EBARA CORPORATION FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥663.55B
• Operating Income: ¥69.54B
• Net Income: ¥47.19B
• EPS: ¥96.76

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

FY2025 Q3 was a solid quarter for Ebara (6361), with healthy top-line growth, operating margin expansion, and strong cash generation underpinning earnings quality. Revenue rose 9.8% YoY to 6,635.55, with operating income up 16.2% YoY to 695.41, demonstrating positive operating leverage. Net income increased 8.9% YoY to 446.83, while profit before tax reached 662.27 and the effective tax rate stood at 25.0%. Gross profit was 1,968.80, yielding a gross margin of 29.7%, consistent with the reported metric. Operating margin improved to 10.5% (695.41/6,635.55), up approximately 57 bps from an estimated 9.9% a year ago, as operating income growth outpaced revenue growth. Net margin was 6.7% (446.83/6,635.55), roughly flat to slightly lower YoY by about 6 bps on our estimates, indicating some below-the-line headwinds despite better operating performance. ROE printed at 9.1%, supported by a 6.7% net margin, 0.633x asset turnover, and 2.13x financial leverage. ROIC of 10.6% is above common industrial benchmarks (>8%), signaling efficient capital deployment. Cash flow quality was a highlight: operating cash flow of 926.51 was 2.07x net income, and free cash flow was robust at 618.70, covering capex (335.85) and dividends paid (227.63) on a cash basis. The balance sheet is sound with an equity ratio of 45.8% and a D/E ratio of 1.13x, though current ratio cannot be calculated due to missing current liabilities data. Equity-method contributions were modest at 12.06 (1.8% of profit), implying earnings are predominantly driven by core operations. Reported payout ratio of 152.1% appears elevated but likely reflects differing bases (annual dividend policy vs. nine-month earnings); cash-based coverage looks comfortable. Strategic implication: operating discipline and project execution appear to be improving, which, coupled with strong OCF, positions Ebara to fund growth capex while maintaining shareholder returns. Forward-looking, continued margin resilience, sustaining ROIC >10%, and maintaining FCF coverage of dividends will be key to supporting valuation through the cycle. Near term, watch semiconductor-related demand in Precision Machinery and project execution in Pumps & Systems as drivers of order intake and margin trajectory.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 6.7% × 0.633 × 2.13 ≈ 9.1%. The most notable driver this quarter appears to be operating margin expansion (operating income +16.2% vs revenue +9.8%), which should have supported net margin, though net margin ultimately was roughly flat YoY (slight compression of ~6 bps by our estimate), suggesting pressure below the operating line (e.g., financial items, mix, or tax effects). Business rationale: mix shift and price/cost control likely aided OPM, while net margin stability suggests offsetting factors such as project timing, tax normalization, or smaller non-operating gains. Sustainability: operating improvements tied to cost control and pricing discipline are more durable; however, any one-off project milestones or favorable forex could normalize. Asset turnover at 0.633x is consistent with Ebara’s project-and-equipment profile; absent a large change in asset base, further improvement would hinge on accelerating revenue recognition from backlog. Financial leverage at 2.13x (Assets/Equity) looks stable and not excessive, meaning future ROE gains will rely more on margins and turnover than leverage. Cost discipline watchpoint: SG&A ratio was 19.9% of sales; while absolute SG&A rose (to 1,317.36), it grew slower than gross profit, enabling OPM expansion—no red flag of SG&A growth outpacing revenue this quarter.

Growth Assessment

Revenue growth of 9.8% YoY (to 6,635.55) indicates healthy demand across core segments, with operating income up 16.2% signaling positive operating leverage. The gross margin of 29.7% and OPM of 10.5% suggest favorable mix and cost control; equity-method income (12.06) was modest, so growth was primarily organic/operating. Net income growth of 8.9% lagged operating growth, implying some below-the-line normalization (tax/other). Sustainability: order backlog conversion and sectoral demand in precision machinery (semiconductor vacuum/CMP) and pumps/services will be key; current ROIC of 10.6% supports reinvestment-led growth. Outlook hinges on semiconductor capex cycles and project execution cadence; if pricing discipline and backlog quality hold, mid-teens operating profit growth is defensible, though net profit growth may track closer to high single digits given tax and financial items. Near-term catalysts/risks include semiconductor demand inflection, yen movements, and input cost trends.

Financial Health

Liquidity: Current ratio and quick ratio are not calculable due to unreported current liabilities; therefore, no explicit warning can be issued from ratios alone. However, current assets are sizable at 7,031.99 (including receivables 1,633.07 and inventories 2,202.22), suggesting a reasonable buffer against short-term obligations, subject to data limitations. Solvency: Equity ratio is 45.8% and D/E is 1.13x, indicating a conservative-to-moderate capital structure; no D/E > 2.0 warning. Maturity mismatch: Short-term vs long-term debt details are unreported, so we cannot assess near-term refinancing pressure or maturity walls. Off-balance sheet: No disclosures provided on guarantees or project-related commitments; none can be inferred. Working capital: The provided ‘working capital’ figure equals current assets, implying current liabilities were unreported; true net working capital cannot be assessed.

Cash Flow Quality

OCF/Net Income is 2.07x, indicating high earnings quality with strong conversion. Free cash flow was 618.70, after capex of 335.85, leaving ample headroom for shareholder returns and growth initiatives. Cash generation appears driven by core operations rather than one-time items; no signs of aggressive working-capital manipulation are evident from available data, though we lack a detailed WC bridge. FCF coverage of cash dividends (227.63) is strong (~2.7x on a cash basis), and FCF also covered capex + dividends combined (~1.10x), supporting reinvestment and distributions concurrently. With investing CF at -307.81 and financing CF at -265.53, net cash increased given strong OCF, boosting cash & equivalents to 1,739.57. Overall, cash flow quality supports the sustainability of current operations and capital allocation plans.

Dividend Sustainability

The reported payout ratio of 152.1% likely reflects a mismatch of bases (e.g., annualized dividends versus nine-month earnings or inclusion of special items); the total dividend paid per the cash flow statement was 227.63. On a cash basis, dividends were covered 4.1x by OCF and 2.7x by FCF, indicating good near-term sustainability. Capex (335.85) plus dividends (227.63) were covered by FCF (~1.10x), suggesting the company can fund both without incremental leverage in the period. Policy visibility is limited as DPS data are unreported; absent explicit guidance, we assume a stable-to-progressive stance supported by ROIC of 10.6% and robust cash generation. Key caveat: without full-year earnings and official payout policy disclosure, forward payout ratios may differ; monitor year-end dividend decision relative to full-year net income and FCF.

Risk Assessment

Business Risks:

• Semiconductor capital expenditure cyclicality impacting Precision Machinery orders and utilization
• Project execution risk in Pumps & Systems and Environmental segments affecting margin recognition and cash timing
• Input cost and supply chain volatility impacting gross margin
• FX fluctuations (JPY) affecting revenue translation and cost competitiveness

Financial Risks:

• Limited visibility on short-term debt and current liabilities creates uncertainty on liquidity metrics
• Potential working capital swings given high receivables (1,633.07) and inventories (2,202.22)
• Interest coverage not calculable due to unreported interest expense; sensitivity to rate environment unclear

Key Concerns:

• Net margin essentially flat YoY despite OPM expansion, implying below-the-line headwinds
• Dependence on timely backlog conversion; delays could pressure asset turnover and cash
• Data gaps (current liabilities, interest expense, DPS) limit precision of liquidity and payout analyses

Investment Implications

Key Takeaways:

• Solid operational quarter: revenue +9.8% YoY, operating income +16.2% YoY
• Operating margin expanded ~57 bps to ~10.5% on cost/mix discipline
• ROE 9.1% and ROIC 10.6% indicate efficient capital use
• Cash conversion excellent (OCF/NI 2.07x); FCF comfortably covers capex and dividends
• Balance sheet conservative with 45.8% equity ratio and D/E 1.13x

Metrics to Watch:

• Order intake and backlog quality in Precision Machinery and Pumps
• Operating margin trajectory vs input costs and pricing
• Asset turnover (currently 0.633x) as projects convert to revenue
• FCF coverage of capex and dividends, and OCF/NI ratio sustainability
• FX sensitivity and tax rate normalization on net margin

Relative Positioning: Within Japanese industrial machinery peers, Ebara shows above-benchmark ROIC (>10%), sound leverage, and strong cash conversion, positioning it favorably versus peers with lower margin resilience or weaker FCF through-cycle.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis