YAMASHIN-FILTER (6240) FY2026 Q3 Earnings Report

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Executive Summary

The third quarter saw higher revenue but lower earnings, with the inability of revenue growth to translate into profit growth being the key feature. Revenue increased to ¥156.0B (+4.4% YoY), while Operating Income declined to ¥19.8B (△3.4%) and Ordinary Income declined to ¥19.4B (△7.4%). Net Income increased to ¥13.2B (+7.4%), but this was largely attributable to the decline in the effective tax rate and cannot readily be characterized as a structural improvement sufficient to offset the decline at the operating level. The primary factors were the deterioration in the profit margin of the core Construction Machinery Filter Business and the deterioration in the business mix resulting from the Air Filter Business falling into the red.

Factors Affecting Earnings

【Revenue】Revenue was ¥156.0B (+4.4% YoY). The Construction Machinery Filter Business led growth at ¥139.1B (+6.7%), while the Air Filter Business posted a revenue decline to ¥16.9B (△11.6%). The Construction Machinery Filter Business accounted for 89.1% of total revenue, indicating a high degree of dependence on this business.

【Profit and Loss】Operating Income was ¥19.8B (△3.4% YoY), and the Operating Margin declined by approximately 1.0pt to 12.7% from 13.7% in the same period of the previous year. The profit margin of the Construction Machinery Filter Business also declined modestly from 15.4% to 15.1%, while the Air Filter Business deteriorated from a profit of ¥0.5B to a loss of ¥1.1B, with its profit margin worsening from 2.6% to minus 6.6%. Below operating income, a foreign exchange loss of ¥0.4B and interest expense of ¥0.2B were recorded, resulting in Ordinary Income of ¥19.4B (△7.4% YoY). Net Income of ¥13.2B (+7.4% YoY) benefited from the decline in the effective tax rate to 31.5%, while Profit Before Tax remained at △1.9% YoY. Overall, the company experienced higher revenue but lower earnings, as revenue growth was insufficient to absorb higher costs and the deterioration in the business mix.

Segment Analysis

The Construction Machinery Filter Business is the core business, generating the majority of consolidated profit, with Revenue of ¥139.1B (+6.7% YoY), Operating Income of ¥20.9B (+4.6%), and a profit margin of 15.1%. In contrast, the Air Filter Business recorded Revenue of ¥16.9B (△11.6% YoY) and an Operating Loss of ¥1.1B, compared with a profit of ¥0.5B in the same period of the previous year. Its profit margin deteriorated by approximately 9.2pt, from 2.6% to minus 6.6%. The profit-margin gap between the two businesses has widened to approximately 21.7pt, with dependence on the Construction Machinery Filter Business for earnings and deteriorating profitability in the Air Filter Business being the primary causes of the decline in the consolidated profit margin.

Key Financial Indicators

【Profitability】The Operating Margin was 12.7% (13.7% in the same period of the previous year), while the Net Profit Margin was 8.5% (8.2%), indicating that although profitability deteriorated at the operating level, the Net Profit Margin improved due to the lower tax burden. ROE remained at 5.9%, while the conservative capital structure, reflected in an Equity Ratio of 82.8%, limits financial leverage.【Cash Flow Quality】Days sales outstanding were approximately 86 days, and inventory days were above 100 days, resulting in a prolonged CCC of approximately 145 days. The expansion of working-capital funds tied up during a period of revenue growth is a point to monitor from a capital-efficiency perspective.【Investment Efficiency】Property, plant and equipment amounted to ¥112.2B, accounting for 41.5% of total assets, indicating a capital-intensive asset structure. Intangible assets were small at ¥2.3B, and dependence on assets arising from M&A was limited.【Financial Soundness】The Equity Ratio was 82.8%, and interest-bearing debt consisted solely of ¥10.0B in short-term borrowings, compared with ¥54.8B in cash and deposits, indicating extremely strong debt-servicing capacity. However, the concentration of all interest-bearing debt in short-term borrowings warrants attention to refinancing conditions.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is unavailable, the balance sheet indicates both ample financial capacity and a prolonged working-capital cycle. Cash and deposits stood at ¥54.8B, maintaining a level substantially above short-term borrowings of ¥10.0B. Meanwhile, accounts receivable and notes receivable amounted to ¥49.2B, and inventories were ¥20.7B (including finished goods of ¥20.7B and raw materials of ¥15.5B), both showing an upward trend, potentially indicating a longer period before revenue growth is converted into cash. Retained earnings declined from ¥90.6B in the same period of the previous year to ¥86.6B, reflecting cash outflows such as dividend payments. Overall, liquidity on hand is ample, but the accumulation of working capital accompanying revenue growth remains a point to monitor in terms of capital efficiency.

Earnings Quality

Non-operating income was ¥0.4B, a negligible amount relative to Revenue, indicating limited dependence on recurring non-operating income. Of the ¥0.8B in non-operating expenses, the main sources of pressure were a foreign exchange loss of ¥0.4B and interest expense of ¥0.2B, which should be viewed as recurring sources of variability based on the company’s operating realities. Extraordinary income was ¥0.1B versus extraordinary losses of ¥0.2B, resulting in a net extraordinary loss of only ¥0.15B; temporary factors were therefore not large enough to materially affect Net Income for the period. The approximately 32% gap between Ordinary Income of ¥19.4B and Net Income of ¥13.2B was primarily attributable to income taxes of ¥6.1B (effective tax rate of 31.5%), reflecting fluctuations in the tax burden. The fact that lower taxes offset the decline in Operating Income and resulted in higher Net Income suggests room for improvement at the operating level in terms of earnings quality.

Earnings Forecast and Guidance

Progress against the full-year company forecast (Revenue of ¥208.4B, Operating Income of ¥28.7B, and Ordinary Income of ¥28.7B) was 74.9% for Revenue, 69.0% for Operating Income, 67.7% for Ordinary Income, and 67.0% for Net Income (based on the forecast of ¥19.7B). Revenue progress was broadly in line with the standard 75% expected at the third-quarter stage, while profit-related indicators were 6–8pt below standard progress. The company has not revised either its earnings forecast or dividend forecast. Achieving the plan will depend on securing approximately ¥8.9B in Operating Income in Q4 (on a remaining-balance basis), with the recovery of profit margins, including an improvement in the profitability of the Air Filter Business, being the key focus.

Shareholder Returns

The Q2 dividend was ¥8.00 per share, while the full-year company forecast for the annual dividend is ¥18.00. The Payout Ratio based solely on dividends was approximately 42.4% against cumulative Q3 Net Income of ¥13.2B, and approximately 63.6% based on forecast EPS of ¥28.29 for the full year. The forecast full-year Payout Ratio is slightly above the general benchmark of 60%, and the degree of profit achievement in Q4 will influence dividend capacity. The financial foundation, including cash and deposits of ¥54.8B and an Equity Ratio of 82.8%, supports the company’s dividend payments.

Risk Factors

1. Deterioration in the profitability of the Air Filter Business: The business shifted from Operating Income of ¥0.5B in the same period of the previous year to a loss of ¥1.1B, with its profit margin deteriorating by approximately 9.2pt from 2.6% to minus 6.6%. This is the primary cause of the decline in the consolidated profit margin, and if delays in sales recovery and fixed-cost absorption continue, they could impede the recovery of consolidated profitability.

2. Concentration of earnings in the Construction Machinery Filter Business: This business accounts for 89.1% of consolidated Revenue and the majority of Operating Income, creating a structure in which fluctuations in construction machinery demand, the operating trends of major customers, and the procurement environment for components can readily affect consolidated results.

3. Prolonged working-capital cycle: Days sales outstanding of approximately 86 days and an upward trend in inventories have been observed, while CCC has also lengthened. The increased amount of funds tied up during a period of revenue growth could lead to inventory valuation risk and deteriorating capital efficiency if demand slows.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Company’s Operating Margin and Net Profit Margin both exceed the industry median, indicating that profitability is relatively high within the industry.

Growth and Capital Efficiency

The Revenue Growth Rate also exceeds the industry median, but remains below the IQR upper limit of 8.9%, placing the Company between the middle and upper range of the industry.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. While Revenue increased by +4.4% YoY, Operating Income declined by △3.4%, making the failure of revenue growth to translate into profit growth a structural feature of these earnings results.

2. The core Construction Machinery Filter Business maintained a profit margin of 15.1% and remained the center of consolidated profit, while the Air Filter Business fell into the red, widening the profitability gap between the business portfolios.

3. The financial foundation is robust, with an Equity Ratio of 82.8% and cash and deposits substantially exceeding short-term borrowings. However, progress against the full-year Operating Income forecast remained at 69.0%, making profit-margin improvement in Q4 the key to achieving the plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥310–¥328 at Cost of Equity ±1%, and ¥319–¥319 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 gap relative to 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, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings-summary data. It does not recommend investment in any specific security. The 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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AI Financial Analysis

Executive Summary

FY2026 Q3 performance was mixed: revenue expanded, but operating and ordinary profit declined as margin pressure and the loss-making air-filter operation outweighed growth in the core construction-machinery filter business. Nine-month revenue increased 4.4% year on year to ¥15.60bn. Operating income declined 3.4% to ¥1.98bn, while ordinary income fell 7.4% to ¥1.94bn. Net income nevertheless rose 7.4% to ¥1.32bn, supported principally by a lower tax expense despite the decline in pre-tax profit. Gross margin decreased by 56bp year on year to 44.1%, from 44.7%. Operating margin compressed by 102bp to 12.7%, from 13.7%, as SG&A expenses increased 5.9%, faster than revenue growth. The construction-machinery filter business remained the earnings engine, producing ¥13.91bn of revenue and ¥2.09bn of segment profit. Its revenue increased 6.7% and segment profit increased 4.6%, although its segment margin eased by 30bp to 15.1%. In contrast, air-filter revenue declined 11.4% to ¥1.69bn and the segment recorded a ¥0.11bn loss, compared with a ¥0.05bn profit a year earlier. The air-filter segment's margin deteriorated by approximately 922bp to negative 6.6%, representing the principal drag on consolidated profitability. Annualized ROE was 7.9%, supported by a healthy 8.5% net margin and 0.769x annualized asset turnover, but constrained by conservative 1.21x financial leverage. The balance sheet remains exceptionally strong, with a 363.5% current ratio, ¥5.48bn of cash, and only ¥1.00bn of interest-bearing debt. However, the operating cash cycle requires close attention: provided annualized DSO is 86 days, broader inventory-based DIO is flagged at 113 days, and the cash conversion cycle is 145 days. The company has achieved 74.9% of its full-year revenue target after nine months, broadly in line with the standard 75% pace. Operating-profit progress is lower at 69.0%, requiring a material Q4 margin recovery to meet the unchanged full-year plan. The full-year dividend plan of ¥18 per share implies a payout ratio of about 63.6% against forecast EPS of ¥28.29, making earnings recovery and working-capital discipline important for capital-return flexibility.

Profitability Analysis

The reported annualized DuPont ROE of 7.9% decomposes into an 8.5% net profit margin, 0.769x annualized asset turnover, and 1.21x financial leverage. The low financial-leverage component reflects a net-cash, equity-funded balance sheet rather than financial stress. The largest adverse operating change was margin compression: gross margin fell 56bp and operating margin declined 102bp year on year to 12.7%. Revenue growth of 4.4% was insufficient to absorb SG&A growth of 5.9%, indicating negative operating leverage at the consolidated level. The construction-machinery filter business is the core business, accounting for ¥2.09bn of profit and more than 100% of aggregate segment profit because the air-filter business incurred a loss. Core-segment revenue rose 6.7% to ¥13.91bn and operating profit rose 4.6% to ¥2.09bn; its 15.1% margin remains solid but was 30bp below the prior-year level. Air-filter revenue fell 11.4% to ¥1.69bn and segment profit swung from ¥0.05bn to a ¥0.11bn loss, reducing the consolidated margin by a disproportionate amount. The tax burden was 0.685, below the 0.70 normal reference level, but this lower tax burden supported net-income growth rather than underlying operating improvement. The interest burden of 0.973 and interest coverage of 110.42x confirm that financing costs are immaterial to earnings. Net income increased despite weaker operating and ordinary income, so the improvement in bottom-line profit should not be interpreted as a full improvement in recurring earnings power. The absence of material goodwill or intangible-asset concentration limits JGAAP goodwill-amortization distortion; intangible assets represent only 0.8% of total assets.

Growth Assessment

Revenue growth was driven entirely by the construction-machinery filter business, where sales increased ¥0.88bn year on year. This more than offset a ¥0.22bn decline in air-filter sales. The core business's continued revenue expansion supports underlying demand resilience, but the slowdown in its segment-margin performance indicates that volume growth has not fully translated into incremental profitability. The air-filter business is the principal constraint on growth quality because its sales contraction was accompanied by a swing into operating loss. Consolidated operating income declined by ¥0.07bn despite the ¥0.66bn revenue increase, demonstrating that current revenue growth is lower quality than the headline sales figure suggests. The full-year forecast calls for revenue of ¥20.84bn, operating income of ¥2.87bn, ordinary income of ¥2.87bn, and net income attributable to owners of ¥1.97bn. Q3 revenue progress of 74.9% is aligned with the normal 75% seasonal benchmark. Operating-income progress of 69.0% is 6.0 percentage points below the normal pace, while net-income progress is 67.0%, 8.0 percentage points below the normal pace. Meeting guidance requires approximately ¥5.24bn of Q4 revenue and ¥0.89bn of Q4 operating income, equivalent to an implied Q4 operating margin of roughly 17.0%, above the nine-month 12.7% margin. Accordingly, forecast delivery depends on a meaningful recovery in the air-filter business and/or a sharp improvement in profitability in the core construction-machinery filter business. The unchanged forecast indicates management has not revised its expectations, but the required fourth-quarter margin step-up raises execution sensitivity.

Financial Health

Financial health is strong. Current assets of ¥14.55bn exceed current liabilities of ¥4.00bn by ¥10.55bn, producing a current ratio of 363.5% and a quick ratio of 311.9%. Cash and deposits of ¥5.48bn alone cover short-term loans of ¥1.00bn by 5.48x. Total liabilities are only ¥4.64bn against total equity of ¥22.40bn, and debt-to-equity is a conservative 0.21x. Debt-to-capital is only 4.3%, while interest coverage is 110.42x. There is no current-ratio or D/E warning: the current ratio is well above 1.0 and D/E is far below 2.0. Refinancing risk is nevertheless a specific structural consideration because 100% of reported interest-bearing debt is short term, exceeding the 40% quality-alert threshold. The root cause is the concentration of ¥1.00bn in short-term borrowing rather than long-term maturities. Its practical impact is limited by substantial liquidity and low leverage, but the company remains dependent on periodic rollover of that facility. PPE represents 41.5% of total assets, including ¥0.93bn of construction in progress, indicating a capital-intensive manufacturing asset base and an ongoing investment pipeline. Treasury stock became ¥1.75bn negative from ¥1.00bn negative, a ¥0.75bn increase in the treasury-share balance. This is consistent with share repurchases or other treasury-share acquisitions and modestly reduces equity available to absorb volatility, although the effect is small relative to ¥22.40bn of equity. Asset retirement obligations of ¥0.20bn represent about 4.4% of total liabilities, an elevated proportion that should be monitored as a site-restoration and environmental-obligation exposure.

Notable B/S Changes

Treasury stock: increased in negative balance by ¥0.75bn, from negative ¥1.00bn to negative ¥1.75bn (-75.2%) - consistent with a larger treasury-share position, modestly reducing equity while potentially indicating active capital returns. Accounts receivable: +¥0.18bn (+3.8%) to ¥4.92bn - receivables remain high relative to annualized sales and align with the 86-day DSO quality alert. Inventories: +¥0.20bn (+10.8%) to ¥2.07bn - growth in stock exceeds the pace of revenue growth and warrants attention given the inventory-days alerts. Current liabilities: +¥0.61bn (+18.1%) to ¥4.00bn - still comfortably covered by ¥14.55bn of current assets, but increases the importance of managing the short-term debt concentration. Construction in progress: +¥0.14bn (+17.0%) to ¥0.93bn - indicates an ongoing manufacturing investment pipeline within the ¥11.22bn PPE base.

Cash Flow Quality

Cash-flow conversion cannot be quantified from the available figures, so earnings quality is assessed through profit composition and balance-sheet working-capital indicators. Net income of ¥1.32bn exceeded the prior-year figure despite lower operating income, ordinary income, and pre-tax profit, primarily reflecting a lower tax charge; this reduces the extent to which net-income growth represents improved recurring operating performance. Extraordinary income was ¥0.06bn and extraordinary loss was ¥0.21bn, resulting in a modest net extraordinary loss of approximately ¥0.15bn. Foreign-exchange losses were ¥0.40bn, equal to about 20.2% of operating income, making currency movements a meaningful contributor to below-operating-line volatility. The high-receivable-days alert identifies annualized DSO of 86 days, well above both the 45-day manufacturing efficiency benchmark and the 60-day warning threshold. The root cause is that trade receivables stood at ¥4.92bn, equivalent to a substantial portion of annualized sales. The impact is slower cash collection, higher funding tied up in receivables, and greater sensitivity to customer-payment timing. The inventory alert identifies annualized DIO of 113 days on the broader inventory basis used in the quality alert; this is above the 90-day warning threshold. A second inventory alert reports 65 days, which is also above the 60-day manufacturing benchmark. The root cause of both alerts is elevated stock held relative to sales or cost of sales, including ¥1.55bn of raw materials and ¥2.07bn of finished goods reported in the manufacturing detail. The impact is a greater risk of cash absorption, inventory obsolescence, and potential future margin pressure if stock must be discounted or written down. The long cash-conversion-cycle alert of 145 days exceeds the 120-day warning threshold. Its root cause is the combined burden of extended receivable and inventory days, only partly offset by supplier financing through accounts payable. The impact is that the company must fund a long operating cycle despite its presently strong cash position. No conclusion on free-cash-flow coverage can be drawn without reported operating and investing cash-flow figures.

Dividend Sustainability

The company paid an interim dividend of ¥8.00 per share and forecasts a full-year dividend of ¥18.00 per share. The provided Q2-based payout ratio is 42.4% of nine-month net income, which is within the stated 60% sustainability reference point. Against full-year forecast EPS of ¥28.29, the planned ¥18.00 annual dividend implies a forecast dividend payout ratio of approximately 63.6%, modestly above that reference point. The planned year-end dividend implied by the full-year plan is ¥10.00 per share after the ¥8.00 interim payment. Balance-sheet capacity is strong, with ¥5.48bn of cash, low debt, a 363.5% current ratio, and interest coverage above 110x. These factors support near-term dividend capacity. However, future dividend flexibility depends on achieving the forecast earnings recovery and preventing the long cash conversion cycle from absorbing liquidity. The larger treasury-stock balance also indicates capital is being returned or allocated through share repurchases; if assessing dividends plus repurchases together, the appropriate measure is total return ratio rather than payout ratio. The announced dividend policy has not been revised.

Risk Assessment

Business risks include Air-filter business deterioration: revenue fell 11.4% year on year to ¥1.69bn and the segment moved from a ¥0.05bn profit to a ¥0.11bn loss. The high impact comes from its approximately 922bp margin deterioration and direct dilution of consolidated profitability., Construction-machinery end-market exposure: the core construction-machinery filter business generated ¥13.91bn of revenue and ¥2.09bn of profit, making group earnings highly dependent on demand conditions, production volumes, and inventory adjustment trends in construction equipment., Manufacturing inventory risk: elevated inventory days increase exposure to slower-moving products, forecast error, inventory write-downs, and discounting pressure., Foreign-exchange risk: FX losses of ¥0.40bn were approximately 20.2% of operating income, indicating that exchange-rate movements can materially affect ordinary income., Environmental and facility-obligation risk: asset retirement obligations of ¥0.20bn equal about 4.4% of total liabilities, requiring continued management of restoration and compliance costs..

Financial risks include Working-capital risk: annualized DSO of 86 days, alert-based DIO of 113 days, and a 145-day cash conversion cycle may constrain cash conversion if sales growth moderates., Refinancing concentration risk: 100% of interest-bearing debt is short term. Liquidity makes the current risk low, but the facility requires rollover management., Forecast execution risk: operating-income progress is 69.0% versus the standard 75% through Q3, and forecast achievement requires an implied Q4 operating margin of about 17.0%., Capital-return rigidity risk: the planned full-year dividend implies a forecast payout ratio of approximately 63.6%, leaving less earnings buffer than the Q3-based 42.4% payout ratio suggests..

Key concerns include Highest priority is restoring air-filter profitability because this segment is currently loss-making and is the main cause of consolidated operating-margin compression., Second priority is reducing the cash conversion cycle through receivables collection and inventory discipline; this is the key quality-alert cluster despite ample current liquidity., Third priority is validating the implied Q4 earnings acceleration required to maintain unchanged full-year guidance., The refinancing-risk alert is a lower-priority concern because short-term debt is fully covered multiple times by cash and leverage remains low..

Investment Implications

Key takeaways include Revenue growth remains intact in the core construction-machinery filter business, but consolidated profit conversion weakened., Operating margin fell 102bp to 12.7% because SG&A growth exceeded revenue growth and the air-filter operation became loss-making., The balance sheet provides substantial resilience, with net cash, very high liquidity, and minimal leverage., Working-capital efficiency is the principal financial-quality issue, with 86-day DSO, 113-day alert-based DIO, and a 145-day cash conversion cycle., Unchanged full-year guidance requires a significant Q4 margin improvement, making segment recovery and cost control the central performance variables..

Metrics to watch include Air-filter segment revenue, segment profit, and margin recovery, Construction-machinery filter segment margin versus its current 15.1%, Consolidated SG&A growth relative to revenue growth, Annualized DSO, inventory days, and cash conversion cycle, Q4 operating margin relative to the approximately 17.0% implied by full-year guidance, Foreign-exchange gains or losses relative to operating income, Short-term borrowing rollover and cash balance, Full-year dividend payout ratio and total return ratio.

Regarding relative positioning, The company is financially more conservative than a typical leveraged manufacturer, with 4.3% debt-to-capital, 110.42x interest coverage, and a 363.5% current ratio. Operationally, its 12.7% operating margin remains within the good 8-15% benchmark range, but annualized ROE of 7.9% is at the lower end of the stated benchmark and working-capital efficiency is weaker than manufacturing reference levels.