Murata Manufacturing (6981) FY2026 Q3 Earnings Report

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Executive Summary

Although the Company secured revenue growth, operating income declined substantially due to the recognition of one-time expenses, primarily goodwill impairment in the surface acoustic wave filter business. Revenue amounted to ¥13,702.3B (+2.9% YoY), operating income was ¥2,030.1B (▲13.3%), and net income was ¥1,572.9B (▲21.8%). While increased demand for capacitors used in AI servers and yen depreciation contributed to revenue growth, one-time expenses of approximately ¥498B, including the full impairment of ¥438B in goodwill related to the acquisition of Resonant, weighed on earnings.

Factors Affecting Performance

【Revenue】Revenue increased 2.9% YoY to ¥13,702.3B. Multilayer ceramic capacitors for servers (+12.2%) and inductors and EMI filters (+9.5%) grew, supported by expanding demand for AI servers and yen depreciation. Meanwhile, the High-Frequency & Communications segment declined by ▲15.4% due to decreases in surface acoustic wave filters and high-frequency modules for smartphones.

【Profit and Loss】Operating income declined ▲13.3% YoY to ¥2,030.1B. Although the gross margin improved by 78bp to 42.0%, one-time expenses of approximately ¥498B, including ¥438B in goodwill impairment, were recorded (other expenses: ¥521.99B). Excluding these items, adjusted operating income was explained as equivalent to approximately ¥877B. Profit before tax, corresponding to the ordinary income stage, was ¥2,242.9B (▲16.5%), while net income was ¥1,572.9B (▲21.8%). The increase in the effective tax rate to approximately 29.9% also widened the decline in net income. Excluding the temporary impact of the impairment, the revenue growth trend has been maintained; overall, the result was higher revenue but lower earnings.

Segment Analysis

The Capacitors Business generated revenue of ¥2,391B (+12.2% YoY), representing the largest share of total revenue and serving as the Company’s core business. Expanding demand for multilayer ceramic capacitors for servers drove revenue growth. The High-Frequency & Communications Business was the only segment to report lower revenue, declining to ¥1,022B (▲15.4%). One-time expenses were recorded, including the full impairment of ¥438B in goodwill related to the acquisition of Resonant by the surface acoustic wave filter business, directly contributing to the deterioration in company-wide operating income. The background includes the emergence of competitors in Greater China and delays in the transition to higher frequencies. The Energy & Power Business (+12.4%) achieved full-year profitability in its battery business, contributing to margin improvement. Functional Devices (+10.3%) grew on strong performance in mobility-related sensors.

Key Financial Metrics

ROE (annualized) was 8.0%, while the operating margin was 14.8%, down from the equivalent of 17.6% in the same period of the previous year. Operating CF/Net Income was 1.79x, exceeding 1.0x, indicating solid cash backing for earnings. In terms of capital expenditures relative to depreciation and amortization, property, plant and equipment increased 33.4% YoY, indicating an active investment phase. The equity ratio was 84.6% (85.2% in the previous year), and the current ratio was approximately 498%; financial soundness remained at a high level.

Cash Flow Analysis

Operating CF was ¥2,817.9B, or 1.79x net income, indicating solid cash backing for earnings. Investing CF was ▲¥1,167.2B, primarily due to capital expenditures of ¥1,344.3B. Financing CF was ▲¥2,186.7B, mainly reflecting dividend payments of ¥1,107.2B and share repurchases of ¥1,000.0B. FCF was ¥1,650.7B (operating CF - capital expenditures), with positive FCF secured while growth investments and shareholder returns were implemented. Cash generation was classified as strong; however, cumulative dividends and share repurchases for the nine-month period exceeded FCF, indicating reliance on the capacity provided by the cash balance of ¥5,822.0B.

Earnings Quality

The gap between profit before tax of ¥2,242.9B and net income of ¥1,572.9B was attributable to the increase in the effective tax rate to approximately 29.9% (+460bp YoY), which widened the decline in earnings beyond the operating income stage. Other expenses of ¥521.99B represented 3.8% of revenue; however, they were primarily attributable to approximately ¥498B in one-time expenses, including ¥438B in goodwill impairment, and should be distinguished from recurring earnings power. Operating CF (¥2,817.9B) exceeded net income (¥1,572.9B), and accruals were negative; accordingly, earnings quality for the current period can be assessed as favorable from a cash perspective.

Earnings Forecast and Guidance

The full-year forecast was revised upward from the October forecast for revenue to ¥18,000B (+¥600B, +3.4%), while the operating income forecast was revised downward to ¥2,700B (▲¥100B, ▲3.6%). The Q3 cumulative progress rates were 76.1% for revenue and 75.2% for operating income, broadly in line with the standard progress rate of 75%. The upward revision reflects yen depreciation and increased production of AI servers and smartphones, while the downward revision reflects the impact of the goodwill impairment. Q3 orders received amounted to ¥5,007B, and the book-to-bill ratio was 1.07, indicating firm orders.

Shareholder Returns

The annual dividend forecast is ¥60 per share (¥30 interim and ¥30 year-end), implying an actual payout ratio of approximately 37.4% based on dividends alone. Including ¥1000B in share repurchases (completed at the end of October 2025), cumulative total shareholder returns for the nine-month period amounted to ¥2,107.2B, resulting in a high total return ratio relative to net income for the same period. Although total shareholder returns exceeded FCF of ¥1,650.7B, cash and cash equivalents of ¥5,822.0B and low debt levels support the Company’s funding position.

Catalysts

【Short Term】The start of volume shipments of surface acoustic wave filters using XBAR technology in FY2025 and progress in gaining share in high-end devices. The status of order acquisition for power supplies for vertical power delivery in AI servers.

【Long Term】Expansion of the earnings base through the battery business’s development in the ESS and BBU markets. Recovery of the surface acoustic wave filter business driven by progress toward higher frequencies in the Over-3GHz band and the proliferation of WiFi 7 and 6G.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the operating margin and net profit margin substantially exceeded the industry median, placing profitability among the higher levels within the industry.

Growth and Capital Efficiency

Revenue growth was slightly below the industry median, indicating that growth was generally at an average level within the industry.

※Source: Compiled by the Company

Risk Factors

1. Lengthening inventory and collection periods: Inventories increased to ¥5,011.5B (+3.8% YoY), while accounts receivable increased to ¥3,389.9B (+15.1%), both growing faster than the revenue growth rate. This could lead to the risk of inventory valuation losses during periods of demand volatility.

2. Competitive environment in the surface acoustic wave filter business: The emergence of competitors in Greater China and delays in the transition to higher frequencies caused cash flow generation in the business to lag expectations, resulting in the full impairment of ¥438B in goodwill. The pace of realizing future technology synergies will be a key area of focus.

3. Memory price inflation and semiconductor supply trends: Although the impact is expected to be limited in FY2025, trends in memory prices from FY2026 onward and shipment issues involving automotive semiconductors could affect costs and procurement.

Key Points from the Earnings Results

1. The decline in the operating margin during the current period was primarily attributable to approximately ¥498B in one-time expenses, including ¥438B in goodwill impairment. Adjusted operating income excluding these items was explained as equivalent to approximately ¥877B. Recurring earnings power and temporary factors must be evaluated separately.

2. Operating CF was 1.79x net income, indicating strong cash backing for earnings. Meanwhile, inventories and accounts receivable have been increasing faster than revenue, making working capital efficiency a structural point of observation that could affect future FCF trends.

3. Full-year profitability in the battery business and expanding demand for capacitors and power supplies for AI servers are supporting revenue growth, while the earnings structure within the business portfolio continues to change.

Theoretical Share Price (For Reference)

Sensitivity: ¥1,409–¥1,491 at ±1% in the cost of equity, and ¥1,449–¥1,449 at ±0.1 in ω.

Notes:

• The EPS impact of approximately ¥8.7 per share in the event of a ±¥5 change from the assumed exchange rate has been reflected in the bear/bull scenarios.
• Net assets as of the quarter-end have been used; there is a timing difference relative to the full-year forecast.

(Calculation model: Residual income model (Ohlson type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on 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 integrated analysis of XBRL earnings summary data and PDF earnings presentation materials. 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 with professionals as necessary.

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