EBARA (6361) FY2025 FY Earnings Report

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Executive Summary

For the fiscal year ended December 2025, Ebara Corporation reported higher revenue and earnings, primarily driven by strong growth in the Precision and Electronics Business. However, the generation of Operating Cash Flow (OCF) lagged the growth in Operating Income, warranting attention to earnings cash conversion. Revenue was ¥9,582.9B (+10.6% YoY), Operating Income was ¥1,138.0B (+16.2%), and Net Income (consolidated profit for the period) was ¥795.9B (+6.8%). Net Income attributable to owners of the parent was ¥766.3B (+7.3%). While the Operating Margin improved to 11.9% from 11.3% in the previous year, OCF declined 59.6% YoY to ¥407.6B, highlighting the divergence between earnings growth and OCF generation as a key characteristic of the current fiscal year.

Factors Affecting Business Performance

【Revenue】Revenue increased 10.6% YoY to ¥9,582.9B. The Precision and Electronics Business led company-wide growth, increasing 23.0% YoY to ¥3,422.7B and accounting for 35.8% of total reported segment revenue, making it the company’s core business. The Environment Business (+11.9%) and Water and Infrastructure Business (+11.8%) also achieved double-digit growth, while the Building, Industrial, and Infrastructure-related Business (+1.6%) remained sluggish.

【Profit and Loss】Operating Income increased 16.2% YoY to ¥1,138.0B, exceeding the revenue growth rate. Although the gross margin declined slightly to 32.6% from 33.1% in the previous year, the SG&A ratio fell to 20.7%, supporting earnings growth. By segment, the Building and Industrial Business (+47.5% in profit) and Environment Business (+54.0%) improved profitability. In contrast, the Energy Business recorded a 3.5% increase in revenue but a 7.4% decline in profit, becoming a headwind to company-wide margin improvement. Due to higher financial expenses (¥67.7B versus ¥41.9B in the previous year) and a decline in equity-method income, Net Income growth (+6.8%) was below Operating Income growth. In conclusion, the company achieved both revenue and earnings growth.

Segment Analysis

The Precision and Electronics Business generated revenue of ¥3,422.7B (+23.0% YoY) and Operating Income of ¥577.7B (+15.2%), with a 16.9% margin, making it the company’s most profitable segment and accounting for 50.5% of total segment profit. The Building and Industrial Business recorded revenue of ¥2,419.4B (+1.6%), but profitability improved substantially, with Operating Income rising 47.5% to ¥152.5B and the margin reaching 6.3%. The Environment Business reported revenue of ¥978.6B (+11.9%) and Operating Income of ¥130.0B (+54.0%), contributing significantly to earnings growth with a 13.3% margin. The Energy Business recorded revenue of ¥2,178.4B (+3.5%), but Operating Income declined 7.4% to ¥259.4B, with the margin falling to 11.9%. The Water and Infrastructure Business posted revenue of ¥571.4B (+11.8%) and Operating Income of ¥46.8B (+26.6%), with an 8.2% margin. The contrasting performance of the Precision and Electronics Business and the Energy Business is driving the trend in the company-wide margin, while the concentration of profit in the Precision and Electronics Business warrants close attention going forward.

Key Financial Metrics

【Profitability】The Operating Margin improved to 11.9% from 11.3% in the previous year, while the Net Profit Margin was 8.3% based on Net Income. ROE remained high at 15.6%. 【Cash Flow Quality】OCF was limited to ¥407.6B, representing a low ratio of approximately 0.51x relative to Net Income of ¥795.9B. Increases in trade receivables (+¥389.0B), decreases in contract liabilities (-¥273.3B), and decreases in trade payables (-¥251.4B) were factors depressing OCF. Accounts receivable and notes receivable were ¥2,091.8B, while inventories were ¥1,977.0B; both represent uses of funds tied up in working capital. 【Investment Efficiency】Capital expenditures reached ¥1,007.4B, or 2.9x depreciation and amortization of ¥348.0B, indicating a phase of capacity expansion. Free Cash Flow was negative ¥504.8B. 【Financial Soundness】The Equity Ratio remained broadly flat at 47.0%, compared with 47.1% in the previous year. Bonds, borrowings, and lease liabilities included in current liabilities increased substantially YoY, indicating a higher dependence on short-term financing.

Cash Flow Analysis

OCF declined 59.6% YoY to ¥407.6B, resulting in a cash conversion ratio of approximately 0.5x relative to Net Income of ¥795.9B. The main factors were a ¥356.1B increase in trade receivables, a ¥251.4B decrease in trade payables, and a ¥273.3B decrease in contract liabilities, as the expansion of working capital weighed on OCF. Meanwhile, inventories decreased by ¥116.0B, contributing positively to OCF. Investing Cash Flow was negative ¥912.3B, primarily due to capital expenditures of ¥1,007.4B, reflecting continued capacity expansion investment centered on the Precision and Electronics Business. Financing Cash Flow was positive ¥168.4B, with a net increase in short-term borrowings of ¥665.5B offsetting funding needs for investment and shareholder returns, including dividends of ¥277.2B and share repurchases of ¥200.8B. Consequently, Free Cash Flow was negative ¥504.8B, indicating that investment and shareholder returns could not be funded solely through internal funds during the period and were supplemented by borrowings.

Earnings Quality

Operating Income increased strongly by 16.2% YoY. However, Financial Expenses expanded to ¥67.7B against Financial Income of ¥28.6B, and non-operating income and expenses acted to restrain Profit Before Tax growth (+11.1%) relative to Operating Income growth. Equity-method investment income also declined to ¥10.8B from ¥21.9B in the previous year, contributing to Net Income growth (+6.8%) falling below Operating Income growth. The divergence between OCF and Net Income (OCF/Net Income of approximately 0.51x) reflects the significant impact of accruals arising from changes in trade receivables and contract liabilities. The fact that the increase in current-period profit was not sufficiently reflected in cash generation during the same period is an important consideration in assessing earnings quality. Comprehensive Income was ¥856.5B, slightly exceeding Net Income of ¥795.9B, primarily due to foreign currency translation adjustments for foreign operations (+¥79.1B), which are separate from the earning power of the core business.

Earnings Forecast and Guidance

The company’s plan for the fiscal year ending December 2026 calls for Revenue of ¥10,200B (+6.4% compared with the current fiscal year), Operating Income of ¥1,250.0B (+9.8%), and Net Income of ¥893.0B (+13.0%). The planned Operating Margin is approximately 12.3%, representing further improvement from 11.9% in the current fiscal year. Forecast EPS is ¥189.67 (+14.0% from actual EPS of ¥166.31 in the current fiscal year), while the dividend forecast is ¥66 (+11.9% from ¥59 in the current fiscal year). Achieving the plan will depend on sustained growth in the Precision and Electronics Business, a recovery in Energy Business profitability, and improved working capital efficiency.

Shareholder Returns

The annual dividend was ¥59 per share (¥28 interim and ¥31 year-end), resulting in a Payout Ratio of 35.5% based on Net Income attributable to owners of the parent. Share repurchases totaled ¥200.8B. Combined with dividend payments of ¥277.2B, the Total Return Ratio was approximately 62.4%. The dividend forecast for the next fiscal year is ¥66, representing a planned increase of 11.9%. Given that Free Cash Flow was negative ¥504.8B, the payment of dividends and execution of share repurchases rely on overall financial capacity, including retained earnings (retained earnings of ¥3,192.6B) and existing cash and cash equivalents (¥1,434.8B). The composition of funding sources for shareholder returns therefore requires monitoring.

Risk Factors

1. Concentration of profit in the Precision and Electronics Business: This segment accounts for 50.5% of total reported segment profit and has an exceptionally high margin of 16.9%. If semiconductor-related capital expenditure cycles fluctuate or customers restrain investment, the impact on company-wide earnings growth could be substantial.

2. Deterioration in working capital and lower cash conversion: OCF was limited to ¥407.6B, down 59.6% YoY, representing approximately 0.51x Net Income of ¥795.9B. An increase in trade receivables and a decrease in contract liabilities occurred simultaneously, making trends in collection and acceptance cycles key to the future recovery of OCF.

3. Continued large-scale capital expenditures and Free Cash Flow deficit: Capital expenditures were ¥1,007.4B, reaching 2.9x depreciation and amortization, while Free Cash Flow was negative ¥504.8B. If the deployment and recovery of investment do not proceed as planned, dependence on financing, including the ¥665.5B net increase in short-term borrowings, may continue for an extended period.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

All of the company’s profitability metrics exceed the industry median, placing the company at a relatively high level within the industry.

Growth and Capital Efficiency

The revenue growth rate is more than twice the industry median and places the company among the higher-performing group within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The Operating Margin improved by 57bp to 11.9%, with the high profitability of the Precision and Electronics Business (16.9% margin) driving company-wide earnings power. The company’s profitability and growth rate also appear to rank among the higher levels relative to the industry average.

2. OCF/Net Income remained at approximately 0.51x, creating a divergence between earnings growth and Operating Cash Flow trends. Changes in trade receivables and contract liabilities were the primary factors, and the cash conversion of earnings should be monitored continuously.

3. Capital expenditures reached 2.9x depreciation and amortization, resulting in negative Free Cash Flow of ¥504.8B. Shareholder returns, including dividend increases and share repurchases, remain ongoing. However, the fact that the funding sources for these returns depend not only on internal funds but also on financing is a notable point in the earnings data.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,379–¥1,461 at ±1% Cost of Equity, and ¥1,412–¥1,431 at ω±0.1.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / 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 release 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, after consulting professionals as necessary.

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