MABUCHI MOTOR CO.,LTD. FY2026 Q2 Earnings Report

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Executive Summary

Although the Company posted increases in both revenue and profit, the primary driver of profit growth was non-operating income, including foreign exchange gains, rather than the core business; monitoring is therefore required from the perspective of earnings quality. Revenue was ¥1,063.8B (+12.1% YoY), Operating Income was ¥131.5B (+8.5%), Ordinary Income was ¥188.9B (+63.3%), and Net Income was ¥127.1B (+42.1%). The Operating Margin was 12.4%, slightly down from 12.8% in the same period of the previous year. While an improvement in the gross margin (30.6%, +0.7pt) was offset by a 19.3% increase in SG&A expenses, Ordinary Income increased substantially due to the contribution of ¥63.0B in non-operating income, including ¥28.3B in foreign exchange gains.

Factors Affecting Performance

【Revenue】Revenue increased 12.1% YoY to ¥1,063.8B. By segment, Asia accounted for the largest share at ¥956.8B (+10.7%), while Japan at ¥643.6B (+10.1%), Europe at ¥247.0B (+7.8%), and the U.S. at ¥202.7B (+10.3%) also recorded revenue growth across all regions. By product, the automotive electrical equipment market was the core business at ¥820.7B, representing a 77.1% share, and expanding demand drove overall growth.

【Profit and Loss】Operating Income increased 8.5% YoY to ¥131.5B, somewhat slower than revenue growth. Although the gross margin improved to 30.6%, SG&A expenses increased 19.3%, partially offsetting the benefit of higher revenue, and the Operating Margin declined to 12.4% from 12.8% in the same period of the previous year. Ordinary Income rose 63.3% to ¥188.9B, substantially outpacing Operating Income growth, primarily due to ¥63.0B in non-operating income, including ¥28.3B in foreign exchange gains. Net Income was ¥127.1B (+42.1%), resulting in increases in both revenue and profit; however, it should be noted that non-operating factors were the central driver of profit growth.

Segment Analysis

Asia generated segment profit of ¥84.7B (+29.4% YoY), accounting for the largest portion of total segment profit, and had the highest profitability at 8.9%. In Japan, despite a 10.1% increase in revenue, segment profit declined 19.9% to ¥40.6B, resulting in a pattern of higher revenue but lower profit. Europe returned to profitability with profit of ¥5.5B, compared with a loss in the same period of the previous year, but its margin remained low at 2.2%. In the U.S., profit softened somewhat to ¥3.96B (-5.5%) despite a 10.3% increase in revenue. Overall, reliance on Asia for profit remains high, while Japan’s combination of higher revenue and lower profit warrants continued monitoring of ongoing cost increases.

Key Financial Metrics

【Profitability】The Operating Margin was 12.4%, the Net Profit Margin was 11.9%, and the EBITDA Margin was 19.1%. The gross margin improved by +0.7pt YoY to 30.6%, while the increase in the SG&A ratio to 18.2% put pressure on the Operating Margin. 【Cash Quality】Operating Cash Flow (OCF) was ¥117.4B, equivalent to 0.92x Net Income. The accrual ratio was 0.2%, indicating limited accumulation of accrual-based earnings; however, OCF/EBITDA was 0.58x, suggesting somewhat weak cash conversion efficiency, primarily due to an ¥83.9B increase in inventories. 【Investment Efficiency】Annualized ROE was 7.4%, decomposed into a Net Profit Margin of 11.9% × total asset turnover of 0.52x × financial leverage of 1.19x. Low leverage and low asset turnover are constraining ROE. 【Financial Soundness】The Equity Ratio was 84.1%, and cash and deposits totaled ¥1,340.8B, indicating an extremely robust capital structure. Although short-term borrowings increased to ¥104.2B, the cash/short-term liabilities ratio remains high, and actual funding constraints are limited.

Cash Flow Analysis

OCF was ¥117.4B, essentially flat at +1.0% YoY. Although Net Income increased 42.1%, cash generation did not grow, with the ¥83.9B increase in inventories being the primary source of pressure. Investing Cash Flow was negative ¥186.0B, primarily reflecting acquisition-related expenditures, including ¥131.8B for the acquisition of shares in subsidiaries, resulting in negative Free Cash Flow of ¥68.6B. Financing Cash Flow was negative ¥66.1B, reflecting a combination of ¥77.6B in share repurchases and increased borrowings. Cash and deposits were substantial at ¥1,340.8B, so short-term funding capacity remains largely unconstrained; however, internal funding coverage for investment and shareholder returns has weakened.

Earnings Quality

The growth in Ordinary Income (+63.3%) substantially exceeded the growth in Operating Income (+8.5%). This gap was primarily attributable to ¥63.0B in non-operating income, including ¥28.3B in foreign exchange gains, indicating a high degree of reliance on non-operating items of a more temporary nature rather than core business growth. Extraordinary income was ¥2.6B and extraordinary losses were ¥4.0B, resulting in a slight net negative impact, with a limited effect on Net Income. Comprehensive Income was ¥249.5B, substantially exceeding Net Income of ¥127.1B. Foreign currency translation adjustments of ¥96.2B and valuation differences on securities of ¥27.0B were the primary sources of this difference, indicating that the impact of market and foreign exchange fluctuations on net assets exists in a form that is less visible from Net Income. The accrual ratio was low, and no significant concerns were identified regarding the quality of accrual-based earnings; however, caution is warranted in evaluating the high growth in Ordinary Income as a direct reflection of core business strength.

Earnings Forecast and Guidance

Progress toward the Full-Year forecast was 47.3% for Revenue, 49.6% for Operating Income, 60.4% for Ordinary Income, and 57.2% for Net Income. While Revenue and Operating Income were progressing at generally standard rates, Ordinary Income and Net Income were ahead of schedule due to the contribution of non-operating income, including foreign exchange gains. The Full-Year forecast calls for Revenue growth of +12.3%, Operating Income growth of +4.1%, and Ordinary Income growth of -10.8% YoY. The Company’s plan incorporates a decline in the Operating Margin and a contraction in non-operating income at the Ordinary Income level in the second half. The Company revised its earnings and dividend forecasts during the current quarter.

Shareholder Returns

The Q2 dividend was ¥35.00 per share, and the Full-Year dividend forecast is ¥70.00 (based on the pre-January 2026 stock split). The dividend-only Payout Ratio exceeds 70% relative to first-half Net Income. In addition, the Company conducted ¥77.6B in share repurchases, meaning that the scale of returns is even larger when measured by the Total Return Ratio, which combines dividends and share repurchases. First-half Free Cash Flow was negative ¥68.6B, and current-period returns are being funded by cash on hand of ¥1,340.8B in addition to OCF.

Risk Factors

1. Declining working capital efficiency: OCF/EBITDA remained at 0.58x, primarily due to the ¥83.9B increase in inventories, resulting in negative first-half Free Cash Flow of ¥68.6B. The management of inventories and accounts receivable will affect cash generation capacity in the second half.

2. Reliance on non-operating income: Ordinary Income exceeded Operating Income by ¥57.4B, with the primary contributor, ¥28.3B in foreign exchange gains, equivalent to 21.5% of Operating Income. The Operating Margin for the core business declined YoY, so caution is warranted in regarding the high growth at the Ordinary Income level as indicative of core business strength.

3. Concurrent acquisitions and shareholder returns: The Company invested ¥131.8B in the acquisition of shares in subsidiaries and ¥77.6B in share repurchases while Free Cash Flow was negative. The progress of integrating and monetizing acquired businesses, including Mabuchi Motor NPM and Masudac, will affect the sustainability of future capital allocation.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s Operating Margin and Net Profit Margin both exceed the industry median, indicating relatively strong profitability within the industry.

Growth and Capital Efficiency

The Revenue Growth Rate is slightly above the industry median, but compared with the upper bound of the IQR (25.4%), the growth pace is around the middle of the industry range.

※Source: Company analysis

Key Takeaways from the Earnings Results

1. Although growth in both revenue and profit continues, the improvement in the gross margin (+0.7pt) was offset by a 19.3% increase in SG&A expenses, and the Operating Margin declined slightly YoY. The expansion of core earnings power has not kept pace with revenue growth.

2. The substantial growth in Ordinary Income and Net Income relies heavily on non-operating income, including foreign exchange gains, and the progress toward the Full-Year forecast is also ahead at the Ordinary Income level. A similar contribution in the second half should not be assumed.

3. Goodwill and intangible assets increased substantially YoY due to acquisitions, but their burden relative to net assets and EBITDA remains small. Purchase price allocation is provisional, and the progress of monetization at the acquired companies will be a key area of focus.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,305–¥1,377 at Cost of Equity ±1%; ¥1,337–¥1,342 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 end of the quarter are used, resulting in 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 / Mechanically calculated solely from publicly disclosed data; this is not 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 specialists as necessary.

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