CKD (6407) FY2026 Q3 Earnings Report

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Executive Summary

The cumulative results for Q3 of the fiscal year ending March 2026 reflected declines in both revenue and earnings, characterized by an increase in revenue from the core Equipment Business that was insufficient to offset the decline in the Automatic Machinery Business. Revenue was ¥112.02B (¥115.08B in the same period of the previous year, YoY -2.7%), Operating Income was ¥12.51B (¥13.78B, YoY -9.2%), Ordinary Income was ¥12.74B (¥14.06B, YoY -9.4%), and Net Income was ¥8.84B (¥9.48B, YoY -6.7%). The Operating Income margin declined to 11.2% from 12.0% in the same period of the previous year, and the decline in Operating Income exceeding the rate of revenue contraction suggests deterioration in fixed-cost absorption. Net Income benefited from extraordinary income, including a gain on the sale of investment securities of ¥0.59B, indicating that recurring earnings power has weakened somewhat.

Factors Affecting Results

【Revenue】Revenue was ¥112.02B, down 2.7% year on year. The core Equipment Business remained solid, with revenue of ¥98.47B (87.9% of total) up 1.8% year on year, but the Automatic Machinery Business recorded revenue of ¥13.54B (12.1%), down 26.1% year on year, making it the primary cause of the company-wide revenue decline. Fluctuations in customer investment cycles in the Automatic Machinery Business have had a significant impact on the company-wide top line.

【Profit and Loss】Operating Income was ¥12.51B, down 9.2% year on year. Segment profit in the Equipment Business was ¥13.02B, down 2.3% year on year, while its profit margin declined from 13.8% to 13.2%. The Automatic Machinery Business also posted a 20.2% year-on-year decline in profit, while company-wide expenses deducted from reported Operating Income (adjustments) amounted to negative ¥3.60B, widening by ¥0.18B from the same period of the previous year and putting pressure on the profit margin. Ordinary Income was ¥12.74B, only slightly above Operating Income, indicating a limited contribution from non-operating gains and losses. Profit Before Tax of ¥13.36B included extraordinary income of ¥0.62B, including a ¥0.59B gain on the sale of investment securities; accordingly, part of Net Income of ¥8.84B (down 6.7% year on year) was supported by non-recurring factors. In conclusion, both revenue and earnings declined.

Segment Analysis

The Equipment Business recorded revenue of ¥98.47B (up 1.8% year on year) and segment profit of ¥13.02B (down 2.3% year on year), with its profit margin declining by approximately 0.6pt from 13.8% to 13.2%. As the core business accounting for 80.8% of company-wide profit, the fact that revenue growth has not translated into profit growth is an issue. The Automatic Machinery Business posted a significant decline in both revenue and earnings, with revenue of ¥13.54B (down 26.1% year on year) and segment profit of ¥3.10B (down 20.2% year on year), while its profit margin itself remained almost flat at 22.9%. Its high sensitivity to equipment demand and customer investment trends is a factor contributing to fluctuations in company-wide performance.

Key Financial Indicators

【Profitability】The Operating Income margin of 11.2% and Net Income margin of 7.9% both declined from 12.0% and 8.2%, respectively, in the same period of the previous year; however, the double-digit Operating Income margin was maintained. ROE was 6.1%. While the absolute level of profitability is reasonably high within the industry, there is room for improvement from the perspective of asset efficiency.【Cash Quality】Extraordinary income, including a gain on the sale of investment securities of ¥0.59B, contributed to Profit Before Tax, and therefore must be evaluated separately from recurring earnings growth.【Investment Efficiency】Total asset turnover remains low. When ROE of 6.1% is viewed as the product of Net Income margin and leverage, low asset turnover represents a constraint.【Financial Soundness】The Equity Ratio rose to 66.9% from 64.7% in the same period of the previous year, and the financial foundation remains conservative and stable, with cash and deposits of ¥41.01B and long-term borrowings of ¥27.44B.

Cash Flow Analysis

Although the cash flow statement has not been disclosed, funding trends can be inferred from changes in the balance sheet. Cash and deposits increased to ¥41.01B from ¥35.33B in the same period of the previous year, indicating an expansion in financial flexibility. Meanwhile, accounts receivable and notes receivable of ¥29.22B and inventories of ¥10.51B remain at high levels, and annualized days sales outstanding and inventory days are believed to be trending upward. Retained earnings continued to accumulate, reaching ¥101.53B from ¥97.63B in the same period of the previous year, indicating continued accumulation of internal reserves. It should be noted that funds tied up in working capital, particularly receivables and inventories, may constrain cash generation in periods when earnings growth slows.

Earnings Quality

Recurring earnings power should be assessed primarily based on Operating Income of ¥12.51B. The difference from Ordinary Income of ¥12.74B was limited to ¥0.23B in non-operating income and expenses, including dividend income of ¥0.25B and foreign exchange gains of ¥0.05B, indicating a limited boost from non-operating factors. Meanwhile, Profit Before Tax of ¥13.36B included extraordinary income of ¥0.62B, primarily comprising a ¥0.59B gain on the sale of investment securities. This represented a non-recurring contribution equivalent to 6.7% of Net Income of ¥8.84B, meaning that a portion of Net Income for the period was supported by temporary factors. Comprehensive Income was ¥14.13B, exceeding Net Income by ¥5.29B, with increases of ¥3.64B in foreign currency translation adjustments and ¥1.74B in valuation differences on securities contributing to the result. This divergence resulted from changes in the fair value of held assets and does not indicate a change in the earnings power of the core business.

Earnings Forecast and Guidance

The full-year company forecasts remain unchanged at revenue of ¥151.00B (YoY -3.0%), Operating Income of ¥16.60B (YoY -12.7%), and Ordinary Income of ¥16.60B (YoY -13.4%), with no revisions accompanying these results. The cumulative Q3 progress rates were 74.2% for revenue, 75.4% for Operating Income, and 76.7% for Ordinary Income, representing progress broadly in line with the standard 75% level. The full-year forecast itself already incorporates a double-digit year-on-year decline in Operating Income, and the level required in Q4 is not excessively high compared with the cumulative results.

Shareholder Returns

The Q2 dividend was ¥32.00 per share, and the full-year forecast dividend is ¥67.00 per share. Based on forecast EPS of ¥167.63, the forecast Payout Ratio is approximately 40.0%, while the dividend-based Payout Ratio relative to cumulative Net Income of ¥8.84B remains at 24.6%. The financial foundation, including cash and deposits of ¥41.01B and an Equity Ratio of 66.9%, is at a level that supports continued dividend payments.

Risk Factors

1. Demand fluctuations in the Automatic Machinery Business: Revenue declined 26.1% year on year, while segment profit declined 20.2%, making this the primary cause of the company-wide revenue decline. The business is highly sensitive to customers’ capital expenditure cycles.

2. Lengthening working capital cycle: Accounts receivable and notes receivable of ¥29.22B and inventories of ¥10.51B remain at high levels, and annualized receivables and inventory days are trending upward. During periods of declining revenue, these funds tied up in working capital could weigh on Operating Cash Flow.

3. Dependence on temporary gains: Extraordinary income of ¥0.62B, including a ¥0.59B gain on the sale of investment securities, was recorded in Profit Before Tax, equivalent to 6.7% of Net Income. Recurring earnings power must be assessed based on the trend in Operating Income.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both profitability indicators exceed the industry median and are relatively high within the manufacturing sector.

Growth and Capital Efficiency

The revenue growth rate is substantially below the industry median, contrasting with other companies in the same industry that are on a revenue growth trajectory.

※Source: Compiled by the Company

Key Takeaways from the Results

1. Although the Equipment Business secured revenue growth, its profit margin declined from 13.8% to 13.2%. The fact that revenue growth has not translated into profit growth is a key point of interest in the earnings structure.

2. The Operating Income progress rate against the full-year company forecast was 75.4%, a standard level, and the full-year plan remains unchanged despite incorporating a double-digit year-on-year decline in Operating Income.

3. Net Income benefited from extraordinary income, including a gain on the sale of investment securities. When assessing recurring earnings power, it is necessary to focus primarily on the trend in Operating Income.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,031–¥2,148 at a cost of equity of ±1%, and ¥2,085–¥2,090 at ω of ±0.1.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value will be below book value per share.
• Net assets as of the quarter-end are used (there is a timing discrepancy with the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated at a somewhat high level.

(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 and does not constitute a forecast of the market share price or a recommendation of any specific investment action, nor does it 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 a professional as necessary.

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AI Financial Analysis

Executive Summary

CKD’s FY2026 Q3 cumulative results were resilient but softer year on year, with revenue contraction and operating-margin pressure led by the Automatic Machinery segment. Revenue was ¥112.0bn, down 2.7% YoY, while operating income was ¥12.5bn, down 9.2% YoY. Net income attributable to owners declined 6.7% YoY to ¥8.84bn. The gross margin was broadly stable at 29.0%, slipping only about 6bp from 29.1% in the prior-year period. In contrast, the operating margin declined to 11.2% from 12.0%, a compression of roughly 80bp. This indicates that the principal earnings pressure arose below gross profit, where SG&A increased 1.6% YoY despite lower sales, rather than from a major deterioration in manufacturing gross profitability. Ordinary income fell 9.4% YoY to ¥12.7bn, broadly tracking the operating-income decline. Pre-tax profit fell by a more moderate 5.0% to ¥13.4bn because of extraordinary income, principally a ¥5.89bn gain on sale of investment securities. Net margin was nevertheless solid at 7.9%, although it declined by approximately 34bp YoY. The annualized DuPont ROE was 8.1%, supported by an 11.2% EBIT margin and conservative 1.50x financial leverage. The Equipment segment remained the core business, generating ¥98.5bn of revenue and ¥13.0bn of segment profit. Automatic Machinery experienced a sharp sales decline, which was the primary drag on consolidated growth and profitability. The balance sheet is strong, with a 374.9% current ratio, 0.50x D/E ratio and cash equal to 8.04x short-term debt. However, the disclosed annualized 71-day receivables cycle, 177-day inventory cycle and 200-day cash conversion cycle require close attention because they tie up cash and can signal demand or production-planning risk. Q3 progress against full-year guidance is broadly in line with the normal 75% seasonal benchmark, with sales at 74.2%, operating income at 75.4% and net income at 78.9%. Management has not revised either earnings or dividend guidance, implying that delivery against the full-year plan depends on maintaining Equipment segment momentum and stabilizing Automatic Machinery demand.

Profitability Analysis

The annualized DuPont decomposition is net profit margin of 7.9% × asset turnover of 0.685x × financial leverage of 1.50x, producing reported ROE of 8.1%. The main constraint on ROE is moderate asset turnover rather than leverage, as the company operates with a conservatively capitalized balance sheet. Financial leverage is low and appropriate at 1.50x, so a material ROE increase would need to come primarily from margin recovery and/or improved asset and working-capital efficiency rather than additional debt. EBIT margin was 11.2%, within the good 8–15% benchmark range, but decreased around 80bp YoY. Gross margin was virtually unchanged at 29.0%, indicating that gross-profit resilience partially offset the modest sales decline. SG&A rose to ¥20.0bn from ¥19.7bn even as revenue declined, causing negative operating leverage and explaining most of the operating-margin compression. The tax burden was 0.662, equivalent to a 33.8% effective tax rate. Interest burden was favorable at 1.068 because pre-tax profit exceeded EBIT due to net non-operating and extraordinary gains, while interest coverage remained very strong at 32.66x. The ¥5.89bn gain on sale of investment securities supported pre-tax profit; excluding this gain, the underlying earnings decline would be less cushioned than the reported pre-tax trend implies. Segment profitability was highly differentiated: Equipment produced a 13.2% segment margin, compared with 22.9% for Automatic Machinery, although the latter’s higher margin did not offset its much smaller revenue base and substantial sales decline. Unallocated corporate expenses increased to ¥3.63bn from ¥3.45bn, further constraining consolidated operating-profit conversion.

Growth Assessment

Revenue declined 2.7% YoY, reflecting sharply weaker Automatic Machinery sales, partly offset by modest growth in Equipment. Equipment revenue increased 1.8% YoY to ¥98.47bn and segment profit declined only 2.3% to ¥13.02bn, demonstrating relative resilience in the group’s core business. Automatic Machinery revenue fell 26.1% YoY to ¥13.54bn, while segment profit decreased 20.2% to ¥3.10bn. The Automatic Machinery segment’s segment margin improved to 22.9% from 21.2%, suggesting that the segment’s issue in the period was principally volume and mix rather than severe unit-economics deterioration. Equipment’s segment margin eased from 13.8% to 13.2%, consistent with mild profitability pressure despite revenue growth. Consolidated operating profit declined faster than sales because SG&A and corporate costs did not flex down with lower revenue. Full-year guidance calls for revenue of ¥151.0bn, down 3.0% YoY, and operating income of ¥16.6bn, down 12.7% YoY. Q3 revenue progress is 74.2% of full-year guidance, 0.8 percentage points below the standard 75% Q3 pace, while operating-income progress is 75.4%, 0.4 points above the benchmark. Net-income progress is 78.9% of guidance, 3.9 points above the benchmark, partly reflecting the gain on sale of investment securities. The lack of forecast revision suggests management views the current run rate as consistent with its plan, but a sustained recovery in Automatic Machinery orders and disciplined control of corporate costs are important for the final-quarter outcome.

Financial Health

Liquidity is exceptionally strong. Current assets of ¥137.6bn exceed current liabilities of ¥36.7bn by ¥100.9bn, producing a 374.9% current ratio and a 346.2% quick ratio. Cash and deposits were ¥41.0bn, exceeding short-term loans of ¥5.10bn by 8.04x. Interest-bearing debt was ¥32.5bn, consisting mainly of ¥27.4bn in long-term loans, while short-term loans accounted for only 15.7% of total debt. This maturity profile limits refinancing and near-term maturity-mismatch risk, particularly given the large cash balance and substantial working capital. Debt-to-equity was conservative at 0.50x, debt-to-capital was 18.3%, and neither ratio indicates balance-sheet stress. Total equity increased ¥9.23bn YoY to ¥145.7bn, aided by retained earnings and accumulated other comprehensive income. Total comprehensive income was ¥14.1bn, exceeding net income of ¥8.84bn, supported by positive valuation and foreign-currency translation movements. Property, plant and equipment represented 28.1% of total assets, consistent with a manufacturing-oriented operating base. Intangible assets were only 0.7% of total assets, limiting exposure to amortization or acquisition-related impairment risk. Net defined benefit liability was ¥0.61bn and non-current provisions were immaterial relative to the liability base.

Notable B/S Changes

Total equity: +¥9.23bn (+6.8% YoY) to ¥145.75bn, supported by retained earnings and positive accumulated other comprehensive income, strengthening capital resilience. Cash and deposits: +¥5.68bn (+16.1% YoY) to ¥41.01bn, reinforcing already strong liquidity and coverage of short-term borrowings. Work in process: +¥1.25bn (+31.3% YoY) to ¥5.24bn, consistent with elevated production-cycle capital commitment and requiring monitoring given the high inventory-days alert. Electronically recorded payables: +¥0.78bn (+23.5% YoY) to ¥4.09bn, partly supporting supplier-financing and working-capital funding. Accumulated other comprehensive income: +¥5.30bn (+44.3% YoY) to ¥17.25bn, reflecting favorable valuation and foreign-currency translation movements; this strengthens book equity but is more market-sensitive than retained earnings.

Cash Flow Quality

The disclosed working-capital metrics point to a long cash operating cycle. Annualized receivable days were 71 days, above the 60-day warning threshold, indicating slower collection or customer-credit exposure than the benchmark. Annualized inventory days were 177 days, well above the 90-day warning threshold, increasing the risk of cash lock-up, inventory obsolescence and production-demand mismatch. The annualized cash conversion cycle was 200 days, above the 120-day warning threshold and therefore the most material cash-efficiency concern. For a manufacturing company, the combination of extended receivable and inventory cycles can depress cash conversion even when reported operating margins remain sound. Electronic receivables were ¥13.38bn and electronic payables were ¥4.09bn, making monitoring of payment terms and settlement timing relevant. Finished goods were ¥10.51bn, work in process was ¥5.24bn and raw materials were ¥35.59bn. The working-capital trend warrants attention alongside Automatic Machinery’s sales contraction, as weaker demand can elevate the risk that inventories take longer to convert into sales and cash.

Dividend Sustainability

The interim dividend was ¥32.0 per share. The calculated payout ratio based on the interim dividend and Q3 cumulative net income was 24.6%, which is conservative. Full-year dividend guidance is ¥67.0 per share versus forecast EPS of ¥167.63, implying a forecast dividend payout ratio of approximately 40.0%. This is comfortably below the 60% sustainability benchmark. The dividend is supported by ¥41.0bn of cash and deposits, a low 0.50x D/E ratio, and strong short-term liquidity. The absence of a dividend revision is consistent with management maintaining confidence in the full-year earnings and shareholder-return plan. Sustained dividend capacity will nevertheless depend on improvement in the extended working-capital cycle and preservation of operating profitability.

Risk Assessment

Business risks include Automatic Machinery revenue declined 26.1% YoY to ¥13.54bn, creating a material demand, order-timing and customer-capital-expenditure risk for the segment., The 177-day annualized inventory cycle is substantially above the manufacturing warning threshold, raising risks of excess stock, obsolescence, unfavorable product mix and production adjustment., The 71-day annualized receivable cycle is above the warning threshold and raises customer-credit and collection-timing risk., The 200-day annualized cash conversion cycle heightens sensitivity to changes in demand, supply-chain conditions and customer payment behavior., As a Japanese manufacturing group, CKD remains exposed to industrial-cycle volatility, component supply conditions, raw-material and energy-cost movements, foreign-exchange changes, and quality-related disruption..

Financial risks include Operating income declined 9.2% YoY despite only a 2.7% sales decline, evidencing unfavorable operating leverage as SG&A increased 1.6% YoY., The ¥5.89bn gain on sale of investment securities supported pre-tax profit, so reported pre-tax and net-income trends are modestly stronger than underlying recurring earnings., Long-term loans of ¥27.44bn are manageable relative to equity and cash, but should be monitored if the protracted cash conversion cycle persists..

Key concerns include HIGH_RECEIVABLE_DAYS: Annualized DSO of 71 days exceeds 60 days. This can indicate slower collections or a less favorable customer payment mix; it reduces cash efficiency and should be assessed against order growth and customer credit quality., HIGH_INVENTORY_DAYS: Annualized DIO of 177 days exceeds 90 days. This is particularly significant for a manufacturer because prolonged inventory holding can lead to obsolescence, write-downs or future production cuts if demand remains weak., LONG_CCC: The 200-day annualized cash conversion cycle exceeds 120 days. The combination of slow receivables conversion and high inventory commitment can reduce free cash availability despite healthy reported profitability and liquidity., The core Equipment segment remains stable, but its segment margin declined 60bp YoY; preserving price, mix and cost discipline is important because this segment supplies most segment profit..

Investment Implications

Key takeaways include Core Equipment delivered modest 1.8% revenue growth and generated ¥13.02bn of segment profit, cushioning the pronounced decline in Automatic Machinery., Consolidated gross margin remained stable, but SG&A growth and higher unallocated corporate costs caused operating-margin compression., The company has substantial balance-sheet capacity, with 374.9% current ratio, 0.50x D/E and 32.66x interest coverage., Working-capital efficiency is the principal financial-quality issue, as shown by the 71-day DSO, 177-day DIO and 200-day cash conversion cycle., Full-year guidance remains achievable on Q3 progress rates, but net-income progress benefits from investment-security sale gains..

Metrics to watch include Automatic Machinery order intake, revenue recovery and segment-margin sustainability, Equipment segment revenue growth and segment margin, Consolidated SG&A growth relative to revenue growth and unallocated corporate expenses, Annualized DSO, DIO and cash conversion cycle, Inventory composition, turnover and any inventory valuation charges, Final-quarter operating-income delivery versus ¥16.6bn full-year guidance, Recurring profit excluding gains on sale of investment securities.

Regarding relative positioning, CKD combines good operating profitability, a conservative capital structure and strong liquidity with below-optimal annualized asset and working-capital efficiency. Its 11.2% operating margin is solid for a manufacturer, while its 8.1% annualized ROE is adequate but below the stronger double-digit range, largely because of modest asset turnover and limited leverage. The Equipment segment provides the principal earnings foundation, whereas the scale and cyclicality of the Automatic Machinery downturn and the extended cash conversion cycle are the key factors shaping relative financial quality.