INABA DENKISANGYO (9934) FY2026 FY Earnings Report

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Executive Summary

For the fiscal year ended March 2026, all segments—Electrical Equipment Materials, Industrial Equipment, and Proprietary Products—reported higher revenue and earnings, resulting in a year-on-year increase in both revenue and earnings, with operating income growth exceeding revenue growth. Revenue was ¥4,170.2B (+8.6% year on year), operating income was ¥297.1B (+16.3%), ordinary income was ¥317.6B (+18.9%), and net income was ¥234.2B (+24.7%). In addition to the improvement in the gross profit margin, it should be noted that extraordinary income, including a ¥11.4B gain on the sale of investment securities, boosted net income growth.

Factors Affecting Business Results

【Revenue】Revenue was ¥4,170.2B (+8.6% year on year), with all segments reporting higher revenue. The Electrical Equipment Materials Business, which accounts for 70.3% of revenue, increased revenue by +8.2%, the Industrial Equipment Business by +13.7%, and the Proprietary Products Business by +7.4%, respectively, with the Industrial Equipment Business recording the highest growth.

【Profit and Loss】Operating income was ¥297.1B (+16.3% year on year), and the operating margin improved to 7.1% from approximately 6.7% in the previous year. The improvement in the gross profit margin to 17.4% (approximately 16.9% in the previous year) and the generally flat SG&A expense ratio (10.3%) contributed to the improvement in profitability. Ordinary income was ¥317.6B (+18.9% year on year), supplemented by non-operating income of ¥22.2B, including ¥11.6B in dividend income. Net income was ¥234.2B (+24.7% year on year); however, the ¥11.4B gain on the sale of investment securities was a temporary factor, and the recurring earnings growth rate should be viewed as somewhat lower. Revenue and earnings increased.

Segment Analysis

The Electrical Equipment Materials Business (70.3% of revenue mix) recorded revenue of ¥293.3B (+8.2% year on year), segment profit of ¥185.1B (+15.0%) on a pretax income basis, and a profit margin of 6.3%. The Industrial Equipment Business recorded revenue of ¥43.4B (+13.7%), profit of ¥24.6B (+30.7%), and a profit margin of 5.7%, representing the highest revenue and profit growth rates among the three businesses. The Proprietary Products Business recorded revenue of ¥80.4B (+7.4%), profit of ¥16.3B (+13.1%), and a profit margin of 20.2%, significantly exceeding the other two businesses and supporting the quality of the overall profit mix. Segment profit is based on pretax income rather than consolidated operating income, and therefore differs in definition from the consolidated operating margin of 7.1%.

Key Financial Metrics

【Profitability】ROE was 11.9%, the operating margin was 7.1% (approximately 6.7% in the previous year), and the net profit margin was 5.6% (approximately 4.9% in the previous year), with all metrics improving year on year.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥269.1B, reaching 1.15 times net income of ¥234.2B, indicating strong cash backing for earnings. While the increase in accounts receivable of ¥46.8B was a use of cash, a ¥27.1B decrease in inventories and a ¥26.0B increase in accounts payable offset this impact.【Investment Efficiency】Capital expenditures were ¥48.2B, 2.38 times depreciation expense of ¥20.3B, reflecting ongoing front-loaded investment in the construction of the research and development facility, the “Innovation Center,” among other projects.【Financial Soundness】The equity ratio was 63.0%, and the current ratio was approximately 215.8%. Interest-bearing debt consisted only of ¥2.5B in short-term borrowings, indicating a conservative financial structure that is effectively debt-free.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥269.1B, an increase of +15.6% year on year, demonstrating high-quality earnings conversion at 1.15 times net income. Accounts receivable increased by ¥46.8B in line with sales growth, putting downward pressure on OCF, but this was absorbed by a ¥27.1B decrease in inventories and a ¥26.0B increase in accounts payable. Investing Cash Flow was an outflow of ¥66.0B, primarily due to ¥48.2B in capital expenditures and the acquisition of intangible assets, among other items. Financing Cash Flow was an outflow of ¥102.7B, mainly attributable to ¥84.5B in dividend payments and ¥36.6B in treasury share repurchases. Free cash flow, calculated as OCF less Investing Cash Flow, was secured at ¥203.1B, demonstrating sufficient financial capacity to fund both shareholder returns, including dividends and share repurchases, and growth investments through internal funds.

Earnings Quality

Net income of ¥234.2B included ¥11.5B in extraordinary income, primarily consisting of the ¥11.4B gain on the sale of investment securities, which was a non-recurring earnings boost. Ordinary income of ¥317.6B benefited from ¥22.2B in non-operating income, including ¥11.6B in dividend income and ¥3.5B in foreign exchange gains, and much of the difference from core operating income of ¥297.1B was based on financial income. OCF was 1.15 times net income, indicating favorable cash conversion and no apparent excessive dependence on estimates or non-cash items. On the other hand, comprehensive income of ¥343.1B exceeded net income by ¥108.9B, mainly due to an increase in the valuation difference on investment securities; therefore, it is not appropriate to use the level of comprehensive income as an indicator of recurring earnings power.

Earnings Forecasts and Guidance

For the subsequent fiscal year (fiscal year ending March 2027), the Company forecasts revenue of ¥4,360.0B (+4.6% year on year), operating income of ¥329.0B (+10.7%), and ordinary income of ¥344.0B (+8.3%). While the operating margin is expected to improve to approximately 7.5%, the EPS forecast is ¥211.13, representing limited growth from ¥208.49 in the current fiscal year. This reflects the expected reversal of the temporary impact of the gain on the sale of investment securities recorded in the current fiscal year, resulting in a forecast structure combining operating profit growth with slower net income growth.

Shareholder Returns

The dividend for the current fiscal year was ¥70 for Q2 and ¥50 year-end (including a special dividend of ¥15), with an XBRL-calculated payout ratio of 40.8%. Treasury share repurchases of ¥36.6B were conducted, resulting in total shareholder returns exceeding dividends alone. A 2-for-1 stock split was implemented effective December 1, 2025, and caution is required when making a simple comparison of per-share dividends before and after the split. The dividend forecast for the subsequent fiscal year is ¥85, implying a payout ratio of approximately 40.3% against forecast EPS of ¥211.13; the level of ordinary dividends excluding the special dividend is expected to be broadly similar to that of the current fiscal year.

Risk Factors

1. Business concentration risk: The Electrical Equipment Materials Business accounts for 70.3% of revenue and has a high degree of dependence on domestic construction investment and demand for equipment replacement. More than 90% of revenue is generated from domestic customers, limiting the mitigating effect of geographic diversification.

2. Gross margin and collection cycle: Although the gross profit margin improved to 17.4%, the wholesale business has a thin-margin structure, and profitability could be pressured if the pass-through of costs is delayed. In addition, given the presence of ¥794.3B in accounts receivable and ¥341.0B in electronically recorded monetary claims, a lengthening collection period could weigh on OCF.

3. Securities valuation volatility risk: Investment securities increased +81.7% year on year to ¥363.0B, accounting for 11.6% of total assets. Although the increase in valuation differences contributed to comprehensive income and the rise in net assets in the current fiscal year, sensitivity of net assets to fluctuations in market prices has increased.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Return

Profitability metrics significantly exceed the industry median, placing the Company among the industry’s higher-performing companies.

Growth and Capital Efficiency

The revenue growth rate also exceeds the industry median but remains below the upper bound of the IQR (12.1%), indicating that the Company is not positioned among the industry’s top tier.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The operating margin improved to 7.1% from the previous year, primarily due to the improvement in the gross profit margin and stability in the SG&A expense ratio. Net income growth (+24.7%) exceeded operating income growth (+16.3%), but the inclusion of the temporary ¥11.4B gain on the sale of investment securities is a fact that should be distinguished when evaluating recurring earnings power.

2. The segment profit margin of the Proprietary Products Business, at 20.2%, significantly exceeds the 6.3% of the Electrical Equipment Materials Business and the 5.7% of the Industrial Equipment Business, creating a structure that supports the quality of overall earnings. Growth in this business and changes in its revenue mix will be key factors to monitor as they may influence the future trend in the overall company profit margin.

3. Under a conservative balance sheet characterized by an equity ratio of 63.0% and a financial structure that is effectively debt-free, the Company is simultaneously executing investments in research and development facilities and other projects (capital expenditures of ¥48.2B) and shareholder returns (total dividends and treasury share repurchases of approximately ¥121.1B).

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,864–¥1,973 at ±1% in the cost of equity, and ¥1,913–¥1,923 at ±0.1 in ω.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated values based solely on publicly disclosed data; these are not forecasts of market prices or recommendations for specific investment actions, and do not 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 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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