ROHM COMPANY LIMITED FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥244.23B
• Operating Income: ¥7.65B
• Net Income: ¥10.33B
• EPS: ¥26.73

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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: Solid top-line growth and a sharp rebound in net profit, but underlying operating profitability remains thin and results are propped up by sizable non-operating gains and heavy balance-sheet support. Revenue rose 5.3% YoY to 2,442.28, with gross profit of 584.50 and operating income of 76.53, yielding a modest 3.1% operating margin. Net income surged to 103.18 (+398.9% YoY), translating to a 4.2% net margin and EPS of 26.73 yen on 386.0 million average shares. Ordinary income reached 134.22, supported by non-operating income of 70.26 (dividends 24.32, interest 25.90), while non-operating expenses were 12.58; the net non-operating contribution was a significant tailwind to quarterly earnings. Gross margin printed at 23.9%, operating margin at 3.1%, ordinary margin at 5.5%, and net margin at 4.2%. Margin direction in basis points versus last year cannot be precisely quantified due to missing YoY margin baselines, but the mix indicates improvement at the bottom line largely from non-operating items rather than core operations. ROE is low at 1.1%, constrained by both thin margins and low asset turnover (0.170) despite conservative leverage (1.59x). Cash generation was strong at the P/L-to-OCF bridge, with operating cash flow of 471.90 equating to 4.57x net income, indicating high earnings quality this quarter. However, heavy capital expenditures of 816.24 imply an implied negative free cash flow of roughly -344, suggesting growth investments are outpacing internal cash generation near term. The balance sheet remains strong (current ratio 310.5%, D/E 0.59x, interest coverage 10.36x), and cash and deposits are sizable at 2,942.28, providing funding flexibility. Non-operating income accounted for a high 68.1% ratio, signaling earnings sensitivity to financial income and potentially lower persistence versus operating profit. Reported ROIC is 0.7%, well below typical semiconductor WACC benchmarks, indicating near-term value dilution from ongoing investments until capacity/utilization ramps. The calculated payout ratio of 195.7% suggests dividends are currently above earnings power, likely relying on the cash-rich balance sheet; with negative FCF after capex, sustainability hinges on future OCF recovery. Forward-looking, the combination of stabilizing demand (implied by revenue growth), heavy capex, and low ROIC points to a transition phase: if utilization improves and the product mix shifts toward higher-margin devices (e.g., SiC/analog/power), margins and ROIC could lift meaningfully. Conversely, if end-demand or pricing softens, reliance on non-operating income could make earnings more volatile. Net-net, FY26 Q2 shows improving headline profitability but highlights the work still needed to restore robust operating margins and capital efficiency.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 4.2% × 0.170 × 1.59 ≈ 1.1%. The weakest component is asset turnover (0.170), followed by net margin (4.2%), while leverage is modest at 1.59x. The greatest constraint on ROE is low asset turnover, reflecting a large asset base (14,391.61) after sustained capex relative to current revenue scale (2,442.28), typical of a capacity build phase in semiconductors. Operating margin is thin at 3.1% as SG&A (507.96) consumes 86.9% of gross profit (584.50), leaving limited operating leverage; ordinary and net margins are materially aided by non-operating income (dividends/interest) this quarter. Business drivers: ongoing investment in power/analog capacity and possible utilization/mix headwinds suppress operating margin and turnover, while higher interest/dividend income on cash/securities lifted below-the-line profits. Sustainability: the margin uplift from financial income is less reliable than operating improvements; sustained ROE recovery requires better operating margin and revenue-to-asset productivity as new capacity ramps. Watch for SG&A intensity (SG&A/Revenue 20.8%) to ease with scale; with no YoY SG&A data provided, we cannot confirm deleveraging yet. Flags: low ROIC (0.7%) and heavy reliance on non-operating gains indicate core profitability remains subpar despite the net profit rebound.

Growth Assessment

Revenue grew 5.3% YoY to 2,442.28, suggesting stabilization/recovery in end markets. Operating income of 76.53 implies limited operating leverage at this stage; the majority of profit growth stems from non-operating income (net +57.68). EBITDA of 348.01 (14.2% margin) underscores capacity for operating cash, but depreciation is heavy (271.48), consistent with recent capex. The growth quality is mixed: top-line expansion is encouraging, but profit quality leans on financial income rather than core operations. Near-term growth sustainability will hinge on utilization improvement and product mix (e.g., power semiconductors, analog, automotive/industrial). With ROIC at 0.7%, current investments are not yet earning their cost of capital; the outlook depends on conversion of capex into revenue/OP gains over the next 4–6 quarters. Risks to growth include pricing pressure, inventory normalization pacing at customers, and FX volatility. Overall, the trajectory is positive on sales but requires operating margin recovery to translate into durable earnings growth.

Financial Health

Liquidity is strong: current ratio 310.5%, quick ratio 291.5%, and working capital 4,231.47. There is no warning for current ratio (>>1.0). Solvency is conservative with a reported D/E of 0.59x and interest coverage of 10.36x. Cash and deposits are robust at 2,942.28, providing ample buffer for capex and dividends in the near term. Debt mix: short-term loans 1,000.00 and long-term loans 1,000.00; with current assets far exceeding current liabilities (6,241.72 vs 2,010.25), near-term refinancing risk is limited. Maturity mismatch risk appears low given liquidity headroom, though reliance on short-term debt (1,000) warrants monitoring if markets tighten. No off-balance sheet obligations were reported in the provided data. Equity base remains strong at 9,044.22, supporting resilience through the investment cycle.

Cash Flow Quality

OCF/Net Income is 4.57x, indicating high earnings quality this quarter and strong cash conversion relative to reported profits. Despite healthy OCF (471.90), capex was substantial at 816.24, implying an estimated free cash flow of about -344.34 (OCF - Capex), i.e., negative FCF during the investment phase. Financing CF was -103.60, suggesting net cash outflows to shareholders and/or debt service; specific dividends/repurchases are unreported. Working capital details by component are limited, but the strong OCF suggests either solid operating earnings conversion and/or favorable working capital movement; we cannot confirm potential timing effects without detailed AR/AP/inventory turnover data. Sustainability: ongoing heavy capex will likely keep FCF tight or negative near term unless OCF steps up materially; funding capacity exists via cash balances and balance-sheet strength.

Dividend Sustainability

The calculated payout ratio is 195.7%, indicating dividends are above current earnings; however, total dividend cash outflow and DPS are unreported, limiting precision. With implied negative FCF (~-344) after capex, dividends are likely being supported by the balance sheet (cash 2,942.28) rather than internally generated free cash. Near-term sustainability is manageable given liquidity, but medium-term sustainability depends on OCF growth and capex normalization. Given low ROE (1.1%) and ROIC (0.7%), maintaining an elevated payout risks constraining reinvestment unless earnings recover. Policy outlook: management may prioritize investments in growth areas (power/SiC/analog) while aiming for stable dividends; we would monitor whether payout moderates as capex remains elevated.

Risk Assessment

Business Risks:

• Semiconductor cycle risk: demand/pricing volatility across auto/industrial and consumer end markets.
• Product mix and utilization risk: low operating margin indicates sensitivity to utilization and mix shifts.
• Execution risk on large capex: delays in ramp or slower-than-expected demand can depress ROIC.
• Supply chain and inventory risk across upstream materials and customer inventory adjustments.

Financial Risks:

• Earnings reliance on non-operating income (dividends/interest), elevating volatility if financial income declines.
• Negative FCF during investment phase, increasing dependence on cash reserves and debt markets.
• FX risk (e.g., USD/JPY) impacting revenue, COGS, and translation of financial income.
• Interest rate risk affecting returns from cash/securities and borrowing costs.

Key Concerns:

• ROIC at 0.7% is far below typical cost of capital, signaling value dilution near term.
• Thin operating margin (3.1%) with high SG&A intensity (SG&A/Revenue 20.8%).
• High payout ratio (195.7%) despite negative implied FCF.
• High non-operating income ratio (68.1%) implies lower persistence of earnings quality.

Investment Implications

Key Takeaways:

• Revenue growth resumed (+5.3% YoY), but core operating profitability is still weak.
• Net profit rebound is driven materially by non-operating income (dividends/interest).
• OCF is strong relative to earnings, but FCF is negative due to heavy capex.
• Balance sheet is robust, providing funding flexibility during the build-out.
• Capital efficiency remains a key overhang (ROE 1.1%, ROIC 0.7%).

Metrics to Watch:

• Operating margin progression and SG&A intensity (SG&A/Revenue).
• Utilization rates and product mix shift toward higher-margin devices (e.g., power/SiC).
• Order backlog and book-to-bill to gauge demand follow-through.
• OCF versus capex to confirm FCF inflection timing.
• Non-operating income trajectory and sensitivity to interest rates/market returns.
• ROIC versus WACC to assess value creation as new capacity ramps.

Relative Positioning: Within Japan-listed semiconductor peers, the company shows strong liquidity and conservative leverage but lags on capital efficiency and operating margin. Its earnings mix is currently more reliant on financial income than typical best-in-class analog/power peers, suggesting higher earnings volatility until operating metrics improve.

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