| Metric | This Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥11293.4B | ¥11499.9B | -1.8% |
| Operating Income / Operating Profit | ¥1025.4B | ¥1034.6B | -0.9% |
| Profit Before Tax (tax‑before quarterly profit) | ¥1189.7B | ¥1146.2B | +3.8% |
| Net Income / Net Profit | ¥881.7B | ¥798.5B | +10.4% |
| ROE | 14.9% | 15.7% | - |
IHI Corporation’s cumulative results for FY2026 Q3 (Apr 2025–Dec 2025) recorded Revenue ¥11,293B (YoY -¥207B, -1.8%) and Operating Income ¥1,025B (YoY -¥9B, -0.9%), resulting in a decline in both sales and operating profit. Profit before tax (tax‑before quarterly profit), corresponding to Ordinary Income, was ¥1,190B (YoY +¥75B, +6.6%), and Profit attributable to owners of parent for the quarter was ¥850B (YoY +¥83B, +10.8%), both increased. Operating margin edged up to 9.1% from 9.0% a year earlier, but sluggish top‑line growth prevented operating profit expansion. Meanwhile, non‑operating income expanded — equity‑method investment income ¥119B (prior year ¥56B) and other income ¥250B (prior year ¥46B) — securing bottom‑line growth. Operating Cash Flow (OCF) was a large negative ¥-732B (prior year ¥-523B, deterioration ¥-209B), primarily due to increases in trade receivables and inventories. Free Cash Flow was ¥-1,210B, continuing cash outflows, and the company raised ¥815B in financing cash flow to secure a buffer.
[Revenue] Top line declined by 1.8% YoY. By segment, Resources, Energy & Environment external sales were ¥2,541B (prior ¥3,021B, -16.0%), and Industrial Systems & General‑Purpose Machinery was ¥3,213B (prior ¥3,451B, -6.9%), both down, while Aerospace, Defense & Space was up to ¥4,212B (prior ¥3,750B, +12.3%). Social Infrastructure was ¥948B (prior ¥920B, +3.0%). Segment notes report divestments executed during the reporting period: Concrete Products Business (transferred Oct 2025), Transportation Machinery Business (transferred Jul 2025), and Transportation Systems Business (transferred Dec 2025), altering the revenue mix. Aerospace, Defense & Space revenue includes FX impact of -¥36B related to the PW1100G‑JM engine additional inspection program; despite FX headwinds, the segment achieved revenue growth. Company‑wide Selling, General & Administrative expenses (SG&A) were ¥1,726B (prior ¥1,627B, +¥99B, +6.1%), rising faster than revenue growth and putting pressure on the path from Gross Profit ¥2,613B (gross margin 23.1%) to Operating Income ¥1,025B. Cost of sales was ¥8,680B (prior ¥8,795B, -1.3%), contained more than the revenue decline, resulting in a slight deterioration in gross margin to 23.1% (prior 23.5%, -0.4pt).
[Profitability] Operating Income fell slightly by 0.9%, but equity‑method investment income doubled to ¥119B (prior ¥56B), and other income increased substantially to ¥250B (prior ¥46B). Net financial income (financial income ¥118B less financial expenses ¥72B) amounted to ¥46B (prior ¥66B), a decrease, but overall non‑operating net income expanded to ¥153B (prior ¥114B). After deducting corporate income taxes of ¥308B (effective tax rate 25.9%) from Profit Before Tax ¥1,190B, the quarter recorded Profit ¥882B (including non‑controlling interests ¥32B). Profit attributable to owners of parent was ¥850B, up 10.8% YoY, and EPS was ¥80.21 (prior ¥72.48, +10.7%). The divergence between Ordinary Income and Net Income was small, with no material special items. In conclusion, the company reported a “lower revenue, higher profit” pattern: revenue down but net profit up due to expanded non‑operating income.
Segment operating profits are as follows. Resources, Energy & Environment Operating Income was ¥26B (prior ¥110B, -76.3%), a significant decline reflecting lower external sales. Social Infrastructure recorded an operating loss of ¥-7B (prior ¥-31B), narrowing the deficit but remaining negative. Industrial Systems & General‑Purpose Machinery reported Operating Income ¥287B (prior ¥30B, approximately +9.6x), a dramatic improvement likely aided by segment reorganization and cost control. Aerospace, Defense & Space Operating Income was ¥707B (prior ¥947B, -25.4%), a decrease. Segment notes state that the current period’s segment profit for this segment includes an accounting change in SG&A allocation (partial transfer of corporate overhead from cost of sales to SG&A) impacting profit by -¥37B; on a like‑for‑like basis, the real decline is about -¥204B. Aerospace, Defense & Space achieved external sales growth but experienced margin compression. Total segment profit across all segments was ¥1,013B (prior ¥1,055B); after adjustments of ¥-95B (prior ¥-73B), consolidated Operating Income amounted to ¥1,025B. By composition, Industrial Systems & General‑Purpose Machinery accounted for 28.4% of revenue and Aerospace, Defense & Space 37.3%, together composing roughly 65% of consolidated external sales. The core business is Aerospace, Defense & Space, contributing most to both sales and profits. There is a contrast between the dramatic margin improvement in Industrial Systems & General‑Purpose Machinery and the margin deterioration in Aerospace, Defense & Space.
[Profitability] ROE 14.9% (simple year‑over‑year comparison is difficult due to a smaller prior‑year equity; prior year’s profit attributable to owners of parent ¥768B ÷ prior year‑end total equity ¥3,760B ≒ 20.4% estimated), not clearly an improvement. Operating margin 9.1% (prior 9.0%, +0.1pt) broadly flat. Net profit margin 7.5% (prior 6.9%, +0.6pt) slightly improved. [Cash Quality] Cash and cash equivalents ¥1,051B (prior year‑end ¥1,368B, -¥317B). OCF/Net Income ratio was -0.83x, indicating a divergence between profit and cash and suggesting weaker earnings quality. Contract liabilities (advance receipts) ¥3,007B indicate advance payments for future revenue and partly reflect backlog. Contract assets ¥1,374B reflect unbilled performance obligations. [Investment Efficiency] Total asset turnover 0.46x (annualized approximately 0.92x) indicating relatively low asset efficiency. ROA 3.6% (Net Income ¥882B ÷ Total Assets ¥24,544B) showing limited returns. [Financial Soundness] Equity Ratio 23.0% (prior 22.7%, slight increase) remains low. Interest‑bearing debt (bonds and borrowings) totaling ¥5,135B comprised current ¥2,555B and non‑current ¥2,580B. Total liabilities including lease liabilities were ¥18,631B, with a debt‑to‑equity ratio (debt/equity) of 3.15x, indicating high leverage. Current ratio (current assets ¥14,864B ÷ current liabilities ¥12,660B) = 1.17x, signaling thin short‑term liquidity. Cash coverage of current liabilities is weak at 0.08x (cash ¥1,051B vs current liabilities ¥12,660B).
OCF was ¥-732B; the primary cause of the negative OCF relative to Net Income ¥882B was deterioration in working capital. OCF subtotal (before working capital changes) was ¥-162B; even after adding depreciation and amortization ¥602B, cash flow fell well short of Profit Before Tax ¥1,190B. Components included increases in trade receivables of ¥-639B and inventories & prepaid expenses of ¥-1,348B, with contract assets increasing ¥-274B, all driving cash outflows. Offsetting inflows were increases in trade payables +¥664B and contract liabilities +¥476B, but corporate tax payments ¥-555B and lease payments ¥-176B were burdens. As a result, OCF was substantially negative and profit conversion to cash did not progress. Investing Cash Flow was ¥-477B: capital expenditures and intangible asset acquisitions ¥-678B partly offset by disposal proceeds ¥106B and proceeds from sale of subsidiary interests ¥94B. FCF was ¥-1,210B, significantly negative, indicating weak cash generation. Financing Cash Flow was +¥815B, supported by increase in commercial paper +¥1,500B and short‑term borrowings +¥350B. Uses included long‑term debt repayments ¥-616B, dividend payments ¥-209B, share buybacks ¥-14B, and lease liability repayments ¥-176B. Cash and cash equivalents decreased by ¥-317B from ¥1,368B at prior year‑end to ¥1,051B at period end (FX translation effect +¥25B included). The cash decline reflects that financing activity could not fully cover negative OCF and FCF.
Profit Before Tax ¥1,190B vs Operating Income ¥1,025B implies non‑operating net income of approximately ¥165B. The breakdown: equity‑method investment income ¥119B was the largest contributor; net financial income ¥46B (financial income ¥118B — interest & dividends received ¥19B and other financial income — less financial expenses ¥72B including interest paid ¥51B); and net other income ¥139B (other income ¥250B less other expenses ¥111B). Non‑operating income accounts for around 1.5% of revenue, primarily driven by equity‑method gains and other income such as gains on disposal of tangible fixed assets. Non‑operating income increased YoY and may include one‑off items (e.g., gains on asset sales). The fact that OCF is far below Net Income reflects timing mismatches between revenue recognition and cash collection driven by increases in trade receivables and inventories, indicating accrual expansion. Comprehensive income was ¥1,064B, exceeding quarterly profit ¥882B; Other Comprehensive Income ¥183B (including foreign currency translation adjustments of ¥134B from overseas operations) contributed to equity growth. Overall, earnings quality is limited due to reliance on non‑operating income and deteriorating working capital.
Full Year forecast: Revenue ¥16,400B, Operating Income ¥1,600B. Progress to date at the quarter end is 68.9% of Revenue and 64.1% of Operating Income. Compared with the standard pace (Q3 cumulative = 75%), Revenue is behind by -6.1pt and Operating Income by -10.9pt, requiring substantial catch‑up in Q4. Considering segment revenue composition, FX impacts, and business transfers, Q4 needs Revenue ¥5,107B and Operating Income ¥575B; Operating Income in particular must significantly exceed the prior year Q4 level (no prior full‑year comparable provided). No forecast revision was made this quarter. Contract liabilities ¥3,007B correspond to about 18.3% of annual revenue and provide some visibility into future revenue as advance payments for backlog, but changes in contract liabilities (+¥477B) do not necessarily correlate with revenue progress. Qualitative segment notes emphasize external factors such as FX impacts related to the additional inspection program in Aerospace, Defense & Space; future FX rates and aircraft demand trends will be key to hitting guidance. The shortfall in progress likely reflects a plan that assumes large Q4 orders and project completions.
Dividends paid during the period totaled ¥209B (dividend payments to owners of parent ¥209B); the payout ratio is ¥209B ÷ ¥850B ≒ 24.6%, an appropriate level. Disclosure notes a stock split (1 share → 7 shares) executed in Oct 2025; the year‑end dividend forecast is ¥10 per share on a post‑split basis (equivalent to ¥70 pre‑split). The full‑year dividend forecast ¥10 is post‑split, which corresponds to pre‑split total of year‑end ¥70 + interim ¥70 = ¥140 (interim dividend already paid is estimated to be ¥50 ÷ 7 ≒ ¥7.14 on a post‑split basis). Total dividends are approximately ¥209B, and with Net Income ¥850B the payout ratio of 24.6% is reasonable. Share buybacks of ¥13.7B were executed, making Total Return Ratio (dividends + buybacks) (¥209B + ¥14B) ÷ ¥850B ≒ 26.2%. Given cash balance ¥1,051B and negative OCF, the total of dividends and buybacks ¥223B was financed through financing activities, so sustainability of dividends depends on OCF improvement. While payout ratio is reasonable, there is a cash‑based sustainability risk.
[Industry positioning] (reference data — our estimate)
Comparing IHI to a benchmark of 105 manufacturing companies as of 2025 Q3, IHI shows relative strength in profitability but significant weakness in financial soundness and working capital management. ROE 14.9% substantially exceeds the industry median 5.8%, ranking 3rd out of 105 firms (top 3%). Operating margin 9.1% is slightly above the industry median 8.9%, ranking 48th (top 46%). Net profit margin 7.5% exceeds the industry median 6.5%, ranking 46th (top 44%). Conversely, Equity Ratio 23.0% is far below the industry median 63.8%, ranking 105th (bottom). Financial leverage 4.15x is about 2.7x the industry median 1.53x, ranking 104th (top 2% in leverage), indicating extreme leverage. Working capital efficiency is poor: DSO 182 days vs median 85 days ranks 103rd (bottom 2%); DIO 180 days vs median 112 days ranks 83rd (bottom 16%). CCC ≈ 247 days vs median 112 days ranks 102nd (bottom tier). Cash conversion rate (OCF/Net Income) -0.83x vs industry median 0.94x is substantially worse, placing IHI in the weakest group (24th/27 firms). FCF yield is -4.9% (FCF ¥-1,210B ÷ implied market cap ¥2.5T), ranking 23rd/27 firms and low. Overall, IHI ranks high on earnings power but at the bottom of peers on balance sheet quality, working capital efficiency, and cash generation, bearing high leverage and low liquidity risks. The comparison suggests capital intensity and long‑term project business model drive balance sheet strain relative to manufacturing averages. (Industry: Manufacturing (105 firms); comparison as of 2025 Q3; source: our compilation)
Three key takeaways from the results: First, the high ROE 14.9% and operating margin 9.1% reflect capital efficiency driven by high leverage; sustaining profit growth requires reducing dependence on non‑operating income (equity‑method gains, gains on disposals, etc.) and improving core operating profitability. Non‑operating income ¥165B represents about 16% of Operating Income ¥1,025B and about 19% of Net Income, so sustainability of non‑operating income is critical to achieving forecasts. Second, negative OCF ¥-732B and FCF ¥-1,210B highlight weak cash generation caused by working capital expansion (trade receivables +¥639B, inventories +¥1,348B); if the industry‑worst DSO 182 days and DIO 180 days persist, liquidity risk will rise. Contract liabilities ¥3,007B provide some support for future revenue but are meaningless without cash collection. Third, securing ¥815B via financing to build a buffer is acceptable short term, but dividends ¥223B and capex ¥678B (total ¥901B) are not covered by FCF, indicating dependence on borrowings. Equity Ratio 23.0% and debt/equity 3.15x rank at the bottom in manufacturing and imply high vulnerability to interest rate rises or worsening performance. While the payout ratio 24.6% is reasonable, continuing dividends without OCF improvement risks cash depletion. Structurally, managing contract liabilities/assets for long‑term project businesses and compressing working capital are keys to medium‑ to long‑term financial recovery.
This report was automatically generated by AI analyzing XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. The industry benchmark is reference information compiled by our firm based on public financial statements. Investment decisions should be made at your own responsibility and, if necessary, after consulting a professional advisor.