DMG MORI CO.,LTD. FY2026 Q2 Earnings Report

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Executive Summary

Revenue and profits increased in Q2, but the 3.4% operating margin remained below the industry median of (9.7%), indicating that there is still room to improve profitability. Revenue was ¥2,767.3B (+21.6% YoY), Operating Income was ¥93.1B (+43.0%), Profit Before Tax was ¥59.3B (+81.5%), and consolidated Net Income was ¥41.6B (+95.7%; Net Income attributable to owners of the parent was ¥43.8B, +112.5%). Revenue growth was driven by both the Machine Tools and Industrial Services segments. Although profitability benefited from a recovery from the low profitability level of the previous year, profit progress against the full-year plan lagged revenue progress, making margin improvement in the second half the key focus.

Factors Affecting Performance

【Revenue】Revenue was ¥2,767.3B, an increase of +21.6% YoY. By segment, Machine Tools led the overall performance with revenue of ¥1,807.9B (65.3% of total revenue, +23.7% YoY), while Industrial Services generated ¥959.2B (34.7% of total revenue, +18.0% YoY), with both segments securing double-digit revenue growth.

【Profit and Loss】Operating Income was ¥93.1B (+43.0% YoY), and the operating margin improved to 3.4% from 2.9% in the previous year, an improvement of +0.5pt. By segment, Industrial Services remained the main contributor to company-wide profit, generating segment profit of ¥157.3B (16.4% margin, +24.4% YoY), while Machine Tools generated profit of ¥32.9B (1.8% margin, +44.5% YoY), remaining low-margin relative to its high 65.3% share of revenue. The Corporate segment recorded an operating loss of ¥100.8B, with the loss expanding by 15.4% from the previous year, thereby weighing on company-wide profit. Profit Before Tax reached ¥59.3B (+81.5% YoY), while consolidated Net Income reached ¥41.6B (+95.7% YoY), confirming growth in both revenue and profit.

Segment Analysis

Industrial Services is a high-margin segment at the core of company-wide profit, with revenue of ¥959.2B (+18.0% YoY), Operating Income of ¥157.3B (+24.4% YoY), and a 16.4% margin. Machine Tools is the core business, accounting for 65.3% of revenue with revenue of ¥1,807.9B (+23.7% YoY), but its low-margin profile continues, with Operating Income of ¥32.9B (+44.5% YoY) and a 1.8% margin. The high profit growth rate is largely attributable to a recovery from the low level recorded in the previous year. Adjustment generated Operating Income of ¥7.8B (+84.6% YoY), while Corporate recorded an operating loss of ¥100.8B, with the loss expanding by 15.4% YoY. The combined impact of these two segments is structurally depressing the Group’s overall operating margin.

Key Financial Metrics

【Profitability】The operating margin was 3.4%, improving by +0.5pt from 2.9% in the previous year. The consolidated net profit margin was 1.5%, improving by +0.6pt from 0.9% in the previous year, while the EBITDA margin was 10.1%.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥123.6B, approximately 3.0 times consolidated Net Income, which is high on a numerical basis. However, OCF/EBITDA remained at 0.44x, as inventory growth and a decrease in trade payables constrained cash-generation capacity.【Investment Efficiency】ROE was 1.2%. All of the factors—net profit margin, total asset turnover (approximately 0.32x), and financial leverage (approximately 2.5x)—remained sluggish relative to industry levels, leaving challenges in terms of capital efficiency.【Financial Soundness】The Equity Ratio was 40.0%, securing a certain level of capital foundation. However, the current ratio was approximately 0.93, below 1x, while interest coverage (EBIT/financial expenses) remained at approximately 2.3x. Accordingly, monitoring short-term liquidity and trends in interest expenses is important.

Cash Flow Analysis

Operating Cash Flow was ¥123.6B, a substantial increase from ¥12.9B in the previous year. However, an increase in inventories (-¥130.0B) and a decrease in trade payables (-¥64.3B) constrained cash generation, with actual OCF remaining at approximately 60% of the subtotal before changes in working capital of ¥202.2B. Investing Cash Flow was -¥121.5B, of which capital expenditures accounted for ¥77.7B, indicating continued investment in production and maintenance capabilities. Financing Cash Flow was -¥80.8B, with dividend payments of ¥76.7B being the primary cash outflow. As a result, free cash flow was limited to ¥2.2B, below dividend payments. This indicates that current-period cash-generation capacity was insufficient to fully cover the funds required for shareholder returns.

Quality of Earnings

Financial expenses of ¥40.7B accounted for a substantial portion of Profit Before Tax of ¥59.3B and were the primary cause of the decrease from Operating Income of ¥93.1B to Profit Before Tax. Comprehensive income attributable to owners of the parent was ¥112.1B, significantly exceeding Net Income attributable to owners of the parent of ¥43.8B. The difference, equivalent to Other Comprehensive Income (OCI) of ¥68.3B, mainly comprises non-cash items such as foreign currency translation adjustments and pension remeasurement. These items should be distinguished from the recurring earnings capacity generated by business activities during the current period. Contract liabilities expanded to ¥1,034.4B (+¥126.5B YoY), supporting future revenue recognition. At the same time, inventory growth (+¥149.6B) and a decrease in trade payables placed a burden on working capital. From an accrual perspective, it is important to note that cash conversion has progressed somewhat more slowly than earnings growth.

Earnings Forecast and Guidance

Progress during the first half against the full-year plan—Revenue of ¥5,800.0B, Operating Income of ¥300.0B, and Net Income attributable to owners of the parent of ¥155.0B—was 47.7% for Revenue, 31.0% for Operating Income, and 28.2% for Net Income attributable to owners of the parent. Profit progress therefore lagged revenue progress. First-half actual EPS was ¥23.09 against forecast EPS of ¥93.26, representing progress of only 24.8%. Although the earnings forecast was revised during the quarter, there was no revision to the dividend forecast. The pace of profit progress in the second half will therefore be a key focus in terms of achieving the full-year plan.

Shareholder Returns

The interim dividend was ¥50 per share, maintained at the same level as in the same period of the previous year, while the full-year dividend forecast is ¥105. Using forecast full-year EPS of ¥93.26, the Payout Ratio is 112.6%. Free cash flow of ¥2.2B was below dividend payments of ¥76.7B. No share repurchases were conducted, and shareholder returns consist solely of dividends. The current Payout Ratio exceeds 100%, meaning that the sustainability of shareholder returns will depend on progress in profit and cash generation during the second half.

Risk Factors

1. Short-term liquidity: Current assets were ¥3,511.4B, while current liabilities were approximately ¥3,758.4B, resulting in a current ratio of approximately 0.93, below 1x. Monitoring short-term financing capacity is necessary.

2. Interest burden: Financial expenses reached ¥40.7B, and interest coverage against EBIT (¥93.1B) remained at approximately 2.3x. Changes in the interest-rate environment could readily place pressure on Profit Before Tax.

3. Working capital burden: Inventories increased to ¥2,167.8B (+¥149.6B YoY), while actual OCF was limited to ¥123.6B against a subtotal before changes in working capital of ¥202.2B. The pace of inventory reduction will determine the extent of the recovery in cash-generation capacity.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the operating margin and net profit margin were below the industry median, placing profitability in the lower range.

Growth and Capital Efficiency

The revenue growth rate was significantly above the industry median, indicating growth in the upper range.

Source: Compiled by the Company

Key Takeaways from the Results

1. Although the revenue growth rate of +21.6% was significantly above the industry median of 10.6%, the operating margin of 3.4% was below the industry median of 9.7%. The results indicate that revenue growth has not translated sufficiently into improved profitability.

2. First-half progress against the full-year plan was 47.7% for Revenue, compared with 31.0% for Operating Income and 28.2% for Net Income attributable to owners of the parent. Profit progress is lagging, making the progress of cost absorption and productivity improvements in the second half a structural issue.

3. The Payout Ratio was 112.6%, while free cash flow of ¥2.2B was below dividend payments of ¥76.7B. The relationship between current-period cash-generation capacity and the funds available for shareholder returns requires continued monitoring.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade). It does not constitute a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥2,104–¥2,220 at ±1% for the cost of equity, and ¥2,150–¥2,167 at ±0.1 for ω.

Notes:

• Net Income is substantially compressed relative to Operating Income due to tax burden, acquisition-related expenses, minority interests, and other factors (Net Income ÷ Operating Income 52%). This value reflects that compression at face value; if the factors are temporary, normalized earnings capacity may be higher.
• 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, resulting in a timing difference relative to the full-year forecast.

(Calculation model: Residual Income Model / Interest-rate reference month: 2026-06 / This value does not forecast or guarantee future share prices)

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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 professionals as necessary.

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