HAMAMATSU PHOTONICS K.K. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥212.05B
• Operating Income: ¥16.16B
• Net Income: ¥14.26B
• EPS: ¥47.32

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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: Soft quarter operationally with severe margin compression, but cash generation held up; FY2025 Q4 shows resilient topline (+4.0% YoY) overshadowed by a sharp decline in profitability and subpar capital efficiency. Revenue reached 2,120.51 (100M JPY), up 4.0% YoY, but operating income dropped 49.7% YoY to 161.63, and ordinary income fell 45.5% to 188.02. Net income declined 43.5% to 142.03, implying a net margin of 6.7%. Operating margin is estimated at 7.6% this quarter versus roughly 15.8% a year ago, indicating about 815 bps of compression. Net margin likely compressed by around 560 bps YoY given the decline in net income against modest revenue growth. Gross profit was 1,013.81 with a gross margin of 47.8%, but elevated SG&A of 852.18 constrained operating leverage. Non-operating income of 38.79 (interest income 15.91; equity-method income 0.98) provided a partial cushion, supporting ordinary income above operating income. Cash generation was strong with operating cash flow of 377.84 (OCF/NI = 2.66x), offset by heavy investing outflows (-421.66) driven by capex of -359.05, resulting in FCF of -43.82. Balance sheet liquidity remains robust (current ratio 218%, quick ratio 205%), leverage conservative (D/E 0.41x), and interest coverage healthy at 20.1x. However, ROE is a muted 4.4% and ROIC 3.8%, below the 5% warning threshold, highlighting capital efficiency issues. The gap between EBITDA (350.55) and operating income indicates high depreciation (188.92), consistent with an investment phase. Dividend sustainability is uncertain: calculated payout appears elevated (170.8%) while reported payout is low (0.5%); with dividends not disclosed, coverage cannot be validated and FCF was negative. Overall, the quarter suggests demand resilience but cost pressure and investment intensity are dampening returns. Forward-looking, recovery hinges on restoring operating margin, normalizing investment intensity, and improving ROIC above cost of capital.

Profitability Analysis

ROE decomposition (DuPont): ROE 4.4% = Net Profit Margin 6.7% × Asset Turnover 0.466 × Financial Leverage 1.41x. The dominant driver of the YoY deterioration is the net profit margin, with operating margin compressing roughly 815 bps (from ~15.8% to ~7.6%) and net margin by ~560 bps (from ~12.3% to 6.7%). Business explanation: revenue growth remained modest (+4%), but SG&A intensity stayed high and likely cost inflation/mix effects (and higher depreciation from growth capex) eroded operating profitability; non-operating support (interest income) partly mitigated the decline at the ordinary level. Financial leverage remained modest and stable (1.41x), contributing little to ROE movement; asset turnover remained low at 0.466, reflecting a capital-intensive balance sheet. Sustainability: margin pressure appears cyclical and investment-driven rather than one-time; normalization depends on pricing, mix improvement (high-margin photonics/medical systems), and cost pass-through. Concerning trends: SG&A growth outpacing revenue is implied by the halving of operating income despite a 4% revenue lift; high depreciation versus a year ago also compresses EBIT. Maintain focus on operating discipline to prevent further deleverage.

Growth Assessment

Revenue grew 4.0% YoY to 2,120.51, indicating resilient demand despite industry softness. Profit growth was negative across the board (OP -49.7%, OI -45.5%, NP -43.5%), implying adverse mix, cost pressure, and higher fixed-cost absorption. EBITDA of 350.55 (16.5% margin) shows underlying earnings capacity, but depreciation of 188.92 weighed on EBIT, consistent with prior capex ramp. Non-operating income (38.79) provided a buffer, led by interest income (15.91), while equity-method contribution was minor (0.98). With ROIC at 3.8%, current investments are not yet delivering returns above internal benchmarks; near-term growth quality hinges on converting capex to revenue and improving utilization. Outlook: gradual margin recovery is plausible if demand in core photonics, semiconductor inspection, and medical analytics stabilizes, and if pricing/mix normalizes; FX could aid translation but also introduce volatility. Near-term, we assume mid-single-digit revenue growth potential with a focus on margin repair rather than aggressive expansion.

Financial Health

Liquidity is strong: current ratio 217.9% and quick ratio 204.6% signal ample short-term coverage; no warning (both > benchmarks). Solvency is conservative: D/E 0.41x and interest coverage 20.1x (well above the >5x benchmark). Maturity mismatch risk appears low: short-term loans 534.98 are well covered by cash and deposits 905.59 plus receivables 466.06; working capital stands at 1,279.14. Total liabilities are 1,315.53 against total equity 3,234.55, indicating balance sheet resilience. Goodwill 300.64 and intangible assets 345.89 introduce potential impairment risk if profitability remains weak. No off-balance sheet obligations are disclosed in the data provided.

Cash Flow Quality

Earnings quality is high with OCF/Net Income at 2.66x (>1.0 benchmark), suggesting solid cash conversion despite lower profits. Free cash flow was negative at -43.82, driven by heavy investing CF (-421.66) and capex of -359.05, indicating continued investment phase. OCF comfortably covers interest expense (8.04) and supports operations, but does not fully cover capex plus shareholder returns (repurchases -200.01) in the period. Working capital dynamics are not fully disclosed; however, strong OCF implies no evident aggressive working capital management. Sustainability: FCF should improve if capex normalizes and margins recover; otherwise, continued negative FCF could pressure cash balances over time.

Dividend Sustainability

Dividend disclosures are incomplete (annual DPS and total dividends not reported). The calculated payout ratio (170.8%) conflicts with the reported XBRL tag (0.5%), indicating tagging differences or timing effects; without actual dividend cash out, we cannot validate payouts. FCF coverage is -0.18x this period, implying dividends would not be covered by FCF if paid at the calculated level. Given strong liquidity and low leverage, near-term capacity exists to maintain distributions, but sustainability medium-term depends on restoring positive FCF after capex and buybacks. Policy outlook: prioritize reinvestment returns and ROIC improvement; monitor board guidance once dividend figures are formally disclosed.

Risk Assessment

Business Risks:

• Margin pressure from cost inflation, mix shifts, and higher depreciation reducing EBIT
• Demand cyclicality in semiconductor-related, scientific, and medical markets
• Pricing pressure and competition in photodetectors, imaging, and laser products (e.g., SiPM/CMOS alternatives)
• Execution risk on converting large capex into profitable growth (utilization ramp risk)
• Potential impairment risk tied to goodwill (300.64) and intangibles (345.89) if earnings remain weak
• FX volatility impacting revenues and non-operating income (interest/translation effects)

Financial Risks:

• Low ROIC at 3.8% (<5% threshold) indicating capital efficiency concerns
• Negative FCF in the period due to heavy investment and shareholder returns
• Reliance on short-term debt (534.98) though currently covered by liquid assets
• Interest rate risk on floating-rate debt, albeit mitigated by cash balance and high coverage
• Potential divergence between accounting profit and distributable cash if capex remains elevated

Key Concerns:

• Severe operating margin compression (~815 bps YoY) despite revenue growth
• Unclear dividend outflow data amid conflicting payout ratios, complicating payout sustainability assessment
• ROE at 4.4% and ROIC at 3.8% below target levels, signaling value-creation challenges

Investment Implications

Key Takeaways:

• Topline resilience (+4% YoY) but profitability reset with OP -49.7% and NP -43.5%
• Operating margin compressed to ~7.6%, driven by elevated SG&A and depreciation
• Cash generation strong (OCF/NI 2.66x), but FCF negative on heavy capex and buybacks
• Balance sheet strength (current ratio ~218%, D/E 0.41x) provides flexibility
• Capital efficiency is weak (ROIC 3.8%, ROE 4.4%), requiring margin and asset turns improvement

Metrics to Watch:

• Operating margin recovery trajectory and SG&A growth vs revenue
• Capex cadence vs depreciation and conversion to revenue/ROIC
• Order backlog and book-to-bill in core photonics/semiconductor inspection
• FX sensitivity and interest income trend within non-operating line
• Working capital turns (AR, inventory) and OCF sustainability
• Dividend policy disclosure and actual cash outflow once reported

Relative Positioning: Within the precision equipment and photonics peer set, Hamamatsu maintains superior liquidity and conservative leverage but currently lags on capital efficiency and margin momentum due to investment cycle headwinds; successful ramp of recent capex and mix shift back to higher-margin applications will be critical to close the performance gap.

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