NEW COSMOS ELECTRIC (6824) FY2026 Q3 Earnings Report

Quick View

Executive Summary

The Company reported higher revenue and profit, driven by expanding demand for its gas detector business, resulting in strong performance in both profitability and cash generation. Revenue was ¥367.6B (+24.6% YoY), Operating Income was ¥55.7B (+27.4%), Ordinary Income was ¥59.0B (+24.9%), and quarterly Net Income attributable to owners of the parent was ¥40.1B (+40.0%). Profit growth outpacing revenue growth was primarily attributable to operating leverage, as the increase in SG&A expenses was contained at 9.9%.

Factors Affecting Performance

【Revenue】Revenue was ¥367.6B, representing a +24.6% increase YoY. The business consists of a single segment, the gas detector business, and expanding demand drove company-wide revenue growth.

【Profit and Loss】Gross profit was ¥169.2B (gross margin: 46.0%), an increase of ¥15.2B from ¥147.0B in the same period last year. SG&A expenses remained at ¥113.5B (+9.9% YoY), substantially below the 24.6% revenue growth rate. As fixed-cost absorption progressed, the Operating Income margin improved to 15.2% from approximately 14.8% in the same period last year. Non-operating income and expenses resulted in a surplus of ¥3.3B, including dividend income of ¥1.4B and foreign exchange gains of ¥0.9B, supporting Ordinary Income of ¥59.0B. Extraordinary income and expenses were immaterial (extraordinary loss: ¥0.0B), and the increase in Net Income was primarily attributable to the core business and non-operating income, indicating limited reliance on temporary factors. The presence of extraordinary income of ¥0.9B and extraordinary loss of ¥0.5B in the same period last year should be noted when making comparisons with the current period. In conclusion, this was a high-quality earnings period, with both revenue and profit increasing and profit growth exceeding revenue growth.

Segment Analysis

The Group consists of a single segment, the gas detector business, and does not disclose segment-specific information.

Key Financial Indicators

【Profitability】The Operating Income margin was 15.2%, improving from approximately 14.8% in the same period last year, while the Net Income margin attributable to owners of the parent improved to 10.9% from 9.7% in the same period last year. The gross margin was 46.0%. ROE (annualized) was 10.7%.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥69.4B, or 1.73 times Net Income attributable to owners of the parent of ¥40.1B, indicating strong cash support for earnings.【Investment Efficiency】Annualized DIO and CCC were both at approximately 186 days, with the increase in inventories (+61.1% YoY) weighing on asset efficiency. Total asset turnover remained at a low level.【Financial Soundness】The Equity Ratio was 75.4%, and cash and deposits were ¥235.1B, providing ample capacity relative to interest-bearing debt of ¥34.6B. The current ratio was high at above 400%, indicating substantial resilience against short-term liabilities.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥69.4B, a significant increase from ¥34.2B in the same period last year, demonstrating cash generation equivalent to 1.73 times Net Income. In addition to higher profit, the ¥23.9B increase in accounts payable supported cash generation, while the increase in inventories reduced OCF by ¥13.2B, indicating that inventory accumulation has already tied up a portion of cash. Investing Cash Flow was an outflow of ¥18.0B, including capital expenditures of ¥9.7B, which remained below depreciation and amortization of ¥11.7B; no major investments were undertaken. Financing Cash Flow was an outflow of ¥21.4B, including ¥6.1B in share repurchases and dividend payments. Free Cash Flow was ample at ¥51.5B, providing sufficient support for both investment and shareholder returns.

Earnings Quality

Current-period earnings consisted primarily of Operating Income of ¥55.7B from the core business and non-operating income of ¥3.6B, including dividend income of ¥1.4B and foreign exchange gains of ¥0.9B. Extraordinary items were extremely immaterial, consisting of an extraordinary loss of ¥0.0B, indicating limited reliance on temporary factors. Non-operating income was approximately 1.0% of revenue, and the majority of Ordinary Income was generated by the core business. OCF was 1.73 times Net Income, indicating cash generation exceeding earnings and providing little evidence that accruals—the difference between accounting earnings and cash flows—are overstating profits. However, the substantial increase in inventories (+61.1% YoY) contains a risk of future inventory valuation losses and requires monitoring when assessing earnings quality.

Earnings Forecast and Guidance

The full-year Company forecast is revenue of ¥490.0B (YoY +16.2%), Operating Income of ¥70.3B (YoY +36.4%), and Ordinary Income of ¥74.8B (YoY +37.2%). The progress rates for the nine months ended Q3 are calculated at 75.0% for revenue, 79.3% for Operating Income, 78.9% for Ordinary Income, and 85.4% for Net Income attributable to owners of the parent. Progress for Operating Income and Ordinary Income is only approximately 4 percentage points above the standard 75%, while Net Income progress of 85.4% is more than 10 percentage points above the standard. Accordingly, the full-year forecast incorporates an assumption that Q4 profit will be below the cumulative average. During the current quarter, revisions were made to the earnings and dividend forecasts, indicating that management has reflected the recent strong performance in its forecasts to a certain extent.

Shareholder Returns

The full-year dividend forecast is ¥95 per share, and the Payout Ratio based on the Company’s forecast EPS of ¥383.40 is 24.8%. As no dividend is paid for Q2, the annual dividend is concentrated in the year-end dividend. During the nine months ended Q3, the Company repurchased ¥6.1B of its own shares, and the deduction for treasury shares increased to ¥9.1B from ¥3.1B in the same period last year. Cumulative shareholder returns, including dividends and share repurchases, totaled approximately ¥13.5B, resulting in a Total Return Ratio of 33.6% against Net Income attributable to owners of the parent of ¥40.1B. Given cash and deposits of ¥235.1B and a low Debt/EBITDA level, dividend sustainability remains supported by the current levels of OCF and Free Cash Flow.

Risk Factors

1. Lengthening of the inventory and cash conversion cycle: Inventories increased by +61.1% YoY (¥40.2B), while annualized DIO and CCC were both at approximately 186 days. Although this may reflect preparation for increased demand, delays in sales absorption could lead to valuation losses and deterioration in OCF.

2. Business concentration risk from the single-segment structure: The Group consists of a single segment, the gas detector business. Consequently, changes in demand trends and replacement demand in this market are directly reflected in consolidated performance.

3. Full-year progress and Q4 volatility risk: The full-year progress rate for Net Income was 85.4%, exceeding the standard 75%, and achievement of the full-year forecast assumes a decline in profit levels in Q4. Depending on inventory liquidation and demand trends, a gap may arise between progress and the plan.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s Operating Income margin and Net Income margin substantially exceed the industry median, placing its profitability among the top tier of the industry.

Growth and Capital Efficiency

The revenue growth rate substantially exceeds the industry median, indicating high growth within the industry.

※Source: Compiled by the Company

Key Earnings Highlights

1. The Operating Income margin of 15.2% and Net Income margin attributable to owners of the parent of 10.9% substantially exceed the industry median. Operating leverage, with SG&A expense growth contained at 9.9% against revenue growth of 24.6%, supported the improvement in margins.

2. OCF was 1.73 times Net Income, and Free Cash Flow reached ¥51.5B, demonstrating strong cash support for earnings. The Company’s robust financial foundation, including an Equity Ratio of 75.4% and cash and deposits of ¥235.1B, is also notable.

3. Annualized DIO and CCC have both lengthened to 186 days, while the sharp increase in inventories (+61.1% YoY) has become a structural monitoring item from an asset-efficiency perspective. The degree of improvement in inventory turnover will be an important indicator of the sustainability of growth.

Theoretical Share Price (Reference Value)

Sensitivity: ¥4,238–¥4,484 at ±1% for the cost of equity, and ¥4,354–¥4,362 at ±0.1 for ω.

Notes:

• Goodwill amortization of ¥11.1 per share is added back to earnings (to account for non-cash expenses and comparability with IFRS companies).
• As Net Income progress against the full-year forecast (85%) exceeds the standard level (75%), forecast EPS is adjusted upward within a maximum range of +10% (because companies ahead of plan tend to outperform forecasts; the adjustment may be excessive for businesses with strong seasonality).
• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a timing difference 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 / This is a mechanically calculated value based solely on publicly disclosed data and is not a forecast of the market share price or a recommendation of any specific investment action, nor does it predict or guarantee the future share price.)

---

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 disclosed earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.

---End of Report---