ROHM (6963) FY2026 Q3 Earnings Report

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Executive Summary

Although Revenue increased 7.2% year on year and Operating Income turned profitable from the previous year's loss, the results indicate that the Operating Income margin remained low at 2.6%. Revenue was ¥369.52B (+7.2% year on year), Operating Income was ¥9.70B, representing a return to profitability from the previous year's ¥-11.08B, Ordinary Income was ¥15.06B, and Net Income was ¥14.85B. The increase in profit was supported by non-operating income, primarily interest and dividend income, as well as extraordinary gains and losses, including gains on the sale of investment securities. These factors should therefore be evaluated separately from the improvement in operating results.

Factors Affecting Performance

【Revenue】Revenue was ¥369.52B, an increase of +7.2% year on year. Progress against the full-year company forecast of ¥480.00B was approximately 77.0%, indicating performance broadly in line with the plan. Although segment disclosure was not provided, the increase in Revenue appears to reflect a recovery in demand.

【Profit and Loss】Gross profit was ¥85.40B, with a gross margin of 23.1%, while SG&A expenses were ¥75.70B, representing an SG&A ratio of 20.5%. Operating Income was ¥9.70B, with an Operating Income margin of 2.6%, marking a return to profitability from ¥-11.08B in the same period of the previous year. Ordinary Income was ¥15.06B, ¥5.36B higher than Operating Income, supported by ¥8.18B in non-operating income, including ¥4.02B in interest income and ¥2.78B in dividend income. Pre-tax income of ¥22.44B included the ¥7.39B difference between extraordinary income of ¥16.78B, including ¥1.97B in gains on the sale of investment securities, and extraordinary losses of ¥9.39B. Net Income was ¥14.85B. It should be noted that the contribution from non-operating and extraordinary income and losses was greater than the improvement in operating results alone. In conclusion, although the results showed increases in both Revenue and profit, a substantial portion of earnings quality depended on factors outside the core business.

Key Financial Indicators

【Profitability】The Operating Income margin of 2.6% improved from approximately zero in real terms in the same period of the previous year. However, fixed-cost absorption remains weak, with an SG&A ratio of 20.5% against a gross margin of 23.1%, and the Net Income margin remained at 4.0%. 【Cash Quality】Operating Cash Flow (OCF) was ¥71.32B, approximately 4.8 times Net Income, indicating favorable cash conversion of current-period earnings. However, the inclusion of non-core items such as subsidy income and interest and dividend income should be taken into account. 【Investment Efficiency】ROE was 1.6% and the Equity Ratio was 63.9%, indicating a strong equity base. However, capital expenditures of ¥100.24B were 2.4 times depreciation and amortization expense of ¥41.56B, making the progress of investment recovery a key issue from a capital-efficiency perspective. 【Financial Soundness】Cash and deposits were ¥307.47B and net assets were ¥926.16B. Against current assets of ¥628.30B, current liabilities were ¥187.93B, indicating strong short-term payment capacity.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥71.32B, almost flat at +4.1% year on year, while remaining at a high level and demonstrating cash-generation capacity substantially exceeding Net Income of ¥14.85B. However, increases of ¥15.75B in inventories and ¥6.82B in trade receivables placed pressure on working capital. Whether these increases represent a natural movement accompanying Revenue growth or signs of stagnation should be monitored going forward. Investing Cash Flow was positive at ¥0.98B, but this resulted from cash inflows, including proceeds from the sale of investment securities, offsetting large capital expenditures of ¥100.24B. The underlying capital expenditure burden is therefore substantial. Financing Cash Flow was ¥-20.43B, primarily due to dividend payments and other factors. Reported free cash flow was positive at ¥72.31B; however, simply deducting capital expenditures from OCF results in negative cash flow, indicating that internally generated funds provide limited coverage during this period of large-scale investment.

Earnings Quality

Ordinary Income of ¥15.06B exceeded Operating Income of ¥9.70B by ¥5.36B. This difference was attributable to ¥8.18B in non-operating income, primarily consisting of ¥4.02B in interest income and ¥2.78B in dividend income, which should be distinguished from recurring operating earnings power. In addition, pre-tax income of ¥22.44B included extraordinary income of ¥16.78B, including gains on the sale of investment securities of ¥1.97B and gains on the sale of fixed assets of ¥0.51B, as well as extraordinary losses of ¥9.39B, including impairment losses of ¥0.05B and disaster losses of ¥0.39B. The resulting positive contribution of ¥7.39B supported Net Income. OCF was approximately 4.8 times Net Income, providing sound cash support. However, because OCF also includes non-core items such as subsidy income and interest and dividend income, it should be noted that Operating Income, Net Income, and OCF differ in both level and composition. Comprehensive income was ¥55.71B, substantially exceeding Net Income of ¥14.85B, primarily due to foreign currency translation adjustments of ¥37.35B. This represents volatility driven by external factors separate from business earnings.

Earnings Forecast and Guidance

Revenue progress against the full-year company plan was 77.0%, broadly in line with the plan. In contrast, Operating Income was ¥9.70B against the full-year plan of ¥6.00B, representing progress of 161.7%; Ordinary Income was ¥15.06B against ¥11.00B, representing 136.9%; and Net Income was ¥14.85B against ¥10.00B, representing 148.2%. All profit measures were therefore substantially ahead of the standard quarterly progress benchmark of approximately 75%. This outperformance was largely attributable to non-operating income and extraordinary gains and losses. Depending on the concentration of investment spending and inventory adjustments in Q4, the extent of full-year profit outperformance may narrow.

Shareholder Returns

The Q2 dividend was ¥25 per share, and the full-year forecast dividend is ¥50. Based on the full-year Net Income plan of ¥10.00B, the expected Payout Ratio is approximately 193%, indicating a high Payout Ratio based solely on the earnings plan. However, cumulative Q3 Net Income was already ¥14.85B, exceeding the full-year plan, and ample cash and deposits of ¥307.47B support the company's capacity to pay dividends. As no share buyback was confirmed, this report evaluates the Payout Ratio only.

Risk Factors

1. Operating Income margin level and sustainability: Although the Operating Income margin of 2.6% marked a return to profitability, it remains low, and the factors supporting Net Income depend on non-operating income and extraordinary gains and losses. If improvement in core operating earnings power does not materialize, profit levels may become unstable from the next fiscal year onward.

2. Working capital stagnation: Inventories increased by ¥15.75B and trade receivables increased by ¥6.82B, respectively, indicating signs of slower inventory and receivables turnover. If supply and demand weaken, this could lead to inventory valuation losses or credit-loss risk.

3. Capital expenditure burden and investment recovery: Capital expenditures were ¥100.24B, 2.4 times depreciation and amortization expense of ¥41.56B and exceeding OCF. With ROE at only 1.6%, the key focus going forward will be whether the effects of these investments materialize through improvements in utilization and profit margins.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The company's profitability is substantially below the industry median and is at a lower-tier level.

Growth and Capital Efficiency

The Revenue growth rate exceeded the industry median and represented relatively high growth within the industry.

※Source: Compiled by the company

Key Points from the Results

1. Revenue increased +7.2% year on year and remained broadly in line with the full-year plan. However, the Operating Income margin of 2.6% was below the industry median of 8.6%, leaving room for improvement in profitability. This is a key point of focus in the results.

2. Although the cumulative Q3 profit progress rates were substantially above the full-year plans, the primary drivers were non-operating income and extraordinary gains and losses. Further confirmation is required in light of the difference between these factors and the pace of improvement in operating results alone.

3. Capital expenditures reached 2.4 times depreciation and amortization expense, while ROE remained at 1.6%. The timing at which the benefits of large-scale investments emerge in utilization and profit margins will be a key monitoring point going forward.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,821–¥1,922 at ±1% for the cost of equity, and ¥1,854–¥1,881 at ±0.1 for ω.

Notes:

• Normalized EPS calculated from Ordinary Income and other metrics is used to exclude the impact of temporary gains and losses (the company forecast EPS is ¥25.9).
• Because cumulative Net Income progress against the full-year forecast (148%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies ahead of schedule tend to exceed forecasts; in businesses with strong seasonality, the adjustment may be excessive).
• 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 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 solely from 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 by AI through analysis of 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 discretion and responsibility, after consulting a professional as necessary.

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AI Financial Analysis

Executive Summary

ROHM delivered a material operating recovery in FY2026 Q3, but underlying profitability and capital efficiency remain weak for a semiconductor manufacturer. Cumulative revenue rose 7.2% year on year to ¥369.5bn. Operating income recovered to ¥9.7bn from an operating loss of ¥11.1bn in FY2025 Q3. The operating margin consequently improved by 620bp to 2.6% from -3.2%, although it remains below the 5% caution threshold. Gross profit increased 14.3% to ¥85.4bn and gross margin expanded 140bp to 23.1% from 21.7%. SG&A declined 11.8% to ¥75.7bn despite revenue growth, providing substantial operating leverage and accounting for the swing into operating profit. EBITDA was ¥51.3bn, equivalent to a 13.9% margin, supported by ¥41.6bn of depreciation and amortization. Ordinary income was ¥15.1bn, aided by ¥8.2bn of non-operating income, including ¥4.0bn of interest income and ¥2.8bn of dividend income. Profit attributable to owners was ¥14.8bn, but this result included a net extraordinary gain of ¥7.4bn, comprising ¥16.8bn of extraordinary income and ¥9.4bn of extraordinary losses. Accordingly, the reported 4.0% net margin overstates the recurring earnings capacity implied by the 2.6% operating margin. Operating cash flow of ¥71.3bn was 4.81x net income and exceeded EBITDA, indicating strong cash realization during the period. However, the cash flow outcome included working-capital cash inflows, notably a ¥15.8bn inventory reduction, while inventory efficiency remains a central operational issue. Capital expenditure of ¥100.2bn was 2.41x depreciation, demonstrating continued heavy investment in manufacturing capacity and technology. Cash and deposits increased 56.4% year on year to ¥307.5bn, materially strengthening liquidity. The company has ¥200.0bn of interest-bearing debt, split evenly between short- and long-term obligations, but cash alone covers short-term debt by 3.07x. The full-year forecast calls for ¥480.0bn revenue, ¥6.0bn operating income and ¥10.0bn owner-attributable profit; Q3 cumulative progress is already 77.0%, 161.7%, and 148.2%, respectively, suggesting that management's outlook embeds a sharp Q4 profit decline or remains notably conservative. The key forward issue is whether the gross-margin and SG&A improvements can lift recurring operating profitability sufficiently to earn adequate returns on the enlarged asset base.

Profitability Analysis

The annualized DuPont ROE is 2.1%, decomposed into a 4.0% net profit margin, 0.340x asset turnover, and 1.57x financial leverage. The principal constraint is low operating profitability and asset utilization rather than excessive leverage. EBIT margin was only 2.6%, triggering the low-operating-efficiency alert and indicating that the large manufacturing and investment asset base is generating a limited operating return. The 620bp year-on-year improvement in operating margin is meaningful, driven by a 140bp gross-margin expansion and an 11.8% decline in SG&A against 7.2% sales growth. This favorable operating leverage should be monitored for sustainability because SG&A savings can support an early-cycle recovery but may be difficult to repeat if utilization, product development, or commercial investment rises. ROIC of 1.0% is materially below the 5% warning level and indicates that the return generated by the operating asset base remains inadequate despite the return to operating profit. The extended DuPont interest burden of 2.313x is above 1.0x because profit before tax was lifted by non-operating and extraordinary gains rather than because of a conventional operating-profit-to-interest relationship. Interest expense was manageable at ¥1.1bn, with EBIT interest coverage of 8.85x and EBITDA interest coverage of 46.77x. The effective tax rate was 33.9%, producing a tax burden of 0.660x. Net income should not be treated as fully recurring because the ¥7.4bn net extraordinary gain represents about half of owner-attributable profit. For JGAAP comparability, EBITDA of ¥51.3bn is the appropriate pre-financing profitability reference; no goodwill amortization burden is identified in the reported data.

Growth Assessment

Revenue growth of 7.2% and the transition from an operating loss to ¥9.7bn of operating income indicate a recovery in demand and/or manufacturing absorption. Gross profit grew faster than sales, at 14.3%, confirming improved gross-margin conversion. The decline in SG&A materially amplified the profit rebound, but this also means earnings growth is more pronounced than top-line growth and may normalize as spending resumes. The annualized operating margin of 2.6% remains too low to establish a durable high-return recovery. Full-year revenue guidance implies Q4 sales of approximately ¥110.5bn, while the operating-income forecast implies an operating loss of approximately ¥3.7bn in Q4 based on cumulative Q3 results. Likewise, the full-year owner-attributable profit forecast implies a Q4 loss of approximately ¥4.8bn. These implied outcomes may reflect anticipated seasonality, pricing pressure, underutilization, investment costs, or management conservatism; the divergence makes guidance execution a key near-term analytical focus. Semiconductor manufacturing remains exposed to customer inventory adjustments, product-mix changes, utilization swings, and pricing competition. High work in process of ¥87.7bn, representing 44.5% of identified inventory, points to a potential production bottleneck or lengthy manufacturing cycle. The company is still investing heavily, with capex equal to 27.1% of cumulative revenue and 2.41x depreciation, which can support future growth but raises the break-even level if demand recovery weakens.

Financial Health

Liquidity is strong. Current assets of ¥628.3bn exceed current liabilities of ¥187.9bn, resulting in a current ratio of 334.3% and a quick ratio of 313.3%. Working capital is ¥440.4bn, while cash and deposits of ¥307.5bn account for 21.2% of total assets. The ¥111.0bn year-on-year increase in cash and deposits reflects positive operating cash flow, security disposals, subsidies received, and financing cash movements. Interest-bearing debt totals ¥200.0bn, comprising ¥100.0bn of short-term debt and ¥100.0bn of long-term debt. Debt-to-equity is conservative at 0.57x, debt-to-capital is 17.8%, and liabilities represent 36.1% of total assets. The 50.0% short-term debt ratio triggers the refinancing-risk alert because half of debt matures or requires renewal within one year. Nevertheless, maturity-mismatch risk is contained by ¥307.5bn of cash, which covers short-term debt 3.07x, and by current assets that exceed short-term debt by more than six times. Debt/EBITDA is 3.90x, below the 4.0x high-yield warning threshold but elevated relative to a 2.5x investment-grade reference, reflecting still-low EBITDA relative to debt. Investment securities total ¥266.4bn, or 18.4% of assets, providing financial flexibility but exposing equity to market valuation movements. Owners' equity increased to ¥925.5bn from ¥889.0bn, supported by ¥55.7bn of comprehensive income attributable to owners, including foreign-currency translation and securities valuation gains. Net defined-benefit liability was ¥11.2bn and is modest relative to equity.

Notable B/S Changes

Cash & deposits: +¥110.9bn (+56.4% YoY) to ¥307.5bn — liquidity strengthened materially through operating cash generation, portfolio transactions, subsidies, and financing-related cash movements. Investment securities: -¥85.1bn (-24.2% YoY) to ¥266.4bn — portfolio monetization supported investing cash flow; the remaining balance is still a substantial 18.4% of total assets and retains market-valuation exposure. Property, plant & equipment: +¥26.5bn (+5.4% YoY) to ¥517.8bn — ongoing capacity and technology investment is expanding the fixed-asset base, increasing the importance of future utilization and ROIC. Construction in progress: -¥24.3bn (-31.0% YoY) to ¥54.2bn — suggests commissioning or transfer of projects into operating asset categories, which may increase depreciation and require demand absorption. Current liabilities: -¥31.7bn (-14.4% YoY) to ¥187.9bn — liquidity improved further, although ¥100.0bn of short-term borrowings remains subject to refinancing.

Cash Flow Quality

Cash conversion was strong during the period: operating cash flow was ¥71.3bn versus net income of ¥14.8bn, producing an OCF/net-income ratio of 4.81x and OCF/EBITDA of 1.39x. The accruals ratio of -3.9% is also consistent with cash realization exceeding accounting earnings. Operating cash flow benefited from a ¥15.8bn inventory reduction and a ¥6.8bn increase in trade receivables, the latter representing a cash outflow. Trade payables increased by ¥2.8bn, providing a modest source of operating cash. Cash-flow quality is therefore strong in the reported period, but part of the surplus derives from working-capital release rather than solely from recurring operating profitability. The reported free cash flow of ¥72.3bn reflects operating cash flow plus investing cash flow, which was positive ¥1.0bn due largely to ¥98.0bn proceeds from sales of investment securities and ¥9.6bn subsidies received. This reported free cash flow should not be equated with internally funded expansion capacity because capital expenditure was ¥100.2bn. On an operating-cash-flow-less-capex basis, underlying pre-financing free cash flow was negative ¥28.9bn. This shortfall is consistent with a growth investment phase, as capex was 2.41x depreciation, but it heightens the importance of eventual utilization and return on the new asset base. Working-capital efficiency is weak: annualized DSO was 66 days, above the 60-day warning threshold; annualized DIO was 190 days, far above the 90-day warning level; and the annualized cash conversion cycle was 235 days, well above 120 days. The high WIP ratio of 44.5% compounds the 190-day inventory signal and raises risks of production bottlenecks, slow throughput, demand mismatch, and inventory valuation pressure. Improvement in inventory turns and receivable collection is necessary for cash generation to remain robust once inventory reductions are exhausted.

Dividend Sustainability

The disclosed interim dividend is ¥25.00 per share, and the calculated dividend payout ratio is 68.1% against cumulative owner-attributable profit. This is above the 60% sustainability reference, although below a 100% warning level. Cash dividends paid were ¥19.3bn, exceeding cumulative owner-attributable profit of ¥14.8bn, which shows that the current distribution is not covered by reported accounting earnings on a year-to-date basis. Reported free cash flow of ¥72.3bn covers the ¥19.3bn cash dividend by 3.75x, while the provided FCF coverage metric is 7.16x based on the stated dividend assumption. However, reported free cash flow was supported by investment-security sales and subsidies, and operating-cash-flow-less-capex was negative ¥28.9bn. The full-year dividend forecast is ¥50.00 per share, implying no increase from the current annualized interim level. The forecast payout ratio would be approximately 193% using forecast EPS of ¥25.91, indicating that the planned dividend relies on balance-sheet capacity rather than forecast earnings coverage. Balance-sheet liquidity is sufficient for the policy in the near term given ¥307.5bn cash and a 63.8% capital adequacy ratio. Longer-term dividend sustainability depends on restoring recurring operating earnings and converting high capex into returns rather than relying on portfolio monetization or cash reserves.

Risk Assessment

Business risks include High priority — Semiconductor-cycle, pricing, and utilization risk: the 2.6% EBIT margin leaves limited buffer against demand softness, product-mix deterioration, or price competition., High priority — Manufacturing execution and inventory risk: annualized DIO of 190 days, a 235-day cash conversion cycle, and WIP equal to 44.5% of inventory indicate slow throughput and potential exposure to excess, obsolete, or impaired inventory., Medium priority — Customer credit and collection risk: annualized DSO of 66 days is above the 60-day warning threshold and should be monitored alongside customer demand conditions., Medium priority — Capex return risk: ¥100.2bn of capex, equal to 27.1% of revenue and 2.41x depreciation, requires improved utilization and margins to avoid diluting returns., Medium priority — FX and overseas-operation risk: foreign-exchange translation adjustments contributed materially to comprehensive income, while FX losses of ¥3.2bn were recorded in non-operating expenses..

Financial risks include Medium priority — Refinancing risk: ¥100.0bn, or 50.0% of interest-bearing debt, is short term. Liquidity is ample, but funding costs or credit-market conditions could affect refinancing economics., Medium priority — Leverage relative to current EBITDA: debt/EBITDA is 3.90x, close to the 4.0x caution threshold, even though debt-to-equity of 0.57x and cash coverage are conservative., Medium priority — Investment-security valuation risk: investment securities of ¥266.4bn are 18.4% of assets, and realized security sales contributed to investing cash flow., Medium priority — Dividend funding risk: the ¥50.00 full-year dividend forecast exceeds forecast EPS of ¥25.91 and is not covered by operating cash flow after capex in the reported period..

Key concerns include The LOW_OPERATING_EFFICIENCY alert is justified: 2.6% EBIT margin and 1.0% ROIC remain well below desirable levels despite the year-on-year recovery., The REFINANCING_RISK alert warrants monitoring because the short-term debt ratio is 50.0%; the impact is mitigated by cash/short-term debt of 3.07x and a 334.3% current ratio., The CAPITAL_EFFICIENCY alert is central to the investment case: large PPE of ¥517.8bn and capex expansion have yet to generate adequate returns., The HIGH_RECEIVABLE_DAYS, HIGH_INVENTORY_DAYS, LONG_CCC, and HIGH_WIP_RATIO alerts collectively point to a working-capital and production-flow challenge rather than an isolated balance-sheet metric., The quality of reported net income is reduced by a ¥7.4bn net extraordinary gain and by non-operating investment income; recurring operating earnings should be assessed primarily through EBIT and EBITDA..

Investment Implications

Key takeaways include Revenue growth, gross-margin expansion, and lower SG&A restored operating profitability, but the 2.6% EBIT margin remains below an acceptable level for a capital-intensive semiconductor manufacturer., Cash liquidity and equity capitalization are strong, providing capacity to fund near-term investment and debt maturities., Reported cash conversion is strong, but cash flow after capex is negative and inventory-related working-capital efficiency is weak., FY2026 guidance is unusually conservative relative to Q3 cumulative results, implying a Q4 operating loss if unchanged., The earnings recovery must translate into a sustained improvement in ROIC from 1.0% for the substantial manufacturing investment program to be value-accretive..

Metrics to watch include Operating margin and gross margin, particularly whether the Q3 2.6% EBIT margin can remain positive through Q4, Full-year guidance revisions and the implied Q4 operating-income trajectory, Annualized DIO, WIP ratio, DSO, and cash conversion cycle, Capex relative to depreciation, operating cash flow less capex, and subsequent capacity utilization, ROIC, asset turnover, and debt/EBITDA, Dividend coverage by recurring earnings and operating cash flow after capex, Short-term debt refinancing terms and the level of cash and investment securities.

Regarding relative positioning, ROHM combines a strong liquidity profile and meaningful manufacturing investment capacity with profitability and capital-efficiency metrics that remain below standard semiconductor-manufacturing benchmarks. Its recovery profile is therefore more dependent on margin normalization, capacity utilization, and working-capital discipline than on balance-sheet repair.