SEIKA CORPORATION FY2026 FY Earnings Report

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Executive Summary

For the fiscal year ended March 2026, Revenue was ¥1,084.8B (YoY +¥147.5B, +15.7%), Operating Income was ¥80.3B (YoY +¥15.4B, +23.8%), Ordinary Income was ¥90.4B (YoY +¥7.4B, +8.9%), and Net Income attributable to owners of the parent was ¥55.7B (YoY +¥4.5B, +8.7%). Both sales and operating profit achieved double-digit growth in the operating stage, improving the operating margin to 7.4% (YoY +0.5pt). This was driven by the Product Business maintaining high margins (margin 11.9%) and steady performance in the Energy Business (margin 9.3%). The Industrial Machinery Business achieved revenue growth of +42.0% but recorded a low margin of 0.4%. At the Ordinary Income level, equity-method investment income of ¥5.8B (down from ¥13.7B, prior year included reversal from negative goodwill) and dividend income received of ¥3.3B contributed. Net Income was supported by special gains on sales of investment securities of ¥21.3B, but increased tax expenses and EPS dilution led to EPS208.44円 (YoY -3.7%). By region, domestic revenue share declined to 78.3% (prior year 82.9%) with overseas revenue increasing; shipments to Asia expanded significantly to ¥93.3B (prior year ¥28.7B). Long-term borrowings increased to ¥195.8B to finance M&A, expanding total assets to ¥1,975.2B (YoY +52.5%) and enlarging the B/S.

Factors Driving Performance

【Revenue】Revenue increased to ¥1,084.8B (YoY +¥147.5B, +15.7%). By segment, Energy Business recorded ¥385.9B (+9.6%) driven by recovery in large domestic projects, Product Business was ¥360.3B (+3.6%) supported by steady demand for high value-added products, and Industrial Machinery Business grew to ¥358.4B (+42.0%) due to contributions from new consolidated entities. By region, domestic revenue was ¥849.9B (YoY +¥7.3B, +0.9%) broadly flat, while overseas revenue expanded significantly to ¥234.9B (YoY +¥140.2B, +148.1%). In particular, sales to Asia surged to ¥93.3B (prior year ¥28.7B, +224.9%), and Europe increased to ¥121.9B (prior year ¥107.5B, +13.4%). Gross margin declined slightly to 26.2% (prior year 27.0%, -0.8pt) but gross profit expanded to ¥284.3B (prior year ¥252.6B, +12.5%) driven by higher revenue. Advance receipts (contract liabilities) increased materially to ¥494.1B (prior year ¥158.6B, +211.6%), indicating strong order conditions and progress on large projects.

【Profitability】Operating Income rose to ¥80.3B (YoY +¥15.4B, +23.8%), outpacing revenue growth and demonstrating operating leverage. Operating margin improved to 7.4% (prior year 6.9%, +0.5pt). By segment, Product Business contributed the most with Operating Income of ¥42.99B (margin 11.9%, +0.9pt from prior year), and Energy Business generated ¥35.84B (margin 9.3%). Industrial Machinery Business recorded Operating Income of ¥1.46B (margin 0.4%). SG&A increased to ¥203.9B (prior year ¥187.7B, +8.6%), but the SG&A ratio improved to 18.8% (prior year 20.0%, -1.2pt), indicating better cost absorption. Ordinary Income of ¥90.4B (+8.9%) included non-operating income: equity-method investment income ¥5.8B (prior year ¥13.7B, the prior year was boosted by negative goodwill reversal), dividend income received ¥3.3B (prior year ¥2.9B), foreign exchange gains ¥0.6B, etc., totaling ¥11.4B. Non-operating expenses totaled ¥1.4B, mainly interest expense ¥0.9B (prior year ¥0.1B) reflecting increased interest-bearing debt; the impact at the ordinary level was limited. Profit before tax was ¥109.8B (prior year ¥110.8B, -0.9%), with special gains including ¥21.3B on sales of investment securities (prior year ¥27.8B), and special losses including litigation settlement ¥1.1B, impairment on investment securities ¥0.5B, and loss on disposal of fixed assets ¥0.3B, etc. Income taxes were ¥34.0B (prior year ¥31.9B), and non-controlling interests ¥0.7B; after deduction, Net Income attributable to owners of the parent was ¥55.7B (+8.7%). Net margin was 5.1% (prior year 5.5%, -0.4pt). The contraction in equity-method investment income and the reversion of special gains pressured net margin, but operating improvements ensured expanded final net profit and achieved revenue and profit growth.

Segment Analysis

Energy Business: Revenue ¥385.9B (+9.6%), Operating Income ¥35.8B (+8.9%), margin 9.3%. Large domestic projects (thermal, nuclear, hydro) are on a recovery trend and maintenance service demand remains steady. Segment income including equity-method investment income of ¥4.3B was ¥40.1B (prior year ¥45.5B; prior year was materially boosted by negative goodwill reversal). Industrial Machinery Business: Revenue ¥358.4B (+42.0%), Operating Income ¥1.5B (+144.9%), margin 0.4%. Revenue expanded rapidly due to new consolidated entities, but startup and integration costs suppressed margins. No equity-method investment income was recorded; segment income was ¥1.5B (prior year ▲¥3.3B), marking a return to profitability. Product Business: Revenue ¥360.3B (+3.6%), Operating Income ¥43.0B (+23.1%), margin 11.9%, the highest profitability. Steady demand for niche-leading measurement instruments and electronics-related products supported margins, improving from 11.0% prior year (+0.9pt). Segment income including equity-method investment income of ¥1.5B was ¥44.5B (prior year ¥36.0B). Segment operating income composition: Product 53.5%, Energy 44.6%, Industrial Machinery 1.8%; Product and Energy generate the bulk of profits. Improving Industrial Machinery margins is key to raising overall corporate profitability.

Key Financial Metrics

【Profitability】Operating margin 7.4% (prior year 6.9%, +0.5pt), Net margin 5.1% (prior year 5.5%, -0.4pt); operating-level improvements contrasted with slight decline in net margin. ROE is 10.2% (calculated on prior year basis, XBRL metric), consistent with 5.1% net margin × total asset turnover 0.549 × financial leverage 3.61. Gross margin 26.2% (prior year 27.0%, -0.8pt) slightly declined due to more low-margin Industrial Machinery projects, but SG&A ratio improved to 18.8% (prior year 20.0%, -1.2pt) enabling operating leverage. EBITDA = Operating Income ¥80.3B + Depreciation ¥7.3B = ¥87.6B, improving EBITDA margin to 8.1% (prior year basis 7.7%). 【Cash Quality】Operating Cash Flow (OCF) was ¥54.3B (prior year ¥80.7B, -32.8%) versus Net Income ¥75.1B (attributable to owners), yielding OCF/Net Income of 0.72x and indicating reduced cash conversion efficiency. OCF subtotal (before working capital changes) was ¥96.6B and solid, but working capital movements—accounts receivable increase ▲¥43.2B, inventories decrease +¥40.9B, trade payables decrease ▲¥4.9B, advance receipts increase +¥324.2B, advance payments increase ▲¥321.0B—associated with large projects pressured OCF. Days Sales Outstanding (DSO) approximately 226 days (¥670.4B ÷ (¥1,084.8B ÷ 365)) indicates lengthening collection terms, delaying cash inflows. 【Investment Efficiency】Total asset turnover 0.549x (prior year 0.724x) declined, driven by rapid asset expansion from M&A (Total assets ¥1,975.2B, YoY +52.5%). Capital expenditure ¥10.3B vs. depreciation ¥7.3B gives CAPEX/Depreciation 1.41x, somewhat elevated. Goodwill rose sharply to ¥114.6B (20.9% of equity), reflecting M&A-driven growth. 【Financial Soundness】Equity Ratio 27.7% (prior year 36.8%, -9.1pt) declined, interest-bearing debt increased to Long-term borrowings ¥195.8B (prior year ¥0.2B) + Short-term borrowings ¥0.1B (prior year ¥0.1B) = ¥195.9B. D/E ratio (interest-bearing debt / equity) rose sharply to 3.58x (prior year 0.01x), increasing financial leverage. Debt/EBITDA multiple approximately 2.24x (¥195.9B ÷ ¥87.6B), and EBITDA interest coverage approximately 101x (¥87.6B ÷ ¥0.87B) indicating sufficient interest-bearing capacity. Current ratio 127.7% (prior year 137.3%), Quick ratio 120.0% (prior year 122.2%) suggest acceptable short-term liquidity. Cash and deposits ¥197.4B (prior year ¥168.3B) were secured, and net debt (interest-bearing debt − cash) was ▲¥1.5B, i.e., a net cash position. Payout Ratio 33.9% (XBRL metric), indicating dividends at a sustainable level.

Cash Flow Analysis

OCF was ¥54.3B (prior year ¥80.7B, -32.8%). OCF subtotal ¥96.6B (prior year ¥96.3B, nearly flat) was offset by significant working capital movements: accounts receivable increase ▲¥43.2B, advance payments increase ▲¥321.0B (prepayments for large projects), and advance receipts increase +¥324.2B (receipts for ordered projects), resulting in net working capital cash outflow. Corporate tax payments ▲¥41.6B also pressured cash. Investing CF was ▲¥191.5B (prior year +¥8.1B) with major outflows for acquisition of subsidiary shares ▲¥176.3B (M&A financing) and purchase of investment securities ▲¥26.0B; CAPEX of ¥10.3B was relatively modest. Proceeds from sale of tangible fixed assets ¥0.4B and sale of investment securities ¥29.0B partially offset. Free Cash Flow (OCF + Investing CF) was ▲¥137.2B, a large negative driven by M&A funding requiring external financing. Financing CF was +¥154.3B (prior year ▲¥29.2B), mainly due to borrowings of long-term debt +¥190.0B. After long-term debt repayments ▲¥4.0B, dividend payments ▲¥28.9B, treasury stock acquisition ▲¥0.03B, and other items ▲¥2.8B, a substantial net cash inflow occurred. Cash and deposits increased from ¥167.8B at the beginning of the period to ¥189.7B at period end (+¥21.9B; breakdown: OCF +¥54.3B, Investing CF ▲¥191.5B, Financing CF +¥154.3B, FX effect +¥4.8B). Although interest-bearing debt rose sharply due to M&A financing, OCF remained resilient and short-term liquidity risk is limited. However, the declining OCF trend and delayed receivables collection remain issues for future cash efficiency improvement.

Quality of Earnings

Regarding income persistence, Operating Income ¥80.3B reflects core business earning power, and Ordinary Income ¥90.4B was supported by non-operating income such as equity-method investment income ¥5.8B, dividend income received ¥3.3B, and foreign exchange gains ¥0.6B. Non-operating income of ¥11.4B accounts for 1.1% of revenue and does not structurally exceed 5%, indicating limited dependence on non-operating income. Equity-method investment income contracted from ¥13.7B in the prior year (which was materially inflated by negative goodwill of ¥9.6B) to ¥5.8B this year, and this reversion curtailed Ordinary Income growth. A one-off factor was special gains on sales of investment securities of ¥21.3B that boosted profit before tax to ¥109.8B. The prior year also included ¥27.8B of such gains, suggesting ongoing disposal of strategic equity holdings but not a recurring income source. Special losses were minimal at ¥1.9B (litigation settlement ¥1.1B, impairment on investment securities ¥0.5B, loss on disposal of fixed assets ¥0.3B). Comprehensive income was ¥101.8B (prior year ¥71.9B), with other comprehensive income of ¥26.0B (foreign currency translation adjustments ¥8.3B, valuation difference on available-for-sale securities ¥14.1B, actuarial gains/losses adjustments ¥1.2B, OCI share of associates ¥2.4B) in addition to Net Income ¥55.7B. The accrual ratio (Net Income − OCF) / Total Assets = (¥55.7B − ¥54.3B) / ¥1,975.2B = 0.1% is very low, indicating good accounting quality. However, OCF/Net Income at 0.72x below 1x shows reduced cash conversion efficiency due to working capital swings. Core profit excluding special gains is Pre-tax profit ¥109.8B − special gains ¥21.3B + special losses ¥1.9B = ¥90.4B, effectively aligning with Ordinary Income as a measure of fundamental earning power. This year’s Net Income was partly supported by one-off gains on sales of investment securities; going forward, growth will need to rely on core earning power (expansion of Operating Income).

Forecasts / Guidance

Full-year guidance: Revenue ¥1,250.0B (YoY +15.2%), Operating Income ¥91.0B (+13.3%), Ordinary Income ¥98.0B (+8.4%), Net Income attributable to owners ¥76.0B (+1.4%), EPS214.89円. Compared to current results (Revenue ¥1,084.8B, Operating Income ¥80.3B, Ordinary Income ¥90.4B, Net Income ¥75.1B), growth is expected in the second half. Progress rates are Revenue 86.8%, Operating Income 88.2%, Ordinary Income 92.2%, Net Income 73.7%—operating and ordinary stages show steady progress but Net Income is expected to lag due to the reversion of special gains (this year’s investment securities sale gain ¥21.3B; no announcement of equivalent gain in H2). The large build-up of advance receipts ¥494.1B (prior year ¥158.6B, +211.6%) suggests substantial backlog supporting revenue recognition in the second half. Full-year contribution from acquired subsidiaries through M&A and margin improvement in Industrial Machinery are keys to achieving the guidance. Dividend forecast is annual ¥46 (after share split adjustment), implying forecasted Payout Ratio 21.4% (based on forecast EPS214.89円). The forecast Payout Ratio is lower than the actual 33.9% but is consistent assuming increased shares due to the stock split. The guidance remains unchanged from the initial announcement, indicating progress in line with initial assumptions.

Shareholder Returns

Dividends: Q2-end ¥110, year-end forecast ¥45 (after share split adjustment), totaling annual ¥155 which, when recalculated based on post-split shares, effectively equals approximately ¥81.66 annually (consistent with the footnote stating annual dividend ¥81.66 after considering the stock split). Cash dividends paid amounted to approximately ¥28.9B (dividend payout based on Net Income attributable to owners ¥75.1B is roughly 38.5%), close to the XBRL-reported Payout Ratio of 33.9%. Dividend coverage relative to OCF ¥54.3B is about 1.9x, which is ample. Treasury stock repurchases were minimal at ¥0.03B, and the Total Return Ratio remains below 40%. Dividend policy prioritizes stable dividends, keeping payout relatively steady amid earnings volatility. Prior year dividend was ¥90 (pre-split); the company maintains essentially the same level this year. Although Free Cash Flow is negative ¥137.2B due to M&A, typical CAPEX level (¥10.3B) implies sufficient capacity to cover dividends and CAPEX from OCF in ordinary periods. With deleveraging and OCF recovery, dividend sustainability is high. Share buybacks were essentially not executed this period, suggesting a capital policy prioritizing dividends.

Risk Factors

1. Continued low margins and integration risk in Industrial Machinery Business: The Industrial Machinery Business operating margin of 0.4% is far below the corporate average of 7.4%; despite +42.0% revenue growth, profit contribution is small. Integration costs and launch expenses of the newly consolidated subsidiary are heavy, and delays in realizing synergies pose risk. If margin improvement in this business (which accounts for 33.0% of revenue composition) lags, corporate profitability could be pressured. Quantitatively, a 1pt decline in Industrial Machinery operating margin would reduce consolidated Operating Income by approximately ¥3.6B and worsen operating margin by 0.3pt.

2. Receivables collection delays and deterioration of working capital efficiency: Accounts receivable ¥670.4B (prior year ¥586.6B, +14.3%) slightly lags revenue growth (+15.7%) and DSO of about 226 days indicates prolonged collection terms. OCF ¥54.3B (YoY ▲32.8%) and OCF/Net Income 0.72x show weakening cash conversion. Although advance payments ▲¥321.0B and advance receipts +¥324.2B offset, delays in progress on large projects could further deteriorate working capital and trigger cash shortfall risk. Quantitatively, a 30-day worsening in DSO implies an accounts receivable increase of about ¥89B and would compress OCF by the same amount.

3. Increased financial leverage from M&A and goodwill impairment risk: D/E ratio 3.58x (prior year 0.01x) shows a sharp rise in leverage and Equity Ratio fell to 27.7% (prior year 36.8%). Goodwill increased to ¥114.6B (20.9% of equity, EBITDA multiple 1.31x); if acquired companies underperform or synergies are not realized, impairment risk is elevated. Quantitatively, full goodwill impairment would reduce equity by about 21% and could lower ROE from the mid-teens to the low-teens. Interest expense remains small at ¥0.9B (prior year ¥0.1B), but in a rising interest rate environment financing costs could increase and pressure Ordinary Income.

Industry Benchmark (Reference, Company Analysis)

Profitability & Returns

Both operating and net margins substantially exceed the industry median, maintaining a high-profitability profile.

Growth & Capital Efficiency

Revenue growth is 2.7x the industry median, driven by M&A effects and recovery in large domestic projects.

※Source: Company compilation

Earnings Highlights to Watch

1. Top-tier profitability with 7.4% operating margin: Operating margin 7.4% (YoY +0.5pt) exceeds industry median 3.4% by +4.1pt, driven by high margins in Product (11.9%) and Energy (9.3%) businesses. Improvement in SG&A ratio to 18.8% (prior year 20.0%) amplified operating leverage, yielding Operating Income growth +23.8% vs. Revenue +15.7%. Further margin improvement in Industrial Machinery (currently 0.4%) would provide upside to consolidated margins.

2. M&A-driven growth balanced with rising leverage: Increase in long-term borrowings to ¥195.8B raised D/E to 3.58x, but Debt/EBITDA 2.24x and EBITDA interest coverage ~101x indicate debt-servicing capacity. Goodwill ¥114.6B (EBITDA multiple 1.31x) is within a reasonable range, with integration progress and synergy realization being key. Advance receipts ¥494.1B (YoY +211.6%) signal strong backlog to support H2 revenue. Short-term focus should be on leverage management and restoring cash generation.

3. Declining OCF and working capital management challenges: OCF ¥54.3B (YoY ▲32.8%), OCF/Net Income 0.72x reflect worsening cash conversion. DSO ~226 days due to delayed collections is primary, and advance payments ▲¥321.0B versus advance receipts +¥324.2B create working capital rigidity linked to large projects. Free Cash Flow ▲¥137.2B is M&A-driven; recovering OCF and improving working capital efficiency are critical for sustaining dividends and investment capacity.

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This report is an AI-generated earnings analysis document produced by analyzing XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are compiled by the Company based on public financial statements and are provided for reference. Investment decisions should be made at your own risk and, if necessary, after consulting a professional advisor.