ROHM (6963) FY2027 Q1 Earnings Report

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Executive Summary

The Q1 financial results for the fiscal year ending March 2027 marked a significant recovery in profitability, with substantial increases in Operating Income, Ordinary Income, and Net Income in addition to higher Revenue. Revenue was ¥1,357.4B (¥1,162.0B in the same period of the previous year, +16.8%), Operating Income was ¥96.3B (an increase of ¥94.4B from ¥1.9B, +4841.0%), Ordinary Income was ¥112.4B (up ¥87.6B, +352.6%), and Net Income attributable to owners of the parent was ¥90.1B (up ¥60.4B from ¥29.7B, +203.6%). In addition to higher Revenue, the main drivers of the increase in profit were improved gross margin and operating leverage resulting from SG&A expense control.

Factors Affecting Results

【Revenue】Revenue was ¥1,357.4B (+16.8% YoY). By segment, including intersegment sales, ICs were ¥625.0B (+13.2%, approximately 46% of the composition), while Semiconductor Devices (Discrete) were ¥600.6B (+24.2%, approximately 44% of the composition), leading the recovery in volume. Modules were ¥80.7B (+0.4%), and Other was ¥66.1B (+4.3%), both remaining broadly flat. By region, Asia was the largest market at ¥762.5B (+12.6% YoY), accounting for 56.2% of the total. Europe stood out in terms of growth at ¥107.2B (+41.6%), with its composition ratio rising from 6.5% to 7.9%.

【Profit and Loss】The Operating Income margin improved significantly to 7.1% from 0.17% in the same period of the previous year. Gross margin improved to 25.5% (22.2% in the previous year, +330bp), while the SG&A expense ratio declined to 18.4% (22.0% in the previous year, -357bp), resulting in a double margin improvement in addition to the effect of higher Revenue. Ordinary Income increased by a further +¥16.1B from Operating Income, as non-operating income of ¥25.8B, mainly consisting of ¥16.9B in interest income, exceeded non-operating expenses of ¥9.7B, including ¥4.1B in interest expense and ¥4.8B in foreign exchange losses. Extraordinary gains of ¥16.0B, including gains on sales of investment securities, and extraordinary losses of ¥15.2B, including impairment losses, largely offset each other, resulting in a small net gain of +¥0.8B. This represented only 0.9% of Net Income, indicating that the impact of temporary factors was limited. After deducting income taxes and other taxes of ¥23.1B (effective tax rate of 20.4%) from Profit Before Tax of ¥113.2B, Net Income was ¥90.1B. In conclusion, the Company achieved both higher Revenue and higher profit in the quarter.

Segment Analysis

Segment profit was led by ICs at ¥73.1B (+69.0% YoY, 11.7% margin), which accounted for the core of total Company profit. Modules remained stable at ¥10.2B (+18.2%, 12.6% margin). Although Semiconductor Devices (Discrete) recorded the strongest Revenue growth at +24.2%, its operating loss continued at -¥9.4B; however, the loss narrowed substantially from -¥62.6B in the same period of the previous year (+84.9%). Other recorded ¥9.0B (-11.3%), representing a modest decline in profit. Regional sales on a consolidated basis were ¥410.9B in Japan (+19.0% YoY, 30.3% composition), ¥762.5B in Asia (+12.6%, 56.2% composition), ¥76.6B in the Americas (+20.0%, 5.6% composition), and ¥107.2B in Europe (+41.6%, 7.9% composition). Although the concentration in Asia continues, growth in Europe is increasing its composition ratio. The narrowing of the Discrete segment’s loss was the primary inflection point in the improvement of the Company-wide margin, and progress toward a return to profitability will be key to future profitability.

Key Financial Indicators

【Profitability】The Operating Income margin improved substantially to 7.1% (0.17% in the same period of the previous year), while the Net Income margin, based on income attributable to owners of the parent, improved to 6.6% (2.6% in the same period of the previous year). ROE, based on a DuPont decomposition, was approximately 1.2%, calculated as Net Income margin of 6.6% × total asset turnover of 10.5% (quarterly Revenue / total assets) × financial leverage of 1.68x. This improved from approximately 0.4% in the same period of the previous year, although it should be noted that this is a quarterly figure and has not been annualized. 【Cash Quality】Although the Statement of Cash Flows was not disclosed, Cash and deposits increased to ¥4,559.0B (+8.8% YoY), while investment securities were reduced to ¥1,174.5B (-25.7%), indicating a shift in the asset composition toward cash. 【Investment Efficiency】Total asset turnover increased from 9.1% in the same period of the previous year to 10.5% on a quarterly basis, confirming an improvement in asset efficiency accompanying higher Revenue. 【Financial Soundness】The Equity Ratio remained high at 59.7% (59.1% in the same period of the previous year), and liquidity remained ample, with current assets of ¥8,037.3B compared with current liabilities of ¥1,927.2B. Cash and deposits of ¥4,559.0B exceeded interest-bearing debt of ¥4,000B, comprising short-term borrowings of ¥1,000B, long-term borrowings of ¥1,000B, and bonds of ¥2,000B, resulting in a net cash financial structure.

Cash Flow Analysis

As the Statement of Cash Flows was not disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits increased by +¥367.9B (+8.8%) to ¥4,559.0B from ¥4,191.4B in the same period of the previous year. At the same time, investment securities decreased by -¥405.6B (-25.7%) to ¥1,174.5B, indicating a shift in assets from securities to cash. Trade receivables increased to ¥994.2B (+20.4%), slightly exceeding the +16.8% growth in Revenue. DSO calculated based on quarterly Revenue increased modestly from approximately 64.7 days to approximately 66.6 days. Inventories, comprising finished goods, work in process, and raw materials, were ¥2,018.4B, essentially flat from ¥2,023.1B in the same period of the previous year (-0.2%). Maintaining inventory levels despite higher Revenue suggests a slight improvement in inventory efficiency. Trade payables increased to ¥339.8B (+43.2%), exceeding the +11.8% growth in purchases and cost of sales, indicating potential room for adjustment in payment terms. Retained earnings were ¥488.99B, essentially flat from ¥489.64B in the same period of the previous year, suggesting that dividend payments absorbed the cumulative profit generated during the period. Overall, cash liquidity expanded, securing funding capacity for both investment and shareholder returns.

Quality of Earnings

Current-period earnings were largely derived from recurring business activities, indicating good earnings quality. Non-operating income of ¥25.8B, primarily consisting of ¥16.9B in interest income, exceeded non-operating expenses of ¥9.7B (¥4.1B in interest expense and ¥4.8B in foreign exchange losses), increasing Ordinary Income by +¥16.1B. The positive contribution from net financial income indicates that the Company is appropriately capturing changes in the interest-rate environment. Extraordinary gains of ¥16.0B, including gains on sales of investment securities, and extraordinary losses of ¥15.2B, including losses on disposal and sale of fixed assets, largely offset each other, resulting in a net gain of +¥0.8B, or only 0.9% of Net Income. The divergence between Ordinary Income and Net Income is therefore primarily explained by the tax burden, with an effective tax rate of 20.4%. Comprehensive Income was ¥258.2B, significantly exceeding Net Income of ¥90.1B. This difference was mainly attributable to valuation-related Other Comprehensive Income items, including foreign currency translation adjustments of +¥63.8B and valuation differences on securities of +¥104.5B. Accordingly, evaluation based on Net Income and Ordinary Income is more appropriate as an indicator of the Company’s underlying earnings power for the period.

Earnings Forecast and Guidance

Progress against the full-year plan was 26.6% for Revenue (¥1,357.4B against a plan of ¥5,100B), 32.1% for Operating Income (¥96.3B against a plan of ¥300B), 31.2% for Ordinary Income (¥112.4B against a plan of ¥360B), and 31.1% for Net Income (¥90.1B against a plan of ¥290B, with forecast EPS of ¥75.12). All were ahead of the standard quarterly progress benchmark of 25%. During the quarter, there were no revisions to either the earnings forecast or the dividend forecast, and management has maintained its initial plan at this point. The early progress was supported by improved gross margin and SG&A expense control in Q1, while continued improvement in the Discrete segment’s profitability from the second half onward will be a key point to monitor for achievement of the full-year plan.

Shareholder Returns

The annual dividend forecast for the fiscal year ending March 2027 is ¥50, and no revision to the dividend forecast was made during the quarter. Based on 403,760 thousand issued shares less 17,721 thousand treasury shares, or 386,039 thousand shares, the expected annual dividend payout is approximately ¥19.30B. The Payout Ratio against the full-year Net Income forecast of ¥29.0B, based on income attributable to owners of the parent, is calculated at approximately 66.5%. The plan represents an increase from the dividend of ¥25 per share in the same period of the previous year. No information regarding share repurchases has been disclosed, and evaluation based on the Payout Ratio is appropriate for shareholder returns. Given Cash and deposits of ¥4,559.0B and the low level of interest-bearing debt, the Company has sufficient cash resources to fund dividends.

Risk Factors

1. Profitability of the Semiconductor Devices (Discrete) Segment: Revenue increased to ¥600.6B (+24.2%), but the operating loss continued at -¥9.4B, representing a margin of -1.6%. Although this was substantially narrower than -¥62.6B in the same period of the previous year (+84.9%), the segment has not yet returned to profitability.

2. Impact of Foreign Exchange Fluctuations: The Company recorded foreign exchange losses of ¥4.8B during the quarter. Asia accounted for a high 56.2% of regional sales, while foreign currency translation adjustments contributed +¥63.8B to Comprehensive Income. Foreign exchange sensitivity is therefore at a level that cannot be ignored in either the income statement or Comprehensive Income.

3. Absolute Inventory Level: Total inventories, comprising finished goods, work in process, and raw materials, remained at ¥2,018.4B, equivalent to approximately 1.5 times quarterly Revenue. Although inventories were essentially flat from the same period of the previous year and no sharp deterioration in inventory efficiency was identified, this level requires continued monitoring from the perspective of impairment risk in the event of demand fluctuations.

Industry Benchmark (Reference・Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Income margin and Net Income margin are slightly below the industry median, placing the Company in the middle to slightly lower tier of the industry in terms of profitability.

Growth and Capital Efficiency

The Revenue growth rate substantially exceeds the industry median, placing the Company among the higher-growth group in the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The Operating Income margin recovered sharply from 0.17% in the same period of the previous year to 7.1%. This was driven by a double improvement consisting of +330bp in gross margin and -357bp in the SG&A expense ratio, representing a sign of structural profitability improvement beyond the effect of higher Revenue alone.

2. Progress against the full-year plan was 26.6% for Revenue and 32.1% for Operating Income, both exceeding the standard 25% benchmark. The Company is therefore ahead of the full-year plan at this point.

3. The Semiconductor Devices (Discrete) segment’s loss narrowed from -¥62.6B in the same period of the previous year to -¥9.4B. Continued improvement in profitability and the timing of a return to profitability will be key factors determining the future trend in the Company-wide Operating Income margin.

Theoretical Share Price (Reference Value)

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

Sensitivity: ¥1,679–¥1,774 at ±1% for the cost of equity, and ¥1,716–¥1,731 at ±0.1 for ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used; there is a timing difference from 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 forecast or guarantee the future share price)

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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, after consulting professionals as necessary.

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AI Financial Analysis

Executive Summary

ROHM delivered a clear first-quarter earnings recovery, with revenue growth and a sharp restoration of operating profitability after a near break-even prior-year quarter. Revenue increased 16.8% year on year to ¥135.7bn. Operating income rose to ¥9.6bn from ¥0.2bn, lifting the operating margin to 7.1% from 0.2%, an expansion of approximately 693bp. Gross profit increased 34.5% to ¥34.7bn, and the gross margin expanded to 25.5% from 22.2%, or about 335bp. SG&A expense declined 2.2% year on year to ¥25.0bn despite the revenue increase, demonstrating substantial operating leverage. Net income attributable to owners increased 203.6% to ¥9.0bn, producing a 6.6% net margin versus 2.6% in the prior-year quarter. The operating recovery was broad-based, led by LSI profitability and a substantial narrowing of the semiconductor-device segment loss. LSI was the core business by segment profit contribution, generating ¥7.3bn of segment profit and an 11.8% margin. Semiconductor devices posted the largest year-on-year profit improvement, reducing its loss to ¥0.9bn from ¥6.3bn as segment revenue rose 25.2%. Revenue increased in every reported region, with Europe up 41.6%, the Americas up 20.0%, domestic sales up 18.9%, and Asia up 12.6%. Ordinary income of ¥11.2bn exceeded operating income by ¥1.6bn, supported by net non-operating income, principally ¥1.7bn of interest income and ¥0.5bn of dividend income. Non-operating income represented 19.0% of revenue, meaning that financial income remains meaningful to reported pre-tax earnings even though the operating turnaround is genuine. Extraordinary income of ¥1.6bn and extraordinary loss of ¥1.5bn were broadly offsetting, limiting their net effect on pre-tax profit. The effective tax rate was 20.4%, resulting in a normal tax burden factor of 0.795. Comprehensive income of ¥25.8bn substantially exceeded net income, reflecting positive valuation and foreign-currency translation movements. Liquidity is exceptionally strong, with ¥455.9bn of cash and deposits against ¥200.0bn of interest-bearing debt. The principal operational issue is working-capital intensity, as elevated receivable days, inventory days, cash conversion cycle and work-in-process concentration could constrain cash generation if semiconductor demand or production throughput weakens. Full-year guidance implies that the Q1 result is ahead of a linear quarterly run rate, but the current progress rate is not sufficiently above the standard quarterly benchmark to establish a guidance beat.

Profitability Analysis

The reported annualized DuPont ROE is 4.7%, comprising a 6.6% net profit margin, 0.418x annualized asset turnover and 1.68x financial leverage. The dominant source of improvement is margin recovery rather than balance-sheet leverage: operating income increased by ¥9.4bn year on year while financial leverage remains moderate. Gross-margin expansion of approximately 335bp indicates improved absorption of manufacturing costs and/or a more favorable product and utilization mix. Operating-margin expansion was larger, at approximately 693bp, because SG&A declined 2.2% while revenue increased 16.8%; this is strong positive operating leverage. The 7.1% operating margin has recovered materially but remains below the 8-15% range generally regarded as good for profitability, so the earnings recovery is incomplete. The 6.6% net margin is within a reasonable 5-10% range, although it includes a meaningful contribution from net non-operating financial income. The extended DuPont tax burden of 0.795 is healthy, while the interest burden of 1.175 reflects that non-operating income exceeded interest expense rather than an excessive financing burden. Interest coverage of 23.33x is strong and indicates ample capacity to service interest expense. Annualized ROA is approximately 2.8%, calculated using Q1 net income annualized against average total assets, and remains below the 3% caution threshold. The low annualized ROE and ROA relative to the strong quarterly profit rebound reflect the company's large asset base, particularly cash, investments and production assets. Segment margins underscore the uneven recovery: LSI generated an 11.8% margin, modules 12.6%, and other businesses 13.7%, whereas semiconductor devices remained loss-making at negative 1.6%. Sustained normalization of semiconductor-device utilization and margins is therefore the principal requirement for a durable return improvement.

Growth Assessment

Revenue growth was broad-based across products and geographies. LSI revenue rose 13.3% year on year to ¥62.1bn, while segment profit increased 69.0% to ¥7.3bn, confirming improved earnings conversion in the core business. Semiconductor-device revenue increased 25.2% to ¥58.9bn and its segment loss narrowed by ¥5.3bn to ¥0.9bn; this recovery was the largest contributor to the improvement in consolidated operating profit. Module revenue was broadly stable at ¥8.1bn, up 1.0%, while segment profit rose 18.2% to ¥1.0bn. Other-business revenue increased 4.4% to ¥6.6bn, but segment profit declined 11.3% to ¥0.9bn. Asia remained the largest regional market at ¥76.3bn, or 56.2% of revenue, making demand conditions in Asian electronics supply chains central to revenue sustainability. Europe was the fastest-growing region at ¥10.7bn, up 41.6%, albeit from a smaller base. Full-year revenue guidance is ¥510.0bn, and Q1 revenue represents 26.6% of that target, only 1.6 percentage points above the standard 25% Q1 progress rate. Q1 operating income of ¥9.6bn represents 32.1% of the ¥30.0bn full-year target, 7.1 percentage points ahead of the standard quarterly pace. Q1 net income represents 31.1% of the ¥29.0bn full-year forecast, 6.1 percentage points above a linear run rate. These progress rates support management's unchanged forecast but do not exceed the standard pace by more than 10 percentage points. The two-period consistency score of 2/10 indicates that the current rebound follows a volatile earnings base, so the sustainability of margin recovery should be assessed over subsequent quarters rather than extrapolated from Q1 alone.

Financial Health

The balance sheet is highly liquid. The current ratio is 417.0% and the quick ratio is 398.7%, supported by current assets of ¥803.7bn and working capital of ¥611.0bn. Cash and deposits of ¥455.9bn cover short-term debt by 4.56x and exceed total interest-bearing debt of ¥200.0bn by ¥255.9bn, providing a substantial net-cash position. Debt-to-equity is a conservative 0.68x, debt-to-capital is 20.5%, and the equity ratio is 59.6%. Interest coverage of 23.33x further supports the assessment of strong debt-servicing capacity. The 50.0% short-term debt ratio is nevertheless a refinancing-risk alert because ¥100.0bn of debt is short term and requires regular refinancing or liquidity deployment. In this case, the refinancing exposure is materially mitigated by cash of ¥455.9bn, current assets of ¥803.7bn and a current-liability base of ¥192.7bn; there is no apparent current-asset versus short-term-debt maturity mismatch. Accounts payable increased 43.2% year on year to ¥34.0bn, which partly supports operating working capital but also warrants monitoring against inventory and procurement trends. Investment securities declined 25.7% year on year to ¥117.5bn, a reduction of ¥40.6bn, which reduced market-value and portfolio exposure while increasing the relative importance of cash within liquid assets. Intangible assets increased 68.1% to ¥8.1bn, but remain only 0.6% of total assets and therefore do not create a material intangible-asset concentration. Property, plant and equipment of ¥328.0bn, equal to 25.3% of assets, reflects a meaningful semiconductor-manufacturing fixed-asset base. The net defined-benefit liability is ¥10.2bn and is modest relative to total equity of ¥774.8bn.

Notable B/S Changes

Intangible assets: +¥3.3bn (+68.1%) to ¥8.1bn - the percentage increase is large, but intangibles remain only 0.6% of total assets and do not represent a material balance-sheet concentration. Accounts payable: +¥10.2bn (+43.2%) to ¥34.0bn - higher supplier obligations provide some working-capital funding, but should be assessed alongside elevated inventories and production activity. Investment securities: -¥40.6bn (-25.7%) to ¥117.5bn - reduced securities exposure shifts the liquid-asset mix toward cash and may reduce valuation volatility, while leaving liquidity very strong.

Cash Flow Quality

Dividend Sustainability

Management forecasts an annual dividend of ¥50 per share for FY2027. Based on forecast EPS of ¥75.12, the implied dividend payout ratio is approximately 66.6%. This is above the 60% benchmark commonly viewed as conservative, although it remains below 100% and is supported by the company's substantial net-cash position. Q1 EPS of ¥23.33 represents 31.1% of full-year forecast EPS, indicating that earnings coverage of the annual dividend is developing ahead of a linear quarterly pace. The unchanged dividend forecast alongside unchanged earnings guidance suggests that management is maintaining shareholder distributions through the current recovery rather than increasing commitments prematurely. The principal determinant of dividend resilience will be the durability of operating-margin recovery and the working-capital requirements associated with elevated production inventories.

Risk Assessment

Business risks include Semiconductor-device profitability remains negative: the segment recorded a ¥0.9bn loss and a negative 1.6% margin despite a ¥5.3bn year-on-year improvement. A slower-than-expected recovery in utilization, product mix or pricing would delay the group's return to stronger profitability., Asia accounted for 56.2% of Q1 revenue, exposing earnings to electronics demand cycles, customer inventory adjustments and supply-chain conditions in Asian markets., Manufacturing working-capital risk is elevated. DSO of 67 days exceeds the 60-day alert level, increasing exposure to slower customer collections and larger receivable funding needs., Inventory days of 182 are well above the 90-day warning level. In a cyclical semiconductor market, high inventory days increase risks of demand mismatch, price pressure and inventory valuation losses., Work in process represents 47.8% of inventory, above the 40% warning threshold. The high WIP ratio can indicate a production bottleneck, extended manufacturing cycle or capacity-utilization imbalance, and may delay conversion of production spending into sales and cash., The annualized cash conversion cycle of 218 days materially exceeds the 120-day warning level. The combination of slow receivable collection and high inventory intensity increases sensitivity to any deceleration in end demand..

Financial risks include The 50.0% short-term debt ratio exceeds the 40% refinancing-risk threshold. Although liquidity is ample, the ¥100.0bn short-term debt component requires continued access to refinancing or use of cash balances., Non-operating income was ¥25.8bn, or 19.0% of revenue, and included ¥16.9bn of interest income. Changes in interest rates, cash deployment or investment returns could affect ordinary income independently of operating performance., Positive comprehensive income was materially supported by valuation and foreign-currency translation movements. Such OCI gains can reverse with equity-market or exchange-rate movements and should not be treated as operating earnings..

Key concerns include The operating-margin recovery to 7.1% is substantial but remains below the 8% lower bound of the good-profitability benchmark., Annualized ROE of 4.7% and annualized ROA of approximately 2.8% remain below return thresholds, reflecting underutilization of the large capital base despite the Q1 earnings rebound., The two-period consistency score of 2/10 highlights the volatility of the earnings base and limits confidence in extrapolating a single quarter's recovery., The refinancing-risk alert is mitigated by a ¥255.9bn net-cash position, 4.56x cash coverage of short-term debt and a 417.0% current ratio, reducing immediate financial-stress risk., The receivable-days, inventory-days, long-cash-conversion-cycle and high-WIP alerts collectively indicate that working-capital discipline and factory throughput are the most important operational monitoring items..

Investment Implications

Key takeaways include Q1 demonstrated a meaningful earnings inflection: revenue rose 16.8%, operating income rose from ¥0.2bn to ¥9.6bn, and the operating margin expanded by approximately 693bp., LSI is the core earnings contributor, while the narrowing semiconductor-device loss is the most important incremental recovery driver., The balance sheet provides substantial resilience, with ¥455.9bn of cash, ¥200.0bn of interest-bearing debt and a ¥255.9bn net-cash position., Working-capital intensity remains the central constraint on earnings-to-cash conversion and operational flexibility., Q1 operating-profit progress of 32.1% against the full-year forecast is favorable to a linear run rate, while management has retained unchanged guidance..

Metrics to watch include Semiconductor-device segment margin and the timing of a return to positive segment profit, Consolidated operating margin relative to the 8% profitability threshold, Inventory days of 182 and the 47.8% WIP share of inventory, DSO of 67 days and the annualized cash conversion cycle of 218 days, Asian revenue growth and customer inventory conditions, Progress against full-year operating-income guidance of ¥30.0bn, Short-term debt refinancing and cash coverage of the ¥100.0bn short-term debt balance.

Regarding relative positioning, ROHM combines a strong net-cash balance sheet and improving earnings leverage with a still-subscale operating margin and unusually heavy working-capital cycle for an electronics manufacturer. Its financial resilience is stronger than that of highly leveraged peers, but operational performance remains more sensitive to semiconductor utilization, inventory normalization and receivable collection than the Q1 profit rebound alone would suggest.