Key Positives From The 3Q Results
9M operating income rose to JPY 27,507M (+32.0% YoY), double-digit profit growth. Fine Carbon benefited from AI demand, Smelting & Lining from the Middle East situation, and Industrial Furnaces from heating elements for MLCCs. Profit gains therefore came from multiple businesses. On a 3Q standalone basis, gross profit margin was 27.3% and OPM 12.4% (our estimates), with profitability stepping up each quarter.
- Margin Expansion: Gross profit margin was 25.7% (+0.6pt). SG&A grew 10.7%, below gross profit growth of 18.2%, lifting OPM to 10.1% (+1.3pt).
- EBITDA Target Reached: EBITDA margin was 20.2% (our estimate), hitting the 20% target set under Vision 2030 on a 9M cumulative basis.
- Diversified Growth Drivers: Segment profit rose JPY 7,152M (our estimate). Smelting & Lining contributed +JPY 3,315M and Fine Carbon +JPY 1,723M.
- Graphite Electrodes Turning: The segment grew profit despite lower revenue, helped by restructuring. US electrode prices began rising in 3Q, signaling a turn in the business environment.
- Enhanced Shareholder Returns: The interim dividend rose to JPY 20 (JPY 15 in the prior year). The company also repurchased JPY 15,001M of treasury shares via FCSR and cancelled 8,831,200 shares.
Key Concerns From The 3Q Results
Despite higher operating income, quarterly net income attributable to owners of parent company was only JPY 16,259M (+0.8%). Several factors offset growth at the operating level. The prior year's gains on sale of investment securities and reversal of business restructuring provisions did not recur, interest expense rose, and net income attributable to non-controlling interests jumped 44.3%. Conversion to bottom-line profit is an issue. The core Carbon Black business grew revenue but saw margins decline, so the sustainability of profitability needs to be confirmed.
- Carbon Black Margin Squeeze: Revenue rose 16.6% but operating income only 6.4%. New customer wins and spot sales offset volume declines from tire makers' production cuts.
- Fading Thai Consolidation Boost: The Thai operation was consolidated in 4Q 2025. Its YoY contribution laps in 4Q, so Carbon Black's revenue uplift is expected to shrink.
- Smelting & Lining Profit Quality: Profit growth includes RuC® license fee income. The share of one-off elements has not been disclosed.
- Rising Debt and Interest Costs: Interest-bearing debt was JPY 206,728M (our estimate), up 4.3% from the prior year-end. Interest expense rose 42.5% as higher rates took effect.
- Energy Cost Risk: A prolonged closure of the Strait of Hormuz is keeping oil and energy prices elevated. Spillover risk to raw material and fuel costs remains.
Focus Areas / Items To Monitor Going Forward
- The full-year plan implies 4Q operating income of JPY 7,493M (our estimate), roughly 60% of the 3Q standalone result. The key question is whether this reflects conservative assumptions or factors in seasonality and cost increases.
- How far memory-driven demand for solid SiC focus rings can be sustained in terms of capacity and pricing. The durability of Fine Carbon's growth will shape mid-term profit levels.
- Whether higher US graphite electrode prices carry into 4Q and beyond, and the underlying earnings power of Smelting & Lining excluding license income.
- Reasons for the gap between 3Q standalone profit and the level implied by the 4Q plan, and the cost and demand assumptions for 4Q
- Order trends for solid SiC focus rings, and the plan and timing for capacity expansion
- RuC® license fee income booked in 9M and its future recurrence
- Drivers of the Carbon Black margin decline, and the outlook for start-up costs tied to the transfer to the new Thai plant
- Breakdown of the increase in investment securities despite the policy of reducing cross-shareholdings, and future sale plans
Key Financial Highlights
| Item | Value | YoY |
|---|---|---|
| Revenue | JPY 273,674M | +15.3% |
| Gross Profit | JPY 70,437M | +18.2% |
| └ Gross Profit Margin | 25.7% | +0.6pt |
| SG&A | JPY 42,929M | +10.7% |
| Operating Income | JPY 27,507M | +32.0% |
| └ Operating Income Margin | 10.1% | +1.3pt |
| Depreciation | JPY 24,371M | +23.7% |
| Interest Expense | JPY 2,419M | +42.5% |
| Recurring Profit | JPY 26,148M | +27.0% |
| Extraordinary Income | JPY 3,013M | -42.5% |
| └ Gain on Sale of Investment Securities | JPY 3,001M | -27.9% |
| Extraordinary Losses | JPY 837M | +324.9% |
| Net Income Attributable to Non-Controlling Interests | JPY 3,390M | +44.3% |
| Net Income Attributable to Owners of Parent Company | JPY 16,259M | +0.8% |
| EPS | JPY 78.02 | +3.3% |
| 3Q Standalone Revenue | JPY 99,946M | +8.6% QoQ (our estimate) |
| 3Q Standalone Operating Income | JPY 12,405M | +41.7% QoQ (our estimate) |
Prior-year figures are restated to reflect the finalization in 4Q FY12/2025 of provisional accounting for a business combination. Extraordinary income no longer includes the JPY 1,078M reversal of business restructuring provisions booked in the prior year. Extraordinary losses include JPY 611M in special retirement payments and JPY 160M in disaster-related losses. EPS growth outpaced net income growth as share buybacks reduced the average share count during the period (213.5M shares → 208.4M shares).
Performance By Business Segment
All five reportable segments posted profit growth. Semiconductor/AI-related businesses (Fine Carbon, Industrial Furnaces) and Middle East demand (Smelting & Lining) drove profit growth. The core Carbon Black business contributed mainly on the revenue side.
Segment Performance Table
| Segment | Revenue | YoY | Operating Income | YoY | Margin |
|---|---|---|---|---|---|
| Carbon Black | JPY 129,366M | +16.6% | JPY 12,430M | +6.4% | 9.6% |
| Fine Carbon | JPY 52,391M | +24.5% | JPY 8,020M | +27.4% | 15.3% |
| Smelting & Lining | JPY 50,588M | +21.6% | JPY 4,053M | +448.9% | 8.0% |
| Graphite Electrodes | JPY 26,610M | -5.5% | JPY 2,168M | +31.9% | 8.1% |
| Industrial Furnaces and Related Products | JPY 8,285M | +16.0% | JPY 2,153M | +63.6% | 26.0% |
| Other | JPY 6,432M | -13.6% | JPY 24M | -94.5% | 0.4% |
| Adjustments | - | - | -JPY 1,343M | - | - |
| Consolidated | JPY 273,674M | +15.3% | JPY 27,507M | +32.0% | 10.1% |
(Revenue is sales to external customers. Margins are our estimates based on external customer revenue.)
- Fine Carbon: Sales volumes of solid SiC focus rings for memory semiconductors rose sharply. A recovery in Chinese SiC power semiconductor demand added to the gains, lifting margin from 15.0% to 15.3%.
- Smelting & Lining: Demand for aluminum smelting cathodes expanded on the back of the Middle East situation. The segment also booked license fee income from its next-generation RuC® cathode. Margin rose from 1.8% to 8.0%.
- Industrial Furnaces and Related Products: Growth in the MLCC market for AI data centers drove demand for heating elements in Japan and China. Resistors for power infrastructure also held firm on grid build-out.
- Graphite Electrodes: EAF steel output in the US, the core market, was solid, and Japanese crude steel output dipped only slightly. Revenue fell on the deconsolidation of TOKAI ERFTCARBON. Profit nonetheless rose on restructuring benefits and higher US prices from 3Q.
- Carbon Black: Sales volumes fell on tire makers' production cuts. The Thai operation consolidated in 4Q 2025 secured revenue and profit growth, but margin slipped from 10.5% to 9.6%.
- Other: Revenue from anode materials, real estate leasing, etc. was JPY 187M (-87.4%). Friction materials for mining were weak as Indonesian coal output declined. Demand from motorcycles, industrial machinery, construction machinery and agricultural machinery offset this, bringing sales to JPY 6,244M (+4.8%).
- Certain Industrial Furnace Applications: LiB-related capex in the energy sector appears to have peaked. Growth in MLCC-related demand absorbed the slowdown.
Progress Versus Full-Year Guidance
Operating income progress was 78.6%, slightly below the prior year's 80.6% (restated 9M result ÷ prior full-year result, our estimate). The full-year plan implies 4Q operating income of JPY 7,493M, well below the 3Q standalone result. If 3Q earnings levels hold, the plan looks highly achievable. Revenue progress, however, was 70.9% (73.5% in the prior year). Meeting the plan requires 4Q revenue of JPY 112,326M (our estimate), making the top-line hurdle relatively higher.
| Item | Value (9M Cumulative) | Full-Year Forecast | Progress Rate |
|---|---|---|---|
| Revenue | JPY 273,674M | JPY 386,000M | 70.9% |
| Operating Income | JPY 27,507M | JPY 35,000M | 78.6% |
| Recurring Profit | JPY 26,148M | JPY 34,300M | 76.2% |
| Net Income | JPY 16,259M | JPY 22,000M | 73.9% |
| EPS | JPY 78.02 | JPY 108.73 | 71.8% |
- The company provides no commentary on seasonality. Last year's 4Q operating income was JPY 5,018M (our estimate), below the 1Q–3Q quarterly average.
Changes To Guidance
Guidance was not revised this time. The full-year plan stands at the level set after two upward revisions in May and August, with revenue of JPY 386,000M (+19.5%) and operating income of JPY 35,000M (+35.4%) maintained. The August upgrade reflected surging demand for solid SiC focus rings and a recovery in graphite electrode demand, mainly in the US. 3Q results tracked in line with these assumptions.
Commentary On Shareholder Returns
- Dividend: The annual dividend forecast is JPY 40 (JPY 20 interim, JPY 20 year-end), up JPY 10 from JPY 30 in the prior year. The forecast is unchanged, implying a payout ratio of 36.8% (based on forecast EPS, our estimate).
- Policy Changes: In May, the company announced a higher payout ratio, the introduction of a DOE metric (progressive dividends), and a policy of reducing cross-shareholdings.
- Share Buyback and Cancellation: Based on a May 13 board resolution, the company acquired 11,210,700 treasury shares for JPY 15,001M via FCSR. On August 4, it disposed of 2,379,500 shares as a post-settlement adjustment, then cancelled 8,831,200 shares on August 31. Shares outstanding at period-end totaled 216,111,904.
Financial Position
The company is lengthening its funding profile through bond issuance. Interest-bearing debt nonetheless rose from the prior year-end, and the equity ratio fell 1.6pt to 46.3%. Share buybacks reduced shareholders' capital, but higher valuation differences on available-for-sale securities kept shareholders' equity roughly flat versus the prior year-end.
- Key Figures
- Leverage Metrics
| Item | Value | Additional Information |
|---|---|---|
| Cash and Deposits | JPY 93,470M | +3.7% vs. prior year-end |
| Shareholders' Equity | JPY 316,571M | -0.6% vs. prior year-end |
| Interest-Bearing Debt | JPY 206,728M | Sum of borrowings, CP and bonds, excluding lease obligations. +4.3% vs. prior year-end (our estimate) |
| └ Bonds | JPY 90,000M | JPY 65,000M at prior year-end; current portion of bonds (JPY 10,000M) reduced to zero |
| └ Long-Term Borrowings | JPY 65,846M | Includes current portion of JPY 8,774M |
| └ Commercial Paper | JPY 42,000M | JPY 47,000M at prior year-end |
| Net Interest-Bearing Debt | JPY 113,258M | JPY 107,955M at prior year-end (our estimate) |
| Investment Securities | JPY 54,584M | +35.6% vs. prior year-end; valuation difference +JPY 10,245M |
| Inventories | JPY 100,128M | +7.3% vs. prior year-end (our estimate) |
| EBITDA | JPY 55,260M | Operating income + depreciation + goodwill amortization. +26.0% YoY (our estimate) |
| Metric | Value | Notes |
|---|---|---|
| Debt/Equity | 0.65x | 0.62x at prior year-end (our estimate) |
| Interest Coverage Ratio | 11.4x | Operating income ÷ interest expense; 12.3x in the prior-year period (our estimate) |
| Equity Ratio | 46.3% | 47.9% at prior year-end (company disclosure) |
Disclosures Released Alongside The Earnings Announcement
None
Major Announcements During The Quarter
- 2026/08/07Filed the Semiannual Report for the 165th fiscal period, released around the same time as the August upward revision to full-year guidance
- 2026/08/24Resolved to cancel 8,831,200 treasury shares acquired via FCSR, underscoring its focus on capital efficiency
- 2026/10/16Announced the initiation of research coverage of the company's shares by Envalith, expanding its investor communications
Large-Shareholding Filings / Material Proposals Over The Past Year
- Sumitomo Mitsui Trust Asset Management: 6.4%→5.8% (2026/10/15) - Management under investment trust and discretionary investment agreements
- Nomura Securities: 12.4%→10.1% (2026/10/08) - Trading inventory for securities business; management of trust assets
- Sumitomo Mitsui Trust Asset Management: 6.0%→6.4% (2026/09/15) - Management under investment trust and discretionary investment agreements
- Nomura Securities: 10.1%→12.4% (2026/09/14) - Trading inventory for securities business; management of trust assets
- Nomura Securities: 10.8%→10.1% (2026/08/25) - Trading inventory for securities business; management of trust assets
- Nomura Securities: 10.4%→10.8% (2026/08/10) - Trading inventory for securities business; management of trust assets
- Nomura Securities: 10.5%→10.4% (2026/08/04) - Trading inventory for securities business; operation of cumulative investment services; management of trust assets
- Sumitomo Mitsui Trust Asset Management: 6.0%→6.0% (2026/07/31) - Management under investment trust and discretionary investment agreements
- Nomura Securities: 10.1%→10.5% (2026/07/30) - Trading inventory for securities business; management of trust assets; pure investment
- Sumitomo Mitsui Trust Asset Management: 6.3%→6.0% (2026/07/15) - Management under investment trust and discretionary investment agreements
- Nomura Asset Management: 10.0%→10.1% (2026/07/03) - Trading inventory for securities business; management of trust assets; pure investment
- Nomura Securities: 11.1%→10.0% (2026/06/16) - Trading inventory for securities business; management of trust assets; pure investment
- Nomura Asset Management: 9.9%→11.1% (2026/06/12) - Trading inventory for securities business; management of trust assets; pure investment
- Nomura Securities: 11.2%→9.9% (2026/06/09) - Trading inventory for securities business; management of trust assets; pure investment
- Nomura Asset Management: 9.2%→11.2% (2026/05/29) - Trading inventory for securities business; management of trust assets; pure investment
- Nomura Asset Management: 8.2%→9.2% (2026/05/15) - Trading inventory for securities business; management of trust assets
- Sumitomo Mitsui Trust Asset Management: 6.4%→6.3% (2026/05/15) - Management under investment trust and discretionary investment agreements
- Mitsubishi UFJ Financial Group: 8.8%→8.1% (2026/04/27) - Strategic investment; pure investment; trading securities, etc.
- Mitsubishi UFJ Financial Group: 9.2%→8.8% (2026/03/30) - Strategic investment; pure investment; dealing purposes; trading securities, etc.
- Mitsubishi UFJ Financial Group: 8.1%→9.2% (2026/01/12) - Strategic investment; pure investment; dealing purposes; trading securities, etc.
- Sumitomo Mitsui Trust Asset Management: 6.6%→6.4% (2025/12/31) - Management under investment trust and discretionary investment agreements
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