Meiko Electronics (6787) FY2026 Q3 Earnings Report

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Executive Summary

For the cumulative Q3 period of the fiscal year ending March 2026, Meiko recorded higher revenue and earnings, centered on its printed circuit board business, demonstrating a favorable earnings structure in which profit growth outpaced revenue growth. Revenue was ¥1,720.3B (+13.4% YoY), Operating Income was ¥175.0B (+19.5%), Ordinary Income was ¥188.9B (+18.4%), and Net Income attributable to owners of the parent was ¥149.1B (+17.5%). While the expansion of high-value-added products for information and communications applications and semiconductor PKG substrates lifted the Operating Income margin to 10.2% (+approximately 0.5pt YoY), the accumulation of construction in progress and the increase in working capital warrant attention as factors that may affect future capital efficiency.

Factors Affecting Performance

【Revenue】Revenue was ¥1,720.3B, representing a 13.4% increase YoY. The Printed Circuit Board Business led growth, with revenue of ¥1,422B (+13.1%); within this business, information and communications grew +34.1%, semiconductor PKG substrates doubled, and module substrates grew +24.5%, demonstrating particularly strong growth in expansion areas. The Electronic Equipment Business also recorded higher revenue of ¥298B (+14.2%), as ODM expanded +33.1% and offset the decline in EMS revenue (-3.6%).

【Profit and Loss】Operating Income was ¥175.0B (+19.5% YoY), and the Operating Income margin improved to 10.2% as profit growth exceeded revenue growth. Ordinary Income was ¥188.9B (+18.4% YoY); non-operating income of ¥31.2B, including a foreign exchange gain of ¥19.5B, was added to Operating Income, while interest expense of ¥13.8B was incurred. Special income and expenses resulted in a net gain of ¥5.3B, with a limited impact on profit before tax (a temporary factor). Net Income of ¥149.1B was slightly lower than Ordinary Income, but the gap was less than 10%, and the difference between Ordinary Income and Net Income was primarily attributable to the ¥45.2B tax burden. In conclusion, the Company recorded higher revenue and earnings.

Segment Analysis

The core business is the Printed Circuit Board Business, which accounted for approximately 82.7% of total revenue (¥1,422B) and drove the majority of company-wide Operating Income of ¥175.0B, generating Operating Income of ¥154B (margin: 10.7%). While the automotive business recorded stable growth at ¥721B (+6.5%), information and communications at ¥185B (+34.1%), semiconductor PKG substrates at ¥16B (double), and module substrates at ¥122B (+24.5%) led growth and were the primary drivers of higher revenue and earnings. The Electronic Equipment Business generated revenue of ¥298B (+14.2%) and Operating Income of ¥21B (margin: 7.0%), with a margin 3.7pt lower than that of the Printed Circuit Board Business. Within Electronic Equipment, EMS revenue declined (-3.6%), while ODM recorded substantial revenue growth of +33.1% and supported segment profit.

Key Financial Indicators

Profitability: ROE was 11.0%, and the Operating Income margin was 10.2% (improved from approximately 9.7% in the same period of the prior year). Cash quality: Although Operating Cash Flow data was outside the disclosed scope, cash and deposits increased to ¥391.2B (¥233.5B in the prior year) against Net Income of ¥149.1B. Investment efficiency: Construction in progress of ¥449.9B accounted for 27.8% of property, plant and equipment of ¥1,618.5B, indicating that investment to expand production capacity is underway. Financial soundness: The Equity Ratio was 41.3% (slightly down from 42.2% in the prior year), while the current ratio was approximately 120.7%, calculated as current assets of ¥1,482.7B divided by current liabilities of ¥1,228.5B.

Cash Flow Analysis

Detailed items in the cash flow statement (Operating Cash Flow, Investing Cash Flow, and Financing Cash Flow) were not disclosed in the earnings data, and therefore no calculation has been made. Cash and deposits increased to ¥391.2B from ¥233.5B in the same period of the prior year, apparently reflecting financing accompanied by an increase in long-term borrowings (¥637.7B versus ¥347.0B in the prior year). The accumulation of construction in progress of ¥449.9B related to capital expenditures suggests that cash outflows from investing activities are continuing.

Earnings Quality

The gap between Ordinary Income of ¥188.9B and Net Income of ¥149.1B was approximately 21.1%, primarily due to the deduction of ¥45.2B in income taxes and other taxes (an effective tax rate of approximately 23.3%), rather than a gap arising from temporary factors. Non-operating income of ¥31.2B was only 1.8% of revenue; within this amount, the foreign exchange gain of ¥19.5B was the largest item and accounted for 10.3% of Ordinary Income. Special income of ¥10.9B and special loss of ¥5.6B resulted in a net gain of ¥5.3B, equivalent to 2.7% of profit before tax of ¥194.2B, representing a limited impact. Comprehensive Income of ¥223.1B substantially exceeded Net Income of ¥149.1B, with the difference primarily attributable to foreign currency translation adjustments of ¥72.7B, reflecting valuation gains on overseas assets due to the weaker yen.

Earnings Forecasts and Guidance

Progress toward the full-year forecast was 73.2% for revenue (¥1,720.3B/¥2,350.0B), 70.0% for Operating Income (¥175.0B/¥250.0B), and 77.1% for Ordinary Income (¥188.9B/¥245.0B). Compared with the standard 75% progress level, Operating Income was 5.0pt below target, requiring profitability in Q4 that exceeds cumulative results (a required Operating Income margin of approximately 11.9%). Meanwhile, Ordinary Income was progressing above the standard level, supported by non-operating income and expenses including foreign exchange gains. Full-year revenue and Operating Income forecasts were revised upward by +5.4% and +6.4%, respectively, from the previous forecasts, reflecting expanded orders primarily for information and communications products and semiconductor PKG substrates.

Shareholder Returns

The Company forecasts annual dividends of ¥115 (¥45 for Q2 and ¥70 for the fiscal year-end), an increase of ¥25 from the previous forecast of ¥90. Based on forecast full-year EPS of ¥767.10, the forecast Payout Ratio is approximately 15.0%. As information on share repurchases is not included in the disclosed data, shareholder returns are evaluated using the Payout Ratio only. Given retained earnings of ¥696.9B, the Company retains sufficient dividend capacity even after the dividend increase.

Catalysts

【Short term】The degree of improvement in the Operating Income margin in Q4 and progress toward achieving the full-year plan (recovery from the 70.0% Operating Income progress rate). 【Long term】The timing of the start of operations for the production-capacity expansion investment underway, represented by construction in progress of ¥449.9B, and the extent to which demand for high-value-added products for information and communications and semiconductor PKG substrates is captured.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s profitability exceeds the industry median, with both its Operating Income margin and Net Income margin positioned at relatively high levels within the industry.

Growth and Capital Efficiency

The Company’s revenue growth rate substantially exceeds the industry median and is in a high-growth phase relative to the industry.

※Source: Compiled by the Company

Risk Factors

1. Working capital accumulation: The receivables and inventory turnover days calculated from accounts receivable of ¥533.5B and total inventories including finished goods inventories of ¥137.4B are relatively long compared with the industry average, requiring monitoring of capital efficiency and the risks of bad debts and inventory write-downs.

2. Foreign exchange fluctuations: The foreign exchange gain of ¥19.5B included in non-operating income accounted for 10.3% of Ordinary Income, and deviations from the full-year foreign exchange assumption of ¥150/dollar may become a factor affecting Ordinary Income.

3. Operational risks associated with large-scale capital investment: Construction in progress of ¥449.9B reached 27.8% of property, plant and equipment. Delays in the start of operations for production-capacity expansion investments or in absorbing demand could affect depreciation expenses and asset turnover.

Key Earnings Highlights

1. The Operating Income margin improved YoY, and the shift toward high-value-added products such as information and communications products and semiconductor PKG substrates has become a structural factor supporting margin improvement.

2. The progress rate for the full-year Operating Income forecast was 70.0%, below the standard progress level, making improved profitability in Q4 the key to achieving the full-year plan.

3. The dividend was increased by ¥25 from the previous forecast to ¥115, while the forecast Payout Ratio remains approximately 15.0%, indicating that the Company retains dividend capacity relative to profit growth.

Theoretical Share Price (Reference Value)

Sensitivity: ¥6,054–¥6,423 at ±1% for the cost of equity, and ¥6,210–¥6,272 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end were used (there is a timing gap relative to the full-year forecast).
• As 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 / 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, and does not predict or guarantee the future share price.)

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This report is an earnings analysis document automatically generated through AI-integrated analysis of XBRL earnings summary data and PDF earnings presentation materials. 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 responsibility, after consulting a professional as necessary.

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AI Financial Analysis

Executive Summary

Meiko delivered a strong FY2026 Q3 cumulative earnings performance, with revenue growth translating into faster operating and net-profit growth. Revenue increased 13.4% YoY to ¥172.0bn. Operating income rose 19.5% to ¥17.5bn, outpacing sales growth by 6.1 percentage points. Net income attributable to owners increased 17.7% to ¥14.8bn. The operating margin expanded by 52bp YoY to 10.2% from 9.7%. Gross margin improved by 110bp to 20.8% from 19.7%, indicating that the improvement was primarily driven by production profitability rather than SG&A restraint alone. SG&A expenses increased 20.3% YoY to ¥18.3bn, slightly faster than revenue growth, but gross-profit growth of 19.9% was sufficient to preserve operating leverage. Ordinary income rose 18.4% to ¥18.9bn. Foreign-exchange gains were ¥2.0bn, equivalent to 11.2% of operating income, and materially supported earnings below the operating line. Pre-tax profit exceeded ordinary income by ¥0.5bn because extraordinary income of ¥1.1bn exceeded extraordinary losses of ¥0.6bn. The net extraordinary contribution was ¥0.5bn, or 3.6% of net income, which is not large enough to alter the overall recurring-profit conclusion. The effective tax rate was 23.3%, producing a normal tax burden factor of 0.761. Annualized ROE was 14.6%, close to the threshold generally regarded as strong, although it remains modestly below the 15% excellent benchmark. The balance sheet is being expanded materially through manufacturing investment, with PPE representing 49.4% of total assets and construction in progress reaching ¥45.0bn. Management's full-year sales forecast implies a normal Q4 weighting, while the operating-profit forecast requires a comparatively stronger fourth quarter. The principal items to monitor are the conversion of elevated receivables and inventories into cash, completion and return generation of construction projects, debt-funded capital expansion, and sensitivity of ordinary earnings to foreign exchange.

Profitability Analysis

The reported annualized DuPont ROE of 14.6% decomposes into an 8.6% net profit margin, 0.700x asset turnover, and 2.42x financial leverage. Margin is the primary positive driver: the operating margin increased to 10.2% from 9.7%, while the net margin improved to 8.6% from 8.3%. Gross margin expanded to 20.8% from 19.7%, a 110bp improvement, demonstrating favorable manufacturing profitability and/or product mix. However, SG&A rose 20.3% YoY, exceeding 13.4% revenue growth; this partially absorbed the gross-margin benefit and should be monitored for sustained operating leverage. Asset turnover remains moderate for a capital-intensive PCB manufacturer, reflecting the large PPE base of ¥161.8bn and investment still under construction. Financial leverage of 2.42x is a meaningful contributor to ROE, so the return profile is not driven solely by operating efficiency. The five-factor framework shows a 10.2% EBIT margin, a favorable interest burden of 1.110 due to net non-operating income, and a normal 0.761 tax burden. Interest coverage of 12.71x remains strong despite ¥13.8bn of interest expense. Foreign-exchange gains of ¥2.0bn supported ordinary income and represented 11.2% of operating income, making a portion of below-the-line profit sensitive to currency movements. JGAAP goodwill is limited at ¥4.4bn, or 3.3% of equity, and therefore goodwill amortization and impairment risk are not material determinants of reported profitability.

Growth Assessment

Revenue growth of 13.4% YoY to ¥172.0bn and operating-income growth of 19.5% indicate a favorable earnings trajectory in the electronic-related business, which encompasses the design, manufacture, and sale of electronic circuit boards. Gross profit increased 19.9% YoY to ¥35.8bn, faster than sales, supporting the margin expansion. Net income growth of 17.7% was slightly below operating-income growth because interest expense increased to ¥13.8bn from ¥9.8bn. Raw materials increased 21.4% YoY to ¥22.9bn, work in process increased 30.3% to ¥11.1bn, and finished goods increased 23.5% to ¥13.7bn, consistent with a higher production and working-capital footprint. Full-year guidance calls for revenue of ¥235.0bn, operating income of ¥25.0bn, ordinary income of ¥24.5bn, and profit attributable to owners of ¥20.0bn. Q3 cumulative progress is 73.2% for sales, 70.0% for operating income, 77.1% for ordinary income, and 73.9% for net income, versus a standard 75% progress rate. Operating-income progress is 5.0 percentage points below the standard Q3 pace, requiring ¥7.5bn of Q4 operating income, equal to 30.0% of the full-year target. Conversely, ordinary-income progress is ahead of the standard pace, partly reflecting foreign-exchange gains. The full-year operating margin implied by guidance is 10.6%, above the Q3 cumulative 10.2%, so execution in the final quarter must sustain or improve profitability. The scale of construction in progress indicates continued capacity investment, which can underpin future growth once assets are commissioned, but also raises execution and utilization requirements.

Financial Health

Liquidity is adequate but not abundant. The current ratio is 120.7% and the quick ratio is 109.5%, indicating that current liabilities are covered by liquid current assets, although the current ratio remains below the 1.5x level generally regarded as robust. Working capital is positive at ¥25.4bn. Cash and deposits of ¥39.1bn cover short-term loans of ¥38.0bn by 1.03x, providing narrow but positive immediate cash coverage. Current liabilities total ¥122.9bn, including ¥37.4bn of trade payables and ¥38.0bn of short-term loans, while current assets total ¥148.3bn. Interest-bearing debt totals ¥101.8bn, comprising ¥38.0bn of short-term loans and ¥63.8bn of long-term loans. Debt-to-equity of 1.42x is elevated versus a conservative 1.0x benchmark but remains below the 2.0x level that would indicate aggressive leverage. Debt/capital is 43.0%, moderately above the 40% investment-grade reference point. Long-term loans increased ¥29.1bn, or 83.8% YoY, to ¥63.8bn, indicating debt funding of the manufacturing investment program. Cash and deposits increased ¥16.0bn, or 69.0% YoY, which partly offsets the higher debt load. Accounts payable increased ¥7.8bn, or 26.4% YoY, to ¥37.4bn, providing some supplier financing alongside greater production activity. Owners' equity increased to ¥127.7bn from ¥108.2bn, supported by retained earnings growth of ¥12.0bn to ¥69.7bn and favorable foreign-currency translation adjustments. The capital adequacy ratio declined to 39.0% from 42.2%, reflecting balance-sheet expansion faster than equity accumulation. Defined-benefit liabilities of ¥3.3bn and directors' retirement provisions of ¥2.2bn are recognized obligations but are modest relative to total liabilities. No current-ratio-below-1.0 or D/E-above-2.0 warning is triggered, but increased long-term debt and the lower equity ratio warrant close monitoring.

Notable B/S Changes

Long-term loans: +¥29.1bn (+83.8%) to ¥63.8bn - material debt funding for balance-sheet and manufacturing-capacity expansion; increases leverage and interest-cost sensitivity. Cash and deposits: +¥16.0bn (+69.0%) to ¥39.1bn - strengthens immediate liquidity and broadly covers short-term loans, partly mitigating the increase in borrowings. Accounts payable: +¥7.8bn (+26.4%) to ¥37.4bn - increased supplier financing alongside larger production activity; supports working capital but should be viewed with elevated receivables and inventories. Construction in progress: +¥18.9bn (+72.5%) to ¥45.0bn - now 27.8% of PPE, indicating a substantial investment pipeline and elevated project-completion and utilization risk. Property, plant and equipment: +¥32.3bn (+24.9%) to ¥161.8bn - PPE represents 49.4% of total assets, confirming a highly capital-intensive operating model. Retained earnings: +¥12.0bn (+20.9%) to ¥69.7bn - internally generated capital supports investment capacity and partially offsets higher debt.

Cash Flow Quality

The working-capital profile requires close attention in assessing earnings conversion. The quality alert for receivable days identifies annualized DSO of 85 days, above the 60-day warning level and well above the sub-45-day manufacturing efficiency benchmark. The root cause is a large receivables balance of ¥53.3bn, supplemented by electronically recorded monetary claims of ¥3.1bn, relative to the annualized sales base. This is a material concern because slower collections can absorb cash even while reported revenue and profits grow. The quality alert for inventory days identifies annualized DIO of 96 days, above the 90-day warning threshold. Raw materials of ¥22.9bn, work in process of ¥11.1bn, and finished goods of ¥13.7bn show that capital is committed across the production cycle. The likely context is expansion in PCB manufacturing activity and preparation for customer demand, but the elevated level increases risks of inventory obsolescence, mix changes, and weaker cash conversion if end-demand moderates. The impact is that reported earnings quality depends on timely shipment and collection rather than solely on accounting profit growth. Trade payables of ¥37.4bn increased 26.4% YoY, partly financing the enlarged operating cycle, but this does not eliminate collection and inventory risks. The combination of 85-day DSO and 96-day DIO signals a long cash-conversion cycle for a manufacturing operation and should be tracked against sales growth and production utilization. Capital commitments are also material, as construction in progress reached ¥45.0bn.

Dividend Sustainability

The full-year forecast DPS of ¥115 implies a forecast dividend payout ratio of approximately 15.0% based on forecast EPS of ¥767.10. This is a conservative payout level and leaves substantial earnings retention capacity for debt reduction, working capital, and capital investment. The ¥45 Q2 DPS corresponds to the disclosed calculated Q2 payout ratio of 8.2% on the period's earnings basis. Retained earnings increased 20.9% YoY to ¥69.7bn, supporting internal funding capacity. The low forecast payout is particularly prudent given the increase in long-term borrowings and the substantial ¥45.0bn construction-in-progress balance. Dividend sustainability is therefore supported by profitability and a modest earnings-distribution commitment, while the pace of debt-funded manufacturing investment remains the principal capital-allocation consideration. Treasury stock is ¥2.7bn, but no current-period repurchase amount is provided; accordingly, the analysis is confined to the dividend payout ratio rather than a total return ratio.

Risk Assessment

Business risks include Working-capital risk: annualized DSO of 85 days exceeds the 60-day warning threshold. The likely driver is the ¥53.3bn receivable balance plus ¥3.1bn of electronic receivables; delayed collection would weaken cash conversion and could increase credit-loss exposure., Inventory risk: annualized DIO of 96 days exceeds the 90-day warning threshold. The enlarged raw-material, WIP, and finished-goods balances expose the group to demand volatility, component price movements, customer specification changes, and inventory obsolescence., Manufacturing execution risk: construction in progress is ¥45.0bn, or 27.8% of PPE, above the 20% quality-alert threshold. This indicates a substantial investment pipeline whose returns depend on on-time commissioning, customer demand, yield achievement, and capacity utilization., Electronics-cycle risk: as a PCB manufacturer, earnings are exposed to customer production cycles, semiconductor and electronic-device demand, product mix changes, and pricing pressure from global competitors., Foreign-exchange risk: FX gains of ¥2.0bn contributed materially to ordinary earnings; reversal of favorable currency conditions could reduce profit below the operating line..

Financial risks include Leverage increased as long-term loans rose 83.8% YoY to ¥63.8bn. Debt-to-equity is 1.42x and debt/capital is 43.0%, leaving the balance sheet more sensitive to interest costs and investment execution., Interest expense increased 40.5% YoY to ¥13.8bn. Interest coverage remains strong at 12.71x, but further debt growth or weaker operating profit would reduce coverage., Liquidity is positive but relatively tight for a company undertaking major capital investment: cash/short-term debt is 1.03x and the current ratio is 1.21x..

Key concerns include Highest priority: conversion of elevated receivables and inventories into cash, given 85-day DSO and 96-day DIO., High priority: construction-project completion and post-completion returns, given the ¥45.0bn CIP balance and 27.8% CIP/PPE ratio., Medium priority: sustaining the Q4 operating performance needed to achieve full-year operating-income guidance, as Q3 progress is 70.0% versus a 75% standard pace., Medium priority: ordinary-income sensitivity to FX gains, which accounted for 11.2% of operating income., Medium priority: leverage discipline as long-term debt expands to fund capacity and infrastructure..

Investment Implications

Key takeaways include Revenue, operating income, and net income rose 13.4%, 19.5%, and 17.7% YoY, respectively, demonstrating positive operating leverage., Gross margin improved 110bp to 20.8% and operating margin improved 52bp to 10.2%., Annualized ROE of 14.6% is solid, but leverage of 2.42x is an important contributor to the return outcome., FY2026 operating-income guidance requires a stronger Q4, while ordinary-income progress has benefited from FX gains., The investment program is large: PPE is ¥161.8bn and construction in progress is ¥45.0bn., The conservative forecast dividend payout ratio of approximately 15% preserves financial flexibility..

Metrics to watch include Annualized DSO, currently 85 days, Annualized DIO, currently 96 days, Construction in progress and its conversion into operating assets, currently ¥45.0bn, Operating-margin progression versus the 10.6% full-year guidance implication, Long-term loans, currently ¥63.8bn, and debt-to-equity, currently 1.42x, Interest coverage, currently 12.71x, Foreign-exchange gains and their contribution to ordinary income.

Regarding relative positioning, Meiko exhibits good operating profitability for a capital-intensive electronics manufacturer, with a 10.2% operating margin and 14.6% annualized ROE. Its balance sheet is more investment- and debt-intensive than a conservative manufacturing profile, while the elevated receivable, inventory, and construction-in-progress balances create a greater execution and cash-conversion burden than indicated by income-statement growth alone.