SMK (6798) FY2026 FY Earnings Report

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Executive Summary

Operating income returned to profitability during the period due to reductions in selling, general and administrative expenses; however, profitability remains at a low level, and the Company has yet to fully recover its underlying earnings power. Revenue was ¥48.20B, essentially flat year on year at +0.3%, while operating income was ¥0.43B, turning profitable from a loss of ¥0.22B in the previous year. Ordinary income was ¥1.24B, up +126.3%, and net income was ¥0.06B, turning profitable from a loss of ¥1.88B in the previous year. The operating margin remained at 0.9%, while ordinary income was heavily dependent on a ¥0.81B surplus in non-operating income and expenses. Net income was significantly compressed by temporary factors, including an impairment loss of ¥0.31B, as well as the high tax burden reflected in an effective tax rate of 93.4%.

Factors Affecting Performance

【Revenue】Revenue was ¥48.20B, essentially flat year on year at +0.3%. By segment, the CS Business generated ¥22.52B, up +1.6%; the SCI Business generated ¥25.62B, down -0.1%; and the R&D Center generated ¥0.06B, down -75.3%. Although SCI is the largest business, accounting for 53.2% of the revenue mix, it remains stagnant and is constraining company-wide growth.

【Profit and Loss】SG&A expenses decreased by ¥0.49B year on year to ¥8.98B. Cost reductions exceeding the ¥0.06B increase in gross profit enabled operating income to turn profitable at ¥0.43B. By segment, operating income in the CS Business declined to ¥1.19B, down -22.6%, while the SCI Business reduced its operating loss to ¥0.38B, improving from a loss of ¥1.31B in the previous period. Ordinary income was boosted by ¥1.73B in non-operating income, including interest income, foreign exchange gains, and equity-method investment gains, reaching ¥1.24B, up +126.3%. Extraordinary losses of ¥0.39B, including an impairment loss of ¥0.31B, were recorded. Combined with the high tax burden reflected in an effective tax rate of 93.4%, net income remained at only ¥0.06B. Although the Company achieved higher revenue and profit, the increase in revenue was minimal, while the increase in profit was primarily attributable to cost reductions and non-operating income and expenses. Structural improvement in the underlying earnings power was limited to the reduction in the SCI Business’s loss.

Segment Analysis

The CS Business, which includes connectors and related products, generated revenue of ¥22.52B, representing 46.7% of the total and an increase of +1.6% year on year, and operating income of ¥1.19B, with a margin of 5.3%. It was the largest contributor to profit, but operating income declined -22.6% year on year. The SCI Business, which includes remote controls and camera modules, generated revenue of ¥25.62B, representing 53.2% of the total and a decrease of -0.1% year on year, and an operating loss of ¥0.38B, with a margin of -1.5%. Its loss improved by ¥0.93B from the previous period’s loss of ¥1.31B, but the business remains unprofitable. The R&D Center (Innovation Center) generated revenue of ¥0.06B, down -75.3% year on year, and an operating loss of ¥0.38B. Although small in scale, its loss is weighing on company-wide profit. The Company’s return to operating profitability resulted from the reduction in the SCI Business’s loss exceeding the decline in profit from the core CS Business.

Key Financial Metrics

【Profitability】The operating margin improved to 0.9% from -0.5% in the previous period, but remained low, as did the gross margin of 19.5%. The net margin was 0.1% and ROE was 0.2%, both of which indicate low underlying profitability.【Cash Flow Quality】Operating cash flow (OCF) was ¥2.02B, substantially exceeding net income of ¥0.06B. However, this was also the result of net income being compressed by impairment losses and the high tax burden, making it difficult to interpret this simply as a high cash conversion rate. From a working capital perspective, reductions in accounts receivable and inventories supported cash flow, while a ¥1.90B decrease in accounts payable exerted downward pressure on cash flow.【Investment Efficiency】Capital expenditures of ¥2.19B were below depreciation and amortization of ¥2.63B, indicating a maintenance-oriented investment level rather than expansionary investment. Free cash flow was -¥0.24B, showing that investment was not fully funded through internal funds.【Financial Soundness】The equity ratio improved to 54.1% from 50.7% in the previous period, and current assets exceeded current liabilities. However, operating income of ¥0.43B compared with interest expense of ¥0.25B leaves limited headroom, indicating continued sensitivity to interest burdens under low profitability.

Cash Flow Analysis

Operating cash flow was ¥2.02B, down -17.1% year on year, but remained substantially above net income of ¥0.06B. This was supported by working capital compression, including decreases of ¥1.02B in accounts receivable and ¥1.18B in inventories. However, accounts payable decreased by ¥1.90B, consuming cash, and continued declines in trade payables could put pressure on future OCF. Investing cash flow was -¥2.26B, primarily due to capital expenditures of ¥2.19B, which remained below depreciation and amortization of ¥2.63B. Financing cash flow was -¥2.45B. Although long-term borrowings increased by ¥0.20B, cash was pressured by repayments of long-term borrowings of ¥1.74B, a ¥1.30B decrease in short-term borrowings, and dividend payments of ¥0.89B. As a result, free cash flow was -¥0.24B, while cash and cash equivalents decreased by ¥0.82B from the end of the previous period to ¥9.59B. This indicates that OCF alone was insufficient to fully cover investment, dividends, and debt repayments.

Quality of Earnings

Ordinary income of ¥1.24B was heavily dependent on the ¥0.81B surplus in non-operating income and expenses, equivalent to approximately 2.9 times the Company’s operating income of ¥0.43B. Non-operating income of ¥1.73B was supported by interest income, a foreign exchange gain of ¥0.12B, and equity-method investment gains of ¥0.15B, among other factors. Extraordinary losses of ¥0.39B included an impairment loss of ¥0.31B and a loss on disposal of fixed assets of ¥0.07B; these temporary factors compressed net income for the period. Income before taxes was ¥0.87B, compared with income taxes of ¥0.81B, resulting in an extremely high effective tax rate of 93.4% and significantly reducing the conversion of pretax income into net income of ¥0.06B. Comprehensive income was ¥2.82B, substantially exceeding net income of ¥0.06B. Most of the difference was attributable to other comprehensive income of ¥2.77B, including foreign currency translation adjustments of ¥1.46B and adjustments related to retirement benefits of ¥0.66B. Accordingly, when assessing the actual performance for the period, the effects of these temporary and non-cash items should be considered alongside net income rather than evaluating net income alone.

Earnings Forecast and Guidance

The Company’s plan for the next period calls for revenue of ¥49.00B, up +1.7% from the previous period; operating income of ¥0.80B, up +86.0%; ordinary income of ¥1.20B, down -3.5% and slightly below the current-period result of ¥1.24B; and net income of ¥0.80B, a substantial increase from the current-period result of ¥0.06B. Achieving the operating income plan will require raising the operating margin from 0.9% in the current period to approximately 1.6%, premised on further improvement in the SCI Business and a reversal of the decline in profitability in the CS Business. The net income plan represents a recovery scenario premised on the elimination of temporary and exceptional factors such as the current period’s impairment loss and effective tax rate of 93.4%.

Shareholder Returns

The annual dividend was ¥100 per share, consisting of an interim dividend of ¥50 and a year-end dividend of ¥50, an increase from ¥50 in the previous period. Total dividends were approximately ¥0.64B, resulting in a payout ratio of 1,285.7% relative to net income attributable to owners of the parent of ¥0.06B, substantially exceeding current-period earnings. Share repurchases were negligible at ¥0.00B, and shareholder returns were centered on dividends. Free cash flow was -¥0.24B, and the dividend for the period was not sufficiently supported by OCF or FCF, indicating a high degree of reliance on cash on hand and retained earnings. The Company plans to maintain its next-period dividend forecast at an annual ¥100 per share, with sustainability dependent on the extent to which earnings recovery and cash flow improvement are achieved in the next period.

Risk Factors

1. Continued losses in the SCI Business: Although the SCI Business is the largest business, accounting for 53.2% of the revenue mix, it remains unprofitable, with an operating loss of ¥0.38B. While the loss narrowed by ¥0.93B from the previous period, revenue was essentially flat at -0.1%, making the timing of a return to profitability the central uncertainty surrounding company-wide performance.

2. Deterioration in the profitability of the CS Business: The core CS Business is the largest contributor to profit, with operating income of ¥1.19B, but profit declined -22.6% year on year. If the decline in profitability in the core business continues to offset the improvement in SCI, company-wide margin improvement will be difficult to achieve.

3. Foreign exchange sensitivity and temporary losses: The foreign exchange gain of ¥0.12B was equivalent to 27.4% of operating income of ¥0.43B, making the Company’s relatively small underlying profit susceptible to fluctuations in non-operating income and expenses. In addition, temporary factors, including the impairment loss of ¥0.31B, significantly compressed net income, requiring continued monitoring of asset profitability.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s profitability is substantially below the industry median, placing it at a low relative position within the manufacturing industry.

Growth and Capital Efficiency

Revenue growth also falls below the industry median, indicating a low relative position within the industry from a growth perspective.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Operating income turned profitable at ¥0.43B from a loss in the previous period, but the operating margin of 0.9% remains substantially below the industry median of 7.6%, indicating that the recovery in profitability is still at an early stage.

2. While the reduction in losses in the SCI Business, which accounts for 53.2% of the revenue mix, was the primary driver of the Company’s return to profitability, the core CS Business experienced a -22.6% decline in profit year on year. The profitability trends of both businesses will therefore determine future performance.

3. Ordinary income has a high degree of dependence on non-operating income and expenses, while net income was substantially compressed by temporary and exceptional factors, including the impairment loss and the effective tax rate of 93.4%. The annual dividend of ¥100 is not supported by current-period net income or free cash flow, making the extent to which the earnings recovery indicated in the next-period plan is achieved a key focus.

Theoretical Share Price (Reference Value)

Sensitivity: ¥3,913–¥4,131 for cost of equity ±1%; ¥3,992–¥4,037 for ω±0.1.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.

(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; 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 by AI through analysis of XBRL financial results 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 with a professional adviser as necessary.

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