Azbil (6845) FY2026 Q3 Earnings Report

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Executive Summary

The key takeaway from these results is that, while Operating Income increased +9.1% year on year, reflecting improved profitability in the core business, Net Income declined due to the reduction in a one-time gain recorded in the previous year. Revenue was ¥208.06B (-4.5% year on year), Operating Income was ¥29.23B (+9.1%), Ordinary Income was ¥30.72B (+9.5%), and Net Income was ¥23.03B (-21.1%). The primary cause of the revenue decline was the downturn in the Life Automation Business, while the increase in Operating Income was driven by an improvement in the gross margin resulting from cost controls. The decline in Net Income was primarily attributable to the reversal of gains on sales of investment securities recorded in the same period of the previous year (¥9.42B in the previous year → ¥0.62B in the current period), and does not indicate a deterioration in the earnings power of the core business.

Factors Affecting Performance

【Revenue】Revenue was ¥208.06B, down △4.5% year on year. By segment, the Building Automation Business secured revenue growth, with revenue of ¥105.45B (+2.9%), while the Advanced Automation Business generated revenue of ¥79.71B (+2.1%). In contrast, the Life Automation Business recorded a significant decline in revenue of △37.7% to ¥24.02B, becoming the primary cause of the company-wide revenue decline. By revenue recognition category, revenue transferred over time (construction and maintenance-related) declined by △7.3% to ¥95.81B, also reflecting a decrease in project progress.

【Profit and Loss】Operating Income was ¥29.23B (+9.1%), and the Operating Margin improved to 14.0% from the same period of the previous year. The improvement in the gross margin resulting from the control of the cost of sales more than offset the increase in SG&A expenses (+0.5%). Ordinary Income was ¥30.72B (+9.5%), with foreign exchange gains of ¥0.82B and dividend income of ¥0.95B contributing to the increase. Extraordinary income declined from ¥9.42B in the same period of the previous year, mainly consisting of gains on sales of investment securities, to ¥0.62B in the current period. This was the primary cause of Net Income of ¥23.03B (△21.1%). In conclusion, the results represent a decline in revenue but an increase in Operating Income and Ordinary Income, while the decline in Net Income was attributable to temporary factors.

Segment Analysis

The Building Automation Business, the core business, drove company-wide earnings, recording revenue of ¥105.45B (50.7% composition ratio), Operating Income of ¥16.27B (+15.4%), and a margin of 15.4%. The Advanced Automation Business maintained high profitability, with revenue of ¥79.71B (38.3% composition ratio), Operating Income of ¥12.62B (+7.1%), and a margin of 15.8%. The Life Automation Business deteriorated significantly, recording revenue of ¥24.02B (11.5% composition ratio), Operating Income of ¥0.34B (△64.0%), and a margin of 1.4%, partially offsetting the company-wide earnings increase. The contrasting performance of growth in revenue and earnings at the two core businesses and the sharp decline in the Life Automation Business characterizes segment trends during the current period.

Key Financial Indicators

【Profitability】The Operating Margin was 14.0%, and the gross margin was 46.5%, improving from the same period of the previous year. ROE (annualized) was 12.8%. 【Cash Quality】Accounts receivable of ¥87.78B and inventories of ¥9.37B (including work in process of ¥10.52B and raw materials of ¥21.31B) represent substantial amounts relative to total assets. Asset levels have remained elevated despite the decline in revenue, indicating a buildup of funds in working capital. 【Investment Efficiency】Against total assets of ¥303.90B, net assets were ¥239.25B, and the Equity Ratio was 78.7%, indicating a capital structure that prioritizes financial safety over capital efficiency. 【Financial Soundness】Current assets of ¥212.27B significantly exceeded current liabilities of ¥51.75B. Interest-bearing debt remained limited, including long-term borrowings of ¥5.47B and short-term borrowings, indicating an extremely strong financial foundation.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is unavailable, an analysis of funding trends based on changes in the balance sheet shows that cash and deposits declined by ¥16.24B to ¥72.25B from ¥88.49B in the same period of the previous year. Meanwhile, investment securities increased by ¥6.71B year on year to ¥29.50B, suggesting that a portion of surplus funds was allocated to securities investments. Long-term borrowings increased from ¥0.62B to ¥5.47B, but their ratio to total assets and net assets remained limited, suggesting that they serve as a liquidity supplement rather than as a source of financing. The high levels of accounts receivable of ¥87.78B and inventories of ¥9.37B indicate funds tied up in working capital, suggesting that the cash conversion of earnings growth is relatively gradual.

Quality of Earnings

Of the current-period Profit Before Tax of ¥31.27B, recurring earnings consisted of Operating Income of ¥29.23B and net non-operating income of ¥1.49B, including dividend income of ¥0.95B and foreign exchange gains of ¥0.82B. Ordinary Income of ¥30.72B was therefore supported by the core business and stable non-operating factors. Net extraordinary income was limited to ¥0.55B, comprising extraordinary income of ¥0.62B less extraordinary losses of ¥0.07B. This represented a significant reduction from extraordinary income of ¥9.42B in the same period of the previous year, mainly consisting of gains on sales of investment securities exceeding ¥8.09B, and the contribution of temporary factors to Net Income was therefore smaller than in the previous year. Comprehensive Income was ¥30.25B, exceeding Net Income of ¥23.03B. The difference was attributable to foreign currency translation adjustments of ¥3.18B and valuation differences on securities of ¥4.04B. Attention should be paid to the fact that market factors outside business operations boosted Comprehensive Income. Overall, the quality of current-period earnings was less dependent on one-time gains than in the same period of the previous year and reflected the underlying strength of the business at the Operating Income and Ordinary Income levels.

Earnings Forecast and Guidance

The full-year plan calls for Revenue of ¥298.00B (△0.8% year on year), Operating Income of ¥45.50B (+9.7%), and Ordinary Income of ¥45.50B (+7.9%). Based on cumulative results of Revenue of ¥208.06B and Operating Income of ¥29.23B, progress rates were 69.8% for Revenue and 64.2% for Operating Income, below the standard 75% progress level. Operating Income in particular is significantly behind plan. In Q4, Revenue of ¥89.75B and Operating Income of ¥16.27B, representing a margin of 18.1%, will be required, meaning profitability must significantly exceed the cumulative margin of 14.0%. Recognition of high-margin projects at the two core businesses and continued cost improvements will be the focus for achieving the plan.

Shareholder Returns

The company plans to pay annual dividends of ¥39.00, comprising an interim dividend of ¥13.00 and a forecast year-end dividend of ¥26.00. The Payout Ratio based on the interim dividend against cumulative Net Income attributable to owners of the parent of ¥22.68B is approximately 29%, while the annual Payout Ratio against forecast full-year EPS of ¥65.98 is approximately 59%. With an Equity Ratio of 78.7%, cash and deposits of ¥72.25B, and limited interest-bearing debt, the company has sufficient financial capacity to support dividend stability. However, as progress toward the full-year earnings plan remains slightly below 70%, the forecast annual dividend of ¥39.00 assumes achievement of the Q4 earnings plan.

Risk Factors

1. Decline in revenue and earnings in the Life Automation Business: Revenue in this business declined △37.7% year on year, while segment profit declined △64.0%, causing the margin to fall to 1.4%. While the two core businesses are driving company-wide earnings growth, continued deterioration in the profitability of this business could offset the earnings improvement.

2. Delay in progress toward achieving the full-year plan: The progress rate for Operating Income remains at 64.2%, requiring the margin to be raised to 18.1% in Q4. The gap from the cumulative margin of 14.0% is substantial, and achievement of the plan will depend on the timing of high-margin project recognition and cost trends.

3. Working capital buildup: Accounts receivable of ¥87.78B and inventories of ¥9.37B account for approximately 30% of total assets, and asset levels have been maintained despite the decline in revenue. Delays in collection or inventory reduction could constrain capital efficiency.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Margin and Net Profit Margin significantly exceeded the industry median, placing profitability in the upper tier of the industry.

Growth and Capital Efficiency

The Revenue Growth Rate was below the industry median, and top-line growth lagged the industry relatively.

※Source: Compiled by the Company

Key Takeaways from the Results

1. While the Operating Margin improved from the same period of the previous year and significantly exceeded the industry median, the decline in Net Income resulted from the reversal of gains on sales of investment securities recorded in the previous year. This differs in direction from the trend at the Operating Income level and should be considered when interpreting the results.

2. While the core Building Automation Business and Advanced Automation Business both secured growth in revenue and earnings, the sharp decline in revenue and earnings in the Life Automation Business clearly reduced company-wide revenue.

3. Progress toward the full-year Operating Income plan remained at 64.2%. The need to achieve a margin in Q4 exceeding the cumulative margin is an important point to monitor in future results.

Theoretical Share Price (Reference Value)

Sensitivity: ¥537–¥569 at a ±1% cost of equity, and ¥551–¥556 at ω±0.1.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from 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 value based solely on publicly available 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 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 disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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