JAPAN ELECTRONIC MATERIALS CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥12.32B
• Operating Income: ¥2.66B
• Net Income: ¥1.70B
• EPS: ¥134.39

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: A strong FY2026 Q2 with double-digit top-line and bottom-line growth, margin expansion at the operating level, and very high cash conversion. Revenue rose 25.2% YoY to 123.22, driven by robust demand, translating into operating income of 26.57 (+29.6% YoY) and net income of 16.98 (+26.0% YoY). Gross profit was 53.30, implying a gross margin of 43.3% in the period. Operating margin improved to 21.6% from an inferred 20.8% a year ago, an expansion of roughly 73 bps. Net margin was 13.8%, up about 9 bps YoY using inferred prior figures, while ordinary margin slightly compressed by about 41 bps to 19.9% due to higher non-operating expenses. Earnings quality was excellent: operating cash flow was 43.10, 2.54x net income, indicating strong conversion and low accrual risk. Balance sheet strength remains a clear positive with a current ratio of 448% and D/E of 0.41x, alongside ample cash and deposits of 153.48. Interest coverage is extremely high at 106x, and ROIC of 10.3% exceeds the 8% excellence benchmark. EBITDA margin stood at 27.2%, reflecting solid operating leverage as SG&A grew modestly relative to gross profit. Our simple FCF proxy (OCF – capex) was approximately 35.91, supporting both investment and shareholder returns. The calculated payout ratio is 52.2%, which appears sustainable given cash generation, though disclosed dividend cash outflow is unreported. With inventories not disclosed, working capital dynamics are partially obscured; however, accounts receivable at 80.09 is consistent with higher sales. Forward-looking, the set-up suggests capacity to continue investing in growth while maintaining dividends, but cyclical semiconductor demand and FX remain swing factors. Overall, the quarter demonstrates healthy profitability, strong cash flow, and conservative leverage—positioning the company well for a cyclical upturn. We note minor ordinary margin compression from non-operating items, but core operations strengthened. Future quarters should watch order trends, utilization, and capex efficiency to sustain ROIC above 10%.

Profitability Analysis

ROE decomposition (DuPont): ROE 5.9% = Net Profit Margin 13.8% × Asset Turnover 0.302 × Financial Leverage 1.41x. The operating margin improved to 21.6% (26.57/123.22), and using inferred prior period data (back-solved from YoY growth), operating margin expanded by about 73 bps (from ~20.8% to ~21.6%), indicating positive operating leverage. Net margin ticked up approximately 9 bps to 13.8%, while ordinary margin slipped ~41 bps to 19.9% due to higher non-operating expenses (2.38 vs 0.29 in income). Among the DuPont drivers, asset turnover (0.302) remains modest and is likely constrained by a relatively large cash position and growing asset base; the quarter’s ROE uplift is primarily attributable to margin improvement rather than leverage (financial leverage at 1.41x is conservative). Business reasons: stronger gross profit (43.3% gross margin) and disciplined SG&A (26.72) enabled operating leverage as sales scaled; non-operating expenses (interest and other) modestly offset this at the ordinary income level. Sustainability: Operating margin gains look partly sustainable if mix and utilization remain favorable; the slight ordinary margin compression appears non-structural given minimal interest burden and small non-op items. Watch for SG&A discipline—at 26.72 vs gross profit 53.30, SG&A grew slower than revenue, supportive for margins. No red flags such as SG&A growth outpacing revenue are evident.

Growth Assessment

Revenue growth of 25.2% YoY to 123.22 reflects strong demand momentum. Operating income growth of 29.6% outpaced revenue, pointing to positive operating leverage. Net income grew 26.0%, slightly below operating income growth due to higher non-operating expenses and a 31.2% effective tax rate. The 27.2% EBITDA margin and 21.6% operating margin indicate improved efficiency and scale benefits. With ROIC at 10.3%, incremental investments appear value-accretive at present. Sustainability hinges on semiconductor test demand and customer capex cycles; absent inventories data, full visibility into backlog fulfillment and working capital absorption is limited. Near-term outlook is constructive given cash strength and low leverage, enabling continued capex (capex this period: 7.19) without straining liquidity. Key swing factors: wafer probe card demand tied to leading-edge nodes, product mix, and FX. Non-operating result was a slight drag; we do not see structural issues. Overall, growth quality is solid, with cash conversion supporting reinvestment.

Financial Health

Liquidity is very strong: current ratio 448.2% and quick ratio 448.2% comfortably exceed benchmarks. No warning on current ratio (<1.0) or D/E (>2.0); D/E is a conservative 0.41x. Working capital is ample at 227.05, with cash and deposits of 153.48 and accounts receivable of 80.09 covering current liabilities of 65.21 many times over. Maturity mismatch risk appears low: current assets 292.26 vs current liabilities 65.21; long-term loans 41.19 are manageable relative to equity 289.07. Interest coverage is extremely strong at 106.28x, implying low refinancing risk. Off-balance sheet obligations were not reported; none can be assessed from the provided data. Equity base is solid at 289.07 with retained earnings of 216.43, supporting balance sheet resilience.

Cash Flow Quality

OCF/Net Income is 2.54x, signaling high earnings quality and robust cash conversion. Using a simple definition (FCF = OCF – capex), FCF is approximately 35.91, indicating ample coverage for potential dividends and debt service. Working capital details are partially missing (inventories unreported), but the strong OCF suggests limited adverse working capital effects this quarter. No signs of working capital manipulation are evident from the available data: receivables (80.09) are reasonable against the sales scale, and payables (11.98) are modest. Financing CF was -2.19, consistent with net repayments or dividends, though specific dividend cash flows were not disclosed. Overall, cash flow quality is strong and supports ongoing investment.

Dividend Sustainability

The calculated payout ratio is 52.2%, within the <60% benchmark for sustainability. Although total dividends paid are unreported, applying the 52.2% payout to net income of 16.98 implies an estimated dividend cash outlay of roughly 8.86 and an indicative DPS around 70 yen (assuming ~12.64 million average shares), both subject to disclosure confirmation. With an estimated FCF of ~35.91 (OCF – capex), dividend coverage appears comfortable. Balance sheet liquidity (cash 153.48) and low leverage provide additional cushion. Dividend policy details were not provided; absent guidance changes, the current payout level looks maintainable if earnings remain near current run-rate. Key watchpoints: capex intensity, order visibility, and FX effects on earnings.

Risk Assessment

Business Risks:

• Semiconductor cycle risk impacting probe card demand and utilization
• Customer capex dependency and order volatility
• Product mix shifts across technology nodes affecting margins
• Competitive pressure in probe cards and test interfaces

Financial Risks:

• FX fluctuations affecting revenue and margins (export exposure not quantified)
• Potential increase in interest rates affecting future financing costs (though current interest burden is low)
• Working capital swings (inventories unreported) potentially impacting OCF in down-cycles

Key Concerns:

• Ordinary margin slightly compressed (~41 bps) due to higher non-operating expenses
• Partial transparency gaps: inventories, investing CF, and dividend cash outflows unreported
• Cyclical end-market exposure could reverse recent operating leverage gains

Investment Implications

Key Takeaways:

• Strong operational quarter: revenue +25.2% YoY, operating income +29.6% YoY
• Operating margin expanded ~73 bps to 21.6%; EBITDA margin 27.2%
• High-quality earnings with OCF/NI at 2.54x; estimated FCF ~35.91
• Balance sheet is conservative (current ratio 448%, D/E 0.41x; cash 153.48)
• ROIC at 10.3% exceeds 8% excellence benchmark

Metrics to Watch:

• Order/backlog trends and utilization rates
• Gross and operating margin trajectory (mix and pricing)
• Working capital details, especially inventories and receivable days
• Capex-to-sales and ROIC maintenance >8%
• FX sensitivity and hedging impact
• Non-operating items and effective tax rate stability

Relative Positioning: Within Japan’s semiconductor test ecosystem, the company currently exhibits above-benchmark ROIC, strong cash conversion, and low leverage, positioning it favorably versus peers more exposed to leverage or weaker cash flow, albeit still subject to the common cyclical and FX risks of the sector.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis