INABA DENKISANGYO (9934) FY2026 Q3 Earnings Report

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Executive Summary

This was an earnings period in which profit growth outpaced revenue growth, resulting in a clear improvement in profitability. Revenue was ¥291.61B (+6.9% YoY), Operating Income was ¥20.83B (+20.2%), Ordinary Income was ¥22.57B (+22.0%), and Net Income was ¥15.74B (+23.9%). Operating Income growth exceeded Revenue growth by 13.3pt, and the Operating Income margin improved to 7.1%. The primary drivers of profit growth were improved margins in the Electrical Equipment Materials Business and the continued maintenance of high profitability in the Proprietary Products Business.

Factors Affecting Earnings Performance

【Revenue】Revenue was ¥291.61B, representing a +6.9% YoY increase. By segment, the Electrical Equipment Materials Business generated ¥199.73B (68.5% composition ratio, +8.1% YoY), the Industrial Equipment Business generated ¥30.25B (10.4% composition ratio, +8.1% YoY), and the Proprietary Products Business generated ¥61.63B (21.1% composition ratio, +2.7% YoY). The Electrical Equipment Materials Business led the overall revenue increase.

【Profit and Loss】Operating Income was ¥20.83B (+20.2%), Ordinary Income was ¥22.57B (+22.0%), and Net Income was ¥15.74B (+23.9%). On a segment income basis before tax, the Electrical Equipment Materials Business achieved substantial profit growth, with income of ¥11.06B (+23.3% YoY, 5.5% margin), leading overall profit growth. The Proprietary Products Business continued to maintain a high profitability level, with income of ¥12.94B (+8.7% YoY, 21.0% margin). The Industrial Equipment Business recorded income of ¥1.46B (+5.8% YoY, 4.8% margin), representing relatively moderate growth. Non-operating income totaled ¥1.86B, mainly comprising dividend income of ¥1.14B, thereby boosting Ordinary Income. Extraordinary gains and losses amounted to a net gain of ¥0.08B, including a gain on the sale of investment securities of ¥0.07B, with a limited impact. The impairment loss on fixed assets of ¥0.17B recorded in the same period of the previous year did not occur in the current period. Overall, the Company achieved higher revenue and earnings, primarily due to improved margins in the Electrical Equipment Materials Business.

Segment Analysis

Among the three segments, the Electrical Equipment Materials Business is the core business, accounting for 68.5% of total revenue. It posted outstanding growth in both revenue and profit, with Revenue up +8.1% YoY and segment income up +23.3% YoY, while its margin improved from around 4.5% to 5.5%. Although the Proprietary Products Business accounts for 21.1% of revenue, it has exceptionally high profitability, with a 21.0% margin, contributing to the increase in overall profit. The Industrial Equipment Business is relatively small, accounting for 10.4% of revenue, and its 4.8% margin remains low compared with the other segments. Segment income is presented on a pretax income basis. After deducting corporate-wide adjustments of △¥2.81B (including elimination of intersegment transactions and corporate-wide profit and loss), consolidated pretax income was ¥22.65B.

Key Financial Indicators

【Profitability】The Operating Income margin of 7.1% and Net Income margin of 5.4% both improved from the same period of the previous year (approximately 6.4% and approximately 4.7%, respectively). The gross margin was 17.9%, while the Operating Income margin was secured after deducting an SG&A ratio of 10.8%. Annualized ROE was 8.5%, primarily driven by the Net Income margin and total asset turnover (approximately 1.03x), with a low level of dependence on financial leverage (approximately 1.53x). 【Cash Quality】Cash and deposits were ¥63.88B. Although the Company held working capital consisting of accounts receivable and notes receivable of ¥60.34B and inventories of ¥24.55B, accounts payable and notes payable of ¥67.87B provided an offset. As business transactions expand, increases in receivables could partially offset cash generation. 【Investment Efficiency】Investment securities of ¥31.83B accounted for 11.3% of total assets, while the ¥7.28B valuation difference on securities contributed to higher comprehensive income. 【Financial Soundness】The financial base is conservative, with an Equity Ratio of 65.5% (up from 61.8% in the same period of the previous year), current assets of ¥206.23B, and current liabilities of ¥87.38B.

Cash Flow Analysis

As the statement of cash flows has not been disclosed, cash trends are assessed based on changes in the balance sheet. Cash and deposits were ¥63.88B, up from ¥62.06B in the same period of the previous year. Accounts receivable and notes receivable were ¥60.34B, and inventories were ¥24.55B, indicating an accumulation of working capital accompanying business expansion. Meanwhile, accounts payable and notes payable of ¥67.87B provided a certain degree of offset as trade payables. Investment securities increased substantially to ¥31.83B from ¥19.97B in the same period of the previous year, with the increase in assets attributable to the management of surplus funds and the expansion of valuation gains on cross-held shares. Net assets increased to ¥185.37B, supported by accumulated retained earnings of ¥145.15B and an increase in the valuation difference on securities. Overall, the Company has achieved both profit generation from operating activities and balance sheet accumulation, with no signs of financial liquidity pressure.

Quality of Earnings

The core of profit growth was Operating Income of ¥20.83B, representing high-quality earnings growth accompanied by an improvement in core business profitability. Non-operating income of ¥1.86B represented only 0.64% of Revenue. Its primary components were dividend income of ¥1.14B and interest income of ¥0.26B, which substantially exceeded interest expense of ¥0.02B and constituted a stable source of income. The difference of ¥6.84B between Ordinary Income of ¥22.57B and Net Income of ¥15.74B (30.3% of Ordinary Income) was primarily attributable to income taxes of ¥6.91B, resulting in an effective tax rate of approximately 30.5%, which is within the normal range. Compared with extraordinary income of ¥0.08B, including a gain on the sale of investment securities of ¥0.07B, almost no extraordinary loss was recorded. The net contribution was therefore limited, indicating that current-period profit was generated from a recurring earnings structure with low dependence on temporary factors. Comprehensive income of ¥23.07B exceeded Net Income by ¥7.34B, and it should be noted that fluctuations in the valuation difference on securities caused changes in the level of net assets.

Earnings Forecast and Guidance

The cumulative Q3 progress rates against the full-year Company forecasts were 74.4% for Revenue, 78.0% for Operating Income, 82.4% for Ordinary Income, and 81.1% for Net Income. Compared with the standard progress rate of 75%, Revenue was approximately in line, while Operating Income and subsequent measures were 3–7pt ahead, indicating favorable progress on the profit front. Required Operating Income in Q4 is approximately ¥5.87B, and the required Operating Income margin is approximately 5.9%. As this is below the 7.1% Operating Income margin for the cumulative Q3 period, the burden of achieving the plan is relatively light. There were no revisions to either the earnings forecast or the dividend forecast, and management has maintained its current plans.

Shareholder Returns

The Q2 dividend was ¥70.00 per share, resulting in a dividend-only Payout Ratio of approximately 50.6% against current-period Net Income of ¥15.74B. A two-for-one stock split of common shares was implemented effective December 1, 2025. Accordingly, the fiscal year ending March 2026 year-end dividend is presented on a post-split basis, while a pre-split year-end dividend of ¥70.00 and annual dividend of ¥140.00 have been disclosed as reference figures. Given retained earnings of ¥145.15B, cash and deposits of ¥63.88B, and negligible interest-bearing debt, the Company has sufficient financial capacity to pay dividends. It should be noted that the previous fiscal year-end dividend included a special dividend of ¥10, which is relevant when making a simple period-on-period comparison.

Risk Factors

1. Structurally low gross margin: The gross margin remains at 17.9%, below the 20% level generally regarded as favorable. This earnings structure is susceptible to the impact of increases in procurement prices, delays in passing through price increases, and changes in product mix on the Operating Income margin.

2. Expansion of working capital requirements: Accounts receivable and notes receivable of ¥60.34B and inventories of ¥24.55B are offset by accounts payable and notes payable of ¥67.87B. However, working capital requirements may fluctuate due to changes in demand and transaction terms.

3. Risk of fluctuations in securities valuations: The Company holds investment securities of ¥31.83B, and the ¥7.28B valuation difference on securities contributes to comprehensive income. Net assets and comprehensive income may fluctuate in response to movements in the stock market.

Industry Benchmark (Reference; Company Research)

Profitability and Return

Both the Operating Income margin and Net Income margin exceed the industry median, placing the Company’s profitability relatively high within the industry.

Growth and Capital Efficiency

The Revenue growth rate is slightly above the industry median but has not reached the upper bound of the IQR (8.6%), placing the Company in the upper-middle range of industry growth.

※Source: Company research

Key Takeaways from the Earnings Results

1. Revenue increased +6.9% YoY, while Operating Income rose +20.2%, resulting in an improvement in the Operating Income margin from the same period of the previous year. Profit growth in the Electrical Equipment Materials Business drove overall earnings growth, indicating the emergence of operating leverage.

2. Progress rates against the full-year Company forecasts were 78.0% for Operating Income, 82.4% for Ordinary Income, and 81.1% for Net Income, exceeding the standard progress rate of 75%. Management has maintained both its earnings forecast and dividend forecast, and the profit margin required in the second half to achieve the current plan is below the actual level recorded in Q3.

3. Although the 17.9% gross margin maintains profitability that is not relatively weak within the industry, it remains below 20% in absolute terms. The sustainability of margin improvement is structurally dependent on procurement terms, the ability to pass through price increases, and product mix trends.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,685–¥1,785 at ±1% for the cost of equity, and ¥1,732–¥1,737 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing gap relative to 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 / Mechanically calculated solely from publicly available data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings summary data. It does not recommend investment in any specific issue. 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 with a professional advisor as necessary.

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