly from the previous year (9.9% and 9.2%, respectively). Annualized ROE was 2.2%, while the Equity Ratio was 65.4% (58.7% in the previous year), indicating a more conservative financial structure. 【Cash Flow Quality】Accounts receivable of ¥234.1B and work in process of ¥333.2B are factors tying up working capital. Although total inventories declined by 41.1% YoY, work in process remains a high proportion of inventories. The ¥204.3B decline in contract liabilities suggests a slowdown in the pace of future revenue recognition. 【Investment Efficiency】Annualized revenue remains limited relative to total assets of ¥1837.3B, making improvement in asset efficiency an issue. Investment securities were ¥149.4B (+27.1% YoY), accounting for 12.4% of net assets and serving as a source of dividend income of ¥5.4B. 【Financial Soundness】Cash and deposits of ¥329.0B substantially exceeded short-term borrowings of ¥101.4B. Although all interest-bearing debt consisted of short-term borrowings, the Company maintains substantial effective repayment capacity. While total assets decreased by ¥158.8B YoY, net assets increased by ¥29.2B to ¥1200.9B.

Cash Flow Analysis

Although there is no separate disclosure of the statement of cash flows, funding trends can be analyzed based on changes in the balance sheet. Inventories declined by ¥147.0B, from ¥357.9B in the same period of the previous year to ¥210.9B, suggesting that inventory reduction contributed to cash generation. Meanwhile, work in process was ¥333.2B, accounting for more than 60% of the inventory composition, leaving funds tied up due to production progress and project delays. Accounts receivable was ¥234.1B, down from the previous year, but improvement in collection speed appears limited relative to the magnitude of the revenue decline. Contract liabilities declined significantly to ¥204.3B, and the working capital balance has changed as advance payments were increasingly recognized as revenue. Cash and deposits decreased to ¥329.0B from ¥363.9B in the previous year, but remained substantially above short-term borrowings of ¥101.4B, indicating no immediate funding difficulties.

Earnings Quality

Of Ordinary Income of ¥28.1B, Operating Income accounted for only ¥18.8B, while non-operating income of ¥12.6B (including dividend income of ¥5.4B, foreign exchange gains of ¥1.2B, and other income of ¥3.3B) accounted for approximately 45% of Ordinary Income, indicating a high degree of reliance on income outside the core business. Extraordinary income of ¥1.2B primarily consisted of a gain on the recognition of negative goodwill, and there was no large one-time factor in the current period comparable to the ¥40.4B gain on the sale of property, plant and equipment recorded in the same period of the previous year. Comprehensive income was ¥57.7B, substantially exceeding Net Income of ¥19.4B, with valuation-related items such as foreign currency translation adjustments of ¥15.1B and valuation differences on securities of ¥22.9B contributing to the result. As these items are subject to market fluctuations, they need to be distinguished from core-business earnings when assessing the quality of Net Income.

Earnings Forecast and Guidance

The full-year company forecast is Revenue of ¥1400.0B (-16.8% YoY), Operating Income of ¥50.0B (-64.5%), and Ordinary Income of ¥50.0B (-64.5%). As of the cumulative Q3 results, progress was 66.2% for Revenue and 37.5% for Operating Income, both below the standard progress benchmark of 75%, with the delay particularly pronounced on the profit side. To achieve the full-year plan, Q4 alone must generate Revenue of ¥472.8B and Operating Income of ¥31.3B. This corresponds to an Operating Income margin of 6.6%, requiring a substantial improvement from the 2.0% recorded for cumulative Q3 results.

Shareholder Returns

The Q2 dividend was ¥70.00 per share, and the full-year dividend forecast is ¥140.00 per share. Based on the full-year EPS forecast of ¥139.58, the forecast Payout Ratio is approximately 100.3%, a high level when measured solely against dividends. Cash on hand of ¥329.0B and an Equity Ratio of 65.4% indicate capacity to fund dividends. However, the high Payout Ratio while current-period earnings progress remains below plan could constrain the scope for accumulating retained earnings.

Risk Factors

1. Sharp decline in profitability: The Operating Income margin narrowed to 2.0%, while SG&A expense reductions were limited to 12.0% against a 30.3% decline in revenue. If the decline in the ability to absorb fixed costs continues, earnings volatility in response to fluctuations in demand may increase.

2. Working capital tied up: Work in process of ¥333.2B accounts for more than 60% of total inventories and could contribute to delays in production progress and inventory valuation risk. Contract liabilities declined 43.8% YoY, requiring close monitoring of changes in the future pace of revenue generation and cash conversion.

3. Uncertainty regarding achievement of the full-year plan: Against an Operating Income progress rate of 37.5%, the Operating Income margin required in Q4 is 6.6%, substantially above the cumulative Q3 result. Reliance on non-operating income, including dividend income and interest income, may also contribute to fluctuations in Ordinary Income.

Industry Benchmark (Reference; Company Analysis)

Profitability and Returns

The Company's profitability is substantially below the industry median and also below the lower bound of the IQR.

Growth and Capital Efficiency

The Revenue growth rate is significantly below the industry range, representing a decline in revenue while many peer companies are maintaining a growth trajectory.

※Source: Company compilation

Key Points in the Earnings Results

1. The Operating Income margin of 2.0% and annualized ROE of 2.2% both declined significantly from the previous year, and achieving the full-year plan requires raising the Q4 Operating Income margin to 6.6%. This progress gap is the most important point to monitor in future earnings results.

2. The Equity Ratio rose to 65.4%, and cash and deposits substantially exceeded short-term borrowings, indicating that financial soundness is being maintained. On the other hand, the high proportion of work in process and the decline in contract liabilities suggest that the flow from orders to revenue recognition may be slowing.

3. The forecast Payout Ratio has reached approximately 100%, making the consistency between the pace of earnings recovery and the dividend level a key point to confirm in future earnings results.

Theoretical Share Price (Reference Value)

Sensitivity: ¥4,071–¥4,293 at Cost of Equity ±1%; ¥4,153–¥4,197 at ω±0.1.

Notes:

• As 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 from 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 / This is a mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, nor does it forecast or guarantee the future share price.）

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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. Industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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