EDP (7794) FY2026 Q3 Earnings Report

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Executive Summary

For the cumulative Q3 period of the fiscal year ending March 2026, the operating loss widened from the same period of the previous year due to a sharp decline in revenue and the intensification of selling below cost. Revenue was ¥2.5B (¥6.5B in the previous year, YoY -61.3%), Operating Income was ¥-9.5B (¥-7.4B in the previous year), Ordinary Income was ¥-9.4B (¥-7.2B in the previous year), and Net Income was ¥-20.1B (¥-7.3B in the previous year). As reductions in cost of revenue and SG&A expenses failed to keep pace with the revenue decline rate (-61.3%), the gross margin deteriorated to -135.1%. In addition, the recording of an impairment loss of ¥10.7B as an extraordinary loss was the primary factor behind the expansion of the net loss.

Factors Affecting Earnings

【Revenue】Revenue was ¥2.5B, a 61.3% decrease from ¥6.5B in the same period of the previous year. The Company operates as a single segment (manufacture, sale, and development of diamond single crystals), and weak demand and the postponement of customer investments have had a direct impact on total revenue.

【Profit and Loss】Cost of revenue was ¥6.0B, exceeding revenue, resulting in Gross Profit of ¥-3.4B (gross margin of -135.1%, a significant deterioration from -16.5% in the previous year). SG&A expenses amounted to ¥6.1B, a decrease of only 3.4% year on year; fixed-cost reductions failed to keep pace with the revenue decline, resulting in negative operating leverage. Operating Income was ¥-9.5B (operating margin of -377.1%), while Ordinary Income was ¥-9.4B. Non-operating income and expenses resulted in only a slight net gain and were insufficient to offset the operating loss. An impairment loss of ¥10.7B was recorded as an extraordinary loss (temporary factor), resulting in Profit Before Tax of ¥-20.1B and Net Income of ¥-20.1B. Although the impairment loss accounted for 53.0% of the net loss, the Company remained in operating deficit even excluding the impairment, and the results are therefore assessed as a decline in both revenue and earnings.

Segment Analysis

The Group operates as a single segment comprising the manufacture, sale, and development of diamond single crystals, and does not disclose a segment-level breakdown. The Group has a high degree of dependence on a single business, and it is important to note that demand trends in this business are directly reflected in overall performance.

Key Financial Metrics

【Profitability】The operating margin deteriorated significantly to -377.1% (compared with -113.3% in the previous year), while the net profit margin deteriorated to -794.9% (compared with -110.9% in the previous year). The gross margin was -135.1% (compared with -16.5% in the previous year), indicating that the cost structure has not adjusted to the revenue decline.【Cash Quality】Cash and deposits declined to ¥3.9B (down from the equivalent of ¥13.9B in the previous year), while inventories stood at ¥4.9B, with work-in-process inventory of ¥6.6B accounting for more than half of manufacturing inventories, indicating signs of funds being tied up.【Investment Efficiency】ROE (annualized) was -176.5%, and Property, Plant and Equipment was ¥5.5B, a significant year-on-year decrease consistent with the recording of an impairment loss of ¥10.7B.【Financial Soundness】The Equity Ratio was 64.1%, apparently a high level; however, net assets declined 55.5% to ¥15.2B (¥34.2B in the previous year), while retained earnings increased to ¥-30.0B. Continued losses have resulted in a shrinking capital buffer, which requires monitoring.

Cash Flow Analysis

Although the Company does not provide a separate cash flow statement, cash trends can be assessed from changes in the balance sheet. Cash and deposits declined significantly from the level in the same period of the previous year to ¥3.9B, while net assets decreased by ¥19.0B from ¥34.2B to ¥15.2B. During this period, inventories increased to ¥4.9B, and work-in-process inventory of ¥6.6B accounted for more than half of manufacturing inventories, suggesting that funds have become tied up in operating activities. Property, Plant and Equipment declined significantly following the recording of an impairment loss of ¥10.7B, indicating that the Company is in a phase of recovering its investment. Long-term borrowings amounted to ¥3.6B and have been trending downward from the previous year, suggesting the possibility of cash outflows from financing activities as well. Although the decrease in cash is relatively limited compared with the scale of the ¥20.1B net loss, the level of cash on hand will remain an important monitoring point if losses continue.

Earnings Quality

Of the current-period net loss of ¥20.1B, the impairment loss of ¥10.7B was a temporary factor and accounted for 53.0% of the net loss. However, even excluding this temporary factor, an operating loss of ¥9.5B remains, indicating that the deterioration in profitability is attributable not to a transitory event but to recurring structural factors. Non-operating income was ¥0.2B (including foreign exchange gains), and non-operating expenses were ¥0.1B (including interest expenses), both relatively small and insufficient to supplement the operating deficit. Comprehensive Income was ¥-20.1B, broadly in line with Net Income, with no significant divergence attributable to foreign currency translation adjustments or other factors; additional distortion to earnings quality from other comprehensive income items was limited.

Earnings Outlook and Guidance

Against the full-year company forecast (Revenue of ¥5.0B, Operating Income of ¥-9.2B, Ordinary Income of ¥-9.1B, and Net Income of ¥-19.8B), cumulative Q3 revenue progress was only 50.6%, 24.4pt below the standard progress rate of 75%. Meanwhile, the operating loss had reached 103.1% of the full-year forecast, the ordinary loss 103.5%, and the net loss 101.6%; in all cases, the forecast loss amounts for the full year have already been exceeded. Unless revenue recognition accelerates and losses decline substantially in Q4, achieving the full-year forecast will be difficult.

Shareholder Returns

The dividend forecast is ¥0 per share, and the Q2 dividend was also ¥0. In light of the ¥20.1B net loss, the decline in cash and deposits to ¥3.9B, and the forecast full-year loss, the Company’s capital allocation policy prioritizes the preservation of earnings and capital. There is no distributable amount to serve as the basis for calculating either the Payout Ratio or the Total Return Ratio.

Risk Factors

1. Concentration Risk in a Single Business: The Company operates as a single segment comprising the manufacture, sale, and development of diamond single crystals. A delay in demand recovery for this business or the postponement of customer investments would directly affect revenue and capacity utilization. Revenue has plunged by 61.3% year on year.

2. Profitability and Cash Risk: The ¥9.5B operating loss has resulted in substantially negative interest coverage, leaving the Company unable to cover interest payments through Operating Income. Cash and deposits have declined to ¥3.9B, while net assets have decreased 55.5% to ¥15.2B, raising concerns about reduced financial flexibility.

3. Risk of Additional Impairment: Although the Company recorded an impairment loss of ¥10.7B during the current period, an operating loss remains after the impairment. If earnings recovery is delayed, additional impairment losses may arise, primarily involving Property, Plant and Equipment (¥5.5B).

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s profitability is substantially below the industry median, with both its operating and net profit margins showing exceptionally wide deficits.

Growth and Capital Efficiency

While many companies in the same industry are experiencing modest revenue growth, the Company recorded a substantial decline in revenue and is underperforming the industry in terms of growth.

※Source: Compiled by the Company

Key Points from the Financial Results

1. While revenue declined 61.3% year on year, reductions in cost of revenue and SG&A expenses failed to keep pace, resulting in a selling-below-cost position with a gross margin of -135.1%. Both recovery in revenue scale and a review of the cost structure will be key areas of focus going forward.

2. The ¥10.7B impairment loss was a temporary factor accounting for 53.0% of the net loss; however, an operating loss of ¥9.5B remains even excluding this item. The data indicate that the deterioration in profitability is structural and cannot be explained solely by the recognition of a one-time loss.

3. Net assets declined 55.5% year on year, and cash and deposits also decreased significantly. In addition, the loss amount has already exceeded the full-year forecast on a progress basis. The impact of Q4 performance trends on financial strength will be closely watched.

Theoretical Share Price (Reference Value)

Sensitivity: -¥29 to -¥28 at ±1% for the cost of equity, and -¥28 to -¥28 at ±0.1 for ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a timing difference relative to the full-year forecast).
• As 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-out) / Interest rate reference month: 2026-08 / Mechanically calculated solely from publicly available data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee the future share price.)

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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 the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional advisor where necessary.

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