SUMIDA CORPORATION FY2026 Q2 Earnings Report

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Executive Summary

In Q2, the Company posted higher revenue but lower profit, as double-digit revenue growth was offset by a deterioration in the cost structure and increases in finance costs and tax burden, resulting in significant declines in Operating Income and Net Income. Revenue was ¥798.6B (+12.2% YoY), Operating Income was ¥19.1B (-43.2%), Profit Before Tax was ¥5.7B (-73.7%), and Net Income attributable to owners of the parent was ¥2.4B (-85.6%; consolidated Net Income was ¥2.6B, down 83.7%). The primary factors behind the decline in Operating Income were the sharp increase in other operating expenses from ¥0.9B in the prior year to ¥11.0B and the 15.9% increase in SG&A expenses, which exceeded the 5.2% increase in gross profit. In addition, finance costs increased to ¥13.6B (+12.9%), while the effective tax rate rose from 24.9% to 53.6%, further compressing Profit Before Tax into Net Income.

Factors Affecting Results

【Revenue】Revenue was ¥798.6B, representing a 12.2% YoY increase. By segment, EU generated ¥315.5B in revenue (39.5% of total, +18.0% YoY), while AsiaPacific generated ¥483.1B (60.5% of total, +8.7% YoY). Both contributed to revenue growth, although EU’s growth rate exceeded that of the Company as a whole.

【Profit and Loss】Operating Income was ¥19.1B (-43.2% YoY), and the Operating Margin declined by 2.3pt from 4.7% to 2.4%. While the gross margin deteriorated by 0.8pt from 13.5% to 12.7%, SG&A expenses increased by 15.9% (¥62.1B→¥72.0B). In addition, the sharp increase in other operating expenses from ¥0.9B to ¥11.0B became the largest factor behind the decline in Operating Income. Profit Before Tax was compressed to ¥5.7B (-73.7% YoY) due in part to higher finance costs (¥12.0B→¥13.6B, +12.9%), while the increase in the effective tax rate from 24.9% to 53.6% resulted in Net Income attributable to owners of the parent of only ¥2.4B (-85.6%). By segment, AsiaPacific posted Operating Income of ¥13.0B (-43.2% YoY, 2.7% margin), while EU posted ¥17.8B (+42.9% YoY, 5.7% margin). Although profitability improved in EU, the decline in the margin of AsiaPacific, which accounts for 60% of revenue, weighed on overall earnings. The results represent higher revenue but lower profit, making the absorption of cost increases a key focus going forward.

Segment Analysis

AsiaPacific generated revenue of ¥483.1B (60.5% of total, +8.7% YoY) and Operating Income of ¥13.0B (-43.2% YoY, 2.7% margin), indicating a significant deterioration in profitability despite higher revenue. EU generated revenue of ¥315.5B (39.5% of total, +18.0% YoY) and Operating Income of ¥17.8B (+42.9% YoY, 5.7% margin), achieving both revenue and profit growth and driving the increase in total segment earnings. Combined segment Operating Income was ¥30.8B. The difference of approximately ¥11.7B from consolidated Operating Income of ¥19.1B is believed to comprise unallocated items, including corporate expenses and the sharp increase in company-wide other operating expenses, indicating that cost increases outside the segments placed pressure on overall earnings.

Key Financial Indicators

【Profitability】The Operating Margin was 2.4%, down 2.3pt from 4.7% in the prior year, while the Net Profit Margin, based on income attributable to owners of the parent, also narrowed from 2.3% to 0.3%. The gross margin was 12.7% (13.5% in the prior year), and the SG&A ratio was 9.0% (8.7% in the prior year), with higher costs being the primary cause of lower profitability.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥51.8B, approximately 21.6 times Net Income attributable to owners of the parent of ¥2.4B, indicating strong cash-generation capacity relative to the level of earnings.【Investment Efficiency】ROE, based on income attributable to owners of the parent, was 0.4%, down from an estimated 2.7% in the same period of the prior year (based on equity at period-end), primarily due to the deterioration in the Net Profit Margin. Total asset turnover was 0.47x and financial leverage was 2.66x, both broadly unchanged.【Financial Soundness】The Equity Ratio was 37.6% (37.9% in the prior year). Interest-bearing debt was ¥544.0B, resulting in a D/E ratio of approximately 0.84x. Interest coverage, measured as EBIT/finance costs, was 1.41x, down significantly from 2.80x in the prior year, indicating reduced resilience to higher interest burdens.

Cash Flow Analysis

OCF was ¥51.8B, down 13.0% YoY, but remained substantially above Net Income attributable to owners of the parent of ¥2.4B, preserving the quality of cash generation. In working capital, inventories increased by ¥15.7B, while trade payables rose by ¥14.7B, broadly offsetting each other. Payments for income taxes of ¥10.1B, interest of ¥12.0B, and leases of ¥7.7B represented fixed cash outflows that weighed on OCF. Investing Cash Flow was -¥32.3B, of which capital expenditures accounted for ¥28.2B, equivalent to approximately 3.5% of revenue and remaining at a restrained level. As a result, Free Cash Flow remained positive at ¥19.5B, covering dividend payments of ¥8.9B by 2.2 times. Financing Cash Flow was -¥21.8B and included capital transactions such as the acquisition of non-controlling interests in addition to dividend payments. Cash and cash equivalents were ¥60.3B, remaining broadly unchanged from the end of the prior fiscal year.

Earnings Quality

Profit Before Tax of ¥5.7B was the result of deducting finance costs of ¥13.6B (¥12.0B in the prior year, +12.9%) from Operating Income of ¥19.1B, clearly indicating pressure from non-operating factors. The effective tax rate rose sharply from 24.9% to 53.6%, further compressing Profit Before Tax into Net Income attributable to owners of the parent of ¥2.4B. Whether this level is structural or temporary will need to be assessed based on normalization trends going forward. The deterioration in Operating Income itself was primarily driven by the sharp increase in other operating expenses from ¥0.9B to ¥11.0B, and the breakdown and recurrence potential of these expenses warrant close monitoring. Impairment losses were ¥0.18B and immaterial, with no large one-time losses observed. OCF reached ¥51.8B, approximately 21.6 times Net Income attributable to owners of the parent. The gap between accrual-based and cash-based earnings was small, indicating relatively sound cash support for reported earnings.

Earnings Forecast and Guidance

Progress against the full-year plan was 51.2% for revenue (¥798.6B/¥1,560.0B), broadly in line with the usual level, while progress was substantially lower for Operating Income at 25.5% (¥19.1B/¥75.0B) and Net Income attributable to owners of the parent at 6.6% (¥2.4B/¥36.5B). No revisions were made to the earnings or dividend forecasts during the quarter, and the Company’s plan continues to assume a back-end-loaded second half. The delayed progress is primarily attributable to higher costs at the operating level, including the sharp increase in other operating expenses and higher SG&A expenses, as well as the compression from Profit Before Tax to Net Income caused by higher finance costs and the increased effective tax rate. Improvement in these cost and tax burden factors during the second half will be a prerequisite for achieving the plan.

Shareholder Returns

The interim dividend was ¥26 per share, unchanged from the same period of the prior year. The full-year dividend forecast is ¥53, implying an expected Payout Ratio of approximately 48.0% against forecast full-year EPS of ¥110.4. First-half Free Cash Flow of ¥19.5B was approximately 2.2 times dividend payments of ¥8.9B, confirming sufficient cash capacity to fund dividends. No share repurchases have been disclosed, and shareholder returns are best assessed based on the Payout Ratio.

Risk Factors

1. Higher interest burden and declining interest coverage: Interest coverage, measured as EBIT/finance costs, was 1.41x, down significantly from 2.80x in the prior year. Interest-bearing debt was ¥544.0B (of which short-term debt was ¥322.9B), while cash and cash equivalents were limited to ¥60.3B, indicating limited cash coverage of short-term liabilities.

2. Earnings volatility due to the higher effective tax rate: The effective tax rate rose from 24.9% to 53.6%, significantly compressing Net Income against Profit Before Tax of ¥5.7B. If this level persists, recovery in Operating Income may not be fully reflected in Net Income.

3. Regional concentration and differences in segment profitability: AsiaPacific accounts for 60.5% of revenue, but its Operating Margin was 2.7% (YoY-43.2%), widening the gap with EU’s 5.7% margin (YoY+42.9%). Concentration of revenue in a specific region increases the impact of changes in demand trends and the cost environment in that region on overall earnings.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Margin and Net Profit Margin were significantly below the industry median, placing profitability at the lower end of the industry.

Growth and Capital Efficiency

The Revenue Growth Rate was slightly above the industry median, indicating that top-line growth was at a standard level within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Despite revenue growth of +12.2%, the sharp increase in other operating expenses (¥0.9B→¥11.0B) and the 15.9% increase in SG&A expenses exceeded the increase in gross profit, causing the Operating Margin to decline from 4.7% to 2.4%. Further disclosures will be necessary to determine whether the change in the cost structure is temporary or structural.

2. The increase in finance costs (+12.9%) and the rise in the effective tax rate (24.9%→53.6%) coincided, compressing Net Income attributable to owners of the parent (-85.6%) more significantly than Profit Before Tax (-73.7%). The magnitude of deterioration differed between the operating and net income levels, and trends in tax and finance cost factors will determine future earnings levels.

3. OCF remained at approximately 21.6 times Net Income, while Free Cash Flow was positive at ¥19.5B. Despite the decline in earnings, cash-generation capacity remained relatively resilient, and dividend payments of ¥8.9B were funded by current cash flow.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly available data using a residual income model (Ohlson-type, with an explicit five-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,693–¥1,790 at a cost of equity of ±1%, and ¥1,735–¥1,744 at ω of ±0.1.

Notes:

• Net Income has been significantly compressed relative to Operating Income due to tax burden, acquisition-related expenses, and non-controlling interests (Net Income ÷ Operating Income 49%). This value reflects that compression at face value; if the factors are temporary, underlying earnings power may be higher.
• Because forecast ROE is below the cost of equity, the theoretical value is below Book Value Per Share.
• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).

(Calculation model: Residual income model / Interest rate reference month: 2026-06 / This value is not a forecast or guarantee of future share 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 benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting professionals as necessary.

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