AIPHONE (6718) FY2026 Q3 Earnings Report

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Executive Summary

This was a decline in both revenue and earnings, with Operating Income falling significantly as the decline in Revenue was compounded by persistently high SG&A expenses. Revenue was ¥442.0B (¥462.3B in the previous year, YoY -4.4%), Operating Income was ¥9.9B (¥25.3B in the previous year, YoY -61.0%), Ordinary Income was ¥11.2B (¥25.9B in the previous year, YoY -56.5%), and Net Income attributable to owners of the parent was ¥10.2B (¥20.5B in the previous year, YoY -50.1%). While the gross margin declined to 41.8% (43.1% in the previous year), SG&A expenses increased 0.5% year on year to ¥175.0B, and the deterioration in fixed-cost absorption amid declining Revenue led to a contraction in the Operating Margin to 2.2% (5.5% in the previous year). Net Income benefited from temporary extraordinary income, including a gain on the sale of investment securities of ¥6.8B, which mitigated the deterioration in core operating profitability to a certain extent.

Factors Affecting Performance

【Revenue】Revenue declined 4.4% year on year to ¥442.0B. By region, Japan was the largest segment at ¥375.9B (85.0% of total), followed by Thailand at ¥84.6B, North America at ¥72.7B, Vietnam at ¥51.4B, and Europe at ¥31.1B. The decline in Revenue was attributable to sluggish demand growth across all regions, including the domestic market.

【Profit and Loss】Cost of sales was reduced to ¥257.1B; however, the gross margin deteriorated at a pace exceeding the decline in Revenue (41.8%, compared with 43.1% in the previous year), and gross profit decreased by ¥14.6B to ¥184.9B. SG&A expenses were ¥175.0B, essentially flat with a 0.5% year-on-year increase, but the SG&A ratio rose to 39.6% (+1.9pt year on year) as a result of the decline in Revenue, causing Operating Income to contract to ¥9.9B (YoY -61.0%). Non-operating income, including dividends received of ¥2.3B, provided support, but was offset by a foreign exchange loss of ¥2.0B, resulting in Ordinary Income of ¥11.2B (YoY -56.5%). Extraordinary income of ¥7.1B (including a gain on the sale of investment securities of ¥6.8B) supported Profit Before Tax of ¥13.5B, while Net Income was ¥10.2B (YoY -50.1%). This was a decline in both Revenue and earnings, with the particularly significant decline in Operating Income standing out.

Segment Analysis

By segment, Vietnam had the highest profit margin at 5.2%, followed by Thailand at 0.9%, North America at 2.5%, Japan at 0.6%, and Europe at 0.2%, indicating low profitability in the core Japan and Thailand businesses. Japan accounts for 85.0% of the Revenue mix, yet its profit margin is only 0.6%, effectively determining the Company-wide Operating Margin of 2.2%. Overseas operations, particularly North America and Vietnam, have relatively high profit margins and provide a certain degree of support within the earnings structure.

Key Financial Indicators

【Profitability】The Operating Margin was 2.2%, down approximately 3.2pt from 5.5% in the same period of the previous year, while the Net Profit Margin contracted to 2.3% (4.4% in the previous year). The gross margin of 41.8% declined from 43.1% in the previous year, and the deterioration in the cost structure was the primary factor behind the contraction in profit margins.【Cash Flow Quality】Finished-goods inventories were ¥76.1B, up 39.7% year on year. Total inventories, including raw materials of ¥82.8B and work-in-process inventories of ¥31.1B, reached ¥189.98B, indicating a lengthening inventory turnover period. Accounts receivable of ¥90.5B plus electronically recorded monetary claims of ¥29.2B totaled approximately 74 days of annualized Revenue.【Investment Efficiency】ROE (annualized) was 2.0%, and the Equity Ratio was 84.8% (86.7% in the previous year), indicating a declining trend. Total asset turnover is low, and the Company’s ability to generate earnings from its substantial cash, investment securities, and inventory assets is limited.【Financial Soundness】Cash and deposits were ¥244.8B, while interest-bearing debt was minimal. Current assets of ¥570.2B substantially exceeded current liabilities of ¥109.3B. Although the Equity Ratio of 84.8% remains high, its decline from the previous year represents a change requiring monitoring.

Cash Flow Analysis

Although individual data from the statement of cash flows were not provided, changes in the balance sheet allow the Company’s fund movements to be assessed. Cash and deposits were ¥244.8B, slightly down from ¥249.3B in the previous year (24,483 million yen → 25,229 million yen in the previous year). Property, plant and equipment was ¥108.9B, an increase of ¥26.6B from ¥82.3B in the previous year. Construction in progress increased substantially from ¥1.4B to ¥27.0B, indicating that capital investment is underway. Finished-goods inventories were ¥76.1B, an increase of ¥21.6B year on year, and the buildup of inventories amid declining Revenue is tying up more funds in inventory. Treasury stock was negative ¥21.7B, down from negative ¥31.6B in the previous year, indicating changes in the capital structure due to reissuance of shares and other factors. Overall, while funds continue to be invested in capital expenditures and inventory is being accumulated, cash and deposits have been largely maintained. Accordingly, the Company’s ability to generate funds from operating activities will be a key focus going forward.

Earnings Quality

Of Net Income of ¥10.2B, extraordinary income of ¥7.1B, including a gain on the sale of investment securities of ¥6.8B, significantly increased Profit Before Tax of ¥13.5B. Thus, Net Income includes temporary factors exceeding recurring earnings power. On the extraordinary loss side, an impairment loss on investment securities of ¥4.5B was recorded, resulting in a situation in which gains on the sale of securities and valuation losses occurred simultaneously. Non-operating income primarily comprised dividends received of ¥2.3B and interest received of ¥0.8B. Both represent stable income from held assets; however, a foreign exchange loss of ¥2.0B was recorded as a non-operating expense, equivalent to approximately 20% of Operating Income of ¥9.9B, thereby increasing fluctuations in Ordinary Income. Comprehensive income was ¥37.3B, substantially exceeding Net Income, primarily due to foreign currency translation adjustments of ¥20.1B and valuation difference on securities of ¥7.8B. These items do not indicate an improvement in operating earnings power. In light of the above, it is appropriate to evaluate earnings quality based on Operating Income (¥9.9B, a profit margin of 2.2%), which reflects the Company’s core earning power.

Earnings Forecast and Guidance

Progress toward the full-year Company forecast was 70.7% for Revenue (¥442.0B against the forecast of ¥625.0B), 35.3% for Operating Income (¥9.9B against ¥28.0B), 36.3% for Ordinary Income (¥11.2B against ¥31.0B), and 41.0% for Net Income (¥10.2B against ¥25.0B). Revenue progress was only approximately 4.3pt below the generally expected 75% level for cumulative Q3, but progress in Operating Income and Ordinary Income was approximately 39pt and 36pt behind, respectively, indicating a notable delay. Achieving the full-year Operating Income forecast will require approximately ¥18.1B of Operating Income in Q4, exceeding cumulative actual Operating Income of ¥9.9B. A recovery in Revenue, together with improvements in gross margin and SG&A absorption, will be the primary conditions for achieving the full-year targets.

Shareholder Returns

The Q2 dividend was ¥50.00 per share, while the full-year dividend forecast is ¥130.00 per share. The forecast Payout Ratio against forecast full-year EPS of ¥152.75 is approximately 85.1%. The Payout Ratio based on cumulative dividends relative to Net Income of ¥10.2B is approximately 86.1%; this calculation covers dividends only. The financial foundation of cash and deposits of ¥244.8B and an Equity Ratio of 84.8% provides substantial resources for dividend payments. However, with progress toward full-year Operating Income at only 35.3%, the fact that the Payout Ratio exceeds the general benchmark of 60% requires monitoring. No data on share buybacks were provided.

Risk Factors

1. Inventory and Working Capital Accumulation: Finished-goods inventories increased 39.7% year on year to ¥76.1B. The increase in inventories while Revenue declined 4.4% entails risks of a mismatch with demand expectations and future discounting or valuation losses.

2. Decline in Operating Margin: The Operating Margin was 2.2%, down approximately 3.2pt year on year. SG&A expenses increased 0.5% year on year, remaining at a level that exceeded the pace of the decline in Revenue, while worsening fixed-cost absorption amplified the contraction in the profit margin.

3. Foreign Exchange Sensitivity: The foreign exchange loss of ¥2.0B is equivalent to approximately 20% of Operating Income of ¥9.9B and is a factor increasing fluctuations in Ordinary Income and Net Income.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Profitability is substantially below the industry median, with both the Operating Margin and Net Profit Margin ranking low within the industry.

Growth and Capital Efficiency

The Revenue growth rate is below the industry median and differs from the direction of many companies in the industry, which are on a growth trajectory.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Revenue declined 4.4%, while Operating Income fell 61.0%, indicating high operating leverage caused by worsening fixed-cost absorption. The simultaneous decline in the gross margin (41.8%, compared with 43.1% in the previous year) and rise in the SG&A ratio (39.6%, +1.9pt year on year) warrant attention as structural changes in profitability.

2. Net Income of ¥10.2B benefited from temporary extraordinary income, including a gain on the sale of investment securities of ¥6.8B. The degree of recovery on an Operating Income basis will be a key focus in evaluating future earnings power.

3. Although the financial foundation of cash and deposits of ¥244.8B and an Equity Ratio of 84.8% is strong, the 39.7% increase in finished-goods inventories and 35.3% progress toward full-year Operating Income require monitoring from both inventory efficiency and core operating profitability perspectives.

Theoretical Share Price (Reference Value)

Sensitivity: ¥3,447–¥3,637 at ±1% for the Cost of Equity, and ¥3,521–¥3,553 at ±0.1 for ω.

Notes:

• As forecast ROE is below the Cost of Equity, the theoretical value is below Book Value per Share.
• Net assets as of the quarter-end were used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat high.

(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; it 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 financial results 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 financial results data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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