Tokyo Electron (8035) FY2026 Q3 Earnings Report

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Executive Summary

The cumulative Q3 results represent a decline in both revenue and earnings, with the contraction in profit exceeding the decline in revenue, primarily due to reduced cost absorption capacity. Revenue was ¥17317B (-2.5% YoY), Operating Income was ¥4192.9B (-18.3%), Ordinary Income was ¥4238.0B (-18.7%), and Net Income was ¥3601.6B (-10.2%). The Operating Margin fell significantly to 24.2% from 28.9% in the same period of the previous year. However, the decline in Net Income was smaller than that in Operating Income because extraordinary income of ¥438.0B, including a gain on the sale of investment securities of ¥388.8B, provided support.

Factors Affecting Results

【Revenue】Revenue was ¥17317.2B, a 2.5% decrease YoY. As the Company operates in the single segment of semiconductor production equipment, adjustments to semiconductor manufacturers’ capital investment cycles appear to have affected demand. Progress against the full-year company forecast of ¥24100B (-0.9% YoY) was 71.9%, slightly below the standard 75%.

【Profit and Loss】Cost of sales increased to ¥9570.2B (+1.8% YoY), causing the gross margin to decline to 44.7% from 47.0% in the same period of the previous year. SG&A expenses increased to ¥3554.0B (+10.3%), primarily due to R&D expenses of ¥2010.7B (+13.4%; 11.6% of revenue). As a result, Operating Income was ¥4192.9B (-18.3%), and the Operating Margin declined significantly to 24.2% from 28.9% in the same period of the previous year. Ordinary Income also declined at a broadly similar rate to ¥4238.0B (-18.7%). Net Income declined by 10.2% to ¥3601.6B, supported by extraordinary income including a gain on the sale of investment securities of ¥389B. These results reflect a decline in both revenue and earnings caused by reduced cost absorption capacity associated with lower revenue and increased R&D investment.

Segment Analysis

As the Company operates in the single segment of semiconductor production equipment, segment-specific disclosure is not provided.

Key Financial Indicators

【Profitability】The Operating Margin of 24.2% declined by 4.7pt from 28.9% in the same period of the previous year, while the Net Profit Margin of 20.8% also declined from 22.6%. The gross margin was 44.7% (previous year: 47.0%), with higher costs and increased SG&A expenses (20.5% of revenue versus 18.1% in the previous year) contributing to the deterioration in profitability.【Cash Flow Quality】Although OCF and other cash flow information have not been disclosed, working capital indicators such as DSO, DIO, and CCC suggest a buildup of inventories and accounts receivable. Inventories increased 6.7% YoY to ¥3109.9B despite the decline in revenue.【Investment Efficiency】Annualized ROE was 23.9%, decomposed into a Net Profit Margin of 20.8%, total asset turnover of 0.876x, and financial leverage of 1.31x, indicating that the Company maintains high capital efficiency with low leverage.【Financial Soundness】The Equity Ratio increased to 76.1% from 70.1% in the previous year, while property, plant and equipment increased 29.9% YoY to ¥5739.6B, indicating progress in capital investment. Total liabilities decreased YoY, and the financial foundation remains conservative.

Cash Flow Analysis

As cumulative amounts for each section of the cash flow statement are not included in the disclosed information, cash flow trends are analyzed based on balance sheet movements. Cash and deposits were ¥3984.8B, a slight decrease from ¥4162.4B in the same period of the previous year, while property, plant and equipment increased by ¥1322.6B YoY to ¥5739.6B, indicating progress in capital investment, primarily in buildings and structures. Inventories increased 6.7% YoY to ¥3109.9B, and the increase in inventories amid declining revenue suggests that a portion of funds remains tied up in products and raw materials. Accounts payable were ¥997.5B, down 7.7% YoY, indicating cash outflows through the reduction of trade payables. Net assets increased by ¥1500.4B to ¥20052.5B, as retained earnings and other comprehensive income strengthened the capital base.

Quality of Earnings

Net Income of ¥3601.6B included extraordinary income of ¥438.0B, primarily consisting of a ¥388.8B gain on the sale of investment securities, substantially exceeding extraordinary losses of ¥12.9B. Net extraordinary income of ¥425B represented 11.8% of Net Income and was the primary reason the decline in Net Income (-10.2%) was smaller than the declines in Operating Income and Ordinary Income (-18.3% and -18.7%, respectively). Non-operating income was ¥85.4B, compared with non-operating expenses of ¥40.4B, including a foreign exchange loss of ¥35.2B, resulting in a net gain of only ¥45B and a limited impact on Ordinary Income. Accordingly, current-period Net Income includes support from a temporary gain on the sale of investments, and the decline in Operating Income and Ordinary Income more appropriately reflects the underlying recurring earnings power.

Earnings Forecast and Guidance

The full-year company forecasts are Revenue of ¥24100B (-0.9% YoY), Operating Income of ¥5930B (-15.0%), and Ordinary Income of ¥6010B (-15.1%). The cumulative Q3 progress rates were 71.9% for Revenue and 70.7% for Operating Income, both below the standard 75%. Achieving the full-year forecast requires Revenue of ¥6782.8B and Operating Income of ¥1737.1B in Q4. If the earnings decline trend from the same period of the previous year continues, the shortfall in progress may widen. Forecast EPS is ¥1,200.05, and forecast dividends are ¥601.

Shareholder Returns

The Q2 dividend was ¥264 per share, and the full-year forecast dividend is ¥601. Based on the forecast full-year dividend, the Payout Ratio against cumulative Net Income of ¥3601.6B is approximately 50.1% (the ratio of the ¥601 dividend to forecast EPS of ¥1,200.05). The conservative financial foundation, reflected by cash and deposits of ¥3984.8B and an Equity Ratio of 76.1%, indicates capacity to pay dividends. However, as no disclosure has been made regarding the amount of share repurchases, the Total Return Ratio is not evaluated.

Risk Factors

1. Business concentration risk: The Company operates in the single segment of semiconductor production equipment and is highly sensitive to semiconductor manufacturers’ capital investment cycles. Revenue declined 2.5% YoY, indicating a business structure in which fluctuations in demand cycles directly affect results.

2. Working capital buildup risk: Inventories increased 6.7% YoY to ¥3109.9B while revenue declined, raising concerns about funds becoming tied up due to delays in inventory reduction or longer production and acceptance cycles.

3. Declining cost absorption capacity risk: SG&A expenses as a percentage of revenue increased to 20.5% from 18.1% in the previous year, while R&D expenses also increased to 11.6% of revenue. Although technology investment contributes to maintaining competitiveness, a delay in demand recovery could place further pressure on the Operating Margin.

Industry Benchmark (For Reference; Company Research)

Key Takeaways from the Earnings Results

1. The Operating Margin of 24.2% and annualized ROE of 23.9% remain at high levels. However, the 4.7pt decline in the Operating Margin from the same period of the previous year resulted from the combination of gross margin deterioration and increased SG&A expenses, including R&D expenses, and should be monitored as a change in the cost structure.

2. The smaller decline in Net Income (-10.2%) than in Operating Income (-18.3%) was attributable to the temporary factor of a ¥389B gain on the sale of investment securities. This distinction should be made when evaluating the underlying recurring earnings power.

3. While property, plant and equipment increased 29.9% YoY, indicating progress in capital investment, progress against the full-year forecast was below 75% for both Revenue and Operating Income. Execution in Q4 will determine the full-year earnings outcome.

Theoretical Share Price (Reference Value)

Sensitivity: ¥6,958–¥7,372 at ±1% for the cost of equity, and ¥7,087–¥7,273 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing difference from 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) / Interest rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data and 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 release data. It does not recommend investment in any specific security. The industry benchmark is 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 with a professional advisor as necessary.

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