Summary
The August 4 guidance revision raised the 1H operating income plan to ¥54.5B. 1Q results have already covered 49.3% of this target. We estimate the 2Q standalone operating income required at ¥27.62B, slightly above 1Q's ¥26.88B. The key question is whether demand for generative AI and general-purpose server substrates in the Electronics segment, along with stable operations at the Ogaki-Ono site, carries through into 2Q. The full-year plan implies 2H operating income of ¥72.5B. 2Q results will therefore be an opportunity to check three things: the order environment underpinning 2H profit growth, margins sufficient to absorb rising depreciation, and trends in advances received and capex. In the Ceramics segment, we also want to gauge the profit run-rate once the temporary surge in DPF orders subsides.
Key Points for Next Quarter
| Key Points & Focus | Implications |
|---|---|
Progress vs. PlanAchievement of 1H operating income and recurring profit against the revised plan | 1Q has already reached 49.3% of the 1H plan (operating income ¥54.5B, +67.3% YoY). We estimate the 2Q standalone requirement at ¥27.62B, so the plan can be met at roughly the 1Q run-rate. |
Electronics GrowthYoY growth in Electronics revenue and segment profit, plus the 2Q standalone trend | 1Q revenue rose +37.7% and segment profit +52.4%. Electronics accounts for roughly 80% of segment profit. Whether 2Q standalone profit can hold at 1Q's ¥21.375B will determine the credibility of the full-year plan. |
ProfitabilityGross profit margin, operating income margin, and the pace of depreciation growth | 1Q OPM was 21.8%, with depreciation up +50.7%. We estimate the 2Q standalone OPM implied by the 1H plan at 21.2%. The plan assumes OPM rises to 24.5% in 2H. |
CeramicsSegment profit after the temporary DPF order surge subsides, and the impact of material costs on AFP | 1Q segment profit was ¥3.22B (+53.6%), with the margin rising to 13.2%. Management described the DPF uplift as a temporary order increase, so we will assess its sustainability in 2Q. |
Financials & InvestmentTrends in advances received, capex, and construction in progress | Advances received stood at ¥154.526B at end-1Q, up ¥73.575B from the start of the year. This was also the main driver of operating CF of ¥95.892B. Its relationship with future capex is a key focus. |
Key Issues from Previous Results (FY3/27 1Q Results)
1Q revenue came in at ¥123.219B (+26.4%) and operating income at ¥26.88B (+52.4%). The Electronics segment drove most of the profit growth. On the same day, the company raised its 1H and full-year guidance, lifting the full-year operating income plan to ¥127.0B (+104.7% YoY). Under the medium-term management plan "Moving on to our New Stage 115 Plan," the company is now in the phase of converting AI server demand into earnings. For 2Q results, we will focus on progress against the revised plan, momentum in Electronics, and margin levels.
1. Achievement Against the Upwardly Revised 1H Plan
- Prior Quarter: 1Q progress against the 1H plan was 48.6% for revenue (plan: ¥253.5B), 49.3% for operating income, and 50.9% for recurring profit (our estimates).
- This Quarter: We estimate the implied 2Q standalone plan at revenue of ¥130.281B and operating income of ¥27.62B. This assumes QoQ growth of +5.7% and +2.8%, respectively.
- Key Metrics: 1H operating income and its gap versus the ¥54.5B plan. 1H operating income in the prior-year period was ¥32.573B.
2. Electronics: Sustainability of Substrate Orders for Generative AI and General-Purpose Servers
- Prior Quarter: Electronics 1Q revenue was ¥77.522B (+37.7%) and segment profit ¥21.375B (+52.4%).
- Prior Quarter: We estimate the segment margin at 27.6%, up from 24.9% in the prior-year period.
- This Quarter: We will check whether orders for high-performance IC package substrates for generative AI and general-purpose servers, stable production at the Ogaki-Ono site, and the weak yen continue to contribute in 2Q.
- Key Metrics: YoY growth in Electronics 1H revenue and segment profit. 2Q standalone profit should be derived by subtracting 1Q's ¥21.375B from the 1H figure and compared with 1Q.
3. Margins Absorbing Higher Depreciation and Profit Growth into 2H
- Prior Quarter: 1Q gross profit margin was 36.4%, above 36.0% in the prior-year period.
- Prior Quarter: SG&A rose only +3.2%, lifting OPM to 21.8% from 18.1% in the prior-year period.
- Prior Quarter: Depreciation was ¥17.588B (+50.7%). Revenue growth absorbed the cost burden of new capacity.
- This Quarter: Backing out from the full-year plan, implied 2H operating income is ¥72.5B, for an OPM of 24.5% (our estimates). We want to see a clear path toward this level as of 2Q.
- This Quarter: In 1Q, recurring profit grew +57.8% while net income grew only +40.8%. We will again check the breakdown of extraordinary items and income taxes on a 1H basis.
- Key Metrics: 1H OPM (21.5% on a plan basis) and YoY change in gross profit margin. The 1H gross profit margin in the prior-year period was 34.7%.
4. Ceramics: Profit Run-Rate After Temporary DPF Demand Subsides
- Prior Quarter: Ceramics 1Q revenue was ¥24.365B (+24.3%) and segment profit ¥3.22B (+53.6%).
- Prior Quarter: DPF profit rose on a temporary increase in orders and the weak yen, and FGM and NEV also posted profit gains. AFP profit declined due to surging material costs.
- This Quarter: As DPF orders normalize, the key question is how far the recovery in FGM for semiconductor manufacturing equipment and volume growth in NEV can offset the decline.
- Key Metrics: YoY change in Ceramics 1H segment profit and margin. The 1Q margin was 13.2%, versus 10.7% in the prior-year period.
5. Build-Up in Advances Received and Shifts in Capex and Capital Structure
- Prior Quarter: Advances received reached ¥154.526B at end-1Q, nearly double the ¥80.95B at the start of the year.
- Prior Quarter: Cash outflow for acquisition of PP&E fell to ¥15.747B (-32.3%), while construction in progress rose by ¥9.054B to ¥120.847B.
- This Quarter: The earnings release does not explain the nature of the advances received. We want to understand how they relate to capacity expansion tied to customer demand, and when capex is likely to pick up again.
- This Quarter: Conversion of convertible bonds progressed in 1Q and in July. The July conversions totaled ¥7.3B in face value, so we will assess both the boost to equity and the increase in share count.
- Key Metrics: Advances received at end-2Q, 1H capex and operating CF, outstanding convertible bond balance, and equity ratio. The equity ratio was 54.2% at end-1Q.
Key Timely Disclosures During the Period
- 2026/08/04Notice Regarding Revision of Earnings Guidance - The full-year plan was raised from ¥500.0B to ¥550.0B for revenue and from ¥90.0B to ¥127.0B for operating income. The company cited stronger-than-expected demand for IC package substrates for AI and general-purpose servers, along with stable operations at the Ogaki-Ono site. 2Q results will be the first opportunity to verify the demand strength underlying the revision.
- 2026/08/04Notice Regarding Stock Split, Partial Amendment to the Articles of Incorporation in Connection with the Stock Split, Adjustment to the Conversion Price of Convertible Bonds with Stock Acquisition Rights, Revision of Year-End Dividend Forecast, and Change in Dividend Policy - The company will implement a 2-for-1 stock split effective October 1, 2026. The annual dividend forecast on a post-split basis is ¥17.50, versus ¥15.00 in the prior year. The 1H plan EPS of ¥60.67 reflects the split, so comparisons with actual results must be made on the same basis.
Previous Quarter Results (FY3/27 1Q Actual)
The company's core business is Electronics, which produces high-performance IC package substrates for generative AI and general-purpose servers. This is complemented by Ceramics, which covers DPF, AFP, FGM, and NEV, and an Other segment that includes construction and building materials. Under its five-year medium-term management plan "Moving on to our New Stage 115 Plan," launched in FY2023, the company is strengthening business competitiveness and transforming manufacturing through DX. In 1Q, stable operations at the Ogaki-Ono site and the weak yen contributed to profit growth across all segments. The company has raised both its 1H and full-year plans.
| Item | Amount | YoY | vs. Company Plan | Notes |
|---|---|---|---|---|
| Revenue | ¥123.219B | +26.4% | - | Electronics +37.7%, Ceramics +24.3%. Progress vs. 1H plan of 48.6% (our estimate) |
| Operating Income | ¥26.88B | +52.4% | - | SG&A growth contained at +3.2%. OPM of 21.8%, vs. 18.1% in the prior-year period |
| Recurring Profit | ¥27.466B | +57.8% | - | FX gain of ¥386M. Depreciation on idle fixed assets of ¥834M |
| Quarterly Net Income Attributable to Owners of Parent Company | ¥17.918B | +40.8% | - | Absence of prior-year extraordinary gains, including ¥911M in subsidy income. Loss on retirement of fixed assets of ¥907M |
| EPS | ¥64.14 | +40.7% | - | Reflects the January 2026 stock split. Does not yet reflect the October 2026 split |
Guidance Achievement Rate (Recurring Profit Basis): 21.6% (Prior-Year Period: 28.6%). The current figure is measured against the revised full-year plan of ¥127.0B. The prior-year figure is measured against the prior fiscal year's full-year actual of ¥60.822B. Both are our estimates.
ENVALITH, INC. ("ENVALITH") provides exclusive research coverage services to domestic and international institutional investors, as well as domestic individual investors, with the objective of contributing to the development of global and Japanese capital markets by providing information necessary for considering investments in Japanese listed companies.
- Purpose and Disclaimer Regarding Investment Decisions
This report has been prepared solely for informational purposes and does not constitute a solicitation to acquire, sell, or hold securities or any other financial products. Furthermore, this report does not constitute specific investment, financial, or tax advice. Any opinions, judgments, or recommendations contained herein are not intended to induce investment activities. Please be advised that all investment decisions must be made based on the investor's own responsibility and judgment, and ENVALITH and subject company shall not be involved in any such investment decisions.
- Information Sources, Accuracy, and Disclaimer of Warranty
This report has been prepared based on a formal request from the subject company, utilizing information provided by and interviews conducted with said company. By using this report, you are deemed to have agreed to the following: 1. Information Sources: This report is prepared on the assumption that the publicly available information and information disclosed by the subject company and provided during interviews is true and reliable. ENVALITH has not independently verified or validated the veracity of such information. 2. Accuracy: The interpretations, analyses, and hypotheses or conclusions based thereon contained in this report are independently derived by ENVALITH using its own perspectives and analytical methods based on the information mentioned in the preceding paragraph. 3. Disclaimer of Warranty: In the event that there are errors or omissions in the information disclosed by the subject company, ENVALITH and subject company shall not be held liable for any inaccuracies in this report resulting therefrom. ENVALITH and subject company make no warranties, whether express or implied, regarding the accuracy, safety, validity, completeness, or any other aspect of this report, nor regarding the past or future performance of the subject company.
- Limitation of Liability
ENVALITH and subject company shall not be liable for any costs, damages, or losses (including direct, indirect, incidental, consequential, or punitive damages) arising from the use of this report or the information obtained therefrom. Users of this report acknowledge and agree that such use is at their own risk.
- Potential Conflicts of Interest
ENVALITH may have, or may have in the future, business relationships with the subject company. Accordingly, investors should be aware that conflicts of interest may exist that could affect the objectivity of this report.
- No Obligation to Change or Update Content
The contents and opinions in this report, as well as the information upon which it is based, are current as of the date of preparation and are subject to change without notice. Please be advised that ENVALITH is under no obligation to update the contents of this report, and investors must verify the timeliness of the information on their own.
- Governing Language
This report is prepared in Japanese, English, and Chinese. In the event of any discrepancy or difference in interpretation between the language versions, the Japanese version shall be treated as the original and shall prevail.
- Copyright
All rights (including copyrights) relating to this report belong to ENVALITH. Any reproduction, redistribution, or other use of all or part of this report without the prior written permission of ENVALITH is strictly prohibited.
- Use for Other Investment Products
Except where ENVALITH has provided prior written approval, the use of this report and the trademarks or trade names of ENVALITH or the subject company in connection with the information distribution, transaction, sales promotion, or advertising of any investment products (including derivatives, structured products, investment trusts, or investment assets whose price, return, or performance is based on or linked to this report) is strictly prohibited.