KOKUSAI ELECTRIC CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

In addition to higher revenue and profit, the operating margin improved significantly during the quarter, indicating that both demand recovery and fixed-cost absorption contributed to the results. Revenue was ¥754.1B (+45.6% YoY), Operating Income was ¥159.3B (+63.9%), and Net Income attributable to owners of the parent was ¥115.6B (+70.6%). The increase in revenue was driven by substantial growth in sales to South Korea, the United States, and Taiwan, while the operating margin improved to 21.1% from 18.8% in the same period of the previous year, an improvement of +2.3pt. Progress against the full-year company forecasts of ¥3400B in revenue and ¥794.0B in Operating Income was 22.2% for revenue and 20.1% for Operating Income. However, given the shipment timing characteristic of the equipment industry, caution is warranted when evaluating performance based solely on progress rates.

Factors Driving Performance Changes

【Revenue】Revenue was ¥754.1B, representing a substantial 45.6% YoY increase. By region, South Korea at ¥239.0B (+168%), the United States at ¥54.6B (+269%), and Taiwan at ¥142.4B (+34.9%) led growth, while China declined to ¥214.0B (-9.1%), resulting in a change in the regional composition. The overseas revenue ratio remained high at approximately 91.8% (¥692.6B/¥754.1B), with overseas demand continuing to be the primary driver of performance.

【Profit and Loss】Gross profit was ¥306.8B, and the gross margin was 40.7%, down -2.2pt from 42.9% in the same period of the previous year. Meanwhile, SG&A expenses were ¥147.9B, or 19.6% of revenue, improving by -5.1pt from 24.7% in the previous year. Containing the increase in SG&A expenses relative to revenue growth directly contributed to the improvement in the operating margin to 21.1% (18.8% in the previous year, +2.3pt). Profit Before Tax was ¥157.4B, and the effective tax rate declined slightly to 26.6% from 27.3% in the previous year. Net Income was ¥115.6B, with a net margin of 15.3%, improving by +2.2pt from 13.1% in the previous year. Profit growth was achieved as the substantial improvement in the SG&A ratio more than offset the decline in the gross margin, supporting the conclusion that both revenue and profit increased.

Segment Analysis

As the Company operates as a single segment, the Semiconductor Manufacturing Equipment Business, profit and loss is analyzed based on the regional revenue composition. In Q1, regional revenue increased broadly, with South Korea at ¥239.0B (¥89.1B in the previous year, +168%), the United States at ¥54.6B (¥14.8B in the previous year, +269%), Taiwan at ¥142.4B (¥105.6B in the previous year, +34.9%), Japan at ¥61.5B (+5.1%), Other Asia at ¥34.3B (+197%), and Europe and Other Regions at ¥8.3B (+190%). In contrast, China declined to ¥214.0B (¥235.4B in the previous year, -9.1%). The strong growth in South Korea, the United States, and Taiwan offset the decline in China, with geographic diversification contributing to support revenue.

Key Financial Indicators

【Profitability】The operating margin was 21.1%, improving by +2.3pt from 18.8% in the same period of the previous year, while the net margin was 15.3%, improving by +2.2pt from 13.1% in the previous year. The gross margin declined by -2.2pt to 40.7% from 42.9% in the previous year, but the SG&A ratio declined by -5.1pt to 19.6% from 24.7%, which was the primary factor behind the improvement in profitability.【Cash Quality】Operating Cash Flow (OCF) was ¥121.3B, equivalent to 1.05 times Net Income of ¥115.6B, indicating favorable linkage between earnings and cash generation.【Investment Efficiency】ROE was 5.1% (quarterly result), and EPS increased +70.1% to ¥49.47 from ¥29.08 in the same period of the previous year.【Financial Soundness】The Equity Ratio was 60.6%, nearly unchanged from 61.0% in the same period of the previous year. Total assets were ¥3708.9B, while total interest-bearing debt was ¥469.5B (current portion ¥115.5B and long-term portion ¥354.0B), representing a conservative level relative to equity.

Cash Flow Analysis

OCF was ¥121.3B, an increase of +146.3% from ¥49.2B in the same period of the previous year, indicating that cash-generation capacity increased by more than the growth in Net Income. However, working capital expanded, with inventories increasing by ¥45.2B and trade receivables increasing by ¥40.6B. The ¥41.2B increase in trade payables partially offset these cash flow pressures. Investing Cash Flow was -¥55.2B, primarily reflecting capital expenditures of ¥45.6B, while Financing Cash Flow was -¥64.5B, primarily reflecting dividend payments of ¥43.2B and treasury share repurchases of ¥18.7B. As a result, Free Cash Flow (OCF + Investing Cash Flow) was ¥66.1B, broadly covering the combined ¥61.9B in dividends and share repurchases through internally generated funds. Cash and cash equivalents were ¥569.7B, nearly unchanged from the end of the previous fiscal year, increasing by +¥4.3B.

Earnings Quality

Other income of ¥0.6B and other expenses of ¥0.2B were both small during the quarter, indicating that the impact of non-recurring gains and losses was limited and that earnings were primarily generated by the core business. Non-operating financial income of ¥1.7B and financial expenses of ¥3.5B also remained below 1% of revenue. The difference between Profit Before Tax of ¥157.4B and Net Income of ¥115.6B is adequately explained by income taxes of ¥41.8B, representing an effective tax rate of 26.6% compared with 27.3% in the previous year. OCF was ¥121.3B, or 1.05 times Net Income of ¥115.6B. Although working capital expanded through increases in inventories and trade receivables, the ability to generate cash in line with earnings is favorable from an earnings-quality perspective. Comprehensive income was ¥120.3B, and the difference from Net Income of ¥115.6B was limited to a foreign currency translation adjustment of ¥4.7B, indicating limited divergence between the two figures.

Earnings Forecasts and Guidance

Progress in Q1 against the full-year company forecasts of ¥3400.0B in revenue, ¥794.0B in Operating Income, and ¥555.0B in Net Income was 22.2% for revenue, 20.1% for Operating Income, and 20.8% for Net Income, all below the 25% benchmark based on simple linear progress. The company forecasts assume YoY growth of +89.8% in Operating Income and +84.4% in Net Income, exceeding the quarterly growth rates of +63.9% and +70.6%, respectively. Accordingly, achieving the full-year targets will require further acceleration in revenue and profit growth from Q2 onward. During the quarter, both the earnings forecasts and dividend forecasts were revised, reflecting an upward revision to the full-year outlook.

Shareholder Returns

The Company forecasts an annual dividend of ¥65 per share. Based on the weighted-average number of shares outstanding during the period of 233,632,654 shares, the implied total annual dividend is approximately ¥151.9B, resulting in a Payout Ratio of approximately 27.4% against the full-year Net Income forecast of ¥555.0B. In Q1, the Company paid dividends of ¥43.2B and repurchased treasury shares worth ¥18.7B. Total shareholder returns for the quarter were therefore ¥61.9B, resulting in a Total Return Ratio of approximately 53.6% against quarterly Net Income of ¥115.6B. Free Cash Flow of ¥66.1B broadly covered total shareholder returns for the quarter, indicating that the funding source for shareholder returns was secured through internal funds.

Risk Factors

1. Demand cycle and regional concentration: While growth in sales to South Korea (+168%) and the United States (+269%) drove performance, China declined by -9.1%. Increased dependence on specific regions could amplify the impact on performance during future demand fluctuations.

2. Expansion in working capital: Inventories increased by +¥48.1B from the end of the previous fiscal year to ¥937.0B, while trade receivables increased by +¥42.8B to ¥422.2B. Contract liabilities (customer advances) were ¥328.4B, down -¥20.0B from the end of the previous fiscal year. Trends in inventory and receivables collection may become factors contributing to future cash flow volatility.

3. Goodwill and foreign exchange sensitivity: Goodwill was ¥590.6B, representing 26.3% of net assets of ¥2249.0B. In addition, the overseas revenue ratio is high at approximately 91.8%, creating a structure in which fluctuations in the yen exchange rate can readily affect profitability.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

The Company's operating margin and net margin both substantially exceed the industry median, placing its profitability at a high level within the industry.

Growth and Capital Efficiency

The revenue growth rate substantially exceeds the industry median, indicating that the pace of demand recovery during the period was notably strong relative to the industry.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. Although the gross margin declined by -2.2pt from the previous year to 40.7%, the operating margin increased by +2.3pt due to a -5.1pt improvement in the SG&A ratio. Fixed-cost dilution relative to revenue growth was the primary factor behind the improvement in the operating margin. Progress in cost structure efficiency is therefore an important point when evaluating the quality of profitability.

2. While inventories and trade receivables both increased from the end of the previous fiscal year, contract liabilities (customer advances) declined to ¥328.4B. This indicates a timing mismatch between shipment progress and the accumulation of orders. Future trends in contract liabilities will serve as an indicator of order trends.

3. Progress against the full-year company forecasts was 22.2% for revenue, 20.1% for Operating Income, and 20.8% for Net Income, all below the 25% benchmark based on simple linear progress. The company forecasts assume growth rates exceeding the results achieved in Q1 compared with the previous year, making the relationship between the assumptions underlying the full-year plan and Q1 results an item requiring continued monitoring.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade period). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥1,476–¥1,567 at ±1% for the cost of equity, and ¥1,505–¥1,544 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 / Interest Rate Reference Month: 2026-07 / This figure does 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 release 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, and after consulting a professional as necessary.

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