Results: Impairment loss and review of shareholder-return policy

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Air Water (4088)

Results: Impairment loss and review of

shareholder-return policy

Maintain Rating: UNDERPERFORM | PO: 1,830 JPY | Price: 2,517 JPY

Results: Impairment losses widen, a negative development

The FY3/26 operating loss announced on 31 July was ¥37.1bn, significantly below both

our estimate and the company’s guidance of a ¥14.0bn profit, primarily due to expanded

impairment losses of ¥108.0bn following a revision to future business plans. Excluding

one-off items, business income was ¥74.5bn, slightly above our ¥72.0bn estimate,

supported by strong helium and carbon dioxide demand. For FY3/27, the company

guided operating profit of ¥48.0bn (vs. our ¥74.0bn estimate) and business income of

¥74.5bn (vs. our ¥72.0bn estimate). Earnings will be weighed down by ¥25.0bn of

external support costs related to self-inspections and other measures, including ¥9.0bn

recorded in 1Q. The company left its dividend forecast undecided. Given the possibility

of a revision to its shareholder-return policy discussed below, the risk of a dividend cut

has increased. We view this negatively and maintain our Underperform rating.

Briefing: Shareholder-return policy under review; domestic

semiconductor investment remains robust

Management confirmed that the industrial gas business continues to benefit from

domestic semiconductor fab investments, including those by Micron. In contrast,

competition in the industrial gas market has intensified in India. The FY3/27 plan calls

for profit growth in the industrial gas segment, and management stated that it will

continue to review its portfolio, although this process will take time. Meanwhile, due to a

deterioration in financial health, with a net debt-to-equity ratio of 1.1x at end-FY3/26,

the company plans to reset its shareholder-return policy, including its progressive

dividend commitment. As a result, the dividend forecast has been left undecided.

Estimates (¥)

EPS

EPS Change (YoY)

Consensus EPS (Visible Alpha)

Dividend / Share

BPS

Valuation

P/E

Dividend Yield*

P/B

EV/ EBITDA*

Free Cash Flow Yield*

3/24A

3/25A

3/26E

3/27E

3/28E

IFRS

194.52

10.1%

214.44

10.2%

174.55

NM

214.39

75

2,106.0

187.65

7.5%

224.27

75

…