VALQUA (7995) FY2026 Q3 Earnings Report

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Executive Summary

This earnings result was characterized by improved profitability despite lower revenue, with the increase in profit driven primarily by lower costs and reductions in selling, general and administrative expenses. Revenue was ¥423.0B (-6.0% YoY), Operating Income was ¥48.9B (+15.7%), Ordinary Income was ¥48.6B (+8.3%), and Net Income was ¥36.0B (+28.3% from ¥28.4B in the previous year). The fact that the decline in Cost of Sales (-10.3%) exceeded the rate of revenue decline was the core driver of profit growth, with improvements in the cost structure leading earnings growth.

Factors Affecting Performance

【Revenue】Revenue declined 6.0% to ¥423.0B from ¥449.9B in the same period of the previous year. By segment, Seal generated ¥317.2B (75.0% of total), HighPerformancePlastics generated ¥105.8B (25.0%), and SiliconWaferReclaim, etc. generated ¥21.0B (5.0%), indicating that the core Seal segment was the main contributor to the decline in revenue.

【Profit and Loss】Operating Income was ¥48.9B (+15.7% YoY), while the gross profit margin rose approximately 2.7pt to 42.6% from 39.9% in the previous year. SG&A expenses declined 4.4% to ¥131.5B; however, the SG&A ratio increased slightly to 31.1% from 30.5% in the previous year due to the revenue decline, indicating that fixed-cost absorption remains an issue. Ordinary Income was ¥48.6B (+8.3%), while Net Income after recording Extraordinary Losses of ¥3.6B (including ¥3.4B in business structure reform expenses) was ¥36.0B (+28.3%). By segment profit margin, Seal was high at 14.9%, while HighPerformancePlastics remained low at 1.5%. In conclusion, this was a case of higher profit despite lower revenue, driven by lower costs and reductions in SG&A expenses.

Segment Analysis

The Seal segment is the earnings pillar, with Revenue of ¥317.2B (75.0% of total), Operating Income of ¥47.2B, and a profit margin of 14.9%. HighPerformancePlastics generated Revenue of ¥105.8B (25.0% of total), but Operating Income was only ¥1.6B, resulting in a low profit margin of 1.5% and weighing down the overall profit margin. SiliconWaferReclaim, etc. generated Revenue of ¥21.0B, Operating Income of ¥1.6B, and a profit margin of 7.6%. The Company’s earnings are highly dependent on the Seal segment, making profitability improvement at HighPerformancePlastics a key future challenge.

Key Financial Indicators

【Profitability】The Operating Income margin improved by approximately 2.2pt to 11.5% from 9.4% in the same period of the previous year, while the Net Income margin also improved by approximately 2.3pt to 8.5% from 6.2%. The gross profit margin rose approximately 2.7pt to 42.6% from 39.9% in the previous year.【Cash Flow Quality】The Company held Accounts Receivable of ¥112.6B and Inventories of ¥71.1B (including ¥130.0B in raw materials). Both DSO and DIO appear to be trending upward, making the amount of capital tied up in inventory and receivables a point of attention regarding capital efficiency.【Investment Efficiency】ROE (annualized) was 9.4%, decomposed into a Net Income margin of 8.5%, Total Asset Turnover of approximately 0.68x, and Financial Leverage of approximately 1.62x, indicating a margin-led structure that does not rely on leverage.【Financial Soundness】The Equity Ratio declined to 61.8% from 64.9% in the previous year but remains at a high level. Current Assets of ¥477.4B substantially exceeded Current Liabilities of ¥187.7B. Long-term borrowings increased to ¥107.9B and short-term borrowings to ¥66.2B, making the increase in interest-bearing debt a point of attention regarding the future capital structure.

Cash Flow Analysis

Although the statement of cash flows is not included in the available data, fund movements can be assessed from changes in the balance sheet. Cash and deposits declined to ¥73.7B from ¥79.7B in the previous year, while short-term borrowings increased 33.8% YoY to ¥66.2B and long-term borrowings increased 61.9% to ¥107.9B, resulting in an increase in total interest-bearing debt. Intangible fixed assets also increased 82.7% to ¥34.3B, suggesting that a portion of the borrowed funds was allocated to investments and acquired assets. The scale of Accounts Receivable at ¥112.6B and Inventories at ¥71.1B indicates that a certain level of capital remains tied up in operating activities.

Earnings Quality

The difference between Ordinary Income of ¥48.6B and Net Income of ¥36.0B reflects the impact of extraordinary gains and losses. The Company recorded Extraordinary Gains of ¥1.2B and Extraordinary Losses of ¥3.6B, including ¥3.4B in business structure reform expenses, resulting in Profit Before Tax of ¥46.1B. Net Income of ¥36.0B after deducting Income Taxes and Other of ¥10.1B reflects an effective tax rate of approximately 22.0%. Of Non-operating Income of ¥4.6B, Dividends Received of ¥0.6B and Foreign Exchange Gains of ¥0.2B were limited in scale, indicating that improvement in Operating Income from the core business was the primary driver of earnings growth and that earnings quality was sound. Meanwhile, Comprehensive Income was ¥32.4B, below Net Income, reflecting deterioration in Other Comprehensive Income centered on Foreign Currency Translation Adjustments of -¥5.3B. The occurrence of business structure reform expenses represents a non-recurring burden, and their recurrence frequency will be an important factor in assessing the quality of Net Income.

Earnings Forecast and Guidance

The Full-Year earnings forecast is Revenue of ¥580.0B (-3.5% YoY), Operating Income of ¥70.0B (+23.5%), and Ordinary Income of ¥70.0B (+16.7%). Cumulative progress rates were 72.9% for Revenue, 69.8% for Operating Income, 69.4% for Ordinary Income, and 75.0% for Net Income. While Net Income was in line with the standard progress rate of 75%, Operating Income and Ordinary Income were slightly below this level. Achieving the Full-Year plan requires approximately ¥21.1B of standalone Operating Income in Q4, which would exceed the average of the quarters to date. The Company’s plan assumes declining revenue while continuing to improve profitability, making the sustainability of cost reductions and SG&A discipline key to progress.

Shareholder Returns

The Q2 dividend was ¥75.0 per share, and the Full-Year dividend forecast is ¥150.0. The Payout Ratio calculated from the forecast Full-Year Net Income Attributable to Owners of the Parent of ¥48.0B and the weighted-average number of shares outstanding during the period of 17,610,893 shares is approximately 55.0%. Net Assets of ¥512.0B and an Equity Ratio of 61.8% support the continuation of dividends, while the impact of a prolonged working capital cycle on cash generation is a point of attention when assessing future dividend sustainability.

Risk Factors

1. Deterioration in working capital efficiency: The Company has substantial Accounts Receivable of ¥112.6B and Inventories of ¥71.1B (including ¥130.0B in raw materials), creating the possibility that funds may remain tied up in receivables and inventory for an extended period. Maintaining inventory levels during a period of declining revenue increases the risk of inventory write-downs.

2. Increase in interest-bearing debt: Short-term borrowings increased significantly by +33.8% YoY, while long-term borrowings increased by +61.9%, bringing total interest-bearing debt to ¥174.1B. The Equity Ratio declined to 61.8% from 64.9% in the previous year, making it important to monitor the use of funds and the status of investment recovery.

3. Sustainability of profitability improvement amid declining revenue: The increase in profit was primarily driven by lower costs and reductions in SG&A expenses, while the SG&A ratio itself increased to 31.1% from the previous year. If Revenue does not recover, lower fixed-cost absorption could affect the sustainability of profit margin improvement.

Industry Benchmark (Reference; Compiled by the Company)

Key Takeaways from the Earnings Results

1. Structure of higher profit despite lower revenue: While Revenue declined 6.0%, Operating Income increased +15.7% and Net Income increased +28.3%, with both the gross profit margin and Operating Income margin improving by approximately 2.2–2.7pt from the previous year. The fact that lower costs were the core driver of profit growth demonstrates the effectiveness of improvements in the cost structure.

2. Concentration of segment profitability: The Seal segment is the earnings pillar, accounting for 75.0% of Revenue and achieving a profit margin of 14.9%, whereas HighPerformancePlastics had a low profit margin of 1.5%. The difference in profitability between segments affects the overall profit margin.

3. Changes in the capital structure: Both long-term and short-term borrowings increased significantly, while intangible fixed assets also increased 82.7%. Monitoring the contribution of investments and acquired assets to earnings in future results will be an important structural focus.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,851–¥3,013 at ±1% for the Cost of Equity, and ¥2,930–¥2,931 at ±0.1 for ω.

Notes:

• Net Assets as of the quarter-end are used (there is a time lag relative to the Full-Year forecast).
• Since 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 solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, nor does it 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 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 as necessary.

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