CRESTEC (7812) FY2026 Q2 Earnings Report

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Executive Summary

The interim period resulted in higher profits despite lower revenue, with improved cost efficiency supporting performance. Revenue was ¥9.196B (-6.2% YoY), while Operating Income was ¥0.797B (+1.1%), Ordinary Income was ¥0.870B (+16.3%), and Interim Net Income Attributable to Owners of the Parent was ¥0.633B (+21.0%), securing profit growth across all measures. Cost of sales (-8.6%) and SG&A expenses (-1.2%) declined at a faster pace than revenue, improving the gross margin to 31.8% (+178bp YoY), which was the primary driver of profit growth. Foreign exchange gains of ¥0.0091B contributed to the increase in Ordinary Income, while extraordinary gains of ¥0.0106B, including gains on the sale of fixed assets, contributed to the increase in Net Income. Accordingly, part of the profit growth reflects non-recurring factors.

Factors Affecting Performance

【Revenue】Revenue was ¥9.196B, representing a 6.2% YoY decline. By region, the core Southeast Asia/South Asia region, which accounted for 33.9% of revenue, was the largest contributor to the decline, with revenue down 12.4%. Japan, which accounted for 31.9% of revenue, declined 3.1%; the Europe and Americas region, which accounted for 13.8%, declined 4.1%; and China, which accounted for 23.8%, declined 1.2%.

【Profit and Loss】Cost of sales declined to ¥6.274B (-8.6%), falling at a faster pace than the revenue decline, and the gross margin improved to 31.8% from 30.0% in the prior-year period (+178bp). SG&A expenses were also contained at ¥2.125B (-1.2%), raising the Operating Income margin to 8.7% from 8.1% in the prior-year period (+62bp). By segment, the Southeast Asia/South Asia region maintained a 13.0% profit margin despite lower revenue, while China’s profit margin improved substantially from 0.5% to 7.6%. Japan’s profit margin declined to 3.5%, below the higher level recorded in the prior-year period, resulting in widening profitability differences among regions. Ordinary Income was ¥0.870B (+16.3%), including a ¥0.0091B contribution from foreign exchange gains, while Net Income was ¥0.69B (+30.9%), including ¥0.0106B in extraordinary gains from the sale of fixed assets and other items. In conclusion, this was a case of higher profits on lower revenue, accompanied by improved cost efficiency and temporary factors.

Segment Analysis

Total segment profit of ¥0.796B was led by the Southeast Asia/South Asia region, which generated ¥0.40B, or 50.3% of the total. Although revenue declined 12.4%, segment profit increased 0.6%, and its profit margin of 13.0% was the highest among the regions. China generated segment profit of ¥0.17B, a substantial increase from ¥0.01B in the prior year, while its profit margin improved from 0.5% to 7.6%. Japan generated segment profit of ¥0.10B, a substantial decline YoY, and had the lowest regional profit margin at 3.5%, highlighting deteriorating profitability. The Europe and Americas region generated segment profit of ¥0.12B, with a profit margin of 9.2%. The difference in profit margins between regions—13.0% in Southeast Asia versus 3.5% in Japan—reached 9.5pt. The regional mix and improvement in Japan’s profitability will be important drivers of future consolidated margins.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 8.7% from 8.1% in the prior-year period (+62bp), while the Net Income margin was 7.5% and ROE was 13.5% (annualized), with all indicators improving from the prior year. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥1.31B, representing cash generation of approximately 1.9 times Net Income Attributable to Owners of the Parent of ¥0.69B. The accrual ratio was negative, consistent with cash generation exceeding accounting profit. 【Investment Efficiency】Capital expenditures of ¥0.24B were below depreciation and amortization expense of ¥0.41B, resulting in a capital expenditures/depreciation and amortization ratio of 0.58x. Although the investment level was low, with an R&D expense ratio of 0.1%, free cash flow was ample at ¥1.07B. 【Financial Soundness】The Equity Ratio was 51.0%, and cash and deposits of ¥7.31B exceeded interest-bearing debt, including short-term borrowings, long-term borrowings, and bonds, indicating a strong liquidity position. BPS was ¥3,080.78, up from ¥2,624.13 in the prior year.

Cash Flow Analysis

Operating Cash Flow was ¥1.31B, up 34.7% YoY, demonstrating cash generation well above Net Income Attributable to Owners of the Parent of ¥0.69B. This was supported by the release of working capital, including a ¥0.26B decrease in trade receivables and a ¥0.02B decrease in inventories. Accordingly, the high cash generation during the interim period partly depended on this working-capital release. Investing Cash Flow was -¥0.24B, primarily reflecting capital expenditures of ¥0.24B. Financing Cash Flow was positive at ¥0.31B, as increases in long-term borrowings exceeded share repurchases of ¥0.15B and dividend payments. As a result, free cash flow (OCF + Investing Cash Flow) reached ¥1.07B, providing sufficient financial capacity to support both shareholder returns and debt repayment. However, if revenue enters a recovery phase in the second half, the reinvestment of working capital could reverse the boost to OCF.

Earnings Quality

Of ¥0.15B in non-operating income, foreign exchange gains accounted for ¥0.09B. This represented approximately 11.4% of Operating Income of ¥0.797B, meaning that currency-related factors contributed to the increase in Ordinary Income. Against extraordinary gains of ¥0.11B, including gains on the sale of fixed assets, extraordinary losses were minimal, resulting in net extraordinary gains of approximately ¥0.11B, equivalent to approximately 10.8% of Pretax Income of ¥0.98B. Therefore, the 21.0% increase in Net Income Attributable to Owners of the Parent includes a certain degree of non-recurring contributions from foreign exchange gains and extraordinary gains. Meanwhile, OCF was ¥1.31B, exceeding Net Income Attributable to Owners of the Parent, and the accrual ratio was negative, indicating sound cash backing for earnings and limited concern regarding earnings quality.

Earnings Forecast and Guidance

The full-year plan calls for Revenue of ¥17.67B (-5.9% YoY), Operating Income of ¥1.22B (-7.1%), and Ordinary Income of ¥1.19B (+2.4%). Progress against the full-year plan was 52.0% for Revenue, 65.2% for Operating Income, 73.4% for Ordinary Income, and 76.7% for Net Income. Revenue progress was broadly in line with the standard 50%, while profit-related measures were substantially ahead, reflecting the improvement in the first-half gross margin and contributions from foreign exchange gains and extraordinary gains. As the company has not revised its earnings or dividend forecasts, the second-half plan appears to incorporate the reversal of the first-half non-operating and extraordinary factors. The plan implies second-half Operating Income of approximately ¥0.43B and Net Income Attributable to Owners of the Parent of approximately ¥0.19B, indicating an expected slowdown in profit levels compared with the first half.

Shareholder Returns

The Q2 dividend was ¥41.00 per share, and the full-year dividend forecast is ¥82.00, representing an increase from the prior-year annual dividend of ¥38. The Payout Ratio based solely on dividends and interim Net Income is approximately 21.0%, while the forecast Payout Ratio based on forecast full-year EPS of ¥272.30 is approximately 30.1%; both are conservative levels. In addition, the company conducted share repurchases of ¥0.15B, resulting in a Total Return Ratio of approximately 45% based on interim Net Income when dividends and share repurchases are combined. Total shareholder returns are well covered by free cash flow of ¥1.07B, and the sustainability of returns appears sound in light of the company’s cash base.

Risk Factors

1. Regional demand and project fluctuation risk: Revenue from the Southeast Asia/South Asia region, which accounted for the largest share of revenue at 33.9%, declined 12.4% YoY. Demand and project trends in this region have a significant impact on consolidated performance, and it is necessary to determine whether the decline is temporary or structural.

2. Foreign exchange risk: Ordinary Income for the interim period included foreign exchange gains of ¥0.09B, equivalent to approximately 11.4% of Operating Income. A reversal in foreign exchange trends could become a source of volatility in non-operating income and expenses and affect the sustainability of recurring profit growth.

3. Low levels of capital expenditure and R&D: The capital expenditures/depreciation and amortization ratio was 0.58x, while the R&D expense ratio was 0.1%, indicating a low level of investment. Although this supports free cash flow in the short term, developments should be monitored from the perspective of long-term facility renewal and maintenance of competitiveness.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

The Operating Income margin is slightly below the industry median, while the Net Income margin exceeds the median. At the final profit level, including non-operating income and extraordinary gains, the company is relatively well positioned.

Growth and Capital Efficiency

The Revenue growth rate is substantially below the industry median and also below the lower bound of the IQR, placing the company at a disadvantage within the industry in terms of top-line growth.

※Source: Company analysis

Key Takeaways from the Results

1. Despite lower revenue, the improved gross margin (+178bp) and control of SG&A expenses raised the Operating Income margin to 8.7%. Cost structure improvements during a period of declining revenue are an important indicator of the quality of the earnings base.

2. The increases in Ordinary Income and Net Income include non-recurring factors consisting of foreign exchange gains of ¥0.09B and net extraordinary gains of ¥0.11B. The sustainability of recurring profit growth excluding these factors will need to be assessed based on subsequent performance.

3. Capital expenditures remain below depreciation and amortization at 0.58x, and investment restraint is supporting high free cash flow and shareholder returns. Balancing this with the maintenance of long-term production capacity and competitiveness will be an important issue going forward.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,940–¥3,110 at ±1% for the cost of equity, and ¥3,021–¥3,025 at ±0.1 for ω.

Notes:

• Goodwill amortization of ¥11.8 per share is added back to earnings for comparability with non-cash expenses and IFRS companies.
• Because Net Income progress against the full-year forecast is 77%, exceeding the standard 50%, forecast EPS has been adjusted upward within a maximum range of +10%. This reflects the tendency of companies ahead of forecast to exceed their forecasts. The adjustment may be excessive for businesses with significant seasonality.
• Because forecast ROE is below the cost of equity, the theoretical value is below Book Value per Share.
• Net assets as of the quarter-end are used; there is a timing difference relative to the full-year forecast.

(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 a forecast of the market share price or a recommendation of any specific investment action, nor do they 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 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 professionals as necessary.

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