SHIZUKI ELECTRIC COMPANY (6994) FY2026 Q3 Earnings Report

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Executive Summary

For the cumulative Q3 period of the fiscal year ending March 2026, the Company achieved higher revenue and earnings, driven by operating leverage stemming from an improved gross profit margin. Revenue was ¥206.1B (+4.6% YoY), Operating Income was ¥18.8B (+61.9%), Ordinary Income was ¥21.6B (+94.1%), and Net Income was ¥14.5B (¥7.1B in the same period of the previous year). The core Power Equipment Systems business achieved substantial revenue and earnings growth on expanding domestic demand for power factor correction equipment and drove overall performance, while the Capacitors & Modules business recorded lower revenue and earnings due to reduced production of capacitors for xEVs.

Factors Affecting Performance

【Revenue】Revenue was ¥206.1B, representing a +4.6% YoY increase. While Power Equipment Systems grew significantly, with revenue up +18.3% on expanding demand for power factor correction equipment, Capacitors & Modules recorded a ▲1.9% decline due to the earlier-than-expected peak-out in demand for xEV capacitors and delays in launching new products, resulting in divergent performance between the businesses.

【Profitability】Operating Income was ¥18.8B, up +61.9% YoY, and the Operating Income margin improved to 9.1% from 5.9% in the previous year, a 3.2pt improvement. The gross profit margin rose to 28.5% from 25.0% in the previous year, improving profitability at a pace exceeding the +6.0% increase in SG&A expenses. Ordinary Income was ¥21.6B (+94.1%), boosted by non-operating income including dividend income, insurance proceeds, and subsidy income. Net Income was ¥14.5B (¥7.1B in the previous year). The gap between Operating Income and Ordinary Income was approximately 15%, indicating a certain degree of reliance on non-operating income. Overall, the Company achieved higher revenue and earnings.

Segment Analysis

The core business is Capacitors & Modules, which accounts for 63.4% of the revenue mix; however, in terms of Operating Income, Power Equipment Systems is the earnings center, accounting for 74.3%. Power Equipment Systems maintained high profitability, with Revenue of ¥75.5B, Operating Income of ¥22.5B, and a margin of 29.8%, and led the improvement in performance on the strength of domestic demand for power factor correction equipment. Capacitors & Modules generated Revenue of ¥130.7B and Operating Income of ¥7.8B, with a margin of 6.0%; reduced production of xEV capacitors weighed on its margin. The approximately 24pt gap in margins between the two segments is substantial, creating a structure in which changes in the business mix directly affect the Company-wide margin.

Key Financial Indicators

Profitability: Operating Income margin of 9.1% (5.9% in the previous year), ROE of 7.7%
Cash quality: Net Income increased +114.1% YoY to ¥14.5B; however, DSO and CCC are trending longer, and the alignment between earnings growth and the speed of cash conversion requires monitoring
Investment efficiency: Buildings and structures increased +39.7% YoY, indicating progress in capital investment
Financial soundness: Equity Ratio of 62.8%, Current Ratio of 408.8%

Cash Flow Analysis

Cash and deposits increased YoY to ¥65.0B. Long-term borrowings increased to ¥62.0B (+40.9% YoY), while short-term borrowings decreased to ¥13.0B (▲55.2%), indicating progress in extending borrowing maturities and diversifying maturity dates. In addition to accounts receivable and notes receivable of ¥86.3B, the Company holds electronically recorded monetary claims, and trade receivables account for a certain proportion of total assets. Property, plant and equipment increased YoY, and investment is continuing. Cash generation is assessed as standard but requiring somewhat close monitoring, and trends in the collection of trade receivables should be closely watched.

Earnings Quality

Ordinary Income of ¥21.6B exceeded Operating Income of ¥18.8B by approximately 15%, with non-operating income of ¥6.2B—comprising dividend income of ¥0.5B, foreign exchange gains of ¥0.4B, and other income of ¥0.3B including insurance proceeds and subsidy income—contributing to the increase. Non-operating income represented 3.0% of Revenue, below the 5% threshold; however, because it includes highly non-recurring items such as insurance proceeds and subsidy income, it should be evaluated separately from the improvement in core Operating Income. Comprehensive Income of ¥19.2B exceeded Net Income of ¥14.5B, primarily due to a ¥3.8B increase in valuation difference on securities, which was attributable to factors separate from operating results.

Earnings Forecast and Guidance

Progress against the full-year forecast was 74.1% for Revenue, 76.6% for Operating Income, and 80.1% for Ordinary Income, indicating that earnings are ahead of the standard 75% progress level. The full-year forecast was revised upward from the previous forecast, to Operating Income of ¥24.5B (+23.1% YoY) and Ordinary Income of ¥27.0B (+50.2%). Since the cumulative Q3 earnings growth rates (Operating Income +61.9%, Ordinary Income +94.1%) substantially exceed the growth rates assumed in the full-year forecast, the forecast may assume that the earnings growth rate will contract from the previous year in Q4. Demand trends for xEV capacitors will be a factor affecting performance in the second half.

Shareholder Returns

The full-year dividend forecast is ¥21.00 per share, representing a ¥1 increase from ¥20 in the previous fiscal year, and the Payout Ratio based on forecast EPS of ¥71.27 is approximately 29.5%. The Q2 dividend was ¥10.00, and a single Payout Ratio based on the annual plan combining the interim and year-end dividends is used. Given retained earnings of ¥151.6B and an Equity Ratio of 62.8%, the Company has substantial capacity to fund dividends. As no share repurchases have been confirmed, shareholder returns are evaluated using the dividend-only Payout Ratio.

Catalysts

【Short term】Attention will focus on order trends for Power Equipment Systems in Q4 and the degree to which the impact of reduced production of xEV capacitors subsides. 【Long term】Expansion in demand for capacitors for industrial equipment in the power electronics market, as well as progress in capital investment focused on capital efficiency (full-year plan of ¥33.0B), will affect the earnings structure over the medium to long term.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company's profitability is slightly above the industry median.

Growth and Capital Efficiency

The Revenue growth rate is also above the industry median but has not reached the upper bound of the IQR (8.9%).

※Source: Compiled by the Company

Risk Factors

1. Business mix fluctuation risk: Due to the earlier-than-expected peak-out in demand for xEV capacitors and delays in launching new products, Capacitors & Modules recorded a ▲1.9% decline in Revenue and a ▲9.0% decline in Operating Income. Demand trends in this business will affect the Company-wide margin.

2. Reliance on non-operating income: Of Ordinary Income of ¥21.6B, the approximately ¥2.9B difference from Operating Income of ¥18.8B was attributable to non-operating income such as insurance proceeds, subsidy income, and dividend income, and includes non-recurring elements.

3. Lengthening of the working-capital cycle: Trade receivables remain high, including accounts receivable and notes receivable of ¥86.3B, and a lengthening collection cycle could affect the speed at which earnings growth is converted into cash.

Key Points from the Earnings Results

1. The Operating Income margin improved by 3.2pt to 9.1%, clearly demonstrating operating leverage originating from the increase in the gross profit margin (28.5% versus 25.0% in the previous year). Whether this improvement is structural or temporary will depend on the degree of recovery in demand for the Capacitors & Modules business.

2. The full-year forecasts for both Operating Income and Ordinary Income were revised upward, and cumulative progress is ahead of the standard level on an earnings basis. Meanwhile, the Q4 YoY earnings growth rate is assumed to contract from the cumulative results, making changes in the business mix in the second half a key focus.

3. The dividend was increased by ¥1, with a planned Payout Ratio of approximately 29.5%; however, the Company's financial foundation, including an Equity Ratio of 62.8% and retained earnings of ¥151.6B, provides one basis for evaluating the potential for further dividend increases.

Theoretical Share Price (For Reference)

Sensitivity: ¥876–¥926 at Cost of Equity ±1%; ¥898–¥902 at ω±0.1.

Notes:

• As 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 discrepancy 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 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 forecast 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 release 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 professionals as necessary.

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