Sansha Electric Manufacturing (6882) FY2026 Q3 Earnings Report

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Executive Summary

For the cumulative Q3 period of the fiscal year ending March 2026, revenue increased but earnings declined significantly due to rising costs and temporary non-operating losses. Revenue was ¥181.8B (¥179.4B in the same period of the previous year, +1.4%), Operating Income was ¥3.5B (¥6.2B in the previous year, -43.8%), Ordinary Income was ¥2.8B (¥7.2B in the previous year, -60.6%), and Net Income was ¥0.8B (¥5.0B in the previous year, -83.2%). The primary factors were increased losses in the Semiconductor Business due to sluggish orders for power modules destined for China, higher material costs in the Power Supply Equipment Business, and the recording of a foreign exchange loss of ¥1.1B.

Factors Affecting Performance

【Revenue】Revenue was ¥181.8B, a modest year-on-year increase of +1.4%. Although the Power Supply Equipment Business grew +32.1% in the inverter field, overall growth was limited to +0.2% due to slowing demand for power supplies for surface treatment and small power supplies. The Semiconductor Business grew +23.8% in discrete products and chips, resulting in overall revenue growth of +4.9%, but recovery in orders for its core power modules destined for China remains sluggish.

【Profit and Loss】Operating Income was ¥3.5B (-43.8%). The largest deterioration factor was a ¥4.6B increase in fixed costs, with the increased depreciation burden associated with capital expenditures in the previous fiscal period weighing heavily. Ordinary Income declined further to ¥2.8B (-60.6%) due to the addition of a ¥1.1B foreign exchange loss and a ¥1.0B loss on equity-method investments. Net Income was ¥0.8B (-83.2%) due to the high tax burden, with an effective tax rate of 70.2%, resulting in a significant divergence from Ordinary Income. No extraordinary gains or losses were reported, and the heavy tax burden was the primary factor compressing final earnings. In conclusion, revenue increased while earnings declined.

Segment Analysis

The Power Supply Equipment Business is the core business, accounting for 74.8% of the revenue mix. Operating Income from this business was ¥8.6B (down 17.2% year on year), with higher material costs and inventory effects contributing to the decline. The Semiconductor Business accounts for 25.2% of revenue, but its Operating Loss expanded to ¥5.1B (¥-4.2B in the previous year), primarily due to weak demand for power modules destined for China and the increased depreciation burden. Total Operating Income of ¥3.5B reflects a structure in which the Semiconductor Business’s loss of ¥5.1B is deducted from the Power Supply Equipment Business’s profit of ¥8.6B, making deteriorating profitability in the Semiconductor Business the primary factor behind performance volatility. The difference in profit margins between the businesses is pronounced, with 6.3% for the Power Supply Equipment Business versus -11.2% for the Semiconductor Business, highlighting the disparity in their earnings structures.

Key Financial Indicators

Profitability: ROE was 0.5% (equivalent to 2.1% in the previous year), and the Operating Margin was 1.9% (3.4% in the previous year).
Investment efficiency: Construction in progress increased +31.5% year on year to ¥14.7B, accounting for 20.8% of property, plant and equipment. The Company is in a phase of growth investment, although investment ahead of the start of operations is progressing.
Financial soundness: The Equity Ratio was 71.7% (72.5% in the previous year), while the Current Ratio was 274.2%, an extremely high level.
Per-share indicators were EPS of ¥6.34 (¥37.65 in the previous year) and BPS of ¥1,834.32.

Cash Flow Analysis

Although disclosure of cash flow details is limited, cash and deposits increased to ¥60.4B (¥57.6B in the previous year), while short-term borrowings decreased to ¥22.0B (¥30.0B in the previous year). As a result, net funds increased to ¥38.4B (¥27.6B in the previous year, +¥10.8B), indicating conservative financial management that combines debt repayment with the accumulation of cash. Capital expenditures appear to be expanding, based on the increase in construction in progress (+¥3.5B) and machinery and equipment (+¥2.5B). Cash generation is assessed as somewhat stronger than standard; however, given the low earnings level, the sustainability of future cash-generation capacity requires monitoring.

Quality of Earnings

The gap between Ordinary Income of ¥2.8B and Net Income of ¥0.8B was substantial (-71.6%), primarily due to the high tax burden, with an effective tax rate of 70.2%. Non-operating expenses were ¥2.5B, equivalent to 1.4% of revenue, and were primarily attributable to a ¥1.1B foreign exchange loss, indicating a strong temporary market fluctuation component. Of the ¥1.9B in non-operating income, dividend income and other non-operating income were limited in scale. Comprehensive Income was ¥6.0B, significantly exceeding Net Income of ¥0.8B. The difference was primarily attributable to a ¥4.6B foreign currency translation adjustment and does not indicate an improvement in the Company’s underlying profitability during the period.

Earnings Forecast and Guidance

Progress against the full-year forecast was 65.6% for revenue, 28.9% for Operating Income, 23.5% for Ordinary Income, and 10.0% for Net Income, all substantially below the standard progress rate of 75%. The delays in progress for Operating Income and Net Income are particularly pronounced, requiring the Company to realize a substantial portion of its earnings plan in Q4. The Company’s forecast calls for revenue of ¥277.0B (+8.9%) and Operating Income of ¥12.0B (+11.8%), representing a plan weighted toward the second half compared with results through the first half. Although backlog data have not been disclosed, contract liabilities (advances received) of ¥2.8B declined from ¥4.7B in the previous year, suggesting a slowdown in advance orders.

Shareholder Returns

The annual dividend forecast is ¥40.00 (actual Q2 dividend: ¥10.00). Based on the full-year Net Income forecast of ¥8.4B, the forecast Payout Ratio is approximately 63.3%. If calculated solely on cumulative Q3 Net Income of ¥0.8B, the Payout Ratio would be 178.0%; however, this assumes a plan in which full-year earnings are weighted toward the second half, and it should be noted that dividend coverage by earnings would decline if full-year results fall below the forecast. No share buybacks have been identified based on the disclosed data.

Catalysts

【Short term】Improvement in the progress rate for Operating Income and Net Income in Q4, trends in orders for power modules destined for China in the Semiconductor Business, and progress in passing through higher material costs into prices. 【Long term】The commencement of operations and realization of investment benefits from capital expenditures made in the previous fiscal period (¥14.7B in construction in progress), and expansion of sales in the inverter and special-purpose power supply fields.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Return

Both the Operating Margin and Net Profit Margin are substantially below the industry median, placing profitability at a low level within the industry.

Growth and Capital Efficiency

The Revenue Growth Rate is also below the industry median, indicating that the pace of revenue growth is somewhat slower within the industry.

※Source: Compiled by the Company

Risk Factors

1. Profitability deterioration risk: Cost of sales increased 10.5% year on year, and the gross margin declined to 22.6% (24.6% in the previous year). If higher raw material costs and weak demand from China continue, improvement in profitability may be delayed.

2. Foreign exchange risk: The ¥1.1B foreign exchange loss is equivalent to approximately 32% of Operating Income of ¥3.5B, and fluctuations in the U.S. dollar and Chinese yuan exchange rates are affecting performance through non-operating income and expenses.

3. Full-year plan achievement risk: The progress rates for Operating Income and Net Income were 28.9% and 10.0%, respectively, below the standard progress rate, resulting in a plan structure that requires a substantial performance improvement in Q4.

Key Points in the Earnings Report

1. The Operating Loss of the Semiconductor Business expanded to ¥5.1B, continuing the structure in which it weighs on the ¥8.6B profit of the Power Supply Equipment Business. Trends in demand for power modules destined for China have a significant impact on overall performance.

2. The high effective tax rate of 70.2% significantly impaired the conversion of Ordinary Income into Net Income. The normalization of the tax burden will be a key factor affecting final earnings.

3. While maintaining a conservative financial base, including an Equity Ratio of 71.7% and net funds of ¥38.4B, investment in construction in progress of ¥14.7B accounts for 20.8% of property, plant and equipment. The timing of the commencement of operations and monetization of these investments may become a structural inflection point going forward.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,459–¥1,539 at ±1% for the cost of equity, and ¥1,488–¥1,505 at ±0.1 for ω.

Notes:

• 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 were used (there is a timing gap relative to the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this 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 through AI-integrated analysis of XBRL earnings summary data and PDF earnings presentation materials. 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 discretion and responsibility, after consulting with professionals as necessary.

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