Quick View
| Metric | Current | Prior-year period | YoY |
|---|---|---|---|
| Revenue | ¥927.6B | ¥875.6B | +5.9% |
| Operating Income | ¥83.0B | ¥67.5B | +23.0% |
| Ordinary Income | ¥89.0B | ¥72.3B | +23.1% |
| Net Income | ¥62.4B | ¥50.7B | +26.4% |
| ROE | 7.3% | 6.2% | - |
Executive Summary
FY2026 Q3 results delivered higher revenue and profits: Revenue ¥927.6B (+¥52.0B from ¥875.6B, +5.9%), Operating Income ¥83.0B (+¥15.5B from ¥67.5B, +23.0%), Ordinary Income ¥89.0B (+¥16.7B from ¥72.3B, +23.1%), and Net Income ¥62.4B (+¥11.7B from ¥50.7B, +23.1%). Operating margin improved to 8.9%, evidencing strong operating leverage with profits outpacing sales growth. Full-year outlook remains on track: Revenue ¥1,280B (+6.4%), Operating Income ¥100B (+15.4%), Ordinary Income ¥105B (+12.6%), and Net Income ¥74B, with steady progress toward targets.
Key Financial Indicators
[Profitability] ROE 7.4% (improved +1.1pt from 6.3% in the prior-year period), Operating Margin 8.9% (+1.2pt from 7.7%), and Net Margin 6.8% (+1.0pt from 5.8%), indicating broad-based margin improvement. Non-operating income—dividends received of ¥3.1B and gain on sale of marketable securities of ¥3.2B—supported Ordinary Income. [Cash Quality] Cash and deposits of ¥239.5B, with cash coverage of short-term liabilities at 14.4x, indicate ample liquidity. Working capital stands at ¥469.3B, sufficiently covering operating needs. [Investment Efficiency] Total asset turnover improved modestly to 0.65x (from 0.62x), and tangible fixed asset turnover is roughly 6.5x, reflecting relatively solid asset efficiency. [Financial Soundness] Equity Ratio 60.1% (+2.9pt from 57.2%), Current Ratio 214.4%, Quick Ratio 200.2%, and debt-to-equity ratio 0.66x denote a conservative capital structure. Interest coverage of 33.6x underscores very strong debt service capacity.
Cash Flow Analysis
Cash and deposits increased by +¥25.2B YoY to ¥239.5B, driven by higher operating profits. Current assets rose to ¥879.4B, up +¥68.2B YoY, primarily due to accounts receivable of ¥281.2B (+¥30.0B) and inventories of ¥58.2B (+¥8.6B), consistent with normal working capital expansion accompanying sales growth. Investment securities were ¥84.6B, roughly flat YoY (+¥0.1B), as partial disposals (gain on sale of marketable securities of ¥3.2B) offset mark-to-market changes. In financing activities, interest-bearing debt decreased to ¥112.5B, down -¥5.0B YoY, reflecting deleveraging via repayments. Cash coverage of short-term liabilities stands at 14.4x and the Current Ratio at 214.4%, indicating very low liquidity risk.
Quality of Earnings
Ordinary Income was ¥89.0B versus Operating Income of ¥83.0B, implying approximately ¥6.0B net non-operating gains. Key components were dividends received of ¥3.1B, equity in earnings of affiliates of ¥0.8B, and gain on sale of marketable securities of ¥3.2B (extraordinary income). Interest expense of ¥2.5B is limited, implying an effective interest rate of about 2.2% on interest-bearing debt of ¥112.5B. Against the Operating Income improvement of +¥15.5B, gross profit reached ¥156.5B (gross margin 16.9%), up +¥12.8B YoY, while SG&A was ¥73.5B, down -¥2.7B YoY—both sales growth and cost discipline amplified operating leverage. The effective tax rate is 32.1%, a standard level. While the ¥3.2B gain on sale of marketable securities contributed as a non-recurring item, 93% of Ordinary Income is derived from Operating Income, confirming a core business–driven earnings structure.
Risk Factors
Demand volatility risk: The core electric motor (Rotating Machines Segment) posted revenue of ¥408B, accounting for 44% of total, but its operating margin is a relatively low 4.2%. A cyclical slowdown or weaker capital expenditure could pressure earnings. If the YoY sales growth of +5.9% decelerates, adverse operating leverage could compress margins. Dependence on non-recurring income: The ¥3.2B gain on sale of marketable securities represents 3.6% of Ordinary Income, with non-recurring items supporting profits. Earnings are exposed to fluctuations in the market value and disposal timing of investment securities totaling ¥84.6B, potentially reducing predictability. FX and raw material price risk: Although reliance on overseas sales and imported raw materials is not specifically disclosed, the gross margin of 16.9% is susceptible to input cost and FX movements. A reversal of yen depreciation or rising commodity prices could pressure gross margins.
Industry Benchmark (Reference; In-house Analysis)
[Positioning within Industry] (Reference information; in-house analysis) Profitability: Operating Margin of 8.9% significantly exceeds the industry median of 4.5% (IQR 1.8%–4.8%), placing the company in the upper tier. Net Margin of 6.8% is also above the industry median of 4.7% (IQR 3.6%–12.0%). ROE of 7.4% is below the industry median of 10.4% (IQR 9.2%–11.8%), indicating room to improve capital efficiency. Soundness: Equity Ratio of 60.1% is above the industry median of 52.3% (IQR 27.1%–54.7%), evidencing a strong financial base. The Current Ratio of 214.4% is close to the industry median of 225%, indicating a healthy level. The Net Debt/EBITDA multiple is approximately -1.0 (cash and deposits exceed interest-bearing debt), below the industry median of -0.27, reflecting a conservative, near net-cash profile. Efficiency: Sales growth of 5.9% is slightly below the industry median of 8.3% (IQR 2.1%–14.0%) but shows improvement from last year’s low growth. Return on Assets (ROA) is about 4.4%, below the industry median of 5.7% (IQR 1.8%–8.9%), indicating scope to enhance asset efficiency. (Industry: Electrical Equipment Manufacturing, N=6 companies, comparison basis: 2025 Q3, source: our compilation)
Key Takeaways from Results
Sustainability of operating leverage: Operating Income rose +23.0% versus sales growth of +5.9%, confirming strong operating leverage driven by SG&A control. SG&A decreased -3.5% from ¥76.2B in the prior-year period to ¥73.5B, with cost management contributing materially to margin improvement. A key question is whether margins can be sustained through fixed-cost control even if sales growth slows. ROE and capital allocation challenges: ROE of 7.4% has improved versus the company’s historical performance but remains well below the industry median of 10.4%, suggesting limited value creation versus an assumed 8% cost of equity. With cash and deposits of ¥239.5B and investment securities of ¥84.6B, financial assets total ¥324B, a high 23% of total assets. Given a conservative Payout Ratio of 33.1%, potential next steps include enhanced shareholder returns or growth investments to improve capital efficiency. Likelihood of achieving full-year guidance: Against cumulative Q3 Operating Income of ¥83.0B, the full-year forecast of ¥100B implies a progress rate of 83%; against Ordinary Income of ¥89.0B, the full-year forecast of ¥105B implies 85%, requiring ¥17B of Operating Income and ¥16B of Ordinary Income in Q4. While achievement will depend on historical Q4 seasonality and order trends, the current run-rate appears consistent with full-year guidance.
This report is an automatically generated earnings analysis created by AI based on XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. The industry benchmarks are reference information compiled by our firm using publicly disclosed financial data. Please make investment decisions at your own discretion and, as necessary, consult a professional advisor.
AI Financial Analysis
Executive Summary
Aichi Electric delivered a strong FY2026 Q3 earnings result, with profit growth materially outpacing revenue growth. Nine-month revenue increased 5.9% YoY to ¥92.76bn. Operating income rose 23.0% to ¥8.30bn, ordinary income increased 23.1% to ¥8.90bn, and profit attributable to owners grew 26.4% to ¥6.32bn. The operating margin expanded 124bp YoY to 8.9%, placing profitability within the stated 'good' benchmark range. Gross margin improved 164bp to 16.9%, indicating that the earnings acceleration was principally driven by improved gross-profit conversion. Net margin also expanded by approximately 110bp to 6.8%. Gross profit increased 17.4% YoY, substantially ahead of the 11.7% rise in SG&A expenses, producing favorable operating leverage despite SG&A growing faster than sales. Ordinary income was supported by ¥0.90bn of non-operating income, including ¥0.31bn of dividend income, ¥0.09bn of interest income and ¥0.08bn of foreign-exchange gains. Pre-tax profit additionally included a ¥0.32bn gain on sales of investment securities, which supported net income but should be distinguished from underlying operating performance. The effective tax rate was 32.1%, resulting in a tax burden of 0.687, modestly below the 0.70 normal benchmark. Annualized ROE was 9.9%, supported by an annualized asset turnover of 0.871x and financial leverage of 1.66x. The balance sheet is conservative, with a 214.4% current ratio, 200.2% quick ratio, 0.66x D/E ratio and ¥46.93bn of working capital. Interest-bearing debt fell 8.7% YoY to ¥11.25bn, while cash of ¥23.95bn was 14.42 times short-term loans. Against full-year guidance, Q3 cumulative progress was 72.5% for sales and 83.0% for operating income, meaning the company is tracking ahead of the normal 75% Q3 profit run-rate despite a slightly slower sales run-rate. The implied Q4 operating margin under unchanged guidance is only about 4.8%, versus 8.9% achieved through Q3, suggesting either forecast conservatism or an expectation of meaningful fourth-quarter margin normalization. The principal operational watchpoint is working-capital intensity: reported DSO of 83 days and a 121-day cash conversion cycle indicate that receivable collection and inventory discipline remain important to converting accounting earnings into cash.
Profitability Analysis
Annualized DuPont ROE is 9.9%, decomposed into a 6.8% net profit margin, 0.871x annualized asset turnover and 1.66x financial leverage. Margin expansion was the dominant driver of the improved earnings profile: gross margin reached 16.9%, up 164bp YoY, while operating margin increased 124bp to 8.9%. Revenue growth of 5.9% translated into 23.0% operating-income growth, evidencing positive operating leverage at the gross-profit level. SG&A expenses increased 11.7% YoY to ¥7.35bn, faster than sales growth, but gross profit rose 17.4% to ¥15.65bn and more than absorbed this cost increase. The resulting 8.9% operating margin is solid for an electrical-equipment manufacturer, although the 16.9% gross margin remains below the 20% quality-alert threshold and leaves profitability sensitive to material costs, product mix and pricing. The five-factor analysis shows a healthy interest burden of 1.108, as net non-operating financial income exceeded interest expense, and interest coverage was very strong at 33.62x. The tax burden of 0.687 modestly restrained the conversion of pre-tax income to net income. Net income was also aided by a ¥0.32bn gain on sales of investment securities, equivalent to approximately 3.5% of pre-tax profit; excluding this gain, profit growth would remain strong but somewhat less pronounced. Financial leverage is measured and not the primary source of returns, with the 1.66x asset-to-equity multiple consistent with the 0.66x D/E ratio. Accordingly, the quality of ROE rests mainly on improving operating margins rather than aggressive balance-sheet leverage.
Growth Assessment
FY2026 Q3 revenue growth of 5.9% was moderate, but the 23.0% increase in operating income demonstrates a significant improvement in earnings conversion. The improvement in gross margin indicates that product mix, pricing, procurement conditions or manufacturing efficiency improved relative to the prior-year period. Full-year guidance calls for ¥128.00bn of revenue, ¥10.00bn of operating income and ¥7.40bn of profit attributable to owners, representing YoY growth targets of 6.4%, 15.4% and implied continued profit expansion, respectively. Q3 progress against guidance is 72.5% for revenue, 83.0% for operating income, 84.8% for ordinary income and 85.3% for profit attributable to owners. Operating-income progress is 8.0 percentage points above the standard 75% Q3 run-rate, while profit progress is 10.3 percentage points ahead. This positioning provides a cushion against a softer final quarter, but the guidance implies Q4 revenue of ¥35.24bn and operating income of ¥1.70bn, or a 4.8% operating margin. That implied margin is materially below the Q3 cumulative 8.9% margin and therefore makes the durability of the current gross-margin improvement the key determinant of upside to guidance. Construction in progress increased 68.0% YoY to ¥2.50bn and machinery rose 7.1% to ¥16.48bn, consistent with continued manufacturing-capacity or productivity investment. Raw materials rose 22.0% to ¥9.73bn and work in process increased 24.5% to ¥6.60bn, which may support production activity but increases the importance of inventory conversion and demand execution.
Financial Health
Financial health is strong. The current ratio of 214.4% and quick ratio of 200.2% are comfortably above healthy liquidity benchmarks, with current assets of ¥87.94bn against current liabilities of ¥41.01bn. Working capital was substantial at ¥46.93bn. Cash and deposits totaled ¥23.95bn, exceeding short-term loans of ¥1.66bn by 14.42 times. Interest-bearing debt was ¥11.25bn, comprising ¥1.66bn of short-term loans and ¥9.58bn of long-term loans; only 14.8% of debt was short term, limiting refinancing and maturity-mismatch risk. Debt declined by ¥1.07bn, or 8.7% YoY, reflecting a further strengthening in the capital structure. D/E of 0.66x and debt-to-capital of 11.6% are conservative and materially below the stated warning thresholds. Total equity increased 5.3% YoY to ¥85.37bn, while total liabilities declined 6.8% to ¥56.63bn. Owners' equity of ¥83.72bn supports a 59.0% capital adequacy ratio. Interest coverage of 33.62x indicates a very large earnings buffer against financing costs. Pension-related obligations include a ¥2.39bn net defined-benefit liability, which is manageable relative to equity and liquidity. Intangible assets represent only 0.4% of total assets, so balance-sheet value is not materially dependent on intangible-asset carrying values.
Notable B/S Changes
Interest-bearing debt: -¥1.07bn (-8.7%) to ¥11.25bn - deleveraging strengthened an already conservative capital structure. Total liabilities: -¥4.11bn (-6.8%) to ¥56.63bn, while total equity increased ¥4.27bn (+5.3%) to ¥85.37bn - balance-sheet resilience improved. Investment securities: +¥1.38bn (+19.5%) to ¥8.46bn - greater exposure to market-value fluctuations and securities-related gains/losses. Construction in progress: +¥1.01bn (+68.0%) to ¥2.50bn - indicates stepped-up capital-project activity; execution and return on investment should be monitored. Raw materials: +¥1.75bn (+22.0%) to ¥9.73bn - supports production activity but raises working-capital and input-cost exposure. Work in process: +¥1.30bn (+24.5%) to ¥6.60bn - increases capital tied up in manufacturing and requires timely conversion into finished-goods sales. Electronically recorded monetary claims: +¥2.52bn (+27.1%) to ¥11.80bn - offsets the decline in trade receivables and reinforces the need to monitor total customer-credit exposure. Property, plant and equipment: +¥0.95bn (+2.3%) to ¥42.50bn - reflects continued investment in the manufacturing asset base.
Cash Flow Quality
Working-capital metrics warrant close monitoring. DSO of 83 days exceeds the 60-day quality-alert threshold, indicating a relatively long period between revenue recognition and cash collection. The 121-day cash conversion cycle is marginally above the 120-day alert threshold and is elevated for a manufacturing business, where cash is committed to procurement and production before receipt from customers. Trade accounts receivable declined ¥1.07bn YoY to ¥28.12bn, but electronically recorded monetary claims rose ¥2.52bn to ¥11.80bn; combined trade receivables and electronic claims therefore increased by approximately ¥1.79bn. This indicates that the improvement in reported trade receivables alone does not signify a broad reduction in customer-credit exposure. Raw-material and work-in-process balances both increased by more than 20% YoY, adding to operating-capital requirements. Electronic payables increased ¥1.49bn to ¥13.51bn, partly funding the larger operating-capital base. The balance sheet retains substantial liquidity, including ¥23.95bn of cash and ¥46.93bn of working capital, which provides a buffer against the longer conversion cycle. The quality of future earnings conversion will depend on whether receivable and production balances are realized without extended collection periods, discounting or inventory adjustments.
Dividend Sustainability
The company paid an interim Q2 dividend of ¥110 per share and forecasts a full-year dividend of ¥240 per share, implying a ¥130 per-share year-end dividend if the interim amount is maintained. The interim dividend represented a calculated 16.5% payout ratio against Q3 cumulative earnings. Based on forecast EPS of ¥787.39, the full-year dividend implies a forecast dividend payout ratio of approximately 30.5%. This is well below the 60% sustainability benchmark and leaves substantial earnings retention capacity. Retained earnings totaled ¥712.46bn-equivalent in the reported unit presentation, or ¥71.25bn, and owners' equity rose to ¥83.72bn, underscoring a solid capital base for dividends and investment. The conservative debt profile and strong liquidity further support dividend capacity. The principal condition for maintaining the current dividend trajectory is continued conversion of earnings into cash amid the elevated receivable days and cash conversion cycle. No share-repurchase activity is indicated by the provided period data; therefore, the relevant shareholder-return measure is the dividend payout ratio rather than a total return ratio.
Risk Assessment
Business risks include Electrical-equipment demand risk: customer capital expenditure, utility-related investment, industrial production and infrastructure project timing can affect order intake, factory utilization and pricing., Gross-margin sensitivity: the 16.9% gross margin remains below the 20% alert threshold, leaving earnings exposed to raw-material inflation, procurement disruption, unfavorable product mix and competitive pricing., Working-capital execution risk: DSO of 83 days and a 121-day cash conversion cycle increase exposure to delayed customer collections and lengthen the period for which cash is tied up in production and receivables., Production-balance risk: raw materials rose 22.0% YoY and work in process increased 24.5%, making sales conversion and inventory management important if end-market conditions slow., Foreign-exchange and securities-market exposure: ¥0.08bn of FX gains and valuation gains within other comprehensive income contributed to reported results and equity movement..
Financial risks include The ¥0.32bn gain on sale of investment securities supported pre-tax income and is non-recurring, creating a modest difference between statutory and underlying earnings growth., Investment securities increased ¥1.38bn YoY to ¥8.46bn, increasing sensitivity of equity and comprehensive income to market valuation movements., The effective tax rate of 32.1% produced a tax burden of 0.687; a persistently elevated tax burden would constrain net-income conversion., Long-term loans of ¥9.58bn remain the main component of debt, although leverage, debt-to-capital and interest coverage indicate low present solvency risk..
Key concerns include Highest priority: convert the current margin improvement into sustainable cash earnings while reducing the elevated receivable days and cash conversion cycle., High priority: determine whether the implied Q4 operating-margin decline to approximately 4.8% reflects seasonal cost factors, expected mix deterioration or conservatism in full-year guidance., Medium priority: monitor whether the increase in raw materials and work in process represents growth-related production preparation rather than slower inventory turnover., Medium priority: separate recurring operating improvement from gains on investment-security sales and other non-operating income when assessing normalized profitability..
Investment Implications
Key takeaways include Revenue grew 5.9% YoY, while operating income and profit attributable to owners increased 23.0% and 26.4%, respectively, demonstrating strong operating leverage., Operating margin improved to 8.9% and annualized ROE reached 9.9%, with returns driven principally by profitability rather than leverage., Full-year operating-income progress of 83.0% at Q3 is ahead of the standard 75% pace and exceeds the 72.5% sales-progress rate., Liquidity and solvency are robust: current ratio 214.4%, D/E 0.66x, debt-to-capital 11.6% and interest coverage 33.62x., The forecast ¥240 DPS implies an approximately 30.5% dividend payout ratio on forecast EPS, providing a wide earnings buffer., Receivable days of 83 and a 121-day cash conversion cycle are the central financial-quality issues despite otherwise strong accounting earnings..
Metrics to watch include Gross margin and operating margin versus the 16.9% and 8.9% Q3 cumulative levels, Q4 operating margin versus the approximately 4.8% margin implied by unchanged full-year guidance, DSO, cash conversion cycle, electronically recorded monetary claims and trade receivables, Raw-material and work-in-process balances relative to revenue growth and production activity, Operating-income performance relative to ¥10.00bn full-year guidance, Recurring profit excluding gains on sales of investment securities, Investment-security valuation movements and their effect on other comprehensive income.
Regarding relative positioning, Aichi Electric combines good operating-margin performance, a conservative balance sheet and a moderate dividend payout ratio. Its annualized ROE of 9.9% is near, but slightly below, the 10% level associated with stronger return profiles, while its very low financing risk compares favorably with more leveraged industrial peers. The relative limitation is not balance-sheet resilience but the low gross-margin base and longer operating cash-conversion cycle.