Chugai Mining Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥112.75B
• Operating Income: ¥798M
• Net Income: ¥719M
• EPS: ¥49.89

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: Solid top-line expansion but margin compression and negative operating cash flow make FY2026 Q2 a mixed quarter. Revenue surged 58.0% YoY to 1,127.48 (100M JPY), while operating income rose 18.0% YoY to 7.98 and ordinary income increased 15.7% to 7.22. Net income declined 11.4% YoY to 7.18 despite minimal taxes, indicating pressure below the operating line and/or tougher comps. Gross profit came in at 20.32, implying a gross margin of 1.8%, consistent with thin-spread metals trading economics. Operating margin was approximately 0.71%, down from an estimated 0.95% a year ago, implying about 24 bps of compression. Net profit margin compressed more sharply, from roughly 1.14% to 0.64%, about 50 bps lower YoY. ROE is calculated at 8.3%, driven by very high asset turnover (5.74x) offsetting a very low net margin (0.6%) and moderate leverage (2.28x). Earnings quality is weak this half: operating cash flow was -6.89 versus net income of 7.18, yielding an OCF/NI ratio of -0.96x, flagged as a quality concern. Financing cash inflow of 5.90 partly offset negative OCF and capex (capex 5.64), implying negative free cash flow around -12.53. Liquidity remains healthy with a current ratio of 176% and quick ratio of 140%, and leverage is moderate at D/E 1.28x with interest coverage of 42.6x. Working capital expanded alongside the revenue surge (inventory and receivables build), likely the main driver of negative OCF. The effective tax rate (0.4%) is unusually low and may not be sustainable, which could lift future tax burden and weigh on net margins. ROIC is reported at 9.1%, above the 7–8% benchmark, but sustaining this relies on stable turnover and spreads. Forward-looking, momentum in sales is strong, but margin discipline, cash conversion, and inventory risk management will determine whether earnings translate into durable returns. If turnover normalizes and commodity spreads stay thin, earnings could be increasingly sensitive to working capital swings and funding costs. Overall, watch for normalization of OCF, stabilization of gross/operating margins, and any shift in non-operating items that affected net profit.

Profitability Analysis

ROE decomposition: ROE 8.3% = Net Profit Margin (0.6%) × Asset Turnover (5.744x) × Financial Leverage (2.28x). The dominant driver is very high asset turnover, while the net margin is extremely thin and leverage is moderate. Change analysis: Given revenue +58% and operating income +18%, implied operating margin fell ~24 bps YoY, and net margin fell ~50 bps, indicating margin pressure as the main moving piece. Business explanation: Rapid top-line growth in metals trading typically requires aggressive pricing and larger low-margin volumes; cost pass-through and mix likely compressed spreads, while non-operating expenses (0.93) and interest (0.19) also weighed on net margin. Sustainability: High turnover is characteristic of the business model and likely sustainable; however, the current low net margin may persist if competitive pricing and commodity volatility continue. Operating leverage and cost control: SG&A of 12.34 grew slower than revenue (exact YoY unreported), but the decline in margin suggests limited operating leverage as gross spreads compressed. Flags: Margin compression outpacing operating income growth vs revenue, and a very low tax rate (0.4%) that may normalize upward, potentially further squeezing net margin.

Growth Assessment

Revenue growth of 58.0% YoY to 1,127.48 indicates strong volume expansion or price-driven growth (commodity uplift), but profitability lagged with operating income up only 18.0%. Ordinary income (+15.7%) trailed revenue growth, and net income fell 11.4%, underscoring pressure from non-operating items and/or margin squeeze. Gross margin at 1.8% is consistent with a thin-spread trading model; durability depends on spread management and mix. The negative OCF despite higher earnings points to growth being working-capital intensive, reducing quality of growth. Outlook: Near-term growth sustainability hinges on commodity price trends and customer demand; if spreads normalize and inventory is well-managed, revenue could remain elevated, but earnings conversion will depend on cash discipline and cost control. ROIC at 9.1% is encouraging; maintaining >8% will require stable spreads and avoiding inventory losses.

Financial Health

Liquidity is sound: current ratio 176.1% and quick ratio 140.3%, comfortably above benchmarks; no warning for current ratio <1.0. Solvency is moderate: D/E 1.28x is within conservative bounds (<1.5x), and interest coverage is strong at 42.61x. Equity ratio (calculated) is about 43.9% (86.12/196.28), indicating a balanced capital structure. Maturity profile: short-term loans of 16.95 are well-covered by cash 34.70 and current assets 156.84; limited maturity mismatch risk. Off-balance sheet obligations: none disclosed in the data provided. Working capital of 67.76 provides buffer to support trading activity.

Cash Flow Quality

OCF/Net Income is -0.96x, flagged as a quality issue; earnings did not convert to cash in the half. The likely cause is working capital absorption from higher inventories and receivables accompanying the 58% revenue surge. Implied free cash flow is approximately -12.53 (OCF -6.89 minus capex 5.64), indicating external funding reliance this half. Financing inflow of 5.90 partly bridged the gap, increasing funding dependence. No obvious signs of working capital manipulation are evident, but the scale of WC build vs sales growth warrants monitoring (inventory days and receivable days). Given low margins, sustained negative OCF would quickly pressure cash, despite current liquidity.

Dividend Sustainability

Reported dividend information is not disclosed; calculated payout ratio is 3.0%, suggesting a modest dividend burden if accurate. With implied negative FCF in the half, dividend coverage from free cash was weak; however, ample cash on hand (34.70) and low payout provide flexibility. Sustainability hinges on normalization of OCF in H2; a small dividend is likely maintainable if WC unwinds seasonally, but an increase would be premature until cash conversion improves. Policy outlook: without disclosed DPS guidance, assume a conservative stance aligned with earnings and cash flow volatility.

Risk Assessment

Business Risks:

• Commodity price volatility impacting trading spreads and inventory valuations
• Margin compression from competitive pricing in a thin-spread metals trading model
• Working capital intensity leading to cash flow volatility during rapid sales growth
• Customer concentration risk (not disclosed but common in trading-heavy models)
• FX fluctuations affecting non-operating items and purchasing costs

Financial Risks:

• Negative OCF versus positive NI requiring external financing to fund operations
• Potential normalization of an unusually low effective tax rate (0.4%) reducing net margins
• Leverage at D/E 1.28x could rise if WC remains elevated and funding needs persist
• Interest rate risk on short-term borrowings (16.95) if rates rise

Key Concerns:

• OCF/NI at -0.96x indicates weak earnings quality in the half
• Operating and net margin compression (~24–50 bps YoY) despite strong sales growth
• Non-operating expenses (0.93) and interest (0.19) weighing on ordinary income
• Inventory management critical given low gross margin (1.8%) and potential write-down risk

Investment Implications

Key Takeaways:

• Top-line momentum strong (+58% YoY) but profitability lagged; net income down 11.4% YoY
• ROE 8.3% supported by very high asset turnover; margin is the weak link
• Earnings quality flagged: OCF -6.89 versus NI 7.18; implied FCF about -12.53
• Balance sheet and liquidity are healthy (current ratio 176%, equity ratio ~44%)
• ROIC 9.1% above benchmark, but dependent on sustaining turnover/spreads and managing WC

Metrics to Watch:

• OCF/Net Income and working capital movements (inventory and receivables)
• Gross and operating margin trends (bps changes) versus commodity price movements
• Non-operating gains/losses and interest expense trajectory
• Short-term debt levels versus cash and seasonal WC needs
• ROIC versus management targets and cost of capital

Relative Positioning: Within metals and materials trading peers, the company exhibits characteristic high turnover/low margin economics with moderate leverage and strong liquidity. ROIC and ROE are competitive, but cash conversion is weaker this half, leaving it more sensitive to WC swings and spread compression compared to peers with steadier OCF.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
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