Sumitomo Heavy Industries (6302) Q2 2024 earnings summary

Executive summary

• Net sales for Q2/FY2024 rose to JPY520.4 billion, up 2% year-over-year, with operating profit at JPY33.3 billion, a 9% increase, despite a 12% drop in orders to JPY453.1 billion due to weaker demand and inventory adjustments.

• Growth in Logistics & Construction and Energy & Lifeline offset declines in Mechatronics and Industrial Machinery, aided by foreign exchange gains and order backlog.

• The business environment was mixed: gradual recovery in Japanese manufacturing, faltering semiconductor market, and continued economic downturn in Europe and China.

• Current profit remained stable at JPY23.5 billion; interim dividend set at JPY60 per share.

Financial highlights

• Operating profit margin improved to 6.4% from 6.0% year-over-year; ordinary profit reached JPY33.9 billion, up JPY1.0 billion.

• Gross margin improved as gross income rose to JPY129.1 billion from JPY117.6 billion year-over-year.

• Cash and cash equivalents at period end were JPY100.3 billion; free cash flow was negative at JPY12.1 billion due to increased working capital and investment in fixed assets.

• Net assets increased by JPY39.9 billion to JPY667.4 billion; shareholders' equity ratio rose to 52.5%.

Outlook and guidance

• FY2024 full-year forecasts revised downward: orders expected at JPY1,030.0 billion, net sales at JPY1,070.0 billion, and operating profit at JPY65.0 billion, reflecting slower-than-expected recovery in semiconductor-related markets and inventory adjustments.

• Dividend forecast for the year is JPY125 per share; total return ratio 65.9%, ROIC 5.6%.

• Recovery in gear reducers and plastics machinery expected in the second half; semiconductor-related market conditions bottoming out but recovery slower than anticipated.

• Recovery in Japan and North America expected to be gradual; China and Europe to remain sluggish due to economic and monetary factors.