SCREEN Holdings (7735) FY2026 Q3 Earnings Report

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Executive Summary

The Company shifted from a trend of revenue and profit growth to lower revenue and lower profit, primarily due to a decline in its core Semiconductor Production Equipment (SPE) Business. Revenue was ¥4,253.5B (-7.5% YoY), Operating Income was ¥774.4B (-23.0% YoY), Ordinary Income was ¥788.5B (-23.0% YoY), and Net Income was ¥549.6B (-20.9% YoY). The decline in profit exceeding the rate of revenue decline indicates the emergence of operating leverage attributable to the fixed-cost burden. Although the Operating Income margin deteriorated to 18.2% from approximately 21.9% in the same period of the previous year, the Company continues to maintain high profitability in absolute terms.

Factors Affecting Financial Performance

【Revenue】Consolidated Revenue was ¥4,253.5B, down 7.5% YoY. By segment, the core SPE (Semiconductor Production Equipment) Business, which accounts for 79.5% of consolidated Revenue, declined significantly to ¥3,386.7B (-12.0% YoY), weighing on overall Company performance. Meanwhile, FT (Display and Film Formation Equipment) increased significantly to ¥358.7B (+47.4% YoY), GA was broadly flat at ¥395.1B (+1.4% YoY), and PE continued to decline at ¥89.2B (-7.2% YoY).

【Profit and Loss】Operating Income declined to ¥774.4B (-23.0% YoY), Ordinary Income to ¥788.5B (-23.0% YoY), and Net Income to ¥549.6B (-20.9% YoY). By segment, SPE maintained a still-high level of ¥783.5B in profit, with a 23.1% profit margin, although this represented a decline from the same period of the previous year. FT expanded to ¥73.2B, with a 20.4% profit margin, while PE posted a loss of ¥5.3B. Company-wide adjustments (unallocated expenses) expanded from -¥42.5B in the same period of the previous year to -¥76.4B, becoming an additional factor weighing on profit. Profit before tax included a gain on the sale of investment securities of ¥21.6B as an extraordinary gain, which provided a modest temporary boost to Net Income. In conclusion, the current quarter saw lower revenue and lower profit, primarily due to the decline in SPE revenue.

Segment Analysis

SPE remains the core earnings driver, with Revenue of ¥3,386.7B, a 79.5% composition ratio, Operating Income of ¥783.5B, and a 23.1% profit margin; however, Revenue declined 12.0% YoY, making it the primary cause of deterioration in consolidated performance. FT recorded Revenue of ¥358.7B, an 8.4% composition ratio, Operating Income of ¥73.2B, and a 20.4% profit margin. Both Revenue and profit expanded significantly from the same period of the previous year, reflecting a recovery in demand for display manufacturing equipment and film formation equipment. GA remained low-profitability, with Revenue of ¥395.1B, Operating Income of ¥19.4B, and a 4.9% profit margin. PE recorded an Operating Loss of ¥5.3B against Revenue of ¥89.2B, with losses continuing. While the Company remains highly dependent on SPE, the expansion of FT is supporting overall performance, which is the defining feature of the segment structure for the current period.

Key Financial Metrics

【Profitability】The Operating Income margin of 18.2% and Net Income margin of 12.9% both declined from the same period of the previous year, when the Operating Income margin was approximately 21.9%, but remain high in absolute terms. ROE was 12.4%, indicating that the Company continues to maintain sound capital efficiency. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥405.1B, and its ratio to Net Income of ¥549.6B was only 0.74x, indicating that the conversion of current-period profit into cash was somewhat weak. The main factors were a ¥51.4B increase in trade receivables and contract assets and a ¥42.4B decrease in accounts payable. 【Investment Efficiency】Capital expenditures of ¥151.1B were 1.41x depreciation and amortization of ¥107.0B, indicating that the Company continues to make proactive investments exceeding maintenance investment. Free cash flow was secured at ¥230.6B. 【Financial Soundness】The Company has a sound financial base, with an Equity Ratio of 65.5%, a current ratio of approximately 215%, and negligible interest-bearing debt, making it close to debt-free in substance. Its resilience to fluctuations in demand is therefore high.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥405.1B, down 8.8% YoY. The increase in trade receivables and contract assets of ¥51.4B, the decrease in accounts payable of ¥42.4B, and corporate income tax payments of ¥457.8B were sources of cash outflows, while the ¥82.0B increase in contract liabilities provided support. Investing Cash Flow was -¥174.5B, of which capital expenditures accounted for ¥151.1B, indicating that investment continues to exceed depreciation and amortization of ¥107.0B. As a result, Free Cash Flow (OCF + Investing Cash Flow) remained positive at ¥230.6B, a level sufficient to fund capital expenditures with internal funds. Financing Cash Flow was -¥419.6B, with dividend payments and share repurchases being the primary sources of outflows. Cash and deposits were ample at ¥1,342.5B at the end of the period, and no liquidity concerns have arisen despite the modest weakening in OCF.

Quality of Earnings

Profit before tax of ¥810.0B included a gain on the sale of investment securities of ¥21.6B as an extraordinary gain, representing a nonrecurring boost equivalent to 3.9% of Net Income of ¥549.6B. Non-operating income of ¥36.5B consisted primarily of ¥9.2B in dividend income received and was limited to 0.9% of Revenue, a level that does not materially distort the assessment of recurring profitability. Meanwhile, non-operating expenses included a foreign exchange loss of ¥11.1B, indicating that exchange-rate fluctuations in overseas transactions are affecting earnings. From an accrual perspective, OCF was below Net Income, with a ratio of 0.74x, indicating that cash support for current-period profit was somewhat weak. The primary factors were working-capital movements, including the increase in trade receivables and contract assets and the decrease in accounts payable. Comprehensive Income was ¥623.2B, exceeding Net Income of ¥549.6B, reflecting positive contributions from foreign currency translation adjustments of ¥40.6B and valuation differences on securities of ¥33.8B.

Earnings Forecast and Guidance

The full-year earnings forecast remains unchanged, with Revenue of ¥6,210.0B (-0.7% YoY), Operating Income of ¥1,170.0B (-13.8% YoY), and Ordinary Income of ¥1,170.0B (-15.4% YoY). The progress rates for cumulative Q3 were 68.5% for Revenue and 66.2% for Operating Income, both remaining below the simple seasonal allocation of 75%. To achieve the full-year plan, the Company must record Revenue of ¥1,756.5B and Operating Income of ¥395.6B in Q4. This corresponds to an Operating Income margin of approximately 22.5%, above the 18.2% recorded cumulatively for the current period. The Company’s decision to leave its forecast unchanged appears to reflect expectations for project acceptance and a recovery in demand during the second half of the fiscal year.

Shareholder Returns

The full-year dividend forecast is ¥280.00 per share, resulting in a Payout Ratio of approximately 30.1% against full-year forecast EPS of ¥930.90. The Q2 dividend was ¥123.00. Dividend payments during the current period amounted to ¥296.7B, while share repurchases amounted to ¥110.8B. Combined, the Total Return amount was ¥407.5B, resulting in a Total Return Ratio of approximately 74.2% against Net Income of ¥549.6B. The dividend-only Payout Ratio of approximately 30.1% and the Total Return Ratio of approximately 74.2% are different metrics and should be distinguished. Given cash and deposits of ¥1,342.5B and a substantially debt-free financial structure, the Company has secured funding sources for continued dividend payments. However, the fact that OCF is somewhat below Net Income warrants attention when assessing the future trend of funds available for shareholder returns.

Risk Factors

1. Dependence on the core business (SPE) and cyclical fluctuations: SPE accounts for 79.5% of consolidated Revenue and declined 12.0% YoY. The structure is such that capital expenditure trends among semiconductor manufacturers and changes in the timing of customer investments have a significant impact on consolidated performance.

2. Weak working-capital efficiency and cash conversion: OCF was only 0.74x Net Income, while the ¥51.4B increase in trade receivables and contract assets and the ¥42.4B decrease in accounts payable delayed cash conversion. Inventories were substantial, consisting of ¥1,004.0B in finished products and ¥529.7B in work in process, making the speed of inventory monetization an ongoing point of focus.

3. Differences in profitability by business: The PE Business recorded an Operating Loss of ¥5.3B against Revenue of ¥89.2B, with losses continuing. In addition, Company-wide adjustments (unallocated expenses) expanded from -¥42.5B in the same period of the previous year to -¥76.4B, and the increase in unallocated costs is placing additional pressure on consolidated Operating Income.

Industry Benchmark (For Reference; Based on Our Analysis)

Profitability and Returns

Profitability significantly exceeds the industry median, placing the Company among the high-profitability group within the manufacturing sector.

Growth and Capital Efficiency

The Revenue growth rate is significantly below the industry median, indicating that the Company is in a relatively pronounced slowdown phase within the industry during the current period.

※Source: Based on our analysis

Key Takeaways from the Financial Results

1. Although the Operating Income margin of 18.2% and ROE of 12.4% declined from the same period of the previous year, they remain significantly above the industry median, confirming that the underlying strength of the earnings base remains intact.

2. The decline in SPE Revenue was partially offset by significant growth in FT Revenue, confirming that diversification of the business portfolio is functioning as a buffer against fluctuations in performance.

3. The current period’s weak cash conversion, with an OCF/Net Income ratio of 0.74x, contrasts with the high profitability and is an important observation. Trends in working capital, particularly trade receivables and inventory, will be a focus going forward.

Theoretical Share Price (Reference Value)

Sensitivity: ¥6,265–¥6,645 at ±1% in the cost of equity, and ¥6,405–¥6,521 at ω±0.1.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(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; it is neither a forecast of the market share price nor 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 based on XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by our Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, and, as necessary, after consulting with a professional advisor.

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