| Indicator | This Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥1355.3B | ¥1140.1B | +18.9% |
| Operating Income / Operating Profit | ¥34.2B | ¥18.2B | +88.0% |
| Profit Before Tax | ¥19.7B | ¥3.7B | +426.6% |
| Net Income | ¥13.3B | ¥2.3B | +474.9% |
| ROE | 0.4% | 0.1% | - |
FY2026 Q1 results delivered substantial top-line and profit growth: Revenue ¥1355.3B (YoY +¥215.2B +18.9%), Operating Income ¥34.2B (YoY +¥16.0B +88.0%), Profit Before Tax ¥19.7B (YoY +¥16.0B +427.8%), and Net Income attributable to parent ¥14.9B (YoY +¥13.2B +785.7%). Both Machine Tools and Industrial Services recorded double-digit sales growth, and operating margin improved by +0.9pt from 1.6% to 2.5%. However, heavy financial costs of ¥18.2B limited the profit before tax margin to 1.5%. Although net income attributable to parent expanded roughly 8.9x year-on-year, Operating Cash Flow was negative at -¥11.4B, delaying cash conversion of profits; inventory rises and debt reduction led to Free Cash Flow of -¥59.8B, maintaining cash outflows.
[Revenue] Revenue increased significantly to ¥1355.3B (YoY +¥215.2B +18.9%). By segment, Machine Tools generated ¥863.6B (YoY +¥126.3B +17.3%) and Industrial Services generated ¥491.5B (YoY +¥87.9B +21.8%), both expanding solidly. Segment revenue mix: Machine Tools 63.7%, Industrial Services 36.3%; service revenue growth was relatively high, strengthening aftermarket stability. Contract liabilities rose to ¥958.8B (QoQ-end +¥50.8B +5.6%), indicating built-up advance payments and potential for future revenue recognition. Cost of raw materials and supplies was ¥644.9B (47.6% of sales), and personnel costs were ¥497.5B (36.7% of sales), rising faster than sales and posing cost-absorption challenges.
[Profitability] Operating Income was ¥34.2B (YoY +¥16.0B +88.0%) but the operating margin of 2.5% remains below the industry median (6.8%). By segment, Industrial Services maintained high profitability with Operating Income ¥79.7B (margin 16.2%, YoY +¥10.0B +14.0%), driving consolidated profits, while Machine Tools reported an operating loss of ¥4.1B (loss narrowed 70.7% from prior loss of ¥14.1B), indicating a profitability polarization. Corporate and adjustment functions recorded an operating loss of ¥46.6B (worsened from prior loss ¥43.4B), highlighting room to improve consolidated OPM. Non-operating items included financial costs ¥18.2B (prior ¥17.3B) that pressured profits; net financial result was -¥16.5B after financial income ¥1.7B and equity-method investment income ¥2.0B, leaving Profit Before Tax ¥19.7B (YoY +¥16.0B +427.8%). After income taxes ¥6.4B (effective tax rate 32.6%), quarterly Net Income was ¥13.3B and Net Income attributable to parent was ¥14.9B (prior ¥1.7B, +¥13.2B +785.7%). Comprehensive income improved to ¥31.8B (prior -¥29.4B), driven by an increase of ¥18.5B in other components of equity (excluding defined benefit plan remeasurement -¥4.1B, FX and fair value movements lifted the remainder). No material special gains/losses were identified; the revenue and profit increase stems from recurring factors. Conclusion: achieved revenue and profit growth.
Industrial Services posted Revenue ¥491.5B (YoY +21.8%) and Operating Income ¥79.7B (YoY +14.0%), sustaining a high margin of 16.2% and serving as the primary driver of consolidated operating profit. Machine Tools accounted for ¥863.6B (YoY +17.3%), 63.7% of total sales, but recorded an operating loss of ¥4.1B (loss reduced 70.7% from prior), leaving profitability issues. Despite revenue growth, Machine Tools has not returned to profit, suggesting weak fixed-cost absorption and price/mix effects. Corporate adjustments and headquarter functions posted combined operating losses of ¥46.6B (worsened from ¥43.4B), diluting consolidated margins through HQ costs and adjustment items. Intersegment revenue was ¥833.4B (prior ¥702.3B), indicating structural increases in internal transactions and higher consolidation eliminations.
[Profitability] Operating margin is 2.5% (up +0.9pt from 1.6%) but remains -4.3pt below the industry median of 6.8%, indicating significant improvement potential. Net margin is 1.0% (up +0.8pt from 0.2%) and is -4.9pt below the peer median 5.9%. Interest burden coefficient (Profit Before Tax / EBIT) is 0.576, meaning roughly 42% of EBIT is lost to financial costs, so rising interest costs are compressing margins. ROE is 0.4% (improved from 0.0%), explained as Net Margin 1.0% × Total Asset Turnover 0.154 × Financial Leverage 2.61x. EBITDA is ¥125.3B (Operating Income ¥34.2B + Depreciation ¥91.1B), giving an EBITDA margin of 9.2%; Industrial Services’ high margin continues to underpin consolidated performance.
[Cash Quality] Operating Cash Flow / Net Income is -0.77x (Operating CF -¥11.4B ÷ Net Income ¥14.9B), below the caution threshold (0.8x), indicating weak cash conversion. OCF/EBITDA is -0.09x, showing weak cash generation even before depreciation add-backs. Accrual ratio is low at 0.3%, indicating modest accounting accruals and good accrual quality, but negative OCF weakens overall assessment.
[Investment Efficiency] Total Asset Turnover is 0.154x (annualized ~0.6x), constrained by large inventory ¥2,092.6B (23.8% of total assets) and trade receivables ¥771.4B. Capital expenditure was ¥35.8B, 39.3% of depreciation ¥91.1B, indicating conservative capex, while total investment including intangible asset investment ¥27.4B amounted to ¥63.2B.
[Financial Soundness] Equity ratio is 38.2% (down -1.0pt from 39.2%), maintaining a standard industry level. Interest-bearing debt totaled ¥1,455.6B (current ¥855.6B + non-current ¥600.0B); net interest-bearing debt after cash ¥437.4B is ¥1,018.2B. D/E ratio is 1.61x (non-current-only ratio 0.99x), not excessively leveraged but interest burden remains heavy. Current ratio is 0.89x (current assets ¥3,534.5B ÷ current liabilities ¥3,970.1B), below 1.0, indicating short-term liquidity management issues. Interest coverage (EBITDA / interest paid) is 9.4x (¥125.3B ÷ ¥13.3B), providing some cushion for interest, but negative OCF implies limited short-term principal and interest repayment capacity.
Operating CF was -¥11.4B (improvement of 70.6% from prior -¥38.7B) but remains negative; conversion ratio relative to Net Income ¥14.9B is -0.77x. Subtotal (pre-working-capital operating CF) was positive at ¥16.9B, but offset by working capital increases. Major factors: inventory increase -¥73.6B (stock build-up from order increases) and decrease in trade payables -¥27.3B (advance payment of payables), causing inventory investment and payable compression to absorb cash. Contract liabilities increase +¥48.6B (advance receipts) and provision decreases -¥32.6B contributed positively, but overall working capital produced roughly a -¥92B headwind. Investing CF was -¥48.4B (prior -¥50.7B), centered on capex -¥35.8B and intangible investment -¥27.4B, partly offset by proceeds from sale of tangible fixed assets +¥15.4B. Capex is 39.3% of depreciation ¥91.1B, reflecting a conservative investment stance. Financing CF was +¥94.5B (prior +¥100.0B), primarily due to net increase in short-term borrowings +¥199.6B, funding dividend payments -¥69.8B, lease liability repayments -¥19.5B, and hybrid capital holder payments -¥7.3B. Free Cash Flow was -¥59.8B (Operating CF -¥11.4B + Investing CF -¥48.4B), so dividends ¥69.8B and capex could not be covered internally and relied on external funding. Adding FX translation effects +¥4.1B, cash and equivalents rose by ¥38.9B to ¥437.4B, but the primary driver was short-term borrowings, reflecting limited internal cash generation.
Earnings quality is driven by recurring factors, with Operating Income ¥34.2B forming the earnings base. On non-operating side, financial costs ¥18.2B are heavy; net financial result was -¥16.5B after financial income ¥1.7B and equity-method income ¥2.0B, depressing recurring profit. No one-off special gains/losses were identified; other income ¥17.9B and other expenses ¥241.7B were recorded but lack detailed disclosure, making one-off assessment difficult. The ¥18.5B difference between Comprehensive Income ¥31.8B and Net Income ¥13.3B is attributable to other comprehensive income (foreign operations translation +¥0.7B, fair value changes +¥16.5B, cash flow hedges +¥3.9B, etc.), indicating growing valuation differences outside realized profit/loss. From an accrual perspective, accrual ratio 0.3% is good, but low Operating CF / Net Income -0.77x indicates delayed cashing of profits; improving inventory and receivables cycles is key to improving earnings quality. Financial costs ¥18.2B comprise mainly interest paid ¥13.3B and lease-equivalent interest, representing structural costs from debt dependence. The gap between Profit Before Tax and Net Income is explainable by interest burden and effective tax rate 32.6%; no major non-recurring pushes/pulls were observed.
Full Year guidance was maintained: Revenue ¥5,650.0B, Operating Income ¥280.0B (YoY +47.6%), Net Income attributable to parent ¥150.0B, EPS ¥91.35, Dividend ¥50.0. Q1 progress rates vs. full year guidance: Revenue 24.0% (roughly in line with standard 25%), Operating Income 12.2% (12.8pt below the standard), Net Income attributable to parent 9.9% (15.1pt below standard), indicating profit-side progress lags the standard. Operating profit shortfall stems from continued Machine Tools losses, corporate cost burden, and heavy interest costs; achieving full-year targets depends on digesting contract liabilities ¥958.8B (QoQ-end +5.6%) and improving profitability. Continuation of high margins in Industrial Services and improved utilization and price penetration in Machine Tools are keys to full-year attainment. A revision to guidance was made this quarter, but specific revision details are not discernible from disclosed data. Dividend forecast remains unchanged.
Dividend payments totaled ¥69.8B (prior ¥64.9B); payout ratio vs. quarterly net income ¥14.9B is approximately 469%, a substantial single-period excess. Full-year dividend forecast remains ¥50.0, implying an annual dividend amount estimated at about ¥70B. Free Cash Flow -¥59.8B means internal funding is insufficient to cover dividends and capex, and the increase in short-term borrowings +¥199.6B has been used to fill the gap. No share buybacks were executed (treasury stock acquisition ¥0.0B in the CF statement). Because returns are only by dividend, payout ratio metrics apply and total return ratio concept is not relevant. Short-term dividend sustainability depends on normalization of Operating CF and improvement of inventory/receivables cycles; currently returns rely on external funding. Medium-term recovery of internal funding for dividends hinges on stable cash generation from service revenues and reduction in interest burden.
Liquidity Risk: Current ratio 0.89x (current assets ¥3,534.5B ÷ current liabilities ¥3,970.1B) is below 1.0, requiring attention to short-term payment capacity. Major components of current liabilities include short-term borrowings ¥855.6B, other financial liabilities ¥843.3B, and contract liabilities ¥958.8B; with cash ¥437.4B and negative Operating CF, improving working capital and securing borrowing lines are prerequisites. If maturity mismatches materialize, funding cost increases or liquidity constraints could pressure performance.
Interest Burden Risk: Interest-bearing debt ¥1,455.6B (short-term ¥855.6B + long-term ¥600.0B) with interest paid ¥13.3B and interest burden coefficient 0.576 implies about 42% of EBIT is lost to financial costs. Prolonged high interest rates or increased borrowing dependence would compress net margins and capital efficiency, potentially entrenching low ROE of 0.4%. The increase in short-term borrowings (YoY +¥199.6B) primarily addresses liquidity needs, but in a rising-rate environment the burden would increase.
Working Capital Risk: Large inventory ¥2,092.6B (23.8% of total assets) and trade receivables ¥771.4B created a drag; inventory increase -¥73.6B and trade payables decrease -¥27.3B drove negative Operating CF. Continued delays in inventory turnover and receivable collections would perpetuate weak cash conversion and liquidity constraints, making internal funding for dividends and investments difficult. Delays in converting contract liabilities ¥958.8B to revenue would postpone cash realization and intensify short-term funding pressure.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 2.5% | 6.8% (2.9%–9.0%) | -4.3pt |
| Net Margin | 1.0% | 5.9% (3.3%–7.7%) | -4.9pt |
Profitability is well below the industry median, indicating significant room to improve both operating and net margins.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | 18.9% | 13.2% (2.5%–28.5%) | +5.8pt |
Revenue growth outpaces the industry median, indicating a healthy topline expansion pace.
※Source: Company compilation
Continued high margins in Industrial Services are underpinning consolidated profits, with Operating Income margin 16.2% and YoY +14.0% growth. The rise of service revenue ratio to 36.3% strengthens aftermarket stability and increases resilience to economic cycles. Continued expansion of service revenue is key to improving consolidated OPM.
Persistent negative Operating CF (-¥11.4B, -0.77x vs. Net Income) and working capital headwinds from inventory increases and payable reductions are hindering cash conversion. Compressing inventory ¥2,092.6B and improving trade receivables collection are the highest short-term priorities; inventory turnover and DSO trends will determine future cash generation. If conversion of contract liabilities ¥958.8B (QoQ-end +5.6%) progresses, operating cash flow should improve in H2.
Heavy interest burden (interest burden coefficient 0.576, interest paid ¥13.3B) is a main cause of low net margin 1.0%; rising reliance on short-term borrowings (+¥199.6B) is primarily liquidity-driven. Combined with low current ratio 0.89x, short-term liquidity management is a key monitoring point. Interest rate environment, borrowing terms, and speed of working capital efficiency improvement will determine future financial stability.
This report was automatically generated by AI analyzing XBRL financial statement data. It does not constitute a recommendation to invest in any particular security. Industry benchmarks are reference information compiled by the Company based on public financial statements. Investment decisions are your responsibility; consult professionals as needed before making decisions.