Quick View
| Metric | Current Period | Same Period Last Year | YoY |
|---|---|---|---|
| Revenue | ¥11293.4億 | ¥11499.9億 | −1.8% |
| Operating Income | ¥1025.4億 | ¥1034.6億 | −0.9% |
| Profit Before Tax | ¥1189.7億 | ¥1146.2億 | +3.8% |
| Net Income | ¥881.7億 | ¥798.5億 | +10.4% |
| ROE (Annualized) | 19.9% | 20.9% | - |
Executive Summary
Despite declining revenue, the Company maintained largely flat margins while reporting double-digit growth in net income. Revenue was ¥1兆1,293.4億円 (down 1.8% YoY), and operating income was ¥1,025.4億円 (down 0.9% YoY), both broadly flat, while net income attributable to owners of the parent increased to ¥881.7億円 (up 10.4% YoY). The primary drivers of earnings growth were a substantial increase in equity-method investment income (up 111%) and a lower effective tax rate. Gross profit margin, however, declined to 23.1% from 23.5% in the prior year, indicating that some pressure remains on the profitability of the core business.
Factors Affecting Performance
【Revenue】Revenue was ¥1兆1,293.4億円, representing a 1.8% YoY decline. By segment, Aerospace, Space & Defense led the Company with revenue of ¥4,211.9億円 (up 12.3% YoY), while Resources, Energy & Environment, at ¥2,541.0億円 (down 15.9% YoY), and Industrial Systems & General-Purpose Machinery, at ¥3,212.7億円 (down 6.9% YoY), recorded significant revenue declines.
【Profit and Loss】Operating income was ¥1,025.4億円 (down 0.9% YoY), broadly flat, but gross margin declined to 23.1% (23.5% in the prior year), while the SG&A ratio increased to 15.3% (15.3% YoY → equivalent to a +1.1pt change), placing downward pressure on core earnings power. Other income of ¥249.6億円, a substantial increase from ¥24.9億円 in the prior year, offset this pressure and supported operating income. Profit before tax was ¥1,189.7億円 (up 3.8% YoY), while net income was ¥881.7億円 (up 10.4% YoY), with the increase in equity-method investment income to ¥118.5億円 (¥56.3億円 in the prior year) and the lower effective tax rate (25.9%, compared with 30.3% in the prior year) boosting net income. Overall, the earnings profile was one of declining revenue but higher profits.
Segment Analysis
Aerospace, Space & Defense generated revenue of ¥4,211.9億円 (up 12.3% YoY) and segment profit of ¥706.9億円 (down 25.3% YoY), making it the largest source of profit and accounting for approximately 70% of total reported segment profit. This segment includes a negative impact of approximately ¥37億円 from a change in the presentation of corporate administrative expenses, as well as a negative foreign-exchange impact of approximately ¥36億円 related to the PW1100G-JM additional inspection program. Industrial Systems & General-Purpose Machinery improved to segment profit of ¥287.1億円 (a substantial increase YoY) despite revenue of ¥3,212.7億円 (down 6.9% YoY), resulting in a profit margin of 8.9%. Resources, Energy & Environment declined significantly, with revenue of ¥2,541.0億円 (down 15.9% YoY) and profit of ¥26.1億円 (down 76.3% YoY), while Social Infrastructure continued to report an operating loss of ¥7.2億円 despite revenue of ¥948.0億円 (up 3.1% YoY). The concentration of profits in the highly profitable Aerospace, Space & Defense segment is a defining feature of the Company-wide profit structure.
Key Financial Indicators
【Profitability】The operating margin was 9.1% (9.0% in the prior year), broadly flat, while the net profit margin improved to 7.8% (6.9% in the prior year). ROE (annualized) remained high at 19.9%. 【Cash Flow Quality】Operating cash flow was △¥732.3億円, significantly below net income of ¥881.7億円, indicating challenges in converting earnings into cash. Trade receivables of ¥5,735.6億円, inventories of ¥5,539.5億円, and contract assets of ¥1,374.2億円 are placing pressure on working capital. 【Investment Efficiency】The total asset turnover ratio remained low, with assets increasing (up 9.6% YoY) without corresponding revenue growth. 【Financial Soundness】The equity ratio improved to 23.0% (21.5% in the prior year), but short-term bonds and borrowings surged to ¥2,554.8億円 (up 102.6% from the beginning of the fiscal year), increasing reliance on commercial paper and short-term borrowings.
Cash Flow Analysis
Operating cash flow was △¥732.3億円, deteriorating from △¥523.2億円 in the prior year, resulting in a significant gap versus profit before tax of ¥1,189.7億円. The main factors were increases of ¥1,347.6億円 in inventories and prepaid expenses, ¥638.8億円 in trade receivables, and ¥274.2億円 in contract assets, with these increases in working capital weighing on cash generation. This was partly offset by increases of ¥664.3億円 in trade payables and ¥476.5億円 in contract liabilities. Investing cash flow was △¥477.4億円, primarily due to the acquisition of property, plant and equipment and other assets of ¥677.7億円. Free cash flow, calculated as operating cash flow plus investing cash flow, was △¥1,209.7億円, creating a structure in which the funding shortfall was covered by financing cash flow of +¥814.9億円, including short-term financing such as a net increase of ¥1,500億円 in commercial paper. Cash and cash equivalents declined to ¥1,050.6億円, making the conversion of working capital into cash toward the end of the period a key issue.
Earnings Quality
Net income attributable to owners of the parent of ¥850.1億円 was below operating income of ¥1,025.4億円, while profit before tax of ¥1,189.7億円 exceeded operating income by ¥164.1億円, with financial income of ¥117.5億円 and equity-method investment income of ¥118.5億円 serving as positive contributors. The net amount of other income of ¥249.6億円 less other expenses of ¥111.2億円, or ¥138.4億円, improved significantly from negative ¥44.5億円 in the same period of the prior year and provided support for operating income. The increase in other income offset pressure on core earnings from the decline in gross margin and rise in the SG&A ratio; therefore, confirming the sustainability of this factor is important. In addition, given that operating cash flow was significantly negative, the gap between accounting earnings and cash generation was substantial, indicating that earnings quality requires monitoring from an accrual perspective, including the increase in working capital.
Earnings Forecasts and Guidance
No revision has been made to the full-year Company forecast of revenue of ¥1兆6,400億円, operating income of ¥1,600億円, and EPS of ¥117.49円. The progress rates for cumulative Q3 results were 68.9% for revenue, 64.1% for operating income, and 68.0% for net income (attributable to owners of the parent). Compared with the standard progress benchmark of 75%, operating income was 10.9pt below the benchmark. To achieve the full-year target, operating income of approximately ¥575億円 in Q4 (equivalent to a margin of 11.3%) will be required, necessitating an improvement in profitability above the cumulative operating margin of 9.1%. Continued revenue growth in Aerospace, Space & Defense and the sustainability of other income and equity-method investment gains are expected to determine future progress.
Shareholder Returns
The Q2 dividend was ¥70 per share, and the full-year dividend for the fiscal year ending March 2026 is forecast at ¥140 on the assumption that the impact of the stock split (October 1, 2025, a 1-for-7 stock split) is not reflected. No revision has been made to the dividend forecast. Dividend payments amounted to ¥209.2億円, while share repurchases amounted to ¥13.7億円, resulting in total shareholder returns of ¥222.9億円. The payout ratio based solely on dividends relative to net income attributable to owners of the parent of ¥850.1億円 was approximately 24.6%, while the total return ratio including share repurchases was approximately 26.2%. Free cash flow was △¥1,209.7億円, a negative amount exceeding the funds available for shareholder returns, indicating that shareholder returns during the period were implemented alongside financing through financing activities.
Risk Factors
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Expansion of working capital and deterioration in cash conversion: Operating cash flow was △¥732.3億円, creating a significant gap versus net income of ¥850.1億円. The primary factors were increases in inventories to ¥5,539.5億円 (up 24.8% from the beginning of the fiscal year) and trade receivables to ¥5,735.6億円 (up 13.2% YoY). Risks of delays in the progress of long-term manufacturing projects, inventory accumulation, and delayed collections remain.
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One-time aviation engine-related expenses and foreign-exchange sensitivity: The Aerospace, Space & Defense segment recorded a negative foreign-exchange impact of approximately ¥36億円 related to the PW1100G-JM additional inspection program. As this segment accounts for approximately 70% of reported segment profit and is a core business, related costs and foreign-exchange fluctuations could have a substantial impact on Company-wide profits.
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Increased reliance on short-term financing: Short-term bonds and borrowings surged to ¥2,554.8億円 (up 102.6% from the beginning of the fiscal year), with short-term financing, including a net increase of ¥1,500億円 in commercial paper, being used to cover the operating cash flow deficit and investment expenditures. Sensitivity to rising interest rates and fluctuations in short-term funding markets has increased.
Industry Benchmark (Reference; Compiled by the Company)
Profitability and Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 9.1% | 8.6% (4.3%–12.7%) | +0.5pt |
| Net Profit Margin | 7.8% | 6.4% (2.8%–10.3%) | +1.4pt |
| Profitability is above the industry median, with the net profit margin positioned particularly high relative to industry peers. |
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | −1.8% | 3.3% (-2.1%–8.9%) | −5.1pt |
| Revenue growth is significantly below the industry median, representing weak top-line growth compared with peers that are generally on a revenue growth trajectory. |
※Source: Compiled by the Company
Key Takeaways from the Financial Results
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The operating margin of 9.1% and net profit margin of 7.8% exceed the industry median. However, these results reflect a structure in which the increase in other income offset the decline in gross margin and rise in the SG&A ratio, rather than an improvement in core earnings power, which should be noted.
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Operating cash flow of △¥732.3億円 and free cash flow of △¥1,209.7億円 contrast with the upward trend in net income and indicate delayed cash conversion of earnings due to the expansion of working capital, including inventories and trade receivables.
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Profit concentration in the Aerospace, Space & Defense segment has reached approximately 70% of reported segment profit. Order trends in this business and cost developments related to the additional inspection program are therefore key factors to monitor in assessing fluctuations in Company-wide performance.
Theoretical Share Price (Reference Value)
| Scenario | Theoretical Share Price |
|---|---|
| bear (Bearish) | ¥749 |
| base (Base) | ¥812 |
| bull (Bullish) | ¥834 |
| Valuation Assumption | Value |
|---|---|
| Book Value per Share (BPS) | ¥532 |
| Adjusted Forecast EPS | ¥135.1 |
| Cost of Equity r | 9.27% (10-year Japanese government bond 2.77% + equity risk premium 6.00% + size premium 0.50%) |
| Persistence Factor of Residual Income ω / Explicit Forecast Period | 0.62 / 5 years |
| Assumed Payout Ratio | 30.0% |
| Forecast EPS Confidence Adjustment | ×1.150 (based on the Company’s historical track record of achieving its guidance) |
| Implied PBR / PER | 1.53倍 / 6.0倍 |
Sensitivity: ¥789–¥837 at ±1% for the cost of equity, and ¥805–¥824 at ±0.1 for ω.
Notes:
- Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).
（Valuation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest Rate Reference Month: 2026-07 / Mechanically calculated using only 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）
This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. 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 responsibility, and you should consult a professional as necessary.
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