SUZUKI (6785) FY2026 Q2 Earnings Report

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Executive Summary

The first half delivered higher revenue and higher profit, with profit growth exceeding revenue growth, resulting in a favorable earnings performance in which earnings growth outpaced sales growth. Revenue was ¥19.27B (+18.6% YoY), Operating Income was ¥2.86B (+18.6%), Ordinary Income was ¥3.03B (+29.5%), and Net Income (consolidated net income) was ¥2.13B (+24.5%). The primary reason Ordinary Income grew at a faster pace than Operating Income was an increase in non-operating income, including ¥0.11B in foreign exchange gains.

Factors Affecting Earnings

【Revenue】Revenue was ¥19.27B, representing an +18.6% YoY increase. By segment, Parts, accounting for 76.3% of revenue, was the largest earnings source at ¥14.71B (profit margin: 20.5%), followed by MachineryAndAppliances at ¥3.69B (profit margin: 11.2%), Die at ¥1.07B (profit margin: 14.3%), and Rental at ¥0.18B (profit margin: 25.8%, the highest in percentage terms). The business structure is one in which Parts drives the majority of company-wide profit.

【Profit and Loss】Operating Income was ¥2.86B (+18.6%), growing at the same rate as revenue, while the Operating Income margin was maintained at 14.8%. Although the gross profit margin declined from the previous year to 21.9%, the Operating Income margin was maintained as the SG&A expense ratio declined to 7.1%, resulting in effective fixed-cost absorption. Ordinary Income rose 29.5% YoY to ¥3.03B, exceeding the growth in Operating Income, due to a ¥0.19B increase in non-operating income, including foreign exchange gains and dividend income. Extraordinary items were broadly neutral on a net basis (extraordinary gains of ¥0.02B and extraordinary losses of ¥0.02B), with a limited impact on Net Income. In conclusion, the company delivered higher revenue and higher profit, with the quality of earnings growth supported by both fixed-cost absorption at the operating level and foreign exchange effects in non-operating income.

Segment Analysis

The Parts Business is the core business, accounting for 76.3% of revenue and the majority of segment profit, with a high profit margin of 20.5%. MachineryAndAppliances (18.6% of revenue, profit margin: 11.2%) and Die (5.4% of revenue, profit margin: 14.3%) are relatively less profitable, while Rental (0.9% of revenue, profit margin: 25.8%) is small in scale but generates the highest profit margin. Adjustments (△¥0.75B), including company-wide expenses and inventory adjustments, bridge the total segment profits to consolidated Operating Income.

Key Financial Metrics

【Profitability】The Operating Income margin was 14.8%, broadly flat from the same period of the previous year. The gross profit margin declined to 21.9% from the previous year, but this was offset by a decline in the SG&A expense ratio to 7.1%. The Net Income margin attributable to owners of the parent improved to 9.8% from the previous year.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥3.13B, 1.66 times the ¥1.89B in Net Income attributable to owners of the parent, indicating strong cash backing for earnings. An ¥0.88B increase in accounts receivable and a ¥0.53B increase in inventories absorbed cash, while an ¥0.80B increase in accounts payable partially offset these effects.【Investment Efficiency】ROE (annualized) was 14.0% (reported figure), a favorable level. Capital expenditures of ¥0.80B were below depreciation and amortization of ¥1.22B, indicating that the investment level was relatively low compared with maintenance investment.【Financial Soundness】The Equity Ratio remained high at 70.0%, while interest-bearing debt was small. Current assets of ¥21.64B substantially exceeded current liabilities of ¥10.69B, indicating ample short-term liquidity.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥3.13B, an increase of +4.9% YoY, slightly below the growth rate in Net Income. This resulted from the ¥0.80B increase in accounts payable partially offsetting the working-capital cash absorption caused by increases of ¥0.88B in accounts receivable and ¥0.53B in inventories. Investing Cash Flow was an outflow of ¥1.30B, of which capital expenditures were limited to ¥0.80B, below depreciation and amortization of ¥1.22B. Free Cash Flow, calculated as OCF less capital expenditures, was a surplus of ¥1.82B, providing sufficient internal funding to cover the ¥1.67B financing cash outflow, including dividend payments and debt repayments. Overall, cash conversion of earnings was strong; however, if the upward trend in accounts receivable and inventories continues, attention should be paid to a potential decline in cash conversion efficiency.

Earnings Quality

The reason the growth rate in Ordinary Income (+29.5%) exceeded the growth rate in Operating Income (+18.6%) was the ¥0.19B increase in non-operating income, including ¥0.11B in foreign exchange gains. This should be distinguished from structural improvements in the operating activities themselves. Extraordinary items were broadly neutral on a net basis (extraordinary gains of ¥0.02B and extraordinary losses of ¥0.02B), and their temporary uplift or drag on Net Income was limited. Comprehensive Income was ¥3.51B, exceeding Net Income of ¥2.13B, primarily due to a ¥1.35B increase in valuation differences on investment securities. Because these valuation differences are affected by fluctuations in market prices, the divergence between Net Income and Comprehensive Income reflects market movements in asset values and should be viewed separately from the earnings power of the core business.

Earnings Forecasts and Guidance

The full-year forecast is Revenue of ¥37.46B (+12.4% YoY), Operating Income of ¥4.80B (+11.7%), and Ordinary Income of ¥4.97B (+18.1%). The first-half achievement rates were approximately 51.4% for Revenue, approximately 59.6% for Operating Income, and approximately 61.0% for Ordinary Income, all exceeding the standard first-half achievement rate of 50%. As first-half profit progress is ahead of schedule, the calculation indicates that the full-year forecast should be achievable even if second-half profit growth is at or below the previous year's pace. However, because the increase in first-half Ordinary Income benefited from foreign exchange gains, second-half progress should be assessed by distinguishing Operating Income from non-operating income and expenses.

Shareholder Returns

The Q2 interim dividend was ¥45.00 per share, representing a 12.5% increase from ¥40.00 per share in the same period of the previous year. The Payout Ratio against interim Net Income attributable to owners of the parent of ¥1.89B was approximately 34%, a reasonable level relative to cash-generating capacity. No meaningful share repurchases were conducted, and shareholder returns are centered on dividends. The full-year forecast dividend is ¥95.00 per share. The forecast Payout Ratio calculated using forecast full-year EPS of ¥217.07 will increase from the first-half actual level; however, considering first-half cash-generating capacity, with Free Cash Flow of ¥1.82B, dividend funding appears secured for the time being.

Risk Factors

1. Increase in trade receivables: Accounts receivable increased compared with the end of the same period of the previous year, and trends in collection periods relative to sales growth will affect future Operating Cash Flow.

2. Increase in inventories (work in process): Work in process amounted to ¥2.41B and represented a high proportion of total inventories. Attention should be paid to the potential for production-process bottlenecks or valuation losses resulting from changes in demand.

3. Decline in gross profit margin: The gross profit margin was 21.9%, down from the same period of the previous year. If the offset from a lower SG&A expense ratio does not continue, maintaining the Operating Income margin may become more difficult.

Industry Benchmark (Reference; Prepared by the Company)

Key Takeaways from the Earnings

1. The first half delivered higher revenue and higher profit, with Revenue up +18.6%, Operating Income up +18.6%, and Net Income up +24.5%. A key feature is that profit growth is progressing at or above the same level as revenue growth.

2. OCF was 1.66 times Net Income, indicating strong cash backing; however, increases in accounts receivable and inventories absorbed cash, making second-half cash conversion efficiency a key area to monitor.

3. The financial foundation is stable, as indicated by the 70.0% Equity Ratio and the structure in which current assets substantially exceed current liabilities. First-half achievement rates against the full-year forecast were also high, including an approximately 59.6% achievement rate for Operating Income.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥2,152–¥2,276 at a ±1% change in the cost of equity, and ¥2,211–¥2,216 at a change of ±0.1 in ω.

Notes:

• Because Net Income progress against the full-year forecast (61%) exceeds the standard level (50%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies whose progress is ahead of schedule tend to outperform forecasts. In businesses with strong seasonality, the adjustment may be excessive).
• 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 using only publicly disclosed data; this is not a forecast of market prices or a recommendation of any specific investment action, and does not predict or guarantee future stock 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 benchmark is reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, in consultation with professionals as necessary.

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