EBARA (6361) FY2026 Q1 Earnings Report

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Executive Summary

Ebara achieved higher revenue and profit, driven by growth in the Precision & Electronics and Environmental businesses, resulting in a high-quality earnings performance in which the profit growth rate exceeded the revenue growth rate. Revenue amounted to ¥2463.1B (+15.8% year on year), Operating Income was ¥267.5B (+18.4%), and Net Income attributable to owners of the parent was ¥183.2B (+16.0%). The Operating Margin improved to 10.9% from 10.6% in the same period of the previous year, as a decline in the SG&A ratio more than offset the decrease in the gross margin. Meanwhile, the Energy segment’s swing into the red weighed on overall performance, widening the profitability gap within the business portfolio.

Factors Affecting Earnings

【Revenue】Revenue increased 15.8% year on year to ¥2463.1B. Precision & Electronics posted the strongest growth, rising to ¥829.5B (+32.9%), while Environmental also expanded significantly to ¥301.4B (+28.4%). In contrast, Energy declined to ¥465.8B (△4.2%), partly reflecting the impact of the reclassification of a portion of the hydrogen business. Architecture & Industrial (+12.0%) and Water & Infrastructure (+8.1%) remained solid.

【Profit and Loss】Operating Income increased 18.4% year on year to ¥267.5B, exceeding the revenue growth rate. Although the gross margin declined to 31.6% from 32.2% in the same period of the previous year, the SG&A ratio decreased from 21.7% to 20.8%, and cost control contributed to the improvement in profitability. By segment, the Precision & Electronics margin improved significantly to 16.3% from 13.2% in the previous year, while the Environmental margin rose to 20.5% from 12.9%. In contrast, Energy recorded an Operating Loss of ¥16.7B, deteriorating from a profit in the same period of the previous year. On a company-wide basis, Ebara achieved higher revenue and profit, with improved profitability in Precision & Electronics and Environmental more than offsetting the loss in Energy.

Segment Analysis

Precision & Electronics was the largest growth driver, generating more than half of company-wide profit, with revenue of ¥829.5B (+32.9%) and Operating Income of ¥135.3B (+63.9%). Environmental reported revenue of ¥301.4B (+28.4%) and Operating Income of ¥61.7B (+103.2%), improving its margin to 20.5%. Water & Infrastructure posted revenue of ¥232.7B (+8.1%) and Operating Income of ¥61.3B (+9.4%), maintaining the highest margin among all segments at 26.3%. Architecture & Industrial generated revenue of ¥630.8B (+12.0%), but Operating Income remained limited to ¥44.1B (+1.8%), causing its margin to decline to 7.0%. Energy reported revenue of ¥465.8B (△4.2%) and an Operating Loss of ¥16.7B, falling into the red from a profit in the same period of the previous year and becoming a concern for the company as a whole.

Key Financial Metrics

【Profitability】The 10.9% Operating Margin improved from 10.6% in the same period of the previous year, while the Net Profit Margin increased slightly to 7.6% from 7.4%. The gross margin declined to 31.6% from 32.2% in the same period of the previous year, but this was offset by the decline in the SG&A ratio to 20.8%; together with the benefit of higher revenue, operating leverage is taking effect.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥257.1B, or 1.38 times Net Income of ¥186.4B, indicating strong cash backing for reported earnings.【Investment Efficiency】ROE was 3.5% (quarterly actual; approximately 14% on an annualized basis), while the total asset turnover ratio remains a relative constraint on asset efficiency.【Financial Soundness】The Equity Ratio was 46.8%. Current assets of ¥7294.3B versus current liabilities of ¥4205.9B resulted in a current ratio of approximately 173%, a healthy level.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥257.1B, a substantial improvement from △¥15.4B in the same period of the previous year. The main factors behind the improvement were a ¥253.7B decrease in contract assets, which contributed to cash inflows, and higher Operating Income. Meanwhile, the ¥364.9B increase in operating receivables was a cash outflow factor, reflecting longer collection periods associated with revenue expansion. Investing Cash Flow was △¥196.5B, including capital expenditures of ¥168.0B and the acquisition of subsidiary shares for ¥18.9B. Free Cash Flow, calculated by subtracting Investing Cash Flow from Operating Cash Flow, remained positive at ¥60.6B, but was insufficient to cover dividend payments of ¥141.5B. In financing activities, short-term borrowings were reduced, while ¥460.0B in long-term borrowings was executed, extending the maturity profile of funding. Cash and cash equivalents totaled ¥1463.8B, an increase of ¥28.9B from the beginning of the period.

Earnings Quality

Net income was generated from recurring business activities, while impairment losses were limited to ¥0.05B, indicating no reliance on large one-off gains or losses. Equity-method investment income of ¥11.7B nearly offset financial expenses of ¥15.5B, resulting in Profit Before Tax being slightly higher than Operating Income. Operating Cash Flow was 1.38 times Net Income, indicating a high cash conversion rate, while the accrual ratio remained low; overall, earnings quality can be considered sound. However, the simultaneous occurrence of a ¥364.9B increase in operating receivables and a ¥253.7B decrease in contract assets may reflect timing differences related to the acceptance and billing progress of large projects, requiring continued monitoring.

Earnings Forecast and Guidance

Progress against the Full-Year earnings forecast was 24.1% for Revenue, 21.4% for Operating Income, and 18.4% for Net Income attributable to owners of the parent. The Full-Year forecast calls for Revenue of ¥10200B (approximately flat year on year), Operating Income of ¥1250B (+9.8%), and Net Income of ¥995B (+29.8%), with progress remaining below the 25% level implied by an even quarterly progression. An earnings forecast revision for the current quarter is indicated as “Yes,” while a dividend forecast revision is indicated as “No.” Achieving the Full-Year targets will depend on the continued growth of Precision & Electronics and improved profitability in the Energy segment.

Shareholder Returns

The Full-Year forecast dividend is ¥66.0 per share, implying a forecast Payout Ratio of 30.3% against forecast EPS of ¥217.91. Dividend payments during the current quarter amounted to ¥141.5B, while share repurchases were limited to ¥0.01B, making dividends the primary form of shareholder returns. Operating Cash Flow of ¥257.1B was 1.82 times dividend payments, a level that supports dividend sustainability.

Risk Factors

1. Deterioration in working capital efficiency: Operating receivables increased by ¥388.7B from the beginning of the period, while inventories also remained elevated at ¥2009.5B. If collection and inventory turnover both deteriorate, cash conversion could decline.

2. Deterioration in Energy segment profitability: As revenue declined △4.2% year on year, the segment swung to an Operating Loss of ¥16.7B. Project profitability and start-up costs, including those associated with the hydrogen business, could weigh on company-wide earnings.

3. Widening profitability gap between segments: While Environmental (20.5%) and Water & Infrastructure (26.3%) maintain high profitability, Architecture & Industrial (7.0%) is trending lower. Changes in the business mix could affect the company-wide margin.

Industry Benchmark (For Reference; Compiled by the Company)

Key Takeaways from the Earnings

1. Precision & Electronics (revenue +32.9%, profit +63.9%) and Environmental (profit +103.2%) drove earnings growth, making the sustainability of growth in these two segments the key determinant of future performance.

2. Operating Cash Flow was 1.38 times Net Income, indicating strong cash backing for earnings, while increases in operating receivables and inventories remain areas to monitor from a working capital perspective.

3. Progress against the Full-Year forecast was below the standard 25% level, at 21.4% for Operating Income and 18.4% for Net Income; improved profitability in the Energy segment during the second half will be critical to achieving the Full-Year targets.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,494–¥1,584 for a ±1% change in the Cost of Equity, and ¥1,528–¥1,554 for a ±0.1 change in ω.

Note:

• Net assets as of the end of the quarter are used (there is a timing difference relative to the Full-Year forecast).

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated values based solely on publicly disclosed data; these are not forecasts of the market share price or recommendations of any specific investment action, and do 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 professionals as necessary.

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AI Financial Analysis

Executive Summary

Ebara delivered a strong FY2026 Q1 earnings result, with double-digit revenue and operating-profit growth and a modest operating-margin expansion. Revenue increased 15.8% YoY to ¥246.3bn. Operating income rose 18.4% to ¥26.7bn, exceeding revenue growth and demonstrating positive operating leverage. Operating margin improved by 23bp YoY to 10.9% from 10.6%. Gross margin, however, declined by 63bp to 31.6% from 32.2%, indicating that cost-of-sales pressure remained present. This gross-margin pressure was more than offset by disciplined overhead absorption, as SG&A increased 11.2%, slower than revenue growth. SG&A as a percentage of revenue fell by approximately 87bp to 20.8%. Net income attributable to owners rose 16.0% to ¥18.3bn, while basic EPS increased to ¥40.13 from ¥34.18. Net margin was broadly stable at 7.4%, approximately 2bp above the prior-year level. Precision & Electronics was the principal earnings engine, producing ¥13.5bn of segment profit and accounting for roughly half of consolidated operating income. The Energy segment was the material negative exception, recording a ¥1.7bn segment loss versus a ¥2.0bn profit a year earlier. Operating cash flow improved sharply to ¥25.7bn from a ¥1.5bn outflow, and exceeded net income by 1.40x. Free cash flow was positive at ¥6.1bn after ¥16.8bn of capital expenditure. Cash conversion nevertheless remains exposed to elevated working-capital intensity, with receivable days of 92 and inventory days of 109. The full-year forecast implies Q1 progress of 24.1% for revenue, 21.4% for operating income, and 18.4% for profit attributable to owners, below the standard 25% first-quarter benchmark, particularly for earnings. This may reflect quarterly seasonality and the full-year forecast's assumed acceleration, but it raises the importance of subsequent-quarter margin recovery and execution in Energy. The disclosed forecast revision indicates that management has updated its outlook, while the supplied forecast still calls for full-year revenue of ¥1,020.0bn, operating income of ¥125.0bn, and profit attributable to owners of ¥99.5bn. Overall, the quarter supports the underlying growth case in the core precision and electronics franchise, while the key debate is whether working-capital demands and the Energy loss are temporary rather than structural.

Profitability Analysis

Annualized DuPont ROE is 13.8%, comprising a 7.4% net profit margin, 0.889x asset turnover, and 2.09x financial leverage. This is a good, though not excellent, ROE outcome under the stated benchmarks, with profitability and balance-sheet leverage both contributing materially. The principal operating improvement was margin rather than balance-sheet efficiency: operating margin expanded 23bp YoY to 10.9%, while the gross margin contracted 63bp to 31.6%. The margin improvement was driven by SG&A growing 11.2%, below 15.8% revenue growth, which reduced the SG&A ratio to 20.8% from 21.7%. This constitutes favorable operating leverage and is more sustainable than a profit increase dependent on financial income. Precision & Electronics is the core business by operating-income contribution, generating ¥82.9bn in revenue, up 32.9% YoY, and ¥13.5bn in segment profit, up 63.9%; its segment margin expanded to 16.3% from 13.2%. Building & Industrial revenue rose 12.0% to ¥63.1bn and segment profit increased 1.8% to ¥4.4bn, reducing its margin to 7.0% from 7.7%. Infrastructure revenue increased 8.1% to ¥23.3bn and segment profit rose 9.4% to ¥6.1bn, maintaining a high 26.3% margin versus 26.0%. Environment revenue grew 28.4% to ¥30.1bn and segment profit more than doubled to ¥6.2bn from ¥3.0bn, with margin expanding to 20.5% from 12.9%. Energy revenue declined 4.2% to ¥46.6bn and shifted to a ¥1.7bn loss from a ¥2.0bn profit, a deterioration of approximately ¥3.6bn. The Energy loss offsets part of the broad-based gains elsewhere and requires close monitoring following the inclusion of part of the hydrogen business in this segment from FY2026 Q1. The tax burden was 0.680, equivalent to a 30.8% effective tax rate, slightly below the 0.70 reference level but not indicative of an unusually burdensome tax outcome. Interest burden was 1.007 because equity-method income and other below-operating contributions more than offset net finance costs in the bridge from EBIT to pre-tax income. Equity-method income increased 17.7% YoY to ¥1.2bn and represented 4.4% of pre-tax profit, making it supportive but not the central earnings driver.

Growth Assessment

Growth was led by Precision & Electronics and Environment, whose combined revenue increase was approximately ¥27.2bn and represented most of consolidated revenue growth. Precision & Electronics' 32.9% sales growth and 63.9% profit growth indicate a favorable mix and/or scale effect, reinforcing its role as the main source of near-term earnings momentum. Environment also showed a substantial improvement in both sales and margin, suggesting broad strength beyond the semiconductor-related franchise. Building & Industrial added revenue but delivered limited incremental profit, implying a less favorable margin mix than the two high-growth segments. Infrastructure remained a high-margin contributor despite more moderate growth. Energy is the principal constraint on the consolidated growth profile because lower revenue coincided with a move into loss. Full-year revenue guidance of ¥1,020.0bn places Q1 progress at 24.1%, broadly consistent with a normal first-quarter run rate. Operating-income progress is lower at 21.4%, or 3.6 percentage points below the 25% benchmark. Profit attributable to owners progress is 18.4%, or 6.6 percentage points below the benchmark, requiring meaningful earnings acceleration through the remaining nine months. The full-year forecast implies operating-margin expansion to approximately 12.3%, compared with 10.9% achieved in Q1, making mix improvement, Energy normalization, and continued SG&A discipline important. Forecast profit attributable to owners of ¥99.5bn implies annual EPS of ¥217.91, versus Q1 EPS of ¥40.13. Small other income of ¥1.0bn and other expenses of ¥0.7bn, together with only ¥0.05bn of impairment, indicate that Q1 operating performance was not materially dependent on disclosed one-off items. Acquisition spending of ¥18.9bn, equal to 0.8% of quarterly revenue, is limited relative to the revenue base and does not by itself indicate aggressive acquisition-led growth.

Financial Health

Liquidity is sound: current assets were ¥729.4bn against current liabilities of ¥420.6bn, implying a current ratio of 1.73x, above the 1.5x healthy benchmark. Working capital was positive at ¥308.8bn. Cash and cash equivalents totaled ¥146.4bn. Current liabilities declined by ¥27.7bn from year-end, principally because current bonds, borrowings, and lease liabilities decreased to ¥99.9bn from ¥131.7bn. Non-current bonds, borrowings, and lease liabilities increased by ¥46.2bn to ¥139.2bn, reflecting a shift toward longer-term funding rather than a straightforward increase in near-term refinancing pressure. Total liabilities were ¥578.9bn and total equity was ¥529.6bn, producing an equity ratio of 46.8%. The reported debt-to-equity ratio of 1.09x is moderately above the conservative 1.0x reference point but materially below the 2.0x aggressive-risk threshold. The company therefore does not trigger the specified leverage warning. Contract liabilities of ¥82.5bn provide customer-funded operating support, although they were broadly unchanged from year-end. Receivables increased by ¥38.9bn from year-end to ¥248.1bn, while contract assets declined ¥23.8bn to ¥95.9bn; this mix shift should be evaluated alongside collection timing rather than viewed solely as balance-sheet expansion. Inventories increased ¥3.3bn from year-end to ¥201.0bn. Property, plant and equipment rose ¥9.6bn to ¥267.7bn, consistent with ongoing investment. Goodwill and intangible assets increased ¥4.9bn to ¥66.4bn, representing 6.0% of total assets and remaining modest at the combined-balance level. Treasury stock decreased in absolute value from negative ¥203.3bn to negative ¥23.6bn, an 88.4% change caused primarily by the cancellation of ¥179.7bn of treasury shares; this is an equity presentation change rather than a current-period cash buyback. Equity attributable to owners increased to ¥518.4bn despite dividends and the treasury-share cancellation, supported by ¥18.3bn of profit attributable to owners and ¥5.0bn of owner-attributable OCI.

Notable B/S Changes

Treasury stock: +¥179.7bn (88.4% reduction in the negative balance) to negative ¥23.6bn — primarily reflects cancellation of treasury shares, materially changing equity presentation without a corresponding material Q1 cash repurchase. Accounts receivable: +¥38.9bn from year-end to ¥248.1bn — supports the 92-day DSO alert and increases reliance on timely collection. Contract assets: -¥23.8bn from year-end to ¥95.9bn — favorable cash-flow release, partly offsetting the receivables increase and consistent with project billing/acceptance timing. Non-current bonds, borrowings and lease liabilities: +¥46.2bn from year-end to ¥139.2bn — indicates longer-term funding increased while current debt declined, reducing near-term maturity concentration. Goodwill and intangible assets: +¥4.9bn from year-end to ¥66.4bn — increase is modest relative to total assets, but should be monitored alongside acquisition activity and future returns on invested capital.

Cash Flow Quality

Cash-flow quality was strong in FY2026 Q1, with operating cash flow of ¥25.7bn versus net income of ¥18.6bn and an OCF/net-income ratio of 1.40x. This exceeds the 1.0x high-quality benchmark and does not trigger the concern threshold of 0.8x. The accruals ratio was negative 0.7%, also consistent with solid cash realization. Operating cash flow improved from a ¥1.5bn outflow in the prior-year quarter, a ¥27.2bn improvement. The main favorable working-capital movement was a ¥25.4bn decline in contract assets, compared with a ¥16.8bn decline in the prior-year quarter. Payables generated a ¥4.5bn cash inflow, versus a ¥22.4bn outflow a year earlier. These favorable movements were partly offset by a ¥36.5bn increase in receivables, larger than the ¥23.1bn increase in the prior-year quarter. Inventory consumption was limited, with inventory increasing by ¥1.5bn, although this was a considerable improvement from the ¥10.1bn inventory build a year earlier. The high receivable-days alert is material: annualized DSO of 92 days exceeds both the 60-day warning threshold and the 45-day efficient-manufacturing reference. Its root cause is the substantial quarter-end expansion in receivables to ¥248.1bn, which absorbed ¥36.5bn of operating cash flow. For an industrial equipment manufacturer with project-related billing and contract assets, collection timing can be lumpy, but the level elevates sensitivity to customer acceptance, milestone billing, and collections execution. The impact is that reported earnings remain cash-backed at the aggregate OCF level, but subsequent operating cash flow could weaken if receivables continue to grow faster than sales. The high inventory-days alert is also material: annualized DIO of 109 days exceeds the 90-day warning threshold and the 60-day manufacturing benchmark. Inventories increased to ¥201.0bn, equivalent to 18.1% of total assets, while the cash-flow statement recorded a ¥1.5bn inventory build. The likely context is a long-cycle manufacturing and project-equipment operating model, but elevated inventory increases exposure to demand revisions, production scheduling inefficiency, and obsolescence. The impact is a longer cash-conversion cycle and potentially higher future provisioning risk if the Energy segment's weakness persists. Capital expenditure was ¥16.8bn, equal to 6.8% of revenue, within the typical 3-8% manufacturing range. Free cash flow was positive at ¥6.1bn, but it did not cover the ¥14.2bn parent dividend paid during the quarter. This quarterly gap is not, by itself, a dividend-stress signal given the company's cash balance and seasonal cash-flow pattern, but sustained FCF below cash distributions would reduce financial flexibility. Cash conversion measured as OCF divided by EBITDA is approximately 70%, using EBITDA of roughly ¥36.7bn calculated from EBIT plus ¥10.0bn depreciation and amortization; this is acceptable but below the stronger-than-0.9x reference.

Dividend Sustainability

The full-year forecast dividend is ¥66.00 per share and forecast EPS is ¥217.91, implying a prospective dividend payout ratio of approximately 30.3%. This is comfortably below the 60% sustainability benchmark. The Q1 parent dividend cash payment was ¥14.2bn, while share repurchases were immaterial at ¥0.01bn; accordingly, the total return ratio is effectively the dividend payout ratio for the period. Q1 free cash flow of ¥6.1bn did not fully fund the ¥14.2bn dividend payment, but operating cash flow was positive and cash and equivalents were ¥146.4bn. The company also maintains a 46.8% equity ratio and no aggressive D/E warning is indicated by the reported 1.09x ratio. Dividend sustainability is therefore principally dependent on delivery of the full-year ¥99.5bn profit forecast and normalization of working-capital cash conversion, rather than on immediate balance-sheet capacity. A continuation of elevated receivable and inventory days, combined with capital expenditure requirements, would be the main risk to internally funded shareholder distributions.

Risk Assessment

Business risks include High priority — Energy segment execution: revenue declined 4.2% YoY to ¥46.6bn and segment profit reversed from a ¥2.0bn profit to a ¥1.7bn loss. The inclusion of part of the hydrogen business from FY2026 Q1 also affects comparability and makes the timing of recovery important., High priority — Precision & Electronics concentration: the segment contributed ¥13.5bn, or roughly half of consolidated operating income. Its strong 32.9% revenue growth makes group earnings increasingly sensitive to semiconductor and electronics capital-investment cycles., Medium priority — Manufacturing working-capital exposure: DSO of 92 days and DIO of 109 days imply a long operating cycle. Project acceptance delays, customer collection slippage, or softer end demand could pressure cash generation and lead to inventory valuation risk., Medium priority — Input-cost, supply-chain, and foreign-exchange exposure: the 63bp gross-margin contraction despite strong sales growth indicates that pricing, procurement costs, manufacturing utilization, and currency movements remain relevant to margin delivery., Medium priority — Project and quality risk: infrastructure, building and industrial, and environmental equipment businesses can face execution, warranty, commissioning, and delay-related cost risk, particularly where contract billing and contract assets are significant..

Financial risks include Medium priority — Cash conversion risk: receivables increased by ¥36.5bn in the quarter and partially offset favorable contract-asset and payable movements. OCF was strong in Q1, but its sustainability depends on collection discipline., Low to medium priority — Funding and interest-cost exposure: finance costs increased 18.0% YoY to ¥1.5bn, while funding was shifted from current to non-current borrowings and lease liabilities. The reported D/E ratio of 1.09x remains manageable and below the aggressive threshold., Low priority — M&A and intangible-asset risk: acquisition cash outflow was ¥1.9bn and combined goodwill and intangible assets were ¥66.4bn, or 6.0% of assets, which currently indicates limited balance-sheet concentration..

Key concerns include Energy must move from a ¥1.7bn Q1 loss toward profitability for the company to achieve its full-year operating-margin target implied by guidance., Q1 progress toward full-year guidance is 21.4% for operating income and 18.4% for profit attributable to owners, below the normal 25% first-quarter reference; the remaining quarters require stronger earnings conversion., Receivable days of 92 and inventory days of 109 are explicit quality alerts. Their impact is heightened cash-conversion and potential inventory-obsolescence risk despite currently strong OCF., Gross-margin erosion should not persist if the group is to deliver the forecast full-year operating margin of approximately 12.3%..

Investment Implications

Key takeaways include Revenue growth of 15.8% and operating-income growth of 18.4% demonstrate favorable consolidated operating leverage., Precision & Electronics is the core earnings driver, with ¥13.5bn of segment profit, a 16.3% margin, and 63.9% YoY profit growth., Environment and Infrastructure provide meaningful high-margin support, while Energy is the major operational offset., Q1 cash earnings are credible, supported by 1.40x OCF/net income and a negative 0.7% accruals ratio., The full-year plan requires a material margin and profit acceleration after Q1, while working-capital discipline remains essential..

Metrics to watch include Energy segment revenue, segment margin, and losses/profitability following the hydrogen-business classification change, Precision & Electronics order activity, revenue growth, and segment-margin durability, Gross margin and SG&A-to-sales ratio versus the Q1 levels of 31.6% and 20.8%, Receivable days, inventory days, contract-asset movements, and operating cash flow, Progress toward full-year guidance: revenue ¥1,020.0bn, operating income ¥125.0bn, and profit attributable to owners ¥99.5bn, Capital expenditure and free-cash-flow coverage of dividends.

Regarding relative positioning, Ebara combines a good annualized ROE of 13.8%, a 10.9% operating margin, positive free cash flow, and a 46.8% equity ratio, positioning it as a financially resilient industrial manufacturer. Its distinguishing strength is the high-growth, high-margin Precision & Electronics franchise, but relative earnings quality and valuation resilience will depend on whether the Energy loss and elevated working-capital days prove temporary.