SCREEN Holdings Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

Revenue and earnings declined, reflecting a pause in the semiconductor manufacturing equipment market, and profitability clearly deteriorated from the previous year. Revenue was ¥1217.8B (-10.3% YoY), Operating Income was ¥143.7B (-41.1%), Ordinary Income was ¥154.2B (-37.2%), and Net Income was ¥104.8B (-37.2%). The slowdown in the core Semiconductor Production Equipment Business (SPE) weighed on overall performance, while an increase in the SG&A ratio also contributed to the decline in the Operating Margin from 18.0% in the previous year to 11.8%. Meanwhile, contract liabilities rose substantially to ¥1249.3B (+50.2% YoY), indicating a strong order backlog toward the Full Year.

Factors Affecting Financial Performance

【Revenue】Revenue was ¥1217.8B, down -10.3% YoY. SPE, which accounts for more than 73.5% of revenue, slowed by -15.0% and was the primary factor affecting overall performance, while GA (+7.1%) and FT (+8.0%) posted revenue growth, with the diversification effect of the business portfolio partially supporting results.

【Profit and Loss】Operating Income was ¥143.7B (-41.1%), the gross margin was 35.5% (down approximately -2.2pt YoY), and the SG&A ratio was 23.7% (up YoY). Fixed-cost absorption deteriorated amid declining revenue, causing operating leverage to reverse. Ordinary Income was ¥154.2B (-37.2%); although non-operating income, including dividend income of ¥6.9B, provided support, the downward earnings trend remained unchanged. Net Income was ¥104.8B (-37.2%), confirming a decline in both revenue and earnings.

Segment Analysis

SPE (Semiconductor Production Equipment) reported revenue of ¥931.3B (-15.0%) and Operating Income of ¥143.9B (-44.0%), resulting in lower revenue and earnings and contributing to the deterioration in consolidated profitability. GA posted revenue of ¥138.3B (+7.1%) and Operating Income of ¥14.2B (+150.6%), while FT also achieved improved profitability, with revenue of ¥108.6B (+8.0%) and Operating Income of ¥12.8B (+54.3%). PE reported revenue of ¥31.3B (+2.0%) but recorded an Operating Loss of ¥3.0B, turning unprofitable; although small in scale, its deterioration in profitability is notable. The segments with earnings growth (GA and FT) were unable to offset the decline in SPE, resulting in a substantial decrease in consolidated Operating Income.

Key Financial Indicators

【Profitability】The Operating Margin was 11.8% and the Net Profit Margin was 8.6%, both down from the previous year, as the gross margin declined to 35.5% while the SG&A ratio increased to 23.7%.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥90.2B, representing approximately 0.86x Net Income of ¥104.8B. An increase in inventories (cash flow impact of -¥334.1B due to an increase in inventory assets) constrained cash generation, resulting in slightly negative Free Cash Flow of -¥9.8B.【Investment Efficiency】ROE was low at 2.1%, reflecting slowdowns in both the Net Profit Margin and total asset turnover.【Financial Soundness】The Equity Ratio was 64.7%, cash and deposits totaled ¥2122.4B, and interest-bearing debt was minimal, indicating that liquidity and financial safety remain at high levels.

Cash Flow Analysis

Operating Cash Flow was ¥90.2B (+28.9% YoY). The subtotal before payment of corporate income taxes and other taxes was ¥202.8B, indicating solid underlying performance; however, the increase in inventories (-¥334.1B) significantly constrained cash generation. The increase in contract liabilities (+¥406.9B) indicates an accumulation of advance receipts and may support future revenue recognition, although its direct contribution to cash flow during the current period was limited. Investing Cash Flow was -¥100.0B, including capital expenditures of -¥96.3B, more than twice depreciation and amortization of ¥40.4B, indicating a continued commitment to investing in production and development capabilities. Financing Cash Flow was -¥162.6B as cash requirements, including dividend payments, continued. Consequently, Free Cash Flow, calculated as the sum of Operating Cash Flow and Investing Cash Flow, was slightly negative at -¥9.8B; however, given the substantial cash and deposits of ¥2122.4B, there is limited immediate concern regarding liquidity.

Earnings Quality

Ordinary Income of ¥154.2B and Profit Before Tax of ¥153.8B were nearly identical, and extraordinary losses were limited to a small ¥0.4B impairment loss on investment securities. Accordingly, current-period profit largely reflects recurring earnings. Non-operating income of ¥14.7B consisted of dividend income of ¥6.9B and other non-operating income of ¥4.0B, giving it a strongly recurring character. Meanwhile, non-operating expenses included a foreign exchange loss of ¥1.6B, which represents a source of volatility. Comprehensive Income of ¥266.1B substantially exceeded Net Income of ¥104.8B, primarily due to a ¥149.2B increase in valuation differences on securities. This indicates that fluctuations in asset valuations, rather than the underlying earnings power of the business itself, boosted Comprehensive Income, which should be taken into consideration. Against a subtotal of ¥202.8B in OCF before working-capital changes, the increase in inventories delayed cash conversion. The moderate expansion in accruals—the difference between accounting profit and cash—should be monitored when assessing earnings quality.

Earnings Forecast and Guidance

The Full-Year earnings forecast calls for Revenue of ¥7430.0B (+22.7% YoY), Operating Income of ¥1565.0B (+27.7%), and Ordinary Income of ¥1565.0B (+25.9%). Progress in Q1 was 16.4% for Revenue, 9.2% for Operating Income, and 9.1% for Net Income, below the simple 25% benchmark. The Semiconductor Production Equipment Business has traditionally been weighted toward the second half of the fiscal year, and the accumulation of contract liabilities of ¥1249.3B (approximately 1.03x Revenue) can be observed as a leading indicator supporting revenue recognition toward the latter half of the year. The Company did not revise its earnings forecast or dividend forecast during the quarter.

Shareholder Returns

A 1-for-2 stock split was completed in April 2026. On a post-split basis, the Full-Year dividend forecast is ¥183 per share, corresponding to a Payout Ratio of approximately 30.1% against the Company’s forecast EPS of ¥608.06. The Company did not revise its dividend forecast during the quarter, and its dividend policy for the current period remains stable. No share buyback has been announced; accordingly, shareholder returns are evaluated here solely on the basis of the Payout Ratio.

Risk Factors

1. Revenue concentration risk in the core business: SPE (Semiconductor Production Equipment) accounts for approximately 76.5% of Revenue. Revenue in this business declined -15.0% YoY and Operating Income fell -44.0%, creating a structure in which fluctuations in the semiconductor capital investment cycle have a significant impact on consolidated performance.

2. Expansion of working capital and weak cash conversion: The increase in inventories had a negative cash flow impact of -¥334.1B, while OCF of ¥90.2B remained below Net Income of ¥104.8B. The pace of inventory and work-in-process absorption will influence future cash flow trends.

3. Deterioration in PE segment profitability: The Printed Circuit Board-Related Equipment Business (PE) recorded revenue of ¥31.3B (+2.0%) and an Operating Loss of ¥3.0B (-931.0% YoY). Although small in scale, its profit margin deteriorated to negative 9.5%, requiring close monitoring of progress in profitability improvement.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Profitability exceeds the industry median, and relative profit levels remain favorable within the industry even during a period of declining earnings.

Growth and Capital Efficiency

The Revenue Growth Rate is substantially below the industry median, placing the Company at a relative disadvantage within the industry from a growth perspective.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The primary cause of the decline in both revenue and earnings was the slowdown in demand for the core SPE Business. The Operating Margin declined to 11.8% (18.0% in the previous year), although it remained above the industry median of 8.7%, confirming the relative profitability of the business structure.

2. Contract liabilities increased substantially to ¥1249.3B (+50.2% YoY, approximately 1.03x Revenue). Even as progress toward the Full-Year targets for both Revenue and earnings remained low, contract liabilities serve as a leading indicator supporting revenue recognition toward the second half of the year.

3. The increase in inventories pressured OCF, resulting in Free Cash Flow of -¥9.8B. However, the substantial financial foundation of cash and deposits of ¥2122.4B and an Equity Ratio of 64.7% limits the impact on near-term liquidity.

Theoretical Share Price (For Reference)

Sensitivity: ¥3,830–¥4,064 at Cost of Equity ±1%, and ¥3,909–¥3,998 at ω±0.1.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference relative to the Full-Year forecast).
• Because net assets include non-controlling interests, the theoretical values may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / These are mechanically calculated values based solely on publicly disclosed data and do not constitute forecasts of market prices or recommendations for specific investment actions, nor do they predict or guarantee future share prices.)

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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, after consulting with a professional as necessary.

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AI Financial Analysis

Executive Summary

FY2027 Q1 was a weak earnings quarter for SCREEN Holdings, with the semiconductor equipment cycle driving a sharp profit contraction despite resilient non-SPE businesses. Revenue declined 10.3% year on year to JPY121.8bn. Operating income fell 41.1% to JPY14.4bn, substantially underperforming the top-line decline. Net income attributable to owners decreased 37.1% to JPY10.5bn. The operating margin compressed by 616bp year on year to 11.8% from 18.0%. Gross margin declined by 210bp to 35.5% from 37.7%, indicating weaker mix, pricing, utilization, or project profitability. SG&A expenses declined only 1.9% to JPY28.9bn, materially slower than the revenue decline, creating negative operating leverage. SPE, the core business, recorded a 14.9% sales decline and a 44.0% segment-profit decline, accounting for most of the consolidated deterioration. Conversely, GA and FT both expanded sales and more than doubled or materially increased segment profit, partially cushioning the SPE downturn. Net margin remained a reasonable 8.6%, but was below the prior-year level implied by the larger decline in operating earnings. Ordinary income exceeded operating income by JPY1.1bn, supported principally by JPY1.1bn of interest and dividend income, rather than by a material non-recurring gain. Cash generation was positive, with operating cash flow of JPY9.0bn, but it did not fully match net income and was insufficient to fund JPY9.6bn of capital expenditure. Free cash flow was negative JPY1.0bn in the quarter. The balance sheet remains exceptionally liquid, with JPY212.2bn in cash and deposits against just JPY2.6bn of interest-bearing debt. However, the reported annualized working-capital indicators and the 8.8% warranty provision-to-revenue ratio warrant monitoring in a project-based equipment business. Full-year company guidance still calls for 22.7% revenue growth and 27.7% operating-income growth, implying a major recovery after Q1; Q1 progress rates of 16.4% for revenue and 9.2% for operating income place substantial weight on subsequent quarters.

Profitability Analysis

The reported annualized DuPont ROE is 8.4%, decomposed into an 8.6% net profit margin, 0.633x asset turnover, and 1.55x financial leverage. The principal constraint is profitability rather than leverage: SCREEN employs a conservative balance sheet and therefore has limited leverage support to ROE. The Q1 operating margin of 11.8% remains within a solid absolute range for a capital-equipment manufacturer, but it fell 616bp year on year from 18.0%. Gross margin contracted 210bp to 35.5%, while SG&A fell only 1.9% versus a 10.3% revenue reduction; this operating-cost inflexibility explains the much sharper 41.1% decline in operating income. SPE is the core business, contributing JPY93.1bn of external sales, or 76.5% of consolidated revenue, and JPY14.4bn of segment profit. SPE's segment margin fell to 15.5% from 23.5% a year earlier, a decline of roughly 798bp, making it the dominant source of consolidated margin pressure. GA sales increased 7.4% to JPY13.8bn and segment profit rose to JPY1.4bn from JPY0.6bn, lifting its margin to 10.3% from 4.4%. FT sales increased 8.4% to JPY10.9bn and segment profit improved 54.3% to JPY1.3bn, with margin increasing to 11.8% from 8.2%. PE revenue grew 2.0% to JPY3.1bn but its segment loss widened to JPY0.3bn, leaving it structurally dilutive. The change in reporting classification of the advanced semiconductor packaging business into FT has been applied retrospectively to the prior-year segment comparison, preserving comparability. The tax burden was 0.682, equivalent to a 31.8% effective tax rate, and modestly limited conversion of pre-tax income to net income. Interest burden was favorable at 1.071 because non-operating income exceeded interest expense, while interest coverage was an extremely strong 239.5x. EBITDA was JPY18.4bn and the EBITDA margin was 15.1%, confirming that the earnings decline is operationally meaningful even before depreciation and amortization.

Growth Assessment

The quarter reflects a cyclical downturn in the company's semiconductor production-equipment business rather than broad-based weakness across every division. SPE external revenue declined by JPY16.4bn year on year, whereas GA added JPY0.9bn and FT added JPY0.8bn. The concentration of revenue and profit in SPE means the sustainability of the consolidated recovery remains highly dependent on semiconductor fab investment, customer timing, and equipment acceptance. GA and FT provide useful diversification, but their combined external revenue of JPY24.6bn remains far smaller than SPE. Full-year guidance forecasts revenue of JPY743.0bn, up 22.7%, and operating income of JPY156.5bn, up 27.7%. Q1 revenue represents 16.4% of the full-year forecast, 8.6 percentage points below the 25% standard Q1 progress rate. Q1 operating income represents 9.2% of full-year guidance, 15.8 percentage points below the standard progress rate. Q1 net income represents 9.1% of the JPY115.0bn full-year forecast. These low progress rates may be consistent with back-end weighted equipment shipments and revenue recognition, but they also leave forecast delivery sensitive to execution in the remaining three quarters. The low 2/10 historical consistency score reinforces the inherently volatile nature of quarterly growth. The operating-margin recovery embedded in guidance requires a meaningful improvement from Q1's 11.8% margin, likely through higher SPE shipment volume, improved fixed-cost absorption, and mix normalization. CapEx was JPY9.6bn, or 7.9% of Q1 revenue, and CapEx/depreciation was 2.39x, indicating active capacity, development, or infrastructure investment rather than retrenchment.

Financial Health

Financial health is strong. The current ratio was 212.4% and the quick ratio was 169.4%, both comfortably above healthy thresholds and providing ample near-term liquidity. Working capital was JPY276.2bn. Cash and deposits increased 44.0% year on year to JPY212.2bn and represented 27.6% of total assets. Investment securities increased 33.4% to JPY69.6bn, accounting for 9.1% of total assets; valuation gains on securities contributed to other comprehensive income and lifted total comprehensive income to JPY26.6bn, well above net income. Interest-bearing debt was only JPY2.6bn, equivalent to debt/capital of 0.5% and debt/EBITDA of 0.14x. Interest coverage of 239.5x and EBITDA interest coverage of 306.7x indicate no meaningful debt-service pressure. The reported debt-to-equity ratio is 0.55x, while debt/capital and the disclosed interest-bearing debt balance confirm a conservatively financed capital structure. Short-term debt comprises 97.2% of interest-bearing debt, which triggers the refinancing-risk alert, but the absolute exposure is limited: cash covers short-term debt by 83.6x. Accordingly, this maturity concentration does not presently create a material liquidity mismatch. Current liabilities include JPY124.9bn of contract liabilities, which are an important source of operating funding but also represent delivery obligations requiring disciplined execution. Equity increased to JPY497.3bn, and the equity ratio was 64.6%, although it declined from 67.4% a year earlier as liabilities rose faster than equity. Intangible assets were only 1.8% of assets, limiting balance-sheet dependence on amortizable or impairment-sensitive acquired intangibles.

Notable B/S Changes

Cash & deposits: +JPY64.9bn (+44.0%) year on year to JPY212.2bn - materially strengthens liquidity and provides a substantial buffer against cyclical working-capital demands and shareholder distributions. Investment securities: +JPY17.4bn (+33.4%) year on year to JPY69.6bn - increases exposure of equity and comprehensive income to market valuation movements; securities valuation gains were a significant contributor to OCI. Inventories: +JPY19.3bn (+22.3%) year on year to JPY105.6bn - below the stated 25% change threshold but notable in absolute terms and consistent with elevated inventory-day and cash-conversion-cycle alerts. Contract liabilities: +JPY41.8bn (+50.3%) year on year to JPY124.9bn - reflects a larger level of customer advances or milestone billings, supporting liquidity while increasing the importance of on-time delivery and acceptance. Current liabilities: +JPY23.0bn (+10.3%) year on year to JPY245.8bn - includes the higher contract-liability balance; liquidity remains strong given current assets of JPY522.1bn.

Cash Flow Quality

Operating cash flow was JPY9.0bn, equal to 0.86x net income, which is above the 0.8x minimum concern threshold but below a high-quality cash conversion level of 1.0x. The OCF/EBITDA ratio was 0.49x and is explicitly low relative to the 0.7x alert threshold, indicating that only about half of EBITDA converted to operating cash flow in the quarter. The main cash-flow pressure was a JPY33.4bn inventory increase, consistent with elevated working-capital investment. This was partly offset by a JPY40.7bn increase in contract liabilities, a JPY10.8bn reduction in trade receivables and contract assets, and a JPY8.5bn increase in trade payables. Cash taxes paid of JPY12.3bn also materially reduced operating cash flow. The combination of inventory build and growth in customer advances can be normal for long-cycle semiconductor equipment production, but it raises the importance of timely equipment completion, acceptance, and shipment. Free cash flow was negative JPY1.0bn after JPY9.6bn of capital expenditure. Investing cash flow was negative JPY10.0bn, almost entirely reflecting property, plant and equipment purchases, with an additional JPY1.3bn spent on intangible assets. CapEx/depreciation of 2.39x indicates investment materially exceeds the depreciation charge and supports future capacity or technology capability. The accruals ratio was only 0.2%, which is favorable and does not indicate broad accrual-based earnings inflation. The reported annualized DSO alert of 67 days exceeds the 60-day warning level, requiring attention to collections and project acceptance. The reported inventory-day alerts of 224 days and 123 days both exceed relevant benchmarks; irrespective of the differing reported calculations, the direction is clear that inventory intensity is elevated. The reported annualized cash conversion cycle of 230 days is also well above the 120-day warning level, making inventory turns, receivable collection, and conversion of contract liabilities into delivered revenue key cash-flow variables. Product-warranty provisions totaled JPY10.7bn, equal to 8.8% of quarterly revenue, well above the 3% warning benchmark; this increases the need to monitor field-quality, installation, and service-cost experience.

Dividend Sustainability

The full-year dividend forecast is JPY183 per share following the April 2026 two-for-one stock split. Based on forecast EPS of JPY608.06, the prospective dividend payout ratio is approximately 30.1%, which is conservative and well below the 60% sustainability benchmark. The expected annual dividend cash requirement is approximately JPY34.6bn, using 189.1 million average shares. The Q1 operating cash flow of JPY9.0bn and negative JPY1.0bn free cash flow do not independently cover a full-year-equivalent dividend run rate, but quarterly cash generation is affected by equipment-cycle working capital and tax-payment timing. Cash dividends paid in Q1 were JPY15.9bn, while financing cash flow was negative JPY16.3bn, principally reflecting shareholder distributions rather than financial stress. The company has JPY212.2bn in cash and deposits and negligible interest-bearing debt, providing substantial financial capacity to support the planned dividend through a cyclical downturn. Dividend sustainability is therefore primarily dependent on delivery of the full-year earnings recovery and normalization of working capital, rather than access to external funding. No dividend forecast revision was announced.

Risk Assessment

Business risks include Semiconductor capital-expenditure cyclicality is the highest business risk because SPE generated 76.5% of Q1 external revenue and its segment profit fell 44.0% year on year., SPE segment margin fell approximately 798bp to 15.5%, exposing the group to utilization, product-mix, customer timing, pricing, and project-execution volatility., The elevated inventory position and reported annualized inventory-day alerts of 224 days and 123 days create risks of delayed shipment, excess work in progress, inventory obsolescence, and margin pressure if customer demand or specifications change., The reported annualized DSO of 67 days and cash conversion cycle of 230 days indicate that collection and milestone/acceptance timing are material to operating cash flow., Warranty provisions equal 8.8% of quarterly revenue, materially above the 3% alert threshold; this may indicate a meaningful exposure to equipment reliability, installation, commissioning, or after-sales service costs., PE remained loss-making despite modest revenue growth, and continued losses could dilute profitability if turnaround efforts do not produce scale or better mix., The full-year forecast requires a sharp acceleration after a weak Q1, creating execution risk around semiconductor customer investment schedules and the timing of revenue recognition..

Financial risks include Cash conversion was low at 0.49x of EBITDA. Although OCF/net income was an acceptable 0.86x, the difference indicates working capital and tax payments are constraining near-term cash realization., Free cash flow was negative JPY1.0bn because capital expenditure of JPY9.6bn exceeded Q1 operating cash flow., The 97.2% short-term debt ratio triggers a refinancing-risk alert. In context, however, short-term debt was only JPY2.5bn and cash covered it by 83.6x, so the current financial impact is low., Contract liabilities of JPY124.9bn are a large operational liability. A failure to execute projects on time could turn this funding source into a delivery, refund, or margin risk., Investment securities increased to JPY69.6bn and valuation gains lifted OCI; market-price changes can create volatility in equity and comprehensive income..

Key concerns include Highest priority: confirmation that SPE orders, production, shipment, and acceptance timing can support the substantial second-half weighting embedded in full-year guidance., High priority: inventory conversion and warranty-cost trends, as these directly affect margin, cash flow, and customer confidence., Moderate priority: receivable days and contract-liability movements as indicators of milestone billing, collections, and project execution., Moderate priority: sustainability of GA and FT margin gains, which currently provide partial diversification but are not yet large enough to offset a prolonged SPE downturn..

Investment Implications

Key takeaways include Q1 earnings weakened materially, led by the SPE downturn: revenue fell 10.3%, operating income fell 41.1%, and operating margin compressed 616bp to 11.8%., The company retains a strong financial base, including JPY212.2bn cash, a 212.4% current ratio, debt/EBITDA of 0.14x, and debt/capital of 0.5%., GA and FT improved both sales and profitability, but SPE remains the decisive earnings driver because of its 76.5% revenue contribution., Operating cash flow remained positive but cash conversion was low and free cash flow was negative due to inventory investment, tax payments, and elevated capital expenditure., The full-year plan requires substantial earnings acceleration after Q1, increasing the importance of semiconductor equipment shipment and acceptance timing., The forecast dividend payout ratio of about 30% appears financially supportable, backed by a net-cash balance sheet..

Metrics to watch include SPE quarterly sales growth, segment margin, and order/shipment cadence, Consolidated operating-margin recovery versus the 11.8% Q1 level, Inventory balance and reported annualized inventory days, Receivable days, cash conversion cycle, and operating cash flow/EBITDA, Contract-liability balance and its conversion into completed revenue, Warranty provision utilization and warranty expense trends, Progress against FY2027 full-year guidance, particularly operating-income progress, CapEx relative to operating cash flow and depreciation.

Regarding relative positioning, SCREEN combines strong technology exposure to semiconductor manufacturing equipment with an unusually robust net-cash balance sheet and high liquidity. Its relative earnings profile is nevertheless highly cyclical because SPE dominates profit generation, and the Q1 margin reset plus working-capital intensity make execution through the semiconductor investment cycle more important than balance-sheet risk.