HORIBA (6856) FY2026 Q2 Earnings Report

Quick View

Executive Summary

The company reported higher revenue and earnings, with both Revenue and Operating Income achieving double-digit growth. Expanding demand in the Advanced Materials & Semiconductor Business drove performance. Revenue was ¥1,798.5B (+20.8% year on year), Operating Income was ¥304.9B (+39.3%), Ordinary Income was ¥314.2B (+39.5%), and Net Income was ¥218.1B (+37.5%). The Operating Income margin improved to 17.0%, with operating leverage taking effect due to a decline in the SG&A ratio. Meanwhile, progress against the full-year forecast was 47.1% for Revenue and 43.6% for Operating Income, slightly below the standard 50% progress benchmark, suggesting a shipment structure weighted toward the second half.

Factors Affecting Performance

【Revenue】Revenue was ¥1,798.5B, representing a 20.8% year-on-year increase. By segment, the Advanced Materials & Semiconductor Business led overall performance with Revenue of ¥999.6B (55.6% composition ratio, +31.9% YoY), while Energy & Environment generated ¥583.8B (+7.5%) and Bio & Healthcare generated ¥215.1B (+14.1%), with all segments reporting higher Revenue.

【Profit and Loss】Operating Income was ¥304.9B (+39.3% year on year), and the Operating Income margin improved to 17.0%. The Gross Profit margin was maintained at 44.9%, while the SG&A ratio declined, resulting in economies of scale from higher Revenue. Non-operating income and expenses resulted in net income of ¥9.3B, mainly from interest and dividend income, while extraordinary income and expenses resulted in a net loss of ¥3.5B, including business restructuring expenses, with both having only a minor impact. Ordinary Income was ¥314.2B (+39.5%), and Net Income was ¥218.1B (+37.5%), resulting in higher Revenue and earnings.

Segment Analysis

The Advanced Materials & Semiconductor Business is the core business, accounting for the majority of company-wide profit, with Revenue of ¥999.6B (+31.9% YoY), Operating Income of ¥301.8B (+33.9%), and a profit margin of 30.2%. Energy & Environment recorded Revenue of ¥583.8B (+7.5%) and Operating Income of ¥10.8B (+111.6%), expanding its profit and improving its profit margin to 1.8%. Bio & Healthcare recorded Revenue of ¥215.1B (+14.1%), while its operating result was a loss of ¥7.7B; however, the loss narrowed from ¥11.5B in the previous year. The company remains highly dependent on the Advanced Materials & Semiconductor Business for company-wide Operating Income, indicating continued business concentration.

Key Financial Indicators

【Profitability】The Operating Income margin of 17.0% and Net Income margin of 12.1% both improved from the previous year (14.7% and 10.7%, respectively). The decline in the SG&A ratio contributed to margin improvement while the Gross Profit margin was maintained at 44.9%. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥334.1B, or 1.53 times Net Income of ¥218.1B, indicating strong cash generation. However, an increase in inventories (-¥25.4B) was a factor weighing on working capital. 【Investment Efficiency】ROE was 6.0% and the Equity Ratio was 67.2%, indicating room for improvement in capital efficiency, with profit growth appearing somewhat slower than the pace of total asset expansion. 【Financial Soundness】Interest-bearing debt was limited relative to cash and deposits of ¥1,693.1B. The Equity Ratio of 67.2% was maintained at the same level as the previous year, indicating a stable financial foundation.

Cash Flow Analysis

Cash flow from operating activities was ¥334.1B (+11.9% year on year), calculated from a subtotal of ¥386.6B, including ¥73.8B in depreciation and amortization, after reflecting an increase in inventories of ¥25.4B and income taxes paid of ¥62.1B. Cash flow from investing activities was negative ¥88.1B, mainly due to capital expenditures of ¥110.5B, while Free Cash Flow was secured at a strong level of ¥246.0B. Cash flow from financing activities was negative ¥204.4B, mainly due to dividend payments and other items. However, given the scale of OCF and FCF, the company has a structure that allows it to sufficiently fund dividends and growth investments through internal funds.

Earnings Quality

Non-operating income was ¥17.1B, remaining below 1% of Revenue and consisting primarily of recurring items such as dividend income of ¥2.2B. Extraordinary income was ¥0.9B and extraordinary losses were ¥4.4B, including ¥2.9B in business restructuring expenses, resulting in only a slight net loss and a limited impact on Net Income. The difference between Ordinary Income of ¥314.2B and Net Income of ¥218.1B was attributable to income taxes of ¥92.7B. The effective tax rate was generally within a reasonable range, and the limited impact of temporary factors on earnings suggests that the current-period increase in profit was high-quality earnings driven by operating activities. Comprehensive Income was ¥319.3B, exceeding Net Income of ¥218.1B, with foreign currency translation adjustments of ¥57.2B and valuation differences on securities of ¥44.9B contributing to the increase.

Earnings Forecast and Guidance

Progress for the first half against the full-year forecast (Revenue of ¥3,820.0B, Operating Income of ¥700.0B, and Ordinary Income of ¥710.0B) was 47.1% for Revenue, 43.6% for Operating Income, and 44.3% for Ordinary Income, slightly below the simple 50% benchmark. Contract liabilities (advances received) increased to ¥263.1B from ¥235.8B in the previous year, confirming the accumulation of orders already received. The delayed progress may reflect a structure in which shipments and acceptance inspections are weighted toward the second half. During the quarter, the earnings and dividend forecasts were revised, and the full-year outlook was revised upward.

Shareholder Returns

The interim dividend was ¥150 per share, and the full-year dividend forecast was revised to ¥790 (base dividend of ¥210, special dividend of ¥190, and ¥240 commemorative dividend for reaching a market capitalization of ¥1T). Based on the base dividend of ¥210, the Payout Ratio against forecast full-year EPS of ¥1,189.87 was approximately 17.6%; on a ¥790 basis including the special and commemorative dividends, it was approximately 66.4%. Against Free Cash Flow of ¥246.0B, dividend payments during the first half were ¥155.3B, indicating that dividends are sufficiently covered by cash flow. Share repurchases were negligible.

Risk Factors

1. Segment concentration risk: The Advanced Materials & Semiconductor Business accounts for 55.6% of Revenue and approximately 99% of Operating Income, creating a structure in which demand trends in this business are directly linked to company-wide performance.

2. Deterioration in working capital efficiency: Inventories increased to ¥308.8B, continuing to rise from the previous year. The increase in inventories had a negative impact of ¥25.4B against the ¥386.6B subtotal of OCF. Progress in collections and inventory reduction will affect future cash-generation capacity.

3. Foreign exchange and market fluctuation risk: A foreign exchange loss of ¥2.1B was incurred, while investment securities increased to ¥236.9B (+38.3% year on year), leaving the company susceptible to valuation fluctuations associated with market movements.

Industry Benchmark (Reference; Company Research)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Income margin and Net Income margin exceed the industry median, placing profitability among the higher levels within the industry.

Growth and Capital Efficiency

The Revenue growth rate is approximately twice the industry median and is at a high-growth level near the upper bound of the IQR.

※Source: Company research

Key Points from the Financial Results

1. The Operating Income margin improved to 17.0% from the previous year, confirming operating leverage resulting from a lower SG&A ratio. The high profitability of the Advanced Materials & Semiconductor Business (30.2% profit margin) remains central to company-wide earnings and is a point to note in terms of the business mix.

2. Contract liabilities (advances received) increased to ¥263.1B, suggesting an accumulation of orders already received. The possibility that shipments and acceptance inspections are weighted toward the second half may explain why full-year progress is slightly below the 50% benchmark.

3. Working capital expanded due to increases in inventories and trade receivables. Although OCF of ¥334.1B was secured at 1.53 times Net Income, asset efficiency (ROE of 6.0%) has remained sluggish relative to the high Equity Ratio.

Theoretical Stock Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade period). It is not a forecast of the market price or a recommendation of any specific investment action.

Sensitivity: ¥9,803–¥10,354 at a ±1% change in the cost of equity, and ¥10,042–¥10,119 at a change of ±0.1 in ω.

Notes:

• Amortization of goodwill of ¥14.5 per share is added back to earnings (to account for a non-cash expense and comparability with IFRS companies).
• Net assets as of the end of the quarter are used (there is a time lag 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 / Interest rate reference month: 2026-07 / This value does not predict or guarantee the future stock price)

---

This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary 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, where necessary, after consulting with a professional.

---End of Report---

---

AI Financial Analysis

Executive Summary

HORIBA delivered a strong FY2026 Q2 result, with broad-based revenue growth and substantial operating leverage led by the Advanced Materials & Semiconductor business. Revenue rose 20.8% YoY to ¥179.9bn, operating income increased 39.3% to ¥30.5bn, and net income rose 37.5% to ¥21.8bn. The operating margin expanded 225bp YoY to 16.9%, exceeding the 15% threshold generally associated with excellent profitability. Gross margin was broadly stable at 44.9%, up approximately 10bp YoY, indicating that the margin improvement was primarily driven by SG&A leverage rather than gross-margin expansion. SG&A expenses rose 12.3% YoY, materially below revenue growth, reducing the SG&A-to-sales ratio by roughly 210bp to 28.0%. Advanced Materials & Semiconductor revenue grew 31.9% YoY to ¥100.0bn and segment profit increased 33.9% to ¥30.2bn, making it the principal earnings engine. The Energy & Environment segment also improved, with revenue up 7.5% and segment profit more than doubling to ¥1.1bn. Bio & Healthcare revenue increased 14.1%, while its segment loss narrowed from ¥1.1bn to ¥0.8bn. Ordinary income of ¥31.4bn was marginally above operating income, supported principally by ¥1.2bn of interest income, while interest expense remained modest at ¥0.5bn. Net income quality was sound: operating cash flow was ¥33.4bn, equivalent to 1.53x net income, and the accruals ratio was negative 2.1%. Free cash flow was a positive ¥24.6bn after ¥11.0bn of capital expenditure. The balance sheet remains highly liquid, with ¥169.3bn of cash and deposits, a 292.8% current ratio, and a 0.49x debt-to-equity ratio. However, the annualized working-capital cycle remains extended, with 84 days sales outstanding, 182 inventory days, and a 225-day cash conversion cycle; these metrics require monitoring despite robust current-period cash generation. Management's full-year forecast implies second-half acceleration, particularly in operating profit, although Q2 progress is within a normal range versus the full-year plan. The planned FY2026 dividend of ¥790 per share includes substantial special components, underscoring that capital returns this year are not solely a reflection of recurring earnings capacity.

Profitability Analysis

Annualized DuPont ROE was 11.9%, decomposed into a 12.1% net profit margin, 0.662x asset turnover, and 1.49x financial leverage. This places return on equity in the good 10-15% range, with profitability rather than leverage driving the result. Financial leverage is conservative, so the company is generating its return profile without an aggressive debt-funded capital structure. The largest earnings improvement came from operating leverage: revenue grew 20.8% while SG&A grew only 12.3%, expanding the operating margin to 16.9% from approximately 14.7% a year earlier. Gross margin was nearly unchanged at 44.9%, demonstrating that expense absorption and sales mix, rather than a material change in product-level gross profitability, accounted for most of the 225bp operating-margin gain. The Advanced Materials & Semiconductor segment is the core business by both revenue and operating-income contribution, generating ¥100.0bn of revenue and ¥30.2bn of segment profit, for a 30.2% segment margin versus 29.7% a year earlier. Energy & Environment produced revenue of ¥58.4bn, up 7.5% YoY, and segment profit of ¥1.1bn, versus ¥0.5bn previously; its margin improved 91bp to 1.8%, although it remains substantially below the group average. Bio & Healthcare generated ¥21.5bn of revenue, up 14.1%, and reduced its segment loss to ¥0.8bn from ¥1.1bn; its negative 3.6% margin remains a drag on consolidated returns. The 0.702 tax burden was normal, corresponding to a 29.8% effective tax rate. The 1.019 interest burden reflects net financial income, as interest income of ¥1.2bn exceeded interest expense of ¥0.5bn. EBITDA was ¥37.9bn, for a 21.1% margin, while annualized interest coverage was exceptionally strong at 64.1x on EBIT and 79.6x on EBITDA. Under JGAAP, goodwill amortization was ¥0.3bn, only 0.8% of EBITDA, so goodwill accounting has no material effect on earnings comparability.

Growth Assessment

Growth was led decisively by Advanced Materials & Semiconductor, where revenue expanded ¥24.2bn YoY and accounted for approximately 78% of consolidated revenue growth. Its high 30.2% segment margin means the segment also generated essentially all consolidated segment profit, reinforcing its central importance to the earnings trajectory. Energy & Environment added steadier growth and returned stronger profitability, while Bio & Healthcare improved operationally through a smaller loss. Consolidated operating income increased faster than revenue, at 39.3% versus 20.8%, reflecting positive operating leverage. Net income growth of 37.5% was close to operating-income growth, supporting the view that the performance was fundamentally operating-led rather than driven by financial or extraordinary items. Interest income of ¥1.2bn provided a modest non-operating contribution, consistent with the sizable cash balance, but represented less than 1% of revenue. Net extraordinary losses were ¥0.3bn, or approximately 1.6% of net income, and therefore did not materially distort reported profitability. Management forecasts FY2026 revenue of ¥382.0bn, operating income of ¥70.0bn, ordinary income of ¥71.0bn, and net income attributable to owners of ¥50.0bn. Q2 cumulative revenue represents 47.1% of the full-year revenue forecast, 2.9 percentage points below the standard 50% first-half progress rate. Operating-income progress is 43.6% and net-income progress is 43.6%, respectively 6.4 percentage points below a 50% pace. These deviations do not exceed the 10-percentage-point threshold that would ordinarily signal a material variance from the plan, but they imply a stronger second half: approximately ¥202.1bn of revenue and ¥39.5bn of operating income are required. Forecast operating-margin delivery therefore depends on maintaining the high-margin semiconductor and advanced-materials sales mix while preserving the current SG&A discipline.

Financial Health

Financial health is robust. Current assets of ¥365.6bn exceeded current liabilities of ¥124.9bn by ¥240.7bn, producing a 292.8% current ratio and a 268.1% quick ratio. Cash and deposits totaled ¥169.3bn, representing 31.2% of total assets and providing substantial liquidity against short-term funding needs. Short-term loans were ¥8.9bn and declined 27.0% YoY, while cash was 19.0x short-term debt. Current bonds payable of ¥15.0bn are also readily covered by cash, mitigating maturity-mismatch risk. Interest-bearing debt was ¥32.9bn on the reported metric, equal to 0.49x equity and 0.87x EBITDA; debt-to-capital was only 8.3%. Debt servicing capacity is very strong, as illustrated by 64.1x EBIT interest coverage and 79.6x EBITDA interest coverage. Total liabilities represented 32.8% of assets, while owners' equity was ¥364.6bn, equivalent to a 67.1% capital adequacy ratio. Investment securities increased ¥6.6bn, or 38.3% YoY, to ¥23.7bn. This increase enhances financial-asset exposure and contributed to comprehensive income through valuation gains, although the portfolio remains modest at 4.4% of total assets. Property, plant and equipment increased to ¥136.5bn, with buildings increasing ¥12.1bn YoY and construction in progress declining ¥8.8bn, consistent with capital projects moving toward completion or being placed into service. Goodwill was only ¥2.0bn, equal to 0.5% of equity and 0.05x EBITDA, leaving the balance sheet largely insulated from acquisition-related impairment risk. Contract liabilities of ¥26.3bn provide an additional source of operating funding and support visibility into future revenue conversion.

Notable B/S Changes

Investment securities: +¥6.6bn (+38.3% YoY) to ¥23.7bn — increased exposure to market-value movements and other comprehensive income, although the portfolio remains 4.4% of total assets. Short-term loans: -¥3.3bn (-27.0% YoY) to ¥8.9bn — reduced reliance on short-term borrowing and strengthened already ample liquidity. Buildings: +¥12.1bn (+19.3% YoY) to ¥75.0bn — reflects expansion or capitalization of facilities and supports the above-replacement capital-investment profile. Construction in progress: -¥8.8bn (-40.5% YoY) to ¥12.9bn — indicates that previously ongoing projects have likely progressed toward completion or transfer into operating fixed assets. Accumulated other comprehensive income: +¥10.1bn (+19.3% YoY) to ¥62.4bn — supported by foreign-currency translation and securities valuation gains, increasing equity but also highlighting sensitivity to market and exchange-rate movements.

Cash Flow Quality

Cash-flow quality was strong in the first half. Operating cash flow of ¥33.4bn exceeded net income of ¥21.8bn by ¥11.6bn, producing an OCF/net-income ratio of 1.53x, well above the 0.8x concern threshold. Cash conversion, measured as OCF/EBITDA, was 0.88x, close to the excellent 0.9x benchmark and supportive of earnings realizability. The negative 2.1% accruals ratio also indicates that cash generation was stronger than accrual-based earnings. Free cash flow was ¥24.6bn after ¥11.0bn of capital expenditure, demonstrating that internal cash generation funded investment requirements. CapEx was 1.50x depreciation and amortization, showing investment above the replacement level and supporting capacity expansion, modernization, or strategic production investment. The extended working-capital cycle is the principal cash-flow risk. DSO of 84 days is above the 60-day warning threshold; the root cause is a relatively large trade receivables balance of ¥82.8bn relative to annualized sales, and the impact is slower cash collection and greater exposure to customer-payment timing. DIO of 182 days is also above the 90-day warning threshold; the large inventory commitment increases carrying-cost, demand-forecast, and inventory-obsolescence risk for an instrumentation and semiconductor-exposed manufacturer. The annualized cash conversion cycle of 225 days exceeds the 120-day warning threshold because extended receivable and inventory holding periods are not fully offset by supplier financing. In the current period, cash flow benefited from a ¥1.3bn reduction in trade receivables and a ¥1.9bn increase in trade payables, while a ¥2.5bn inventory build consumed cash. This working-capital pattern supports first-half operating cash flow but also indicates that a portion of cash generation relied on favorable collection and payment timing. Investing cash flow was negative ¥8.8bn, principally reflecting capital expenditures, while financing cash flow was negative ¥20.4bn, largely reflecting ¥15.5bn of cash dividends paid. Cash increased by ¥7.4bn during the period despite these outflows, confirming ample self-funding capacity.

Dividend Sustainability

The Q2 dividend was ¥150 per share, equivalent to a calculated first-half payout ratio of 29.1% and covered 3.88x by first-half free cash flow. The announced FY2026 dividend is ¥790 per share, comprising the ordinary distribution and special payments, including a ¥190 special dividend and a ¥240 dividend commemorating the company reaching a ¥1tn market capitalization. Based on forecast EPS of ¥1,189.87, the planned full-year dividend implies an approximate 66.4% dividend payout ratio. This is above the conventional 60% sustainability guideline, but the excess is attributable to explicitly non-recurring special distributions rather than an indication of a permanently elevated ordinary payout policy. The planned annual cash dividend would be approximately ¥33.2bn based on issued shares, exceeding first-half free cash flow of ¥24.6bn; full-year coverage therefore depends on second-half cash generation and/or use of the substantial cash balance. Cash and deposits of ¥169.3bn provide ample balance-sheet capacity for the planned distribution. Share repurchases were immaterial at ¥0.01bn, so the capital-return profile is overwhelmingly dividend-based rather than buyback-based. The ordinary dividend capacity appears supported by strong operating profitability, positive free cash flow, low leverage, and minimal interest burden. The special components should be evaluated separately from recurring shareholder-return capacity.

Risk Assessment

Business risks include Semiconductor and advanced-materials concentration: Advanced Materials & Semiconductor generated ¥100.0bn of revenue and ¥30.2bn of segment profit, making consolidated earnings sensitive to semiconductor capital-spending cycles, customer inventory adjustments, and technology investment demand., Working-capital intensity: DSO of 84 days, DIO of 182 days, and a 225-day annualized cash conversion cycle are all above warning thresholds. Extended collection and inventory cycles can increase funding needs and create inventory-valuation risk if demand conditions weaken., Bio & Healthcare profitability: The segment's loss narrowed to ¥0.8bn, but its negative 3.6% margin remains dilutive. Sustained improvement is required for the segment to become a positive contributor to consolidated earnings., Foreign-exchange exposure: The company reported ¥0.2bn of foreign-exchange losses in non-operating expenses and recorded substantial foreign-currency translation gains in other comprehensive income. Global operations leave reported earnings, equity, and competitive positioning sensitive to currency movements., Manufacturing execution: CapEx is running at 1.50x depreciation, signaling active investment. Returns depend on timely project completion, efficient utilization of added facilities, supply-chain reliability, and preservation of product quality..

Financial risks include Capital-return execution: The ¥790 per-share FY2026 dividend includes sizable special payments and implies an approximately 66.4% forecast payout ratio. While balance-sheet liquidity is substantial, this level should not be extrapolated as recurring without considering the special-dividend components., Investment-securities exposure: Investment securities rose 38.3% YoY to ¥23.7bn. Valuation changes can affect comprehensive income and equity, although the portfolio is limited to 4.4% of assets., Near-term obligations: ¥15.0bn of bonds are classified as current, but the liquidity risk is low because cash and deposits are ¥169.3bn and the quick ratio is 268.1%..

Key concerns include The 225-day annualized cash conversion cycle is the highest-priority operational monitoring item because it can weaken cash conversion if receivables rise or inventories fail to turn., Second-half execution is necessary to achieve the full-year ¥70.0bn operating-income forecast, as first-half progress is 43.6% versus a standard 50% pace., The core segment's exceptional 30.2% margin is a major strength but also increases sensitivity of group profitability to changes in Advanced Materials & Semiconductor demand and mix., The lack of material goodwill, low debt metrics, and strong liquidity substantially reduce balance-sheet and acquisition-related downside risk..

Investment Implications

Key takeaways include Revenue growth of 20.8% and operating-income growth of 39.3% demonstrate strong operating leverage., The operating margin reached 16.9%, up 225bp YoY, supported mainly by SG&A leverage., Advanced Materials & Semiconductor is the core profit engine, with ¥100.0bn of revenue, ¥30.2bn of segment profit, and a 30.2% segment margin., Cash earnings are strong, with ¥33.4bn of operating cash flow, ¥24.6bn of free cash flow, and OCF/net income of 1.53x., Liquidity and solvency are conservative, with a 292.8% current ratio, 0.49x debt-to-equity, and 0.87x debt/EBITDA., Extended annualized receivable days, inventory days, and cash conversion cycle are the principal operational financial-risk indicators., The planned ¥790 per-share dividend includes exceptional special distributions and should be separated analytically from recurring dividend capacity..

Metrics to watch include Advanced Materials & Semiconductor revenue growth and segment margin, Bio & Healthcare path from a ¥0.8bn segment loss toward break-even, Full-year operating-income progress against the ¥70.0bn forecast, Annualized DSO, DIO, and cash conversion cycle, Inventory build and working-capital cash consumption, Free-cash-flow generation relative to the planned annual dividend, Investment-securities valuation movements and foreign-currency translation effects.

Regarding relative positioning, HORIBA combines excellent consolidated operating and net margins, good annualized ROE, strong cash conversion, and a notably conservative balance sheet. Its profitability profile compares favorably with broad manufacturing benchmarks, particularly because returns are generated with low leverage. Relative positioning is tempered by a long working-capital cycle and meaningful concentration of earnings in the Advanced Materials & Semiconductor segment.