HIRANO TECSEED (6245) FY2026 Q3 Earnings Report

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Executive Summary

Cumulative results for Q3 FY2026 showed a decline in profit, although the decrease was contained through improved profitability despite a significant decline in revenue. Revenue was ¥25.67B (-34.1% YoY), Operating Income was ¥1.74B (-4.6%), Ordinary Income was ¥1.84B (-11.0%), and Net Income was ¥1.37B (-9.2%). While revenue declined substantially due to the acceptance timing of large projects for the mainstay coating machine-related equipment, the gross margin improved to 18.4% (+427bp from 14.1% in the previous year) and the Operating Income margin improved to 6.8% (+210bp from 4.7% in the previous year) due to improvements in the cost structure.

Factors Affecting Business Performance

【Revenue】Revenue was ¥25.67B, a 34.1% decline compared with the same period of the previous year. The primary factor was a substantial decline in coating machine-related equipment, which accounts for approximately 79.7% of consolidated revenue, to ¥20.46B (-39.7% YoY), attributable to the progress and acceptance timing of large projects. Meanwhile, chemical machinery-related equipment secured revenue growth at ¥4.07B (+7.2% YoY), playing a complementary role within the business portfolio.

【Profit and Loss】Operating Income was ¥1.74B (-4.6% YoY), with the decline limited compared with the substantial decrease in revenue. The segment profit margins for coating machine-related equipment and chemical machinery-related equipment improved to 11.5% (up from 7.2% in the previous year) and 17.5% (a significant improvement from 4.8% in the previous year), respectively, indicating improved profitability in both businesses. Meanwhile, corporate expenses increased 24.9% YoY to ¥1.32B, partially offsetting the increase in Operating Income. Ordinary Income was ¥1.84B, reflecting non-operating income and expenses including dividend income of ¥0.15B, while Net Income was ¥1.37B after reflecting income taxes and other taxes of ¥0.48B. In conclusion, these results represent a decline in both revenue and profit, but show improvement in terms of profit margins.

Segment Analysis

Coating machine-related equipment recorded revenue of ¥20.46B (-39.7% YoY), segment profit of ¥2.35B (-4.1%), and a profit margin of 11.5% (an improvement of +427bp from 7.2% in the previous year), demonstrating improved profitability despite a substantial decline in revenue. Chemical machinery-related equipment recorded revenue of ¥4.07B (+7.2%), segment profit of ¥0.71B (+292.0%), and a profit margin of 17.5% (a significant improvement from 4.8% in the previous year), supporting overall profit through higher revenue and profit. The Other segment recorded revenue of ¥1.15B (-8.0% YoY), while segment profit nearly disappeared and deteriorated substantially from ¥0.25B in the previous year, indicating an increasing concentration of profit sources. Total segment profit was ¥3.06B (+6.2%), but the increase in corporate expenses to ¥1.32B (+24.9%) restrained growth in consolidated Operating Income.

Key Financial Metrics

【Profitability】The Operating Income margin of 6.8% improved by 210bp from 4.7% in the same period of the previous year, while the Net Income margin of 5.3% increased by 146bp from 3.9% in the previous year. The gross margin was 18.4%, an improvement of 427bp from 14.1% in the previous year, suggesting that project profitability or the cost structure improved even amid declining revenue.【Cash Quality】Accounts receivable were ¥29.71B, accounting for 50.4% of total assets. Days sales outstanding were 317 days and the cash conversion cycle was 246 days, both extended periods reflecting the lengthy acceptance and collection cycles characteristic of equipment projects. The work-in-process inventory ratio was 54.5%, indicating an increase in projects in progress while also incorporating the risk of cost fixation if processes become delayed.【Investment Efficiency】ROE (annualized) was 4.6%, primarily due to the low total asset turnover ratio of 0.581x, while financial leverage of 1.51x was conservative. EPS was ¥90.25, a 9.3% decline from ¥99.50 in the previous year.【Financial Soundness】The Equity Ratio was 66.4% (improved from 62.0% in the previous year), a high level, and cash and deposits of ¥10.09B exceeded short-term borrowings of ¥4.15B. Interest-bearing debt remained at a low level, and the capital structure was conservative.

Cash Flow Analysis

Although direct data from the cash flow statement is unavailable, an analysis of funding trends based on changes in the balance sheet indicates that short-term borrowings declined 30.8% from ¥6.00B in the same period of the previous year to ¥4.15B, reflecting progress in debt reduction. Meanwhile, long-term borrowings increased 43.9% from ¥0.33B to ¥0.47B, indicating that some funding was shifted to longer maturities. Cash and deposits were ¥10.09B, down from ¥11.76B in the previous year, likely reflecting cash outflows attributable to the allocation of funds to accounts receivable and investment securities, as well as a decline in accounts payable from ¥9.16B in the previous year to ¥5.81B (-36.6%). Investment securities were ¥5.69B, an increase of 26.9% YoY, indicating that some funds were allocated to securities investments. The high concentration of assets in accounts receivable, at ¥29.71B, makes the realization of funds dependent on the timing of customer collections, creating a structure in which the long collection cycle affects capital efficiency.

Quality of Earnings

Net Income was ¥1.37B against Profit Before Tax of ¥1.84B. The primary reason for the difference was the ordinary tax burden reflected by income taxes and other taxes of ¥0.48B (an effective tax rate of approximately 25.8%), and no temporary special factors were identified. Non-operating income of ¥0.19B primarily consisted of dividend income of ¥0.15B and is positioned as recurring income. Non-operating expenses were ¥0.09B, mainly consisting of interest expense of ¥0.06B, indicating a light debt cost burden. Comprehensive income was ¥2.22B, exceeding Net Income by ¥0.85B, mainly due to an increase in the valuation difference on available-for-sale securities. Since this divergence is based on an accounting factor arising from fluctuations in market prices and does not directly indicate the earnings power of the core business, an evaluation based on Net Income more accurately reflects the underlying reality.

Earnings Forecast and Guidance

Cumulative Q3 progress against the full-year company forecast was 82.8% for Revenue, 83.1% for Operating Income, 92.1% for Ordinary Income, and 85.3% for Net Income (against the company forecast of ¥1.60B). Operating Income progress was 8.1 points above the standard 75% level, leaving a reasonable margin toward achieving the full-year forecast. The full-year forecast is Revenue of ¥31.00B (-35.9% YoY), Operating Income of ¥2.10B (+24.9%), and Ordinary Income of ¥2.00B (+5.6%), implying Q4 Revenue of ¥5.33B and Operating Income of approximately ¥0.36B. The earnings forecast was revised during the current quarter, resulting in a full-year outlook that incorporates improved project profitability.

Shareholder Returns

The Q2 dividend was ¥42.00 per share, and the full-year dividend forecast is ¥84.00. Based on the difference, a year-end dividend of ¥42.00 is assumed. There was no revision to the dividend forecast, and the initial forecast has been maintained. The Payout Ratio against forecast full-year EPS of ¥105.82 is 79.4% (based on the company forecast), exceeding the 60% guideline for the sustainability of dividends alone but remaining below 100%. Substantial retained earnings of ¥33.06B and net assets of ¥39.16B provide financial support for the stability of this dividend level. Meanwhile, the lengthy working capital collection cycle centered on accounts receivable indicates that the practical sustainability of dividends depends not only on profit recognition but also on the progress of project collections.

Risk Factors

1. Project volatility risk in the core business: Revenue from coating machine-related equipment declined 39.7% YoY, and fluctuations in project volume and acceptance timing in this business, which accounts for approximately 79.7% of consolidated revenue, have a significant impact on overall business performance.

2. Prolonged working capital collection: Days sales outstanding of 317 days and a cash conversion cycle of 246 days indicate that delays in the acceptance and collection of large projects increase volatility in capital efficiency and revenue recognition. Accounts receivable of ¥29.71B account for 50.4% of total assets.

3. Process delays and concentration of profit sources: A work-in-process inventory ratio of 54.5% suggests risks of process delays, specification changes, and cost overruns in the event of delivery delays, all characteristic of make-to-order production. In addition, profit from the Other segment has nearly disappeared from ¥0.25B in the previous year, concentrating profit sources in the two businesses of coating machine-related equipment and chemical machinery-related equipment.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Return

Profitability was below the industry median for both metrics and was positioned near the lower bound of the IQR.

Growth and Capital Efficiency

The Revenue Growth Rate significantly lagged the industry and was substantially below the lower bound of the IQR.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Even as Revenue declined 34.1%, the gross margin and Operating Income margin improved by 427bp and 210bp, respectively, confirming an improvement in project profitability. The mainstay coating machine-related equipment business increased its profit margin despite declining revenue, while chemical machinery-related equipment supplemented earnings through higher revenue and significantly higher profit.

2. Progress against the full-year forecast was above standard levels, at 83.1% for Operating Income and 92.1% for Ordinary Income, and the profit level required in Q4 does not represent an excessive burden based on the cumulative profit margin.

3. Meanwhile, working capital indicators of 317 days sales outstanding, a 246-day CCC, and a 54.5% work-in-process inventory ratio require continued monitoring as structural factors indicating that the collection and process management of equipment projects determine the quality of business performance.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,113–¥2,228 at ±1% for the cost of equity, and ¥2,157–¥2,177 at ±0.1 for ω.

Notes:

• Since progress of Net Income against the full-year forecast (85%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with leading progress tend to exceed their forecasts. The adjustment may be excessive for businesses with strong seasonality).
• Since 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).
• Since 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 and is not a forecast of the market share price, a recommendation of any specific investment action, or a prediction or guarantee of the future share price.)

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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 discretion and responsibility, and you should consult a professional as necessary.

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