| Metric | Current Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue | ¥1125.0B | ¥1067.5B | +5.4% |
| Operating Income | ¥100.2B | ¥107.8B | -7.0% |
| Ordinary Income | ¥124.8B | ¥121.3B | +2.9% |
| Net Income | ¥92.7B | ¥101.1B | -8.3% |
| ROE | 2.9% | 3.1% | - |
For FY2026 Q2 results, Revenue was ¥1125.0B (YoY +¥57.5B +5.4%), Operating Income was ¥100.2B (YoY -¥7.6B -7.0%), Ordinary Income was ¥124.8B (YoY +¥3.5B +2.9%), and Net Income was ¥92.7B (YoY -¥8.4B -8.3%), representing higher sales but lower profit. Revenue was driven by Optical Semiconductors (+9.7%) and Image Measurement Instruments (+8.3%), leading to year-over-year growth across segments, but gross margin declined from 49.3% to 48.2% (down 1.1pt) and widening losses in the Laser Business pressured operating profit. Non-operating items — interest income ¥10.0B and foreign exchange gains ¥10.3B — supported the ordinary income line, resulting in an increase at the ordinary income stage despite weakness in operating results. Net Income lagged due to tax expense ¥33.0B and noncontrolling interests ¥0.5B, falling 8.3% year-over-year.
Revenue of ¥1125.0B (YoY +5.4%) was led by Optical Semiconductors ¥434.7B (+9.7%), Image Measurement Instruments ¥173.8B (+8.3%), and Electron Tubes ¥387.8B (+3.4%). Laser revenue ¥105.3B declined -7.3%, suggesting pressure from price competition and demand softness. Other revenue ¥33.2B (+12.1%) also expanded modestly. By region, North America performed particularly well, rising from ¥249.5B to ¥275.7B (+10.5%), Asia increased from ¥317.8B to ¥335.4B (+5.5%), Europe was ¥253.4B to ¥262.5B (+3.6%), and Japan grew from ¥244.1B to ¥248.7B (+1.9%).
Profitability: Gross profit was ¥542.6B (gross margin 48.2%), up only +2.1% YoY, with gross margin down 1.1pt from 49.3% a year earlier. SG&A was ¥442.3B, up +5.8% YoY, pushing the SG&A ratio from 39.2% to 39.3% (up 0.1pt). Operating Income of ¥100.2B (operating margin 8.9%) declined -7.0% YoY. By segment, Electron Tubes posted Operating Income ¥108.7B (margin 28.0%), Image Measurement Instruments ¥52.2B (margin 30.0%), Optical Semiconductors ¥78.3B (margin 18.0%) — all profitable — while Laser recorded a loss of -¥34.8B (margin -33.0%), widening from -¥6.5B a year earlier and weighing on consolidated operating profit. Non-operating income ¥35.0B (interest income ¥10.0B, foreign exchange gains ¥10.3B, etc.) significantly exceeded non-operating expenses ¥10.4B (interest expense ¥9.8B, etc.), supporting Ordinary Income of ¥124.8B (YoY +2.9%). Extraordinary items were negligible; profit before tax ¥125.7B less income taxes ¥33.0B (effective tax rate 26.2%) and noncontrolling interests ¥0.5B resulted in Net Income ¥92.7B (net margin 8.2%), down -8.3% YoY. In summary, the company delivered higher revenue but lower profit, with weaker operating profitability partially offset by macro-driven non-operating income.
The three core businesses (Electron Tubes, Optical Semiconductors, Image Measurement Instruments) underpin consolidated operating profit, while continued losses in Laser are the primary driver of the decline in operating margin.
Profitability: Operating margin 8.9% decreased 1.2pt from 10.1% a year earlier; gross margin 48.2% down 1.1pt from 49.3%; net margin 8.2% down 1.3pt from 9.5%. ROE 2.9% reflects net margin 8.2%, total asset turnover 0.231x (annualized ≈0.46x), and financial leverage 1.51x; the decline in net margin contributed most to the YoY ROE reduction.
Cash quality: Operating Cash Flow (OCF) ¥251.9B is 2.73x Net Income ¥92.7B, OCF/EBITDA 1.31x, accrual ratio -3.3%, indicating high quality of earnings. Working capital efficiency is a concern: DSO 169 days, DIO 485 days (work-in-process ratio 53.7%), and CCC 600 days are prolonged, with receivables and inventory tying up cash.
Investment efficiency: Capital expenditures ¥69.7B are 0.76x depreciation ¥91.4B, indicating restrained capex. Construction-in-progress decreased from ¥335.7B to ¥123.7B, signaling a shift to completed investments.
Financial soundness: Equity Ratio 66.4% (down 4.3pt from 70.7%), current ratio 196%, quick ratio 185% — liquidity is very healthy. Debt/Capital 18.6% and interest coverage 10.2x indicate strong interest-rate resilience. However, Debt/EBITDA 3.85x exceeds investment-grade benchmark (<2.5x), and 90.4% of interest-bearing debt is short-term, increasing refinancing sensitivity.
Operating Cash Flow ¥251.9B (YoY -13.1%) started from subtotal ¥284.9B and adjusted for working capital: increase in trade receivables -¥36.0B (prior year -¥4.2B), decrease in work-in-process +¥10.8B (prior year +¥6.4B), increase in trade payables +¥6.4B (prior year +¥7.3B), and payment of income taxes -¥34.0B, yielding the generated OCF. OCF is 2.73x Net Income, OCF/EBITDA 1.31x, accrual ratio -3.3% — all favorable for earnings quality.
Investing Cash Flow was -¥45.5B: capex -¥69.7B and acquisition of securities -¥37.9B partially offset by proceeds from sale/ redemption of securities +¥77.7B. Free Cash Flow ¥206.4B (OCF + Investing CF) comfortably covered dividends -¥56.8B and share buybacks -¥130.1B totaling ¥186.9B, yielding FCF/Total Return 3.40x and ample buffer. Financing Cash Flow was -¥107.2B: net increase in short-term borrowings +¥95.1B was outweighed by repayment of long-term borrowings -¥3.2B, share buybacks -¥130.1B, and dividends -¥56.8B. Cash & deposits rose from ¥905.6B at the beginning of the period to ¥1,056.8B at the end (+¥151.2B). CapEx/Depreciation 0.76x indicates restrained investment; short-term FCF is robust but FCF headroom could shrink if mid-term growth capex accelerates.
Operating Income ¥100.2B is the core of recurring earnings. Non-operating income ¥35.0B (3.1% of sales) comprises interest income ¥10.0B, foreign exchange gains ¥10.3B, equity-method gains/losses ¥3.1B, and other ¥11.5B. Although non-operating income is below a 5% threshold, interest income and foreign exchange gains total ¥20.3B and are highly dependent on macro factors, limiting sustainability. Extraordinary income ¥1.7B (negative goodwill ¥9.4B, gain on sale of fixed assets ¥0.6B, etc.) and extraordinary losses ¥0.8B (loss on retirement of fixed assets ¥0.1B, etc.) are minor, representing about 0.9% of Net Income and indicating minimal one-off impact. The gap between Ordinary Income ¥124.8B and Net Income ¥92.7B is explained by tax expense ¥33.0B (effective tax rate 26.2%) and noncontrolling interests ¥0.5B, with no large deviation from one-time items. OCF is 2.73x Net Income, OCF/EBITDA 1.31x, accrual ratio -3.3% — overall high accrual quality. In sum, operationally the company is weighed by gross margin softness and Laser losses, but non-operating interest and FX gains support ordinary income, and cash conversion is sound in both quality and quantity.
Full Year guidance: Revenue ¥2320.0B (YoY +9.4%), Operating Income ¥200.0B (YoY +23.7%), Ordinary Income ¥235.0B (YoY +25.0%), Net Income ¥164.0B (implied net margin 7.1%). As of Q2, progress toward the FY forecast stands at Revenue 48.5%, Operating Income 50.1%, Ordinary Income 53.1%, Net Income 56.2%. Revenue and Operating Income are roughly at the standard ~50% midyear pacing; Ordinary Income and Net Income are slightly above 50% but within an acceptable range. At present, upside or downside to the guidance is not determined. Achievement in 2H depends on improvement in Laser profitability, normalization of WIP and inventory, FX movements, and continued growth in the three core businesses (Electron Tubes, Optical Semiconductors, Image Measurement Instruments). Management has revised forecasts as of Q2 and will update guidance flexibly in response to changing conditions. Dividend guidance remains unchanged at ¥19 per year; given current earnings and FCF levels, sustainability is likely.
The Q2 dividend was ¥19, and based on the weighted average number of shares outstanding of 29,469,000 shares, the dividend payout totaled approximately ¥56.0B. With EPS ¥31.3, the payout ratio is about 60.7% — relatively high on a net income basis — but FCF ¥206.4B implies an FCF payout ratio of 27.1%, indicating comfortable coverage. Share buybacks amounted to ¥130.1B; combined with dividends the total shareholder return was approximately ¥186.1B. The Total Return Ratio is about 201.3% on a net income basis and about 90.2% on an FCF basis. FCF ¥206.4B exceeds total return ¥186.1B, yielding an FCF/Total Return multiple of 3.40x (inverse of FCF payout ratio) and ample coverage. Treasury stock increased from -¥262.4B to -¥392.5B (+¥130.1B), resulting in treasury stock representing approximately 8.8% of outstanding shares. The dividend level of ¥19 is maintained from the prior year and is likely sustainable if high-quality cash generation continues. However, should Laser losses persist or working capital worsen further and reduce FCF, share buybacks may be adjusted as the flexible lever.
Continued losses in the Laser business: Laser posted Operating Income -¥34.8B, widening the deficit and reducing consolidated operating margin by 1.2pt. If price competition, demand softness, or delayed cost absorption persist, further deterioration in profitability could depress consolidated profitability and weaken OCF generation. Revenue is contracting at -7.3%, and structural recovery of profitability may require significant time.
Deterioration in working capital efficiency: Work-in-process ¥415.3B accounts for 53.7% of inventory and DIO 485 days and CCC 600 days are prolonged. Continued WIP accumulation due to manufacturing bottlenecks or demand-timing mismatch would lock up cash, increase risk of impairment/obsolescence, and raise storage costs. Increasing trade receivables have a cash flow impact of -¥36.0B, and DSO 169 days indicates collection delays that could strain liquidity.
Short-term funding dependence and refinancing risk: Short-term borrowings ¥66.62B and a short-term liability ratio of 90.4% mean over 90% of interest-bearing debt matures within one year. Rising interest rates or wider credit spreads could increase funding costs and worsen rollover conditions, pressuring profitability and liquidity. Although cash/short-term debt is 1.59x, if OCF weakens, refinancing resilience would decline.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 8.9% | 8.8% (3.0%–11.0%) | +0.1pt |
| Net Margin | 8.2% | 5.4% (1.1%–8.2%) | +2.8pt |
Operating margin is around the median; net margin exceeds the median by 2.8pt, indicating relatively strong profitability within the industry.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | 5.4% | 11.7% (-5.4%–28.3%) | -6.3pt |
Revenue growth lags the median by 6.3pt, indicating a comparatively slower growth pace within the industry.
※Source: Company compilation
Structure of solid growth in the three core businesses vs. weakening operating profitability: Combined Operating Income of Electron Tubes, Optical Semiconductors, and Image Measurement Instruments was ¥236.8B (up from ¥218.3B, +8.5%), maintaining a growth trend with high margins of 18–30%. However, a 1.1pt decline in gross margin and a 0.1pt increase in SG&A ratio led to a 1.2pt drop in operating margin, and Laser losses of -¥34.8B materially compressed consolidated operating profit. Non-operating items — interest income ¥10.0B and FX gains ¥10.3B — secured growth at the ordinary income stage, but dependence on macro-driven non-operating income is limited in sustainability. Focus for 2H will be Laser profitability improvement and recovery in operating-level margins.
High-quality cash generation and maintenance of active shareholder returns: OCF ¥251.9B is 2.73x Net Income and OCF/EBITDA 1.31x with an accrual ratio of -3.3%, indicating high earnings quality. Free Cash Flow ¥206.4B fully covers dividends ¥56.8B and share buybacks ¥130.1B totaling ¥186.1B. Capex ¥69.7B is restrained at 0.76x depreciation ¥91.4B, providing strong short-term FCF. However, WIP ratio 53.7%, DIO 485 days, and CCC 600 days indicate working capital inefficiency that could lock up cash; if inventory and WIP normalization do not progress, FCF headroom may shrink and adjustment to returns could be required.
Balance between short-term funding dependence and financial flexibility: Short-term borrowings ¥66.62B and short-term liability ratio 90.4% concentrate over 90% of maturities within one year, and Debt/EBITDA 3.85x exceeds investment-grade benchmarks. Cash ¥1,056.8B provides a buffer with cash/short-term debt 1.59x and strong liquidity, but the capital structure is sensitive to rollover conditions. Rising rates or spread widening and weakening OCF would impair refinancing resilience; shifting to longer-term funding and improving working capital efficiency would help stabilize financial health.
This report was automatically generated by AI analyzing XBRL financial statement data and is provided as an earnings analysis document. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the company based on publicly available financial statements. Investment decisions are your own responsibility; consult professionals as appropriate.