| Metric | This Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥16434.0B | ¥16268.3B | +1.0% |
| Operating Income | ¥1655.3B | ¥1435.2B | +15.3% |
| Profit Before Tax | ¥1854.9B | ¥1384.9B | +33.9% |
| Net Income | ¥1652.2B | ¥1173.0B | +40.9% |
| ROE | 24.2% | 23.1% | - |
For the cumulative Q2 of the fiscal year ending March 2026 (IFRS basis), Revenue was ¥16,434B (YoY +¥166B +1.0%), Operating Income was ¥1,655B (YoY +¥220B +15.3%), Profit Before Tax was ¥1,152B (YoY +¥52B +4.7%), and Net Income attributable to owners of the parent was ¥1,610B (YoY +¥481B +42.8%). Revenue showed only marginal growth, while Operating Income margin improved to 10.1% (up +1.3pt from 8.8% last year), and Final Profit achieved a significant increase. The Aerospace, Defense & Space segment maintained a high-profit profile, while Resources, Energy & Environment experienced margin deterioration, highlighting a clear polarization in the business portfolio. Non-operating items saw reduced interest burden due to higher financial income and lower financial expenses, and equity-method investment income of ¥142B also boosted final profit. Operating Cash Flow was ¥1,214B, representing 0.75x of Net Income, indicating low cash conversion and suggesting a structure reliant on built-up inventory and receivables offset by increased payables.
[Revenue] Revenue was ¥16,434B (YoY +1.0%) with Aerospace, Defense & Space leading at ¥6,481B (YoY +17.2%) driving the overall increase, while Resources, Energy & Environment was ¥3,735B (−8.5%), Social Infrastructure was ¥1,296B (−7.2%), and Industrial Systems & General-Purpose Machinery was ¥4,389B (−7.7%), each declining. Expansion in aircraft engine operations supported consolidated revenue, but demand contraction in other segments limited overall growth. Contract liabilities increased to ¥3,114B (YoY +¥585B), confirming the depth of backlog. Inventories rose to ¥5,042B (up ¥602B +13.6%), indicating inventory accumulation associated with work-in-progress on orders.
[Profitability] Cost of sales was ¥12,639B, with gross margin at 23.1% (up +0.1pt from 23.0% prior year), essentially flat. Selling, general & administrative expenses rose to ¥2,427B (SG&A ratio 14.8%, up +1.1pt from 13.7%), revealing fixed-cost pressure relative to scale. Other income surged to ¥543B (from ¥166B prior year, +¥377B), with one-off items such as gains on asset disposals lifting profits. Operating Income was ¥1,655B (Operating margin 10.1%), up +15.3% YoY. Non-operating items included financial income of ¥148B (prior ¥37B) and financial expenses of ¥91B (prior ¥150B), reducing interest burden. Equity-method investment income was ¥142B (from ¥63B, +127%), reflecting improved results at associates. Profit Before Tax was ¥1,855B (YoY +33.9%); after deducting income taxes of ¥203B, Net Income attributable to owners of the parent expanded to ¥1,610B (Net margin 9.8%, up +2.9pt from 6.9%). In conclusion, revenue and profit grew, but revenue growth was limited and profit expansion was significantly supported by non-operating and one-off items.
Aerospace, Defense & Space: External revenue ¥6,481B (YoY +17.2%), Segment Profit ¥1,124B (YoY −8.5%), Margin 17.4% (down −4.8pt from 22.2%). Revenue rose substantially due to increased aircraft engine operations, but margin declined—likely pressured by SG&A increases and FX effects. Industrial Systems & General-Purpose Machinery: Revenue ¥4,389B (−7.7%), Profit ¥308B (+185.0%), Margin 7.0% (up +4.7pt from 2.3%), reflecting profitability improvements and effects of structural reform. Resources, Energy & Environment: Revenue ¥3,735B (−8.5%), Profit ¥60B (−63.1%), Margin 1.6% (down −2.4pt from 4.0%), showing significant deterioration due to demand decline and margin pressure, identifying it as a problem business within the portfolio. Social Infrastructure: Revenue ¥1,296B (−7.2%), Profit ¥37B (turned positive from −¥42B last year), Margin 2.9% (up +5.9pt from −3.0%), achieving turnaround from prior period impairments and improved profitability. Other (urban development, etc.): Revenue ¥533B, Profit ¥359B (Margin 67.4%), likely including one-off items such as real estate disposal gains.
[Profitability] Operating margin was 10.1% (improved +1.3pt from 8.8%), Net margin was 9.8% (improved +2.9pt from 6.9%), indicating clear improvement in profitability. ROE was 28.4% (up +2.1pt from 26.3%), remaining at a high level and exceeding the 3-year average. Gross margin was flat at 23.1%, while SG&A ratio rose to 14.8% (up +1.1pt from 13.7%); nevertheless, improvements in non-operating items and higher equity-method income expanded final profit margin. ROA improved to 7.9% (up +1.5pt from 6.4%). [Cash Quality] Operating Cash Flow was ¥1,214B, 0.75x of Net Income ¥1,610B, below the 0.8x threshold, indicating issues in cash realization. Operating CF subtotal (before working capital changes) was ¥1,823B and healthy, but increases in receivables △¥599B and inventories (estimated △¥864B) pressured cash, while payables increase +¥1,025B and contract liabilities increase +¥587B supported OCF. Depreciation was ¥763B versus CapEx ¥976B (1.28x), indicating investment and renewal tone. [Investment Efficiency] Total asset turnover was 0.677x (Revenue ¥16,434B / Total assets ¥24,286B), slightly down YoY. Inventory days (DIO) approx. 146 days (Inventory ¥5,042B / Cost of sales ¥12,639B × 365), Days Sales Outstanding (DSO) approx. 128 days (Receivables ¥5,760B / Revenue ¥16,434B × 365), and Cash Conversion Cycle (CCC) approx. 158 days, all extended, evidencing deterioration in working capital efficiency. [Financial Soundness] Equity Ratio was 26.9% (improved +5.4pt from 21.5%). D/E ratio was 2.56x (Bonds & borrowings total ¥3,595B / Net assets ¥6,815B), indicating high leverage, but Debt/EBITDA was about 1.5x (Total debt ¥3,595B / EBITDA approx. ¥2,419B), within investment-grade range. Interest coverage (Operating Income ¥1,655B / Financial expenses ¥91B) ≈ 18x, showing strong ability to cover interest. Current ratio was 1.23x (Current assets ¥14,514B / Current liabilities ¥11,763B), indicating sound short-term liquidity.
Operating Cash Flow was ¥1,214B, with cash conversion ratio to Net Income at 0.75x, low. Operating CF subtotal (before working capital changes) was ¥1,823B and robust, but increases in trade receivables △¥599B and inventories & prepayments △¥864B pressured cash, while increases in trade payables +¥1,025B and contract liabilities +¥587B supported OCF. The cash generation structure depended on accounts payable increases, so sustainability should be monitored. Income taxes paid △¥582B and lease payments △¥235B were also cash outflows. Investing CF was △¥184B, consisting of cash outflows for acquisition of property, plant & equipment, intangible assets, and investment property △¥918B, proceeds from disposals +¥307B, and proceeds from sale of subsidiary interests +¥191B, with asset sales compressing cash outflows. Free Cash Flow was positive ¥1,029B (Operating CF ¥1,214B + Investing CF △¥184B). Financing CF was △¥979B: while long-term borrowings +¥287B and short-term borrowings +¥159B provided funding, there were repayments of long-term borrowings △¥660B, bond redemptions △¥100B, lease liability repayments △¥235B, and dividend payments △¥212B. Cash and cash equivalents were ¥1,551B (YoY +¥183B), maintaining liquidity, but FCF coverage of CapEx + dividends of ¥1,189B was about 0.87x, insufficient and filled by asset sale proceeds and working capital adjustments.
Operating Income of ¥1,655B was solid due to revenue increase and margin improvement, but the sharp rise in Other income to ¥543B (from ¥166B, +¥377B) has boosted final profit and likely includes one-off items such as gains on asset disposals. In addition to recurring operating earnings expansion, one-off income may account for roughly 20% of final profit, so attention to earnings quality is warranted. Equity-method investment income increase to ¥142B (from ¥63B, +127%) also supported results via improved associate performance. Net non-operating items were positive: Financial income ¥148B − Financial expenses ¥91B = +¥57B (prior year was +¥37B − ¥150B = △¥113B), showing clear reduction in interest burden. Comprehensive income was ¥1,999B (attributable to owners of the parent ¥1,940B), diverging from Net Income by about ¥389B. Other comprehensive income included fair-value measurement of financial assets ¥49B, remeasurements of defined benefit plans ¥130B, and translation differences of foreign operations ¥162B. The Operating CF to Net Income ratio of 0.75x suggests declining accrual quality, with increases in inventory and receivables and reliance on higher payables slowing cash realization of profits.
Full-year forecast: Revenue ¥18,300B (current period progress 89.8% of this fiscal year based on ¥16,434B), Operating Income ¥2,400B (progress 69.0% based on current ¥1,655B), and Net Income attributable to owners of the parent ¥1,650B (progress 97.6% based on current ¥1,610B). The low Operating Income progress rate is attributed to expected continued margin deterioration in Resources, Energy & Environment and higher SG&A into H2. Conversely, Final Profit progress is high; however, on a full-year basis the absence of one-off income from this period (e.g., asset disposals) could slow growth. The Operating Income forecast of ¥2,400B assumes a large YoY increase of +45.0%, but the gap from current results is large and assumes significant upside in H2. EPS forecast is ¥155.09 versus current period actual ¥151.88, broadly on track, but realization depends on H2 Operating Income upside. Dividend forecast is annual ¥115 (Interim ¥70 + Year-end ¥45), which on a post-split basis equates to ¥16.43 per share. Payout Ratio is 16.1%, maintaining a conservative range.
Interim dividend of ¥70 has been paid; year-end dividend expected ¥45 for an annual ¥115 (pre‑share-split 1:7 executed in October 2025). On a post-split basis, this equates to approximately ¥16.43 annually, and Payout Ratio is 16.1% (total dividends approx. ¥259B against Net Income ¥1,610B), a conservative level. Dividend payments on the cash flow statement were ¥212B, giving dividend coverage of about 7.6x relative to Net Income, indicating ample coverage. Share buybacks were ¥13.7B (cash flow statement), small in scale, so shareholder returns are dividend-centric. Free Cash Flow was ¥1,029B, and coverage of CapEx + dividends of ¥1,189B was about 0.87x, the shortfall being covered by asset disposal proceeds and working capital adjustments. Given the buildup of contract liabilities ¥3,114B and continued aircraft engine operations, a stable dividend policy appears sustainable, but improving working capital efficiency would enhance sustainability.
Risk of deteriorating working capital efficiency: Inventory days 146, DSO 128, CCC 158 with Operating CF / Net Income 0.75x, indicating low cash conversion. Buildup of inventory and receivables suggests WIP progress on orders and potential collection delays; if delivery delays, quality problems, or supply‑chain bottlenecks emerge, cash flow pressure and earnings quality deterioration are concerns. Heavy reliance on payables increase +¥1,025B raises short-term liability dependence for working capital.
Concentration risk in Aerospace, Defense & Space: Approximately 67% of segment profit is attributable to Aerospace, Defense & Space, so any slowdown in aircraft engine demand or variability in OEM programs will directly impact consolidated results. FX impact in PW1100G-JM engine related additional inspection programs (△¥50B this period) has pressured profits; sensitivity to FX and demand warrants attention. Segment margin fell to 17.4% (from 22.2%), so sustainability of profitability requires monitoring.
Margin deterioration risk in Resources, Energy & Environment: Margin worsened to 1.6% (from 4.0%) with revenue down −8.5%. Continued energy price volatility or worsening order conditions could drag on overall portfolio profitability. Turnaround in this segment requires cost-structure reforms and improved order economics, but in the short term margin pressure may persist.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| ROE | 28.4% | 6.3% (3.2%–9.9%) | +22.1pt |
| Operating Margin | 10.1% | 7.8% (4.6%–12.3%) | +2.3pt |
| Net Margin | 10.1% | 5.2% (2.3%–8.2%) | +4.9pt |
Profitability substantially exceeds industry medians, driven by high-margin aerospace businesses lifting consolidated profitability.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 1.0% | 3.7% (-0.4%–9.3%) | -2.7pt |
Revenue growth lags industry median, indicating top-line growth slowdown as a challenge.
※ Source: Company compilation
High profitability in Aerospace, Defense & Space is driving consolidated profits, sustaining Operating margin of 10.1% and ROE of 28.4%. Contract liabilities of ¥3,114B (≈19% of Revenue) indicate a thick order backlog and continued aircraft engine operations supporting next fiscal year. However, deterioration in Resources, Energy & Environment margin to 1.6% and revenue decline highlights portfolio polarization.
Operating CF / Net Income 0.75x, Inventory days 146, and DSO 128 indicate notable working capital inefficiency; improving cash conversion is a top priority. Heavy reliance on payables increase +¥1,025B raises short-term liability dependence. FCF is positive at ¥1,029B, but coverage of CapEx + dividends (¥1,189B) is ~0.87x, supplemented by asset sales and working capital adjustments. Compression of inventories and receivables and OCF improvement in H2 are essential to sustain investment and returns.
Rapid increase in Other income to ¥543B (from ¥166B, +¥377B) has boosted final profit, so the substantial contribution of one-off items warrants caution. Reduced financial expenses and higher equity-method income also contributed, but structural strengthening of the earnings base requires improving operating profitability (turnaround of Resources & Energy segment, SG&A efficiency) and enhanced cash generation.
This report is an AI-generated financial analysis document produced by analyzing XBRL financial statement data. It is not a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the firm based on public financial statements. Investment decisions are your responsibility; consult professionals as necessary before acting.