SMC CORPORATION (6273) Q3 2026 Earnings Call Transcript

SMC Corporation Financial Results Briefing for the 3rd Quarter Fiscal Year Ending March 2026 February 12, 2026

Event Summary [Company Name]

SMC Corporation

[Company ID]

6273-QCODE

[Event Language]

JPN

[Event Type]

Earnings Announcement

[Event Name]

Financial Results Briefing for the 3rd Quarter Fiscal Year Ending March 2026

[Fiscal Period]

FY2025 Q3

[Date]

February 12, 2026

[Number of Pages]

19

[Time]

15:30 – 16:20 (Total: 50 minutes, Presentation: 16 minutes, Q&A: 34 minutes)

[Venue]

Webcast

[Venue Size] [Participants] [Number of Speakers]

[Analyst Names]*

1 Masahiro Ota

Yuichiro Isayama Satoshi Taninaka Kentaro Maekawa Kenjin Hotta Graeme McDonald Hirosuke Tai

Director and Executive Officer, General Manager of Finance and Accounting Division Goldman Sachs SMBC Nikko Securities Nomura Securities BofA Securities Citigroup Global Markets Daiwa Securities

*Analysts that SCRIPTS Asia was able to identify from the audio who spoke during Q&A or whose questions were read by moderator/company representatives.

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Presentation Moderator: Now that the time has arrived, we will begin the SMC Corporation, IR presentation of financial results for Q3 of the fiscal year ending March 31, 2026. Thank you very much for your attendance. Today's materials are available on TSE's TDnet and our IR website. Masahiro Ota, Director, Executive Officer and General Manager of the Finance and Accounting Division, will first provide an overview of the quarterly financial results, followed by a question-and-answer session. Due to time constraints, we will select approximately five individuals from those who have expressed their desire to speak in advance. We appreciate your understanding. The scheduled end time is 16:30. Please, start. Ota: Hello. I am Ota of SMC. I will now present a summary of the financial results for Q3 in accordance with the materials.

Page two, a summary of the P&L. On the left, at YoY. While net sales increased by 3.3%, the gross profit increased by 1.7%, with the growth in cost of sales outpacing the growth in net sales by that amount. As for operating income, it was negative compared to the previous year. This also means that the growth in expenses has exceeded the growth in gross profit. In the area of ordinary income, interest income, foreign exchange gains and losses, and other factors were positive, Support Japan Tollfree

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resulting in a slightly positive result. Net income for the period was positive, as the Company sold some of its policy holdings, which resulted in a gain of about JPY3 billion. The average rate of exchange for the cumulative total, throughout Q3. First, in terms of the US dollar to yen, the yen is at a higher level compared to the previous year. The yuan is also at a high level against the yen. I will come to the right side and explain QoQ. As for QoQ, we managed to increase both sales and income, although the percentages of both SG&A and cost of sales have been gradually rising. Regarding ordinary income and net income, I think the movement is almost the same as the cumulative total. The average exchange rate in Q3, compared to Q2, moved in the direction of a slightly weaker yen, and I think this also contributed to the Q3 results.

On page three, the waterfall chart shows the factors that contribute to the increase or decrease in sales and operating income. Sales in YoY were positive JPY19.4 billion, a positive figure. Sales volume is increasing, plus JPY17.8 billion. The sales price is a little bumpy in each region, but in total it is positive JPY1.2 billion. As I mentioned earlier, foreign exchange fluctuations have been negative up to Q3 because we are still in a phase of yen appreciation compared to the previous year. Since the scope of consolidation has been expanded this fiscal year, the amount of expansion has been included in sales by JPY5 billion. Support Japan Tollfree

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Operating income, minus JPY5.2 billion. Sales volume is increasing, plus JPY80 billion. Sales price, plus JPY1.2 billion. Foreign exchange fluctuations are minus JPY2.6 billion, which is the figure taken over from the sales figure above. Inventory devaluation have returned, plus JPY7.7 billion. Processing costs, material costs, and other expenses, are mainly cost of sales or, in our case, cost of production, and depreciation and amortization expenses, labor costs for hiring new employees since we have built many factories overseas and they are gradually coming into operation, and so on. The cost of hiring workers, labor costs, and the cost of materials are rising. Next is SG&A expenses, where labor costs, mainly overseas, have risen slightly. Also, depreciation is included in SG&A expenses for the head office, for example, so this is also a negative factor. As I mentioned in Q2, US tariff-related, this is JPY4.7 billion, which is a negative effect from the previous year. JPY1.2 billion in positive operating income due to the expanded scope of consolidation. I hope you understand that the JPY1.2 billion here comes from the fact that many of the subsidiaries that have expanded are basically profitable.

Page four shows the increase or decrease in the QoQ P&L. Net sales were plus JPY9.5 billion. Sales volume was plus JPY1.3 billion, sales price was plus JPY1.4 billion, and foreign exchange fluctuations were plus JPY6.8 billion. Operating income, minus JPY4 billion.

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The sales volume and sales price are the amounts carried over from the sales volume section above. The part about exchange rate fluctuations, it may appear a bit odd that while the impact on net sales is positive JPY6.8 billion, the impact on operating income is only positive JPY0.1 billion bottom. As I have explained several times in previous briefings, this is also related to the elimination on consolidation. The consolidation elimination process is to eliminate the amount of non-consolidated profit on the inventory at the year-end rate. At the end of December, yen was very weak, which means that the profit to be erased was significant. This is a little bumpy when separated by quarters, as I don't think this was the case with the YoY numbers I mentioned earlier. It may be a misnomer, but I think it is fair to say that profits are generated from overseas inventories, which are then sold to customers, and this also becomes a realized profit. Inventory devaluation was listed as minus JPY3.7 billion. Let me explain a little about this point, because there may be some misunderstandings. Q2 had a figure of plus JPY3.5 billion compared to Q1. This time, comparing Q2 and Q3, there was a write-down, a little bit, minus JPY0.2 billion. So, if you compare the write-off in Q2 with the write-off in Q3, Q2 was plus JPY3.5 billion and this time it is minus JPY0.2 billion, so the difference is JPY3.7 billion, that is the expression. Processing, material, and other costs are positive. The main reason for this is that the sales volume has increased slightly, and although there are negative factors such as depreciation and material costs, the utilization rate has increased, resulting in a slight positive effect here. SG&A expenses, US tariff impact, this is continuing the trend seen in the previous YoY section. Therefore, the total is plus JPY0.4 billion.

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Page five, sales trends by region. As you can see, Greater China, here, is up. China is also good, and Taiwan, which had struggled a bit in the first half of the season, came up quite well in Q3 in the semiconductor-related sector. Sales in Hong Kong have not been so good in the past few years, but we have now established a system whereby sales in southern China and Hong Kong work together, and sales in both areas are now on the way to increasing. I think it is fair to say that Greater China is leading our performance in these areas. Also, in Europe, we are raising prices about 4% here, and the previous year was a little too bad, so sales are recovering a little here. Japan, as I will explain later, has recently seen a much higher level of orders, but they have flattened out due to the fact that automotive-related are not doing so well. Or, even when customers make capital investments, they do not readily flow into capital investments in Japan. About 70% of the capital investment is made overseas, and if anything, sales fall to the overseas subsidiaries, and that is what we are talking about. The US continues too is not doing so well, but finally Q4 looks like it will be a little better. In Asia, the figures here are not good because Korea, which accounts for a large percentage of Asia, is not doing so well, but Korea is also rising, or countries like Singapore or Malaysia, which are included in Asia and have a high percentage of semiconductors, are also gradually increasing, and in Q3, they saw a slight increase. This is the situation.

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Page six shows the balance sheet. Inventories, on the surface only, increased slightly from the end of the previous fiscal year to JPY18.5 billion, but if you look at the details, there was an increase of JPY3.2 billion due to the expansion of consolidation, which was outside the scope of consolidation in the previous fiscal year but has been included this time due to the expansion of consolidation. Or the most recent exchange rate. In the case of the balance sheet, we use the rate at the end of the period, the spot rate, so let's say here, for the US dollar, the rate is JPY156.47, which is a significant depreciation of the yen. The amount of the inventory located in overseas subsidiaries increased by JPY16.3 billion due to the impact of exchange rate fluctuation. Excluding the impact of write-downs, the real negative figure is about JPY2 billion. Characteristically, since orders have been increasing recently, raw materials, supplies, and work in process have been decreasing, and inventories have been shifting to merchandise and finished goods. Part of the expansion is due to this exchange rate, which is also included here. Then there is the monthly sales ratio, averaging 7.5 months during the period. Since the most recent monthly sales have been rising quite a bit, this is 7.1 months, which means that inventory turnover is improving a little.

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Page seven, capital expenditures. The actual results for FY2025, up to Q3, were JPY127.7 billion, and the target for this year is JPY180 billion, which is on schedule.

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Page eight shows the current order trends, but it is difficult to tell from the numbers, so let's skip this part and go to page nine, which shows the recent order trends. The semiconductor/electric industry has been rising sharply to the latter half of 140, and although the semiconductor industry has been busy for some time now, it seems that we are finally starting to see some of the demand come our way. Also, with the exception of medical, each of these graphs is on the right side of the graph.

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Page 10, regional order trends. The slope of the graph is quite steep in Japan, Asia/Oceania, and North America, where the semiconductor industry accounts for a large percentage of total orders. We're seeing a sudden surge in orders from these kinds of places. That is all from me.

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Question & Answer

Moderator [M]: We will now have a question-and-answer session. Mr. Isayama from Goldman Sachs, please. Isayama [Q]: I am Isayama from Goldman Sachs. Regarding the first question, for Mr. Ota, about semiconductors, I would be very interested to hear what you have to say. In H1, I was aware that the ball was thrown very low because the semiconductor industry had betrayed you, but when you mentioned the turnaround in H1, all the rectification and other measures had already been completed, so the demand trends of customers could be seen straight away. The degree of this turnaround is so remarkable that I wonder if you could explain a little more about the trend there. Specifically, I would like to know if your company is starting to see orders properly, and if you are starting to improve your production operations, etc. Ota [A]: I don't know exactly what the inventory is at customer place, but I am sure they are also operating with a certain level of inventory. However, I think that the inventory is decreasing and orders are coming our way. In addition, the number is now 147, and including the forecast for the next fiscal year, there are quite a few customers whose number has increased by 50%, although I cannot mention their names. We feel that the semiconductor industry's investment has come around to us a bit. Isayama [Q]: I remember that there was some talk about reducing inventory to the previous quarter, but is there a turnaround now and are you talking about increasing production? I have the impression that the utilization rate has been stagnant at a low level, partly as a result of efforts to secure a relatively high increase in capacity utilization. Is there any indication that things are starting to improve over there, or that the utilization rate is showing signs of improvement? Ota [A]: Of course, what we have as products now will be delivered to our customers directly from our inventory, but if 50% for example, of the forecast comes up, we will have to stock up and make new products to sell. We will be looking at the current forecast that the sales team has brought to us, as well as actions for the next fiscal year, and we will be making products while keeping a close eye on this kind of thing. Isayama [Q]: I would like to ask a second question, or rather an update, if I could. Mr. Ota, I believe you mentioned in H1 that your company would like to proceed with discussions on capital policy. If possible, it would be most helpful if you could tell us about the progress of the project and how it is going. In addition, if semiconductors are getting better and overall performance may also improve, it may be a little early to go beyond fixed costs to the latter half of the JPY200 billion mark, which was once a good period, but I have the impression that the outlook for performance is improving considerably. Mr. Ota, I wonder if you could share with us your current feeling, or perhaps your outlook for the next fiscal year. Ota [A]: We are still working hard on the capital policy internally, including with outside directors, but we are not at a stage where we can present it to you yet.

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As for the profit level for the next fiscal year, we have invested more than JPY100 billion per year in CapEx over the past few years, and as I mentioned earlier, YoY profits have decreased despite an increase in sales. At this level of sales revenue, I believe we are still unable to absorb the depreciation of the CapEx invested. So, a larger top line increase is desired. We are in the process of preparing a company-wide budget for the next fiscal year, and without high sales growth, profits will not reach the level of the past, so that is what we are focusing on right now. Isayama [Q]: Is the semiconductor to produce that high top line, after all, if you go to Q3. Is it about 20% now when you look at the company-wide average. Here, the sales percentage, 19% in Q3, is this only in Q3? Or is it Q3 total? Ota [A]: It is cumulative. Isayama [Q]: So, would it be correct to recognize that it was just over 30% at its highest? That was when semiconductors were at their highest in the past. Ota [A]: In the past? It might have gone that far. So, I think it is not there yet. Moderator [M]: Now, Mr. Taninaka from SMBC Nikko Securities, please go ahead with your question. Taninaka [Q]: I am Taninaka from SMBC Nikko Securities. The first point is the trend in sales prices. Although the total profit for Q3 increased by JPY1.2 billion, I think there are probably some bumps for each region. I would like to know about the competitive environment in China, and also in other regions, since you mentioned before that the increase in semiconductors in Japan is somewhat in a negative direction, I would like to know if there are any colors by region. Ota [A]: The trend has not changed much from what I told you when I explained in Q2. Japan is positive, and then Europe is also positive. Japan and Europe have raised prices by 10% and 4% since June and May, respectively. That is what is working. In Greater China, the negative trend continues. Since Chinese OEMs are beginning to appear in Asia, Asia is also beginning to be affected by prices, although not as much as China. As mentioned, we wanted to pass on the Trump tariffs to prices in the US, but looking at various recent economic trend figures, it seems to be getting a little better, but we are not in a position to raise them yet, and they haven't been raised yet. We will continue to work on such considerations for Q4 or the next fiscal year. I am wondering if that will be the case. Taninaka [Q]: Second point, I would like to ask for another deeper look into the US approach to price increases. In the previous quarter, I think the background for not raising prices was the competitive environment and the idea of not daring to raise prices in anticipation of an opportunity to gain market share. Based on your explanation, I got the impression that it would be easier to raise prices if the demand for the environment recovers. Is the strategy regarding price increases in North America basically to avoid raising prices as much as possible in order to gain market share, or are they turning out to be more aggressive in raising prices than before? I am afraid that this is a vague question, but may I ask it again? Ota [A]: If we are able to raise prices, we would like to do so.

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The US economy has been very strong recently in terms of employment statistics, etc., but I think we have been talking about an increase in the economy centered on the service industry. However, from the beginning of the year, the manufacturing sector seems to be showing some improvement, and I have heard various reports from our US sales staff that capital investment is starting to appear in the US, so I would like to raise what we can in Q4 and into the next fiscal year. Moderator [M]: Mr. Maekawa from Nomura Securities, please go ahead. Maekawa [Q]: I am Maekawa from Nomura Securities. First, in the review of the Q3 results, the unrealized impact of foreign exchange you mentioned. Since you said earlier that it was positive JPY0.1 billion in operating profit and positive JPY6.8 billion in sales, is it correct to say that about JPY2 billion of this unrealized foreign exchange downward impact was included as profit in Q3? It's a bit detailed, but please start there. Ota [A]: Roughly, I think those are the numbers. Maekawa [Q]: I would also like to ask you one more thing, a little bit about the impact of the operation. The cumulative total up to Q3 on page three, I think it is included in the JPY10.5 billion decrease in profit, and how much of this was due to the operation? Ota [A]: The impact of the operation is positive in terms of sales volume up to Q3, so the situation is not so much positive or negative. So, to put it another way, as for why it's bad, to reiterate, depreciation expenses for the areas where we've consistently made capital investments, particularly factories and manufacturing, have been steadily increasing. The cost of labor has been rising due to the expansion of the plant. When a factory is expanded, the cost of consumables, such as machine oil and other items, as well as utility costs, automatically increase as incidental expenses. The increase in volume and production efficiency has not yet been sufficient to cover the cost of these items. Maekawa [Q]: Looking at the movement up to H1, I think that the capacity utilization has probably increased by several billion yen, so am I correct in understanding that the production itself has been steadily increasing since Q2? Ota [A]: I think it is going up. Maekawa [Q]: Also, I would like to ask you about the orders as well. On page nine, semiconductors/electric equipment, has risen quite sharply to 147, and the forecast is for a 50% increase, including the next fiscal year, but this January, it is not as if any major projects have come in, and since they are distributed in various regions, is there some degree of continuity? Is it safe to assume that the market will continue to move in this JPY14 billion to JPY15 billion range in February and beyond? I know it is a single month, so naturally there will be a lot of fluctuation, but can you give us an idea of the continuity of the semiconductor/electric equipment movement? Ota [A]: The current orders are as shown in the line graph here, and we have to make various preparations for manufacturing and production after receiving forecasts and other information. We have been told that semiconductors would rise, despite the fact that they have not been rising for a long time.

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We need to have the products that our customers need and sell them. We would like to make such things as soon as possible and send them to our frontline subsidiaries. We are now getting into such a mode. Maekawa [Q]: Are you saying that we are in a situation where we can stop high here and take a view that also has continuity? Ota [A]: That is how I see it. Moderator [M]: Mr. Hotta from BofA Securities, please go ahead. Hotta [Q]: I am Hotta from BofA Securities. One thing to check first. You mentioned earlier that there will be a 50% increase in orders for semiconductors, and this is a 50% increase based on the average for FY2025, is this understanding correct? Can you tell us where the point was? Ota [A]: I'm not saying that all companies are saying 50% more, but that's what I'm hearing from the major players. It is difficult to say where to base a 50% increase, but for example, the data we have here is as of the end of December, so I guess we can look back from December of 2025 and say that it was one year. Hotta [Q]: Second point, back to the price. I seem to recall that in Q2, you mentioned that price hikes in Japan have been quite widespread, but when you talked about Europe, the penetration of price hikes was slow. However, from what you said today, I got the impression that you are making progress on that front. Please tell us about it. Regarding European penetration. Ota [A]: Europe may be doing surprisingly well. The trend of our orders has also been rising. The automotive industry is not doing well, but in southern Europe, Italy and Spain in particular, the situation is not so bad until Q3 of this fiscal year. Recently, the rest of Germany, the UK, and France have been following. This is mainly a sort of semiconductor-derivative industry that is doing a little better. When the economy improves, the situation will be ripe for raising prices. I do hope that North America is getting more and more on this kind of curve and that we can raise prices. Moderator [M]: Mr. McDonald from Citigroup, please. McDonald [Q]: A few weeks ago, Keyence announced a new pneumatic compressor at a briefing session. It's been posted on their website and is causing quite a stir. How much interest does your company have in it? I personally think it's natural that there will be competition, but the investors are quite concerned about it. I know that many people think that this may be negative for SMC, but what are your thoughts on this from your company's standpoint, Mr. Ota? Does it bother you that much or not? Ota [A]: We are a manufacturer of pneumatic equipment, and our main products are operated by compressed air, but we use electrical signals to give instructions on how to operate the equipment. Therefore, upstream of pneumatic equipment, there are various PLCs and other electrical devices that are used to operate the equipment. However, if you go further and further upstream, you will find more difficult control systems, but if you ask us if we go that far back, we only go as far as the point where electrical instructions are issued right next to the pneumatic equipment. We are only working up to this point.

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I am not sure about Keyence, but since it is another company, I think it is a company with expertise in electronics. I think the current situation is that the pneumatic control system we are working on has been moved down to the electrical control system, which is a little higher up. Keyence has about three products listed, including sensors, cushion valves, and valve manifolds, but that doesn't mean we don't have these products. We also have a similar product lineup. We are not in a situation where Keyence suddenly releases a product that we do not have at all, and we are in a bind. Then there's the price and the ease of use for the customer. Then there are various issues such as whether to buy only the sensor to be attached to the cylinder from Keyence, instead of buying it from the same manufacturer as the cylinder, and various matching issues. McDonald [Q]: One more additional comment, I think Keyence is, if anything, better at selling, not just products. So, I think this will be more important for your company to sell these kinds of solutions and provide solutions, in order to compete. How about this area? Ota [A]: I think that is true. We also provide a considerable variety and volume of specialized products to the market through a mix of direct sales and distributor operations. We leave the sale of standard off-the-shelf products to our distributors. For our direct sales operations specifically, we visit customers to dig deeper into their needs, what we internally call Penetration, to truly provide the products they require. We have a lot of customers globally too, so we can see if we can sell something here that sold in another, same industry. In short, we have a very large number of methods. However, whether or not the methods are being used well is another matter, so we must use the methods properly while meeting the needs of our customers exactly. As such, I believe that we have very deep pockets as pneumatic specialists in terms of our range there. As you mentioned, our sales methods may not yet be as good as Keyence's, but I believe that sales will increase if we brush up on these areas. McDonald [Q]: Lastly, at the Keyence presentation the other day, I think everyone thought that Keyence was all about the plus side, but on the other hand, there are various new products from your company, such as the anti-static ionizer. Keyence is waving various flags and appealing that these are new products, but I think your company has a lineup that can compete well enough with theirs. In a word, pinpoint, is this ionizer anti-static equipment also in demand, or is the need for it increasing? Ota [A]: With regard to ionizers, Keyence was the first to sell them and took some market share, and we entered the market later, so we are focusing on our sales where we think we can sell them. We have more engineers, etc., so we are seeing more and more variations here. Especially in the food industry, there are places where wrapping sticks together due to static electricity. We have a lot of other pneumatic equipment being used in the food industry, and we are trying to sell this ionizer to those places. I believe our market share is gradually increasing. Moderator [M]: Mr. Tai from Daiwa Securities, please go ahead.

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Tai [Q]: I'm afraid I'm going back to the numbers, but I didn't understand the part of QoQ about inventory, minus JPY3.7 billion, so may I ask you to explain it again? Ota [A]: On page four, the inventory write-down is minus JPY3.7 billion, where the inventory write-down is in the form of an increase. Let me explain again. I have explained that in Q2, the write-down returned by JPY3.5 billion from Q1. Q3 was a turnaround, but not a positive one, and the write-off was negative, so it was minus JPY0.2 billion. Q3 alone. Then, in comparison with the previous quarter, what was plus JPY3.5 billion becomes minus JPY0.2 billion, so if we subtract this, Q3 was minus JPY3.7 billion. This is compared to Q2. Since we are comparing on a QoQ basis. Tai [Q]: What do you think is going to happen at the end of the next Q4, if so? Ota [A]: I don't know. For the current fiscal year, the full year, I believe we originally gave guidance zero. I think it was zero. Sorry, I forgot, but I thought it would be as per guidance. Now, if you look at the full year through Q3, and you can see this in the YoY, the inventory write-down is JPY7.7 billion back in YoY, so we will see if we can go one more step. If materials with a low turnover rate were made into products and sold more and more, I have a feeling that the positive figure here would increase a little more, but I don't want to make too big a statement that won't come true, so I would like to limit myself to saying that this is about as much as we can do. Tai [Q]: Just one more thing, this is another in numbers, capital investment, about JPY120 billion until Q3. I think Mr. Ota said earlier that he would do the JPY180 billion budget for the year, but I think JPY60 billion for in Q4 is quite a lot of money. Is it really that much, JPY180 billion this year? Ota [A]: Most of the work will not be planned and built in the future but will be done in the flow of what has been going on for a long time, so I have heard that the outlook is almost clear. Tai [Q]: I've heard that general contractors are behind in construction here and there due to labor shortages and such, but with that kind of talk, I wonder if the budget progress is just a little behind schedule or something. In other words, I was thinking that if you are reducing the JPY180 billion with the intention, then the depreciation for the next fiscal year may not have to increase so much. Is that a story? Ota [A]: No, it's not. Moderator [M]: I hope we have answered all of the questions of those who have submitted their preferences for questions. This is a little earlier than scheduled, but I would like to conclude today's financial results briefing. Thank you very much for joining us. Ota [M]: Thank you very much. [END]

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Portions of the document where the audio is unclear are marked with [inaudible].

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2. 3. 4.

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Portions of the document where the audio is obscured by technical difficulty are marked with [TD]. Speaker speech is classified based on whether it [Q] asks a question to the Company, [A] provides an answer from the Company, or [M] neither asks nor answers a question. This document has been translated by SCRIPTS Asia.

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