Inter-Action (7725) FY2026 Earnings Deep Dive Report: Overseas Large Orders and Physical AI Driving Growth Strategy

Inter-Action Corporation (Securities Code: 7725) reported challenging results for the fiscal year ended May 2026 due to sluggish performance in some business areas. However, significant order acquisition in overseas markets and progress in its mid-to-long-term growth strategy suggest a strong recovery and growth from FY2027 onwards. This report provides a detailed analysis of key topics extracted from the earnings materials, offering a deep dive into the company's current status and future growth narrative.

FY2026 Earnings Highlights and Factor Analysis

For the full fiscal year ended May 2026, consolidated results showed net sales of 4,822 million yen (down 27.7% year-on-year) and operating profit of 702 million yen (down 50.5% year-on-year) . The primary reasons for this decline in revenue and profit were sluggish sales of products for domestic customers in the core IoT-related business and a decrease in sales from the former environmental energy business. Specifically, a downturn in domestic capital expenditure demand significantly impacted the performance of the IoT-related business.

The historical performance trend is as follows: This slide illustrates the key financial indicators for the full fiscal year ended May 2026, along with a breakdown of sales and operating profit by segment. While sales in the IoT-related business decreased by 22.9% year-on-year to 2,952 million yen, sales in the Industry 4.0 promotion business remained at 1,860 million yen, a decrease of 9.7%. From this breakdown, it is clear that the struggles in the domestic market for the IoT-related business were the main factor dragging down overall performance . However, the operating profit margin of 14.6% suggests a robust profit structure.

Segmental Status and Key Trends

In the IoT-related business , sales of products for overseas customers performed well, but sales for domestic customers were sluggish. However, in April 2026, the company secured a large order worth 2,278 million yen from a major overseas customer , leading to a significant increase in order backlog. This large order is expected to be a major driver of performance for the IoT-related business from the next fiscal year onwards. In the mid-to-long term, domestic capital expenditure demand is also expected to recover, contributing to future growth.

Meanwhile, the Industry 4.0 promotion business saw sluggish sales of precision vibration isolation equipment and gear testing machines, but sales to overseas customers were strong. The order backlog in this segment also increased, with projects steadily accumulating that will contribute to sales from the next fiscal year. Particularly, for gear testing machines, orders from major automobile manufacturers are anticipated in the next fiscal year, promising future growth.

FY2027 Earnings Outlook and Growth Strategy

For the fiscal year ending May 2027, the company forecasts net sales of 7,212 million yen (up 49.6% year-on-year) and operating profit of 1,599 million yen (up 127.7% year-on-year) , projecting a significant increase in both revenue and profit. The primary driver for this strong recovery and growth is the expansion of sales to major overseas customers in the IoT-related business, as mentioned earlier. The forecast also incorporates increases in research and development expenses and selling, general, and administrative expenses, indicating a continued commitment to investing in future growth.

The earnings forecast for the next fiscal year is as follows: This slide presents the full-year earnings forecast for FY2027 and the trends in key management indicators. A highly aggressive growth outlook is shown, with net sales projected to increase by approximately 50% year-on-year and operating profit by approximately 128%. It explicitly states that the expansion of sales to overseas customers in the IoT-related business will be the main driver. An improvement in the operating profit margin to 22.2% is also anticipated, suggesting a recovery in profitability. This forecast is based on the large orders secured in April 2026, indicating a high probability of realization.

Furthermore, net sales for FY2027 are expected to reach a record high of 7,202 million yen , excluding the impact of the former environmental energy business. This is a crucial indicator suggesting that the company is entering a new phase of growth.

Mid-to-Long-Term Growth Strategy and Business Opportunities

The company positions the expansion of business opportunities in the Physical AI field as a mid-to-long-term growth driver. With the widespread adoption of Physical AI in areas such as robotics, automation, smart factories, mobility, and wearable AI, the demand for image sensor inspection is predicted to expand significantly. The company anticipates market growth of approximately 1.8 times for smart factories, 3.6 times for mobility, and 5.8 times for wearable AI, all based on 2024 figures. Inter-Action aims to expand its business in the domain of supporting "eyes" through image sensor inspection products in this growing market.

For its mid-term management plan, the company targets base net sales of 3,000 million yen, a gross profit margin of 50.0%, operating profit per employee of 30 million yen, and an ROE of 15.0% or more by May 2030. While FY2026 results fell short of these targets, a significant recovery is expected in FY2027, indicating steady progress towards achieving these goals.

The progress of the mid-term management plan's financial targets is as follows: This slide provides an overview of the progress of the company's key financial targets (base net sales, gross profit margin, operating profit per employee, operating profit growth rate, and ROE) under its mid-term management plan. While the FY2026 results fell short of targets for many indicators, a significant improvement is expected in FY2027, with a high operating profit growth rate target of 15.0% . The ultimate target values for FY2030 are also clearly presented, demonstrating the company's intention to steadily execute its mid-to-long-term growth strategy. The recovery of the IoT-related business and the nurturing of new businesses are essential for achieving these targets.

Additionally, the company is advancing the development of new semiconductor-related measurement products and aims for sales of 400 million to 500 million yen in this field by May 2030. This development is being promoted through strategic partnerships with technology partners and optical manufacturers, with expectations for establishing new revenue streams.

Capital Policy and Shareholder Returns

The company has formulated a new cash allocation strategy totaling 11,000 million yen for the three fiscal years from May 2027 to May 2029. This strategy primarily focuses on increasing strategic investments (M&A/partnerships) by 200 million yen, new business investments of 2,000 million yen, existing business investments of 3,500 million yen, and shareholder returns of 2,500 million yen. Particular emphasis is placed on investments aimed at establishing superiority in the image sensor market, driven by the advancement of Physical AI.

Regarding shareholder returns, the company maintains a policy of maintaining a DOE (Dividend on Equity) of 4% or more . For FY2027, the company forecasts a total dividend of 55 yen , comprising a regular dividend of 45 yen and a special dividend of 10 yen, demonstrating a proactive stance towards returning profits to shareholders.

Conclusion

Inter-Action's FY2026 earnings were challenging due to a sluggish domestic market. However, large order acquisitions in overseas markets and a mid-to-long-term growth strategy in the Physical AI sector are expected to significantly drive future performance. A substantial increase in revenue and profit, along with a record-high sales figure, is projected for FY2027. Coupled with new business development, strategic partnerships, and proactive shareholder return policies, the company demonstrates a strong commitment to continuous enhancement of corporate value . Inter-Action appears to be overcoming difficult conditions and transitioning into a new growth phase.