EBARA CORPORATION FY2026 Q2 Earnings Report

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Executive Summary

Although revenue continued to grow, profit growth slowed, resulting in an earnings performance characterized by higher revenue and profit but relatively weak operating income growth. Revenue was ¥490.76B (+9.4% YoY), operating income was ¥50.68B (+1.2%), and net income was ¥34.57B (+5.6%; ¥33.57B attributable to owners of the parent, +7.1%). The gross margin declined to 31.4% from the previous year, with the recognition of an operating loss in the Energy segment and rising costs weighing on the operating margin, while strong growth in Precision Machinery and Environmental drove the increase in revenue.

Factors Affecting Earnings

【Revenue】Revenue increased to ¥490.76B (+9.4% YoY). By segment, Precision Machinery (¥183.69B, +22.0%) was the largest growth driver, while Environmental (¥47.93B, +13.9%) and Building Service and Industrial (¥129.59B, +13.8%) also recorded double-digit growth. In contrast, Energy declined to ¥96.70B (-11.3%), while Water and Infrastructure was nearly flat at ¥32.19B (-1.4%), resulting in divergent performance across businesses.

【Profit and Loss】Operating income was limited to ¥50.68B (+1.2% YoY), slowing relative to revenue growth. The gross margin declined to 31.4% from the previous year, with Energy’s operating loss of ¥0.79B (profitable in the previous year) being one of the primary factors. Meanwhile, Precision Machinery maintained high profitability, with operating income of ¥32.53B (+38.7%, margin 17.7%), supporting company-wide profit. Profit before tax was ¥49.76B (+7.9%), and net income was ¥34.57B (+5.6%), with a decrease in finance costs (¥3.26B versus ¥5.57B in the previous year) contributing to the increase. Overall, revenue and profit increased, but the key feature of the current period was the sluggish profit growth relative to the revenue growth rate.

Segment Analysis

Precision Machinery served as the core contributor to company-wide profit, with revenue of ¥183.69B (+22.0%) and operating income of ¥32.53B (+38.7%, margin 17.7%). Environmental achieved substantial profit growth, with revenue of ¥47.93B (+13.9%) and operating income of ¥6.70B (+51.2%). Building Service and Industrial recorded higher revenue and profit, with revenue of ¥129.59B (+13.8%) and operating income of ¥8.30B (+20.9%, margin 6.4%), although its margin was relatively low. Water and Infrastructure was nearly flat, with revenue of ¥32.19B (-1.4%) and operating income of ¥5.60B (-0.1%), while maintaining high profitability with a margin of 17.4%. Energy was a factor weighing on the company-wide margin, with revenue of ¥96.70B (-11.3%) and an operating loss of ¥0.79B, falling into the red from operating income of ¥10.78B in the previous year.

Key Financial Metrics

【Profitability】The operating margin declined to 10.3% from 11.1% in the previous year, while the net margin was 7.0% (6.8% based on net income attributable to owners of the parent), remaining nearly flat. The gross margin was 31.4%, with rising costs and deteriorating profitability in Energy weighing on the result.【Cash Quality】Operating cash flow (OCF) was ¥75.49B, approximately 2.2 times net income of ¥34.57B, indicating strong cash backing.【Investment Efficiency】ROE was 6.4%, remaining at a level indicating room for improvement in capital efficiency.【Financial Soundness】The equity ratio was 48.3%, and cash and cash equivalents stood at ¥153.02B, providing a substantial buffer and indicating a stable financial foundation.

Cash Flow Analysis

Operating cash flow increased substantially to ¥75.49B (+38.0% YoY), significantly exceeding net income of ¥34.57B and demonstrating high-quality cash generation. From a working capital perspective, a decrease in contract assets contributed ¥23.39B to OCF, while an increase in inventories (-¥9.50B) and a decrease in trade payables (-¥2.16B) were negative factors. Investing cash flow was -¥44.73B, of which capital expenditures accounted for ¥41.78B, reflecting continued investment. Financing cash flow was -¥24.29B, with dividend payments of ¥14.15B and share repurchases of ¥5.75B representing the principal cash outflows. As a result, free cash flow (FCF) was positive at ¥30.76B, and cash and cash equivalents accumulated to ¥153.02B after funding dividends and share repurchases.

Quality of Earnings

The majority of earnings consisted of recurring operating business profits, while the temporary impact of extraordinary gains and losses was limited. Outside operating income, finance income of ¥1.18B and finance costs of ¥3.26B were recorded, with the burden easing from finance costs of ¥5.57B in the previous year. Equity-method investment income made only a modest contribution of ¥1.17B. The fact that OCF reached approximately 2.2 times net income indicates that earnings were supported by cash, and earnings quality can also be assessed as favorable from an accrual perspective, considering the divergence between accounting profit and cash. Comprehensive income was ¥44.13B (¥42.72B attributable to owners of the parent), with the difference from net income of ¥34.57B attributable to other comprehensive income items, such as foreign currency translation adjustments. These items should be considered separately from the earnings power of the underlying business.

Earnings Forecast and Guidance

Progress against the full-year forecast was 46.6% for revenue, 40.5% for operating income, and 33.8% for net income attributable to owners of the parent (actual results of ¥33.57B against the forecast of ¥99.50B), all below the 50% benchmark for the first half. The delay was particularly notable for profit-related indicators, suggesting a plan weighted toward the second half. Although the background includes deteriorating profitability in the Energy segment and a lower gross margin, contract liabilities have accumulated to ¥86.63B, indicating potential for revenue recognition in the second half. The fact that the earnings forecast was revised during the current quarter should also be noted as a review based on progress to date.

Shareholder Returns

The Q2 dividend was ¥33, and the full-year dividend forecast is ¥66, unchanged from the previous year. Based on forecast full-year net income of ¥99.50B, the annual dividend forecast of ¥66, and total dividends calculated using the number of shares outstanding, the payout ratio is expected to be in the mid-30% range. Share repurchases of ¥5.75B were conducted, and together with dividend payments of ¥14.15B, shareholder returns were funded within OCF of ¥75.49B and FCF of ¥30.76B, leaving little concern regarding the sustainability of shareholder returns. No revision was made to the dividend forecast during the current quarter.

Risk Factors

1. Deteriorating profitability in the Energy segment: Energy recorded an operating loss of ¥0.79B against revenue of ¥96.70B (-11.3% YoY), compared with a profit in the previous year. Project profitability and delays in delivery progress are weighing on the company-wide profit margin.

2. Expansion of working capital: Inventories increased to ¥210.44B, and the increase in inventories was also a negative factor of -¥9.50B in the statement of cash flows. If improvements in inventory efficiency are delayed, this could weigh on FCF.

3. Structural decline in profit margins: Both the gross margin of 31.4% and the operating margin of 10.3% declined from the previous year, and structural pressure on profitability from higher costs and changes in the segment mix may continue.

Industry Benchmark (Reference; Company Analysis)

Profitability and Returns

Profitability indicators exceed the industry median and are relatively favorable within the manufacturing sector.

Growth and Capital Efficiency

The revenue growth rate was slightly below the industry median, with the pace of growth remaining at a mid-range level within the industry.

※Source: Company compilation

Key Takeaways from the Earnings Release

1. The top line remained solid, with revenue increasing 9.4%; however, the decline in gross margin (approximately -0.9pt YoY) and the Energy segment’s shift into the red limited operating income growth to +1.2%. The gap between revenue growth and profit growth is therefore an important consideration when assessing earnings quality.

2. OCF increased substantially by +38.0% YoY to ¥75.49B, securing a level approximately 2.2 times net income. FCF was also positive at ¥30.76B, maintaining the company’s ability to generate sufficient cash to fund dividends and share repurchases.

3. Full-year progress was 40.5% for operating income and 33.8% for net income attributable to owners of the parent, both below the 50% first-half benchmark. Given the accumulation of contract liabilities to ¥86.63B, the pace of project recognition in the second half will be key to achieving the full-year plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,514–¥1,605 at ±1% for the cost of equity, and ¥1,548–¥1,574 at ±0.1 for ω.

Notes:

• 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 value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee 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, after consulting a professional as necessary.

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