Y.A.C.HOLDINGS CO.,LTD. FY2026 FY Earnings Report

Financial Highlights

• Net Sales: ¥26.46B
• Operating Income: ¥1.32B
• Net Income: ¥1.34B
• EPS: ¥72.43

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

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AI Financial Analysis

Executive Summary

FY2026 was a mixed year: strong topline growth and robust cash generation, but operating efficiency slipped and earnings were flattered by one-time gains. Revenue rose 14.8% YoY to 264.6bn JPY, with gross profit up to 70.1bn JPY and operating income at 13.19bn JPY (-2.6% YoY). Ordinary income improved 8.6% YoY to 12.21bn JPY, while net income surged 137.1% YoY to 13.26bn JPY, lifted by extraordinary income. Gross margin expanded by 95bps to 26.5%, but operating margin compressed by 89bps to 5.0% as SG&A growth (9.4% YoY) and goodwill amortization weighed on operating leverage. Net margin expanded by 258bps to 5.0% on the back of net extraordinary gains (6.15bn JPY; largely negative goodwill of 9.35bn JPY offset by losses), and FX gains (1.59bn JPY) supporting non-operating income. Cash earnings quality was strong: operating cash flow of 30.7bn JPY was 2.32x net income and OCF/EBITDA was 1.54x, yielding positive free cash flow of 10.42bn JPY after 4.35bn JPY of capex. Working capital efficiency remains a headwind with DSO at 111 days, DIO at 215 days, and a long CCC of 287 days, reflecting a high WIP mix (66.5% of inventory) typical of project-based manufacturing. Leverage increased, with interest-bearing debt at 137.6bn JPY and Debt/EBITDA at 6.9x; short-term debt accounts for 52% of total, elevating refinancing risk despite a solid current ratio of 189%. Segment performance was balanced: Semiconductor & Mechatronics delivered 14.35bn JPY operating income (13.6% margin), Environment & Infrastructure scaled well to 7.21bn JPY (6.9% margin), while Medical Care’s profitability deteriorated sharply to 0.62bn JPY (1.1% margin). M&A intensity picked up (two new consolidations), with goodwill up 45.7% YoY but still modest at 3.6% of equity and 0.31x EBITDA pre-GW amortization. Underinvestment risk is visible with CapEx/Depreciation at 0.65x and R&D intensity at 1.6%, which could constrain mid-term growth and product competitiveness. Dividends of 40 yen imply a 58.9% payout ratio, covered 1.33x by FCF; however, total shareholder return (dividends + buybacks of 7.64bn JPY) exceeded net income at ~113%, not covered by FCF. For FY2027, management guides to 350.0bn JPY sales and 33.0bn JPY operating income, implying substantial margin recovery; achieving this requires improved execution in Medical Care, continued scale in Environment & Infrastructure, and tighter working capital control. Overall, earnings quality is acceptable on a cash basis, but underlying operating performance is softer than headline net income suggests due to one-time gains and rising leverage. Investors should track margin rehabilitation, inventory normalization, and refinancing progress against the FY2027 ramp. The balance sheet shows increased loans (short and long) and investment securities, alongside higher land and PPE, indicating selective reinvestment and M&A, with manageable associated goodwill risk.

Profitability Analysis

ROE (7.8%) = Net Profit Margin (5.0%) × Asset Turnover (0.604x) × Financial Leverage (2.58x). The most material YoY change was in net margin (from 2.4% to 5.0%), driven primarily by net extraordinary gains (notably 9.35bn JPY negative goodwill) and FX gains in non-operating income, while operating margin declined from 5.9% to 5.0%. The business driver was a strong sales mix in Semiconductor & Mechatronics and scaling in Environment & Infrastructure, offset by weaker Medical Care profitability and higher SG&A, plus goodwill amortization under JGAAP. The uplift in net margin is not fully sustainable given its reliance on one-off items; absent these, underlying profitability is closer to ordinary income dynamics and sub-5% operating margin. Operating leverage was negative as SG&A (56.89bn JPY) increased faster than operating income, and R&D intensity remained low at 1.6%, limiting margin accretion from innovation. Focus areas: improve Medical Care margins, sustain Environment & Infrastructure scaling, and capture mix/pricing in Semiconductor to restore operating margin to >6%.

Growth Assessment

• Revenue expanded 14.8% YoY to 264.6bn JPY, with broad-based growth across Semiconductor & Mechatronics (+7.8%), Environment & Infrastructure (+27.3%), and Medical Care (+5.2%).
• Operating income decreased 2.6% YoY to 13.19bn JPY due to margin compression despite higher gross profit; ordinary income rose 8.6% on FX gains.
• Net income grew 137% YoY to 13.26bn JPY, inflated by 9.35bn JPY negative goodwill; excluding extraordinary items, bottom-line momentum is more modest.
• EBITDA was 19.89bn JPY (7.5% margin); pre-GW amortization EBITDA was 21.33bn JPY, highlighting JGAAP amortization drag.
• Segment drivers: Semiconductor & Mechatronics remained the core profit engine (13.6% margin); Environment & Infrastructure demonstrated operating leverage (margin 6.9% vs prior 5.9%); Medical Care saw a sharp profit decline (margin 1.1%).
• Investment posture is conservative: CapEx 4.35bn JPY (CapEx/Depreciation 0.65x) and R&D 4.11bn JPY (1.6% of sales) may constrain medium-term product vitality.
• Outlook: FY2027 guidance targets 350.0bn JPY sales and 33.0bn JPY OP, implying margin recovery to ~9.4%; delivery depends on Medical Care turnaround, continued scale in Environment & Infrastructure, and improved working capital velocity.

Financial Health

• Liquidity: Current ratio 189% and quick ratio 180% indicate healthy short-term liquidity; cash/short-term debt is 1.22x, providing an initial buffer.
• Leverage: Debt-to-equity 1.58x and Debt/EBITDA 6.9x reflect elevated leverage; interest coverage (EBIT/interest) is 6.25x and EBITDA interest coverage 9.43x, currently comfortable.
• Maturity profile: Short-term debt ratio at 52% signals refinancing concentration risk; ongoing rollovers require stable banking lines and cash generation.
• Capital structure: Debt/Capital 44.8% within acceptable bounds but trending higher with increased short- and long-term loans; bonds outstanding 21.0bn JPY support diversified funding.
• Off-B/S: No additional off-balance sheet obligations were cited.
• Notable B/S movements YoY suggest higher financial assets (investment securities) and increased land/PPE alongside goodwill, consistent with M&A and selective capacity upgrades.

Notable B/S Changes

Treasury Stock: -4.68bn → -12.11bn (-158.8%) - Buyback execution increased capital return, reducing equity. Goodwill: 4.20bn → 6.12bn (+45.7%) - New consolidations; modest level vs equity but monitor post-deal performance. Long-term Loans: 4.98bn → 6.58bn (+32.2%) - Higher structural leverage to fund growth/M&A. Short-term Loans: 5.45bn → 7.18bn (+31.7%) - Increased reliance on short-term funding; elevates refinancing risk. Investment Securities: 2.31bn → 3.01bn (+30.0%) - Larger financial asset buffer; potential liquidity reserve. PPE: 7.27bn → 8.88bn (+22.3%) - Selective capacity/asset upgrades despite low capex-to-depreciation. Land: 4.03bn → 5.67bn (+40.7%) - Strategic real asset expansion; non-depreciable, ties up capital.

Cash Flow Quality

• OCF was 30.7bn JPY vs net income of 13.26bn JPY (OCF/NI 2.32x), indicating high earnings quality; OCF/EBITDA at 1.54x supports solid cash conversion.
• Working capital: Receivables increased later in the year but OCF benefited from inventory normalization (DecreaseIncreaseInInventories +15.54bn JPY) and stable payables; however, structural metrics remain stretched with DSO 111 days and DIO 215 days.
• FCF was 10.42bn JPY after 4.35bn JPY capex, comfortably covering dividends (7.37bn JPY) but not covering total shareholder returns including buybacks (15.01bn JPY).
• Red flags: Inventory abandonment loss of 1.94bn JPY (12.9% of inventory) points to quality/mix issues; high WIP share (66.5%) can amplify working capital volatility.
• Sustainability: With capex below depreciation (0.65x), near-term FCF is supported, but medium-term asset upkeep risk rises if reinvestment remains muted.

Dividend Sustainability

• DPS was 40 yen (20 + 20), equating to a payout ratio of 58.9%, within the <60% sustainability benchmark.
• Dividends were covered by FCF at 1.33x; cash on hand and operating cash flow provide additional cushion.
• Total return ratio including buybacks was ~113% of net income (dividends 7.37bn JPY + buybacks 7.64bn JPY vs NI 13.26bn JPY), not covered by FCF, implying reliance on balance sheet flexibility.
• Policy outlook: With elevated leverage and an ambitious FY2027 earnings ramp, maintaining DPS appears feasible, but repeat buybacks at the FY2026 scale would tighten financial flexibility unless operating margin and OCF improve further.

Risk Assessment

Business risks include Earnings dependence on project-based businesses with high WIP (66.5% of inventory) leading to delivery/mix volatility, Medical Care margin deterioration (1.1% margin) risking consolidated profitability if turnaround is delayed, Inventory quality concerns evidenced by 1.94bn JPY abandonment loss (12.9% of inventory), Commodity and energy cost fluctuations impacting COGS given manufacturing exposure, FX exposure: 1.59bn JPY FX gains supported FY2026; reversal risk if currency trends change.

Financial risks include High leverage: Debt/EBITDA 6.9x and D/E 1.58x increase sensitivity to earnings shortfalls, Refinancing risk: Short-term debt ratio 52% concentrates liquidity needs despite current ratio 189%, Underinvestment: CapEx/Depreciation 0.65x and R&D intensity 1.6% could impair future competitiveness and asset reliability, Working capital stretch: DSO 111 days, DIO 215 days, CCC 287 days elevate cash flow volatility, Total shareholder returns exceeding FCF may pressure balance sheet if continued.

Key concerns include Quality of earnings: Net extraordinary gains (6.15bn JPY) represent ~46% of net income, not recurring, Operating margin compression (-89bps YoY) despite higher sales indicates cost pressure and mix challenges, Medical Care profit drop (-82.1% YoY) requires corrective actions to meet FY2027 guidance, Interest expense rising (2.11bn JPY) alongside higher debt could erode coverage if EBIT softens.

Investment Implications

Key takeaways include Topline momentum is solid across segments, but underlying operating margin weakened to 5.0%, Cash generation was strong in FY2026, yet driven partly by inventory reduction; structural WC remains heavy, Net income inflated by non-recurring gains; normalized earnings power aligns more closely with ordinary income, Leverage and short-term funding reliance raise the importance of FY2027 margin delivery and WC discipline, Underinvestment signals (CapEx/Dep 0.65x, R&D 1.6%) warrant monitoring for medium-term growth capacity.

Metrics to watch include Operating margin trajectory vs FY2027 target (~9%+ needed to reach 33.0bn JPY OP on 350.0bn JPY sales), DSO, DIO, and CCC improvement from 111/215/287 days respectively, Medical Care segment margin recovery toward low- to mid-single digits, Debt/EBITDA trend and short-term debt refinancing profile, Extraordinary/non-operating items share of profit (aiming for <10% of NI).

Regarding relative positioning, Compared to small/mid-cap Japanese manufacturing peers, YAC shows stronger near-term cash conversion but weaker operating margin and heavier working capital intensity; leverage is above-average, while goodwill exposure is modest and unlikely to drive near-term impairment risk.