ANEST IWATA (6381) FY2026 Q3 Earnings Report

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Executive Summary

For the nine months ended Q3 of FY2026, the Company recorded declines in both revenue and earnings, with the key point of this earnings release being that the decline in Operating Income exceeded the decrease in Revenue. Revenue was ¥39.49B (-1.3% YoY), Operating Income was ¥3.80B (-18.1%), Ordinary Income was ¥5.19B (-9.2%), and Net Income attributable to owners of the parent was ¥3.38B (-5.6%). In addition to the decline in Revenue, an increase in company-wide expenses reduced the Operating Income margin to 9.6%, while non-operating income, including equity-method investment income and foreign exchange gains, mitigated the downside in Ordinary Income and Net Income.

Factors Driving Earnings Changes

【Revenue】Revenue was ¥39.49B, a 1.3% YoY decline. By region, Japan secured higher revenue of ¥19.03B (including intersegment internal sales; ¥13.70B on an external-sales basis, +3.5%), while Europe also recorded higher revenue of ¥7.24B (¥6.96B on an external-sales basis, +3.7%). In contrast, the Americas declined to ¥5.23B (¥4.93B in external sales, -9.8%), and China also declined (¥8.12B in external sales, -5.8%). Weak demand in the Americas and China is weighing on the Company-wide top line.

【Profit and Loss】The Gross Profit margin remained broadly flat at 46.7%, but the ratio of Selling, General and Administrative expenses increased to 37.1%. Operating Income was ¥3.80B (-18.1%), and the Operating Income margin of 9.6% declined by approximately 2 percentage points from approximately 11.6% in the same period of the previous year. Total segment profit was ¥4.65B (-11.4%), with particularly large declines in China (-30.0%) and the Americas (-21.2%). Company-wide expenses also increased 36.8% to ¥0.98B, putting pressure on earnings. Ordinary Income was limited to ¥5.19B (-9.2%), as non-operating income of ¥1.48B—including ¥0.77B in equity-method investment income and ¥0.40B in foreign exchange gains—substantially offset the decline in Operating Income. Extraordinary items were minor, comprising extraordinary income of ¥0.01B and extraordinary losses of ¥0.04B, and the impact of temporary factors was limited. In conclusion, the Company recorded declines in both revenue and earnings during the period, with the deterioration in profitability primarily attributable to operating factors, while non-operating income provided support at the Ordinary Income and Net Income levels.

Segment Analysis

Japan generated the largest contribution to segment profit at ¥1.84B (profit margin: 9.7%, down from 10.7% in the same period of the previous year), although segment profit declined 4.9% YoY. Europe recorded increases in both revenue and profit, with segment profit of ¥0.66B (profit margin: 9.1%). The Americas recorded segment profit of ¥0.63B (profit margin: 12.1%); although the profit margin remained relatively high despite the decline in revenue, profit decreased YoY. China recorded segment profit of ¥0.525B and a profit margin of 6.0%, representing the largest deterioration in profitability at -30.0% YoY. By region, deteriorating profitability in China was a major factor behind the decline in the consolidated profit margin, while higher revenue in Japan and Europe was insufficient to offset lower profit in the Americas and China.

Key Financial Indicators

【Profitability】The Operating Income margin of 9.6% declined by approximately 2 percentage points from approximately 11.6% in the same period of the previous year. The Net Profit margin was 8.6% on an attributable-to-owners-of-the-parent basis, slightly below approximately 8.9% in the same period of the previous year.【Cash Flow Quality】Non-operating income was equivalent to 3.7% of Revenue and 39.0% of Operating Income. The increased reliance on equity-method investment income and foreign exchange gains is a point to note when assessing earnings quality.【Investment Efficiency】ROE was 7.4%. Capital efficiency is constrained by the low Total Asset Turnover ratio, while financial leverage remained low at 1.29x.【Financial Soundness】The Company maintained a conservative financial structure, with an Equity Ratio of 77.4%, Cash and deposits of ¥20.35B, and a D/E ratio of 0.29x. Cash covered Short-term borrowings of ¥0.86B by more than 23 times.

Cash Flow Analysis

Because the items disclosed in the statement of cash flows are limited, the cash flow trends can be inferred from changes in the balance sheet. Cash and deposits were ¥20.35B, slightly down from ¥21.34B in the same period of the previous year. Accounts receivable of ¥10.15B and Inventories of ¥6.86B (finished goods: ¥6.86B, raw materials: ¥4.81B, and work in process: ¥1.02B) totaled ¥17.02B, substantially exceeding Accounts payable of ¥5.90B, suggesting that funds remain tied up in working capital. In particular, raw-material inventories increased from ¥3.83B in the same period of the previous year to ¥4.81B, indicating that inventory accumulation during a demand-adjustment phase may be affecting capital efficiency. If the Company succeeds in reducing trade receivables and inventories, this could provide an opportunity to generate additional cash going forward.

Earnings Quality

The gap between Ordinary Income and Operating Income amounted to ¥1.39B, most of which was attributable to non-operating income of ¥1.48B. The main components were equity-method investment income of ¥0.77B and foreign exchange gains of ¥0.40B. These items differ in nature from the recurring earnings power of the core business. While Operating Income declined sharply by 18.1% YoY, the decline in Ordinary Income was limited to 9.2%, largely due to the support provided by these non-operating items. Extraordinary items consisted of extraordinary income of ¥0.01B and extraordinary losses of ¥0.04B, resulting in a slight net loss but with a quantitatively immaterial impact on Net Income. Comprehensive Income was ¥3.63B, close to Net Income attributable to owners of the parent of ¥3.38B. However, foreign currency translation adjustments were -¥0.42B, and foreign exchange headwinds affected the valuation of goodwill and overseas assets. Accordingly, the non-recurring nature of equity-method investment income and foreign exchange gains should be considered when evaluating the underlying earning power reflected in Operating Income.

Earnings Forecast and Guidance

The full-year Company forecast calls for Revenue of ¥58.00B (+6.6% YoY), Operating Income of ¥5.55B (-6.0%), and Ordinary Income of ¥6.71B (-6.0%). As of the nine-month cumulative period, progress rates were 68.1% for Revenue and 68.4% for Operating Income, both below the standard progress rate of 75%. This means that Revenue of ¥18.51B and Operating Income of ¥1.75B must be recorded in Q4. Meanwhile, the progress rate was 77.3% for Ordinary Income and 81.3% for Net Income attributable to owners of the parent, both above the standard level, indicating that progress at the profit levels is ahead due to the contribution of non-operating income. The full-year forecast incorporates a YoY decline in Operating Income and is characterized by the absence of an assumption that core business profitability will improve in the second half.

Shareholder Returns

The Q2 dividend was ¥41.00 per share, and the full-year Company forecast is for an annual dividend of ¥83.00 per share. Based on forecast EPS of ¥104.83, the forecast Payout Ratio is approximately 79.2%, which is high even compared with the previous year’s dividend performance (the annual Payout Ratio was approximately at a similar level to the extent calculable from the available data). The strong financial base, including Cash and deposits of ¥20.35B and a D/E ratio of 0.29x, supports the stability of dividend payments. However, if the declining trend in Operating Income continues, the forecast Payout Ratio of approximately 79% can be considered relatively sensitive to fluctuations in earnings. Treasury stock of ¥2.65B is reported, but because actual purchases during the period have not been disclosed, this analysis evaluates shareholder returns based solely on the Payout Ratio.

Risk Factors

1. Regional demand volatility: Revenue in the Americas declined 9.8% YoY, while Revenue in China declined 5.8% YoY. If weak capital-investment demand in both regions persists, it could delay the pace of recovery in Company-wide Revenue.

2. Deteriorating profitability in the China business: China segment profit declined 30.0% YoY to ¥0.525B, with the profit margin falling to 6.0%. The segment is more sensitive than other regions to price competition, lower utilization rates, and an adverse product mix.

3. Funds tied up in working capital: Inventories of ¥6.86B and Accounts receivable of ¥10.15B remain high. Longer inventory turnover and collection periods could lead to impairment-loss risks resulting from inaccurate demand forecasts and lower capital efficiency.

Industry Benchmark (Reference; Company Analysis)

Key Takeaways from the Earnings Release

1. The Operating Income margin was 9.6%, down approximately 2 percentage points YoY, and Operating Income declined 18.1%, exceeding the decline in Revenue. The fact that profitability deteriorated more rapidly than Revenue is an important point when assessing the quality of the earnings results.

2. At the Ordinary Income and Net Income levels, non-operating income from equity-method investment income and foreign exchange gains mitigated the decline in earnings. The full-year progress rate was also ahead at 81.3% for Net Income compared with 68.4% for Operating Income. The fact that earnings progress is not accompanied by a recovery in the core business’s earning power is an important consideration in understanding the earnings structure.

3. The conservative financial base, including an Equity Ratio of 77.4% and a D/E ratio of 0.29x, has been maintained, providing financial resilience against funds tied up in working capital and deteriorating profitability by region.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,279–¥1,349 at Cost of Equity ±1%; ¥1,311–¥1,314 at ω±0.1.

Notes:

• Because forecast ROE is below the Cost of Equity, the theoretical value is below Book Value Per Share.
• Net assets as of the quarter-end were used (there is a timing difference relative to the full-year forecast).
• Because Net Assets include Non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data. It does not predict market prices or recommend any specific investment action, and it neither predicts nor guarantees 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 benchmark is 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

FY2026 Q3 earnings were weaker year on year, with modest revenue contraction translating into a materially larger operating-profit decline. Revenue fell 1.3% YoY to ¥39.49bn. Operating income declined 18.1% to ¥3.80bn. Profit attributable to owners of parent decreased 5.6% to ¥3.38bn. The gross margin was broadly stable at 46.7%, down only 13bp from 46.8% in the prior-year period. However, the SG&A-to-sales ratio rose 184bp to 37.1%, producing a 198bp contraction in operating margin to 9.6%. This indicates that the principal earnings pressure was overhead absorption and operating leverage rather than a substantial deterioration in manufacturing gross profitability. Ordinary income fell a milder 9.2% to ¥5.19bn, supported by a 230bp increase in non-operating income as a percentage of sales. Foreign-exchange gains were ¥0.40bn, equivalent to 10.5% of operating income, while equity-method earnings increased to ¥0.77bn from ¥0.72bn. These items cushioned the operating decline but make ordinary-income resilience partly dependent on below-the-line contributions. The effective tax rate was 22.0%, allowing profit attributable to owners to decline by less than operating income. Annualized ROE was 8.3%, supported by an 8.6% net margin and 0.755x asset turnover, while leverage remained conservative at 1.29x. The balance sheet remains exceptionally liquid, with ¥20.35bn of cash, a 361.4% current ratio, and only ¥0.86bn of interest-bearing debt. Nevertheless, the supplied quality alerts point to a working-capital-intensive operating cycle, including high receivable days, inventory days, and a long cash conversion cycle. Geographic performance was mixed: Japan and Europe expanded external sales, while the Americas, China, and other regions contracted. Full-year guidance requires a stronger final quarter in revenue terms, but the operating-income forecast implies a broadly stable Q4 operating margin near the Q3 cumulative level. The principal forward implication is that recovery in regional demand, inventory discipline, and containment of corporate costs are more important to earnings normalization than gross-margin repair.

Profitability Analysis

The annualized DuPont decomposition is 8.3% ROE = 8.6% net profit margin × 0.755x asset turnover × 1.29x financial leverage. The most limiting structural component is low financial leverage, but this reflects a deliberately conservative capital structure rather than balance-sheet stress. The period-on-period deterioration was operational: operating margin compressed 198bp to 9.6%, much more sharply than the 1.3% revenue decline. Gross margin was nearly unchanged at 46.7%, whereas SG&A increased 3.9% to ¥14.64bn despite lower sales, lifting the SG&A ratio to 37.1% from 35.2%. This adverse operating leverage was reinforced by higher corporate expenses: unallocated company-wide costs increased to ¥0.98bn from ¥0.72bn. The operating margin remains within the stated 8-15% good benchmark range, but the decline in cost absorption warrants monitoring. Non-operating income of ¥1.48bn was substantial at 3.7% of revenue and 39.0% of operating income. Equity-method earnings of ¥0.77bn and FX gains of ¥0.40bn contributed to ordinary income, so ordinary profitability was stronger than pure operating profitability. Interest coverage was a very strong 67.79x, and the interest burden exceeded 1.0x because non-operating income more than offset finance costs. The tax burden was 0.655, below the 0.70 reference level but consistent with the reported 22.0% effective tax rate. Extraordinary items were immaterial, with ¥0.07bn of asset-sale gain and ¥0.42bn of asset-sale and retirement loss. Accordingly, profit attributable to owners was predominantly recurring in character, though the extent of FX support should not be treated as fully repeatable.

Growth Assessment

Revenue weakness was concentrated outside Japan and Europe. Japan external revenue increased 3.5% YoY to ¥13.70bn, and Europe increased 3.7% to ¥6.96bn. In contrast, Americas revenue fell 9.9% to ¥4.93bn, China declined 5.8% to ¥8.12bn, and other regions fell 2.8% to ¥5.77bn. Japan remained the largest revenue contributor and is the core business by external-sales contribution, although its segment profit declined 4.9% to ¥1.84bn. The other-region segment generated the highest segment margin at 13.9%, followed by the Americas at 12.1%, Japan at 9.7%, Europe at 9.1%, and China at 6.0%. China experienced the sharpest segment-profit deterioration, down 30.0% to ¥0.53bn, with its segment margin falling by roughly 190bp. Americas segment profit declined 21.2% to ¥0.64bn and its margin fell about 186bp, indicating that lower volumes had a pronounced earnings effect. Full-year guidance calls for revenue of ¥58.00bn, up 6.6% YoY, and operating income of ¥5.55bn, down 6.0% YoY. Q3 cumulative progress is 68.1% for revenue and 68.4% for operating income, each around 6.6 percentage points below the standard 75% Q3 progress rate. Ordinary-income progress is 77.3% and profit-attributable-to-owners progress is 81.3%, both ahead of the 75% standard because of non-operating support. The implied Q4 requirement is ¥18.51bn of revenue and ¥1.75bn of operating income, equating to an implied operating margin of approximately 9.5%. This is close to the Q3 cumulative 9.6% margin, so the forecast appears to depend more on a seasonal revenue uplift than on a major margin rebound. For a manufacturer of compressors, vacuum equipment, and coating equipment, industrial-production trends, capital-expenditure demand, and regional distributor inventory adjustments remain important determinants of the Q4 revenue outcome.

Financial Health

Liquidity is very strong. Current assets of ¥44.79bn exceeded current liabilities of ¥12.39bn by ¥32.39bn, resulting in a 361.4% current ratio and a 306.0% quick ratio. Cash and deposits were ¥20.35bn, representing 29.2% of total assets and 23.63x short-term loans. Interest-bearing debt was limited to ¥0.86bn, equal to 1.6% of capital, while interest coverage was 67.79x. Total liabilities represented only 22.6% of total assets, and total equity was ¥53.97bn. The capital structure therefore provides considerable capacity to absorb business volatility without material solvency pressure. The refinancing-risk alert arises because 100% of reported interest-bearing debt is short term, rather than because of a high absolute debt burden. In context, cash far exceeds short-term debt and current assets substantially exceed current obligations; the immediate financial impact of refinancing risk is low, but the maturity concentration should remain monitored if borrowing rises. Accounts payable increased 8.6% YoY to ¥5.90bn, while receivables decreased 2.7% to ¥10.16bn. Investment securities increased 17.2% YoY to ¥3.72bn. Goodwill declined ¥0.16bn, or 26.0%, to ¥0.44bn; this reduces already limited acquisition-related balance-sheet exposure, with goodwill equal to only 0.8% of equity and 0.6% of assets. Under JGAAP, periodic goodwill amortization reduces reported operating profit and net income relative to an IFRS presentation, but the absolute goodwill balance is immaterial to valuation-retention or impairment risk. Net defined-benefit liability was ¥1.22bn, equivalent to 7.7% of total liabilities, and should be considered within longer-term employee-benefit obligations.

Notable B/S Changes

Goodwill: -¥0.16bn (-26.0%) to ¥0.44bn - reduces already immaterial acquisition-related asset exposure; goodwill is only 0.8% of equity, limiting impairment sensitivity. Raw materials: +¥0.98bn (+25.5%) to ¥4.81bn - increased procurement inventory despite lower consolidated revenue, reinforcing the need to monitor demand alignment and inventory turnover. Buildings and structures: +¥0.45bn (+7.0%) to ¥6.89bn - physical-asset investment increased, though the change is below the stated materiality thresholds. Investment securities: +¥0.55bn (+17.2%) to ¥3.72bn - increased exposure to market-value and strategic-investment movements, while remaining 5.3% of total assets.

Cash Flow Quality

Working-capital risk is the principal cash-conversion issue indicated by the available data. The high-receivable-days alert reports DSO of 70 days, above the 60-day warning threshold; this points to slower cash collection from customers, likely associated with customer mix, regional credit terms, or delayed conversion of shipments into cash. For a global industrial-equipment manufacturer, elevated DSO can constrain cash generation during periods of softer distributor or end-market demand. The impact is heightened sensitivity of operating cash generation to collection timing and credit discipline. The supplied inventory alerts report DIO of 165 days and 89 days, with both readings above their respective warning thresholds. Based on annualized Q3 cost of sales and total inventory, the 89-day reading is consistent with the reported ¥6.86bn inventory balance; regardless of measurement convention, the alerts identify inventory intensity as a material operational concern. Finished goods were ¥6.86bn, raw materials were ¥4.81bn, and work in process was ¥1.02bn, indicating that inventory management across both procurement and completed-product stock is relevant. Raw materials increased 25.5% YoY, while work in process declined 8.1% and finished goods declined 1.0%. The sharp raw-material increase despite lower sales may reflect purchasing commitments, input availability management, or production planning ahead of expected demand, and it raises the risk of slower inventory turnover if demand recovery is delayed. The long-cash-conversion-cycle alert reports 159 days, above the 120-day warning threshold. This reflects the combined pressure from collection and inventory holding and can reduce the speed at which accounting profits are converted into deployable cash. The investment implication is that working-capital normalization is a key determinant of cash-generation improvement, particularly alongside the planned ¥83 per-share annual dividend.

Dividend Sustainability

The company has declared a Q2 dividend of ¥41.00 per share and forecasts full-year DPS of ¥83.00. The Q2 dividend represented a calculated 50.7% payout ratio against the relevant reported earnings base. Based on forecast EPS of ¥104.83, the full-year dividend implies a forecast dividend payout ratio of approximately 79.2%. This is above the stated sub-60% sustainability reference but remains below 100%, indicating that the dividend is covered by forecast earnings. The balance sheet provides strong support, with ¥20.35bn of cash and minimal interest-bearing debt. Retained earnings were ¥405.92bn, supporting significant distributable reserves. The key constraint on dividend flexibility is not leverage but the cash tied up in receivables and inventories. Maintaining the forecast dividend will therefore depend on delivering the ¥4.15bn full-year profit-attributable-to-owners target and avoiding a further extension of the operating cash cycle. No share repurchase is incorporated in the stated payout assessment.

Risk Assessment

Business risks include Regional demand risk: Americas revenue declined 9.9% YoY and China revenue declined 5.8%, while segment profits in both regions fell more sharply than sales. A prolonged industrial-capex slowdown or distributor destocking would pressure volumes and fixed-cost absorption., China profitability risk: China segment margin declined to 6.0% from 7.9%, the lowest among reported regions. This exposes consolidated profitability to pricing pressure, lower utilization, or an unfavorable product/customer mix in a strategically important market., Manufacturing inventory risk: the inventory-day alerts of 165 days and 89 days identify elevated stockholding. Raw-material inventory increased 25.5% YoY, creating potential risks from demand shortfalls, component obsolescence, and procurement-cost volatility., Foreign-exchange risk: FX gains of ¥0.40bn equaled 10.5% of operating income and materially supported ordinary income. The company has broad overseas operations, so currency movements can cause earnings volatility even if underlying operating performance is stable., Industry-specific risk: demand for compressors, vacuum equipment, and coating systems is linked to customer capital spending, factory utilization, automotive and industrial production cycles, and distributor inventory behavior..

Financial risks include Refinancing-risk alert: 100% of reported interest-bearing debt is short term. The root cause is maturity concentration, although the ¥0.86bn debt balance is small relative to ¥20.35bn cash and the 361.4% current ratio; present financial impact is low but concentration would become more relevant if debt-funded investment expands., Receivables collection risk: the 70-day DSO alert exceeds the 60-day threshold. Slower collections may defer cash conversion and elevate counterparty-credit exposure during weaker industrial demand conditions., Long cash-cycle risk: the 159-day cash conversion cycle alert is above the 120-day warning threshold. This increases funding needs for normal operations despite the currently strong cash position., Dividend coverage risk: the forecast dividend payout ratio of approximately 79.2% is elevated relative to the sub-60% reference, reducing the buffer for a weaker-than-expected Q4..

Key concerns include Operating income fell 18.1% on only a 1.3% revenue decline, demonstrating unfavorable operating leverage from higher SG&A and corporate costs., Non-operating income, including equity-method earnings and FX gains, supported ordinary income; this support may be less predictable than operating profit., Inventory and receivable management are the most important operational indicators to monitor because they affect both cash conversion and the risk of future margin pressure., The implied Q4 revenue requirement is substantial at ¥18.51bn, making delivery of full-year sales guidance dependent on a seasonal recovery..

Investment Implications

Key takeaways include Gross margin resilience is constructive, but SG&A growth of 3.9% against a 1.3% sales decline drove the 198bp operating-margin contraction., The company retains a highly defensive balance sheet, with net cash, 1.6% debt-to-capital, and strong short-term liquidity., Japan and Europe delivered revenue growth, but profit weakness in the Americas and China was the main regional drag., Full-year operating-income guidance remains achievable at an implied Q4 operating margin of about 9.5%, but it requires a pronounced final-quarter revenue increase., The forecast ¥83 DPS is earnings-covered but represents a relatively high approximately 79% forecast payout ratio..

Metrics to watch include Q4 external revenue growth in the Americas and China, Segment margins, especially China and Americas, SG&A-to-sales ratio and company-wide cost allocation, Inventory balance, raw-material purchasing, and inventory days, DSO and the cash conversion cycle, FX gains/losses and equity-method earnings contribution, Delivery against the ¥58.00bn revenue and ¥5.55bn operating-income forecasts.

Regarding relative positioning, Anest Iwata is financially stronger than a typical leveraged industrial manufacturer because of its large cash balance, low debt, and very high liquidity. Its annualized 8.3% ROE and 9.6% operating margin are respectable but below the higher-return profile associated with consistently strong global industrial peers. The key differentiator for relative earnings quality is whether management can restore regional volume growth and working-capital efficiency without sacrificing the currently resilient gross margin.