DAIHEN (6622) FY2026 Q3 Earnings Report

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Executive Summary

Cumulative results for the first three quarters of the current fiscal year showed higher revenue and higher income, driven in addition by an improvement in the gross profit margin. Revenue was ¥1,634.2B (+4.9% YoY), Operating Income was ¥124.8B (+21.7%), Ordinary Income was ¥138.8B (+23.5%), and Net Income attributable to owners of the parent was ¥93.66B (+22.4%). The primary driver of the increase in profit was the improvement in the gross profit margin to 29.6% from 29.0% in the same period of the previous year, resulting in the rate of increase in cost of sales falling below revenue growth. Although SG&A expenses increased by +9.2% YoY, exceeding revenue growth, the expansion in gross profit absorbed this increase.

Factors Affecting Results

【Revenue】Revenue was ¥1,634.2B, an increase of +4.9% YoY. Although detailed segment information by region and product has not been disclosed, the increase in cost of sales (+4.1%) was below revenue growth, suggesting that improvements in selling prices and product mix contributed to the result.

【Profit and Loss】Gross profit was ¥482.9B, with a gross profit margin of 29.6%, improving from 29.0% in the same period of the previous year. SG&A expenses increased to ¥358.2B, up +9.2% YoY and exceeding revenue growth; however, the effect of the improved gross profit margin outweighed this increase, resulting in Operating Income of ¥124.8B (+21.7%). In non-operating income and expenses, non-operating income of ¥27.6B, including a foreign exchange gain of ¥6.6B, contributed to the increase, and Ordinary Income rose to ¥138.8B (+23.5%). Extraordinary income totaled ¥17.9B, including a gain on the sale of investment securities of ¥11.7B. After deducting extraordinary losses of ¥1.2B, the net extraordinary gain of ¥5.9B lifted income before taxes. Net Income attributable to owners of the parent was ¥93.66B (+22.4%), representing results characterized by higher revenue and higher profit.

Key Financial Indicators

【Profitability】The Operating Income margin was 7.6%, improving by approximately 1.0pt from 6.6% in the same period of the previous year. The Net Income margin, based on net income attributable to owners of the parent, was 5.7%, improving from 4.9% in the same period of the previous year. The improvement in the gross profit margin to 29.6% from 29.0% in the same period of the previous year was the primary driver of the increase in profit.【Cash Flow Quality】Extraordinary income included a gain on the sale of investment securities of ¥11.7B. Although the contribution of temporary factors to income before taxes of ¥144.7B was relatively small, evaluation based on recurring operating profit and loss is appropriate.【Investment Efficiency】Annualized ROE was 8.4%. Total assets were ¥3,042.5B, net assets were ¥1,663.8B, and the Equity Ratio improved to 54.7% from 47.7% in the same period of the previous year.【Financial Soundness】Current assets of ¥1,995.9B compared with current liabilities of ¥894.5B resulted in a high current ratio of approximately 223%. While cash and deposits increased YoY to ¥316.3B, short-term borrowings rose significantly YoY to ¥337.7B.

Cash Flow Analysis

Although disclosure of the statement of cash flows is limited, funding trends can be confirmed from changes in the balance sheet. Cash and deposits increased by ¥12.7B YoY to ¥316.3B, and liquidity has been maintained. Meanwhile, short-term borrowings increased by approximately ¥98.8B, or 41.4%, YoY to ¥337.7B, while inventories also increased by ¥93.7B YoY to ¥407.0B. The simultaneous accumulation of inventory and expansion of short-term financing suggest that working capital requirements associated with business expansion are being reflected in the financing structure. Construction in progress increased to ¥57.6B from ¥40.1B in the same period of the previous year, indicating that progress in capital investment is also contributing to cash outflows.

Quality of Earnings

The increase in profit for the current period was primarily attributable to an improvement in recurring business earnings, with the improvement in the gross profit margin being the central factor behind the rise in the Operating Income margin. However, extraordinary gains and losses affected the difference between Ordinary Income and income before taxes. The net effect of extraordinary income of ¥17.9B, including a gain on the sale of investment securities of ¥11.7B, and extraordinary losses of ¥1.2B was a ¥5.9B increase. This extraordinary gain and loss represents approximately 6% of Net Income attributable to owners of the parent of ¥93.66B and should be evaluated separately from recurring earnings power from the perspective of sustainability. Non-operating income included a foreign exchange gain of ¥6.6B, which contributed to the increase in Ordinary Income; however, foreign exchange factors depend on market conditions and cannot readily be considered a stable source of earnings. Comprehensive income was ¥170.3B, exceeding Net Income of ¥104.7B, with valuation differences, mainly foreign currency translation adjustments of ¥50.5B, providing an additional contribution. This is also relevant information when evaluating the quality of earnings for the current period.

Earnings Forecast and Guidance

Progress against the full-year company forecast was 69.5% for revenue (¥1,634.2B/¥2,350.0B), 67.4% for Operating Income (¥124.8B/¥185.0B), and 73.0% for Ordinary Income (¥138.8B/¥190.0B). Compared with the 75% level serving as a guideline for quarterly progress, revenue and Operating Income are progressing somewhat slowly. To achieve the full-year forecast, the company would need approximately ¥60.2B in Operating Income in Q4, corresponding to an Operating Income margin in the mid-8% range. Achieving profitability above the cumulative 7.6% level will therefore be a key focus.

Shareholder Returns

The annual dividend forecast is ¥176.00, including the actual Q2 dividend of ¥84.00. Based on the company forecast of ¥140.0B in Net Income attributable to owners of the parent and an average number of shares outstanding during the period of 2,390.6万 shares, the annual total dividend is calculated at approximately ¥42.1B, resulting in a Payout Ratio of approximately 30.1%. This Payout Ratio is below the general guideline for a sustainable level, and given accumulated retained earnings of ¥1,073.3B, there is a reasonable margin of safety for the dividend. No disclosure concerning share repurchases has been made; accordingly, this report presents only the Payout Ratio.

Risk Factors

1. Inventory and Working Capital Efficiency Risk: Inventories were ¥407.0B, an increase of +29.9% YoY. If inventory accumulation continues, the risk of delayed demand realization or inventory write-downs may increase, making it important to monitor the pace of conversion into sales and customer acceptance.

2. Short-Term Financing Structure Risk: Short-term borrowings were ¥337.7B, an increase of +41.4% YoY, and their weighting within current liabilities has increased. Overall liquidity remains strong, with a current ratio of 223% and a quick ratio of 178%; however, sensitivity to changes in refinancing conditions and the interest-rate environment has increased relatively.

3. Risk of Dependence on Temporary Factors: Income before taxes of ¥144.7B benefited from extraordinary income, including a gain on the sale of investment securities of ¥11.7B. Earnings power should be evaluated primarily based on recurring business earnings, namely Operating Income of ¥124.8B, excluding the net extraordinary gain of ¥5.9B.

Industry Benchmark (For Reference; Company Research)

Key Takeaways from the Financial Results

1. The improvement in the gross profit margin from 29.0% to 29.6% absorbed the increase in SG&A expenses (+9.2%) and lifted the Operating Income margin to 7.6%. Operating Income growth of 21.7%, exceeding revenue growth of 4.9%, can be interpreted as data indicating an improvement in the cost structure or product mix.

2. Cumulative Q3 progress against the full-year company forecast was 67.4% for Operating Income and 73.0% for Ordinary Income, somewhat below the standard pace of progress. Trends in the Q4 profit margin will be an important point to monitor in assessing achievement of the full-year plan.

3. Inventories increased by 29.9% and short-term borrowings increased by 41.4% simultaneously, indicating that expanding working capital requirements associated with business expansion are being reflected on the balance sheet. The inventory liquidation rate and financing structure will be key data points to monitor going forward.

Theoretical Share Price (Reference Value)

Sensitivity: ¥6,634–¥7,022 at Cost of Equity ±1%; ¥6,819–¥6,827 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 are 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 / 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 issue. 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, with consultation with a professional as necessary.

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