MITSUI MATSUSHIMA HOLDINGS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥31.90B
• Operating Income: ¥5.40B
• Net Income: ¥5.21B
• EPS: ¥101.86

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

FY2026 Q2 was a strong earnings quarter with clear margin expansion and outsized bottom-line growth despite soft cash conversion. Revenue rose 9.1% YoY to 319.0, while operating income climbed 40.2% YoY to 54.0. Net income surged 80.7% YoY to 52.0, lifting the net margin to 16.3%. Operating margin improved to 16.9%, implying expansion of roughly 376 bps versus last year. Net margin expanded by about 645 bps YoY based on implied prior-period figures. Gross profit of 125.6 translates to a gross margin of 39.4%, with SG&A ratio at 22.5%, indicating improved operating leverage. Ordinary income reached 56.2 (+35.1% YoY), and the 19.8 gap between ordinary income and profit before tax (75.99) suggests material non-recurring gains below ordinary income. Non-operating income of 4.0 was led by dividend income (2.46) and interest income (0.38), with non-operating expenses of 1.82; the net non-operating contribution was positive but not the primary driver. Cash flow quality is a concern: operating cash flow was 18.8 versus net income of 52.0 (OCF/NI 0.36x), pointing to weak cash conversion and potential working capital drag. Liquidity is adequate but not ample (current ratio 119.7%, quick ratio 106.9%), and reliance on short-term loans (417.9) is high. Leverage is moderate (D/E 1.24x), but interest coverage is very strong at 67.5x. ROE sits at 9.8% via a mix of solid margins, low asset turnover (0.268x), and moderate leverage (2.24x), while ROIC of 4.0% underscores capital efficiency challenges likely tied to high goodwill and intangibles. Shareholder returns were aggressive, with financing cash flow of -52.1 including share repurchases of -170.8, which appear out of sync with OCF. The calculated payout ratio of 163.2% (dividends unreported) flags potential over-distribution risk pending clarification. Forward-looking, sustainability hinges on normalizing cash conversion, managing short-term funding reliance, and confirming whether gains below ordinary income are one-off. Overall, robust profitability momentum is offset by weak cash flow quality and sub-target ROIC, implying a need for disciplined capital allocation and working capital management.

Profitability Analysis

ROE decomposition: 9.8% ROE = 16.3% net profit margin × 0.268x asset turnover × 2.24x financial leverage. The largest YoY change driver was net profit margin, which expanded roughly 645 bps (from an implied ~9.9% to 16.3%), far outpacing structural changes in asset turnover or leverage. The business reasons include strong operating leverage (operating income +40.2% vs revenue +9.1%), contained SG&A as a percentage of sales (22.5%), and likely one-time gains below ordinary income (difference between ordinary income and profit before tax of ~19.8) boosting bottom-line. Asset turnover remains low at 0.268x, consistent with a balance sheet carrying significant goodwill (162.8) and intangibles (171.1), which depress capital efficiency. Financial leverage at 2.24x is moderate and did not materially change the narrative. Sustainability: the operating margin improvement (to 16.9%) appears partly sustainable if cost discipline holds; however, the sizeable below-ordinary income contribution to PBT looks non-recurring. Concerning trend: cash conversion is weak (OCF/NI 0.36x), which could undermine the earnings quality implied by the elevated net margin. Also note potential operating expense discipline risk if SG&A growth re-accelerates; current SG&A ratio is reasonable, but we lack YoY SG&A growth data. Conclusion: near-term ROE support is margin-led and partly one-time; structural improvement requires higher asset turnover and stable operating margin without extraordinary gains.

Growth Assessment

Top-line growth of 9.1% is healthy, suggesting demand resilience in core businesses. Operating income growth of 40.2% indicates strong operating leverage and/or improved mix. Net income growth of 80.7% likely includes non-recurring items given the 19.8 uplift from ordinary income to PBT. Revenue sustainability will depend on end-market conditions and pricing; no segment breakdown was provided, limiting visibility. Profit quality is mixed: margins improved, but OCF lagged significantly, implying working capital absorption or timing effects. Non-operating income was supportive but not dominant; the key uncertainty is the below-ordinary gain captured in PBT. Outlook hinges on normalizing cash conversion, maintaining the SG&A ratio near 22–23%, and avoiding margin givebacks as costs normalize. Without investing CF data, we cannot assess growth capex intensity; ROIC at 4.0% indicates that incremental investments need tighter hurdle discipline to accrete value. If mix shift and cost control persist, operating margin near the high-teens could be achievable, but bottom-line growth may moderate as one-off gains roll off.

Financial Health

Liquidity: current ratio 119.7% and quick ratio 106.9% indicate adequate short-term coverage; no warning threshold breaches (<1.0) are observed, but the cushion is modest versus a >1.5 benchmark. Solvency: D/E 1.24x is within conservative bounds (<1.5), and interest coverage is very strong at 67.5x, reducing immediate financial stress risk. Maturity profile risk: short-term loans of 417.9 are large relative to cash (52.1) and represent the majority of interest-bearing debt, creating refinancing and rollover exposure; however, current assets of 712.3 exceed current liabilities of 595.3, partially mitigating mismatch risk. Capital structure: total equity is 533.3; financial leverage of 2.24x is moderate. Off-balance sheet obligations: none reported in the provided data; cannot rule out guarantees or lease commitments without disclosures. Balance sheet composition: high goodwill (162.8) and intangibles (171.1) elevate impairment risk and depress capital efficiency.

Cash Flow Quality

OCF/Net Income is 0.36x, below the 0.8 threshold and a clear earnings quality flag. The gap suggests working capital build, tax timing, or recognition of non-cash/one-off gains that did not translate into cash this period. Free cash flow cannot be calculated due to missing investing CF and capex data; sustainability of distributions and buybacks is therefore uncertain. Financing CF was -52.1 despite sizeable share repurchases of -170.8, implying offsetting inflows (likely debt drawdowns or other items) not fully detailed; this mix raises questions on the reliance on financing to fund shareholder returns. No evident working capital manipulation is identifiable from a single period, but the weak cash conversion warrants monitoring of receivables and inventory turns. Overall, cash generation is the main weak point relative to the robust reported profit.

Dividend Sustainability

The calculated payout ratio of 163.2% indicates potential over-distribution, but dividends were unreported; this figure may reflect assumptions and should be treated cautiously. With OCF at 18.8 against net income of 52.0 and missing FCF data, we cannot confirm coverage of dividends plus buybacks from internal cash generation. Share repurchases of 170.8 this period were substantial relative to OCF, suggesting returns may have been partly debt-funded. Policy outlook is unclear without guidance; sustainability will hinge on improved cash conversion and clarity on recurring vs. one-off profit drivers. Until FCF normalizes above ongoing shareholder return commitments, distribution risk is elevated.

Risk Assessment

Business Risks:

• Margin sustainability risk as cost normalization or mix shifts could compress the current 16.9% operating margin.
• Potential one-time gains below ordinary income inflated PBT, risking volatile bottom-line if not repeated.
• Commodity and energy price volatility if exposure exists in resource-related operations.
• Foreign exchange exposure (e.g., AUD/JPY and USD/JPY) impacting procurement, overseas earnings, and valuation of investments.
• Execution risk on integration and synergy realization given high goodwill and intangibles.

Financial Risks:

• Cash flow quality risk: OCF/NI at 0.36x indicates weak cash conversion.
• Refinancing and liquidity risk due to high short-term loans (417.9) vs. limited cash (52.1).
• Potential impairment risk from sizable goodwill (162.8) and intangibles (171.1), which could hit equity and earnings.
• Over-distribution risk as indicated by a calculated payout ratio of 163.2% and large buybacks versus OCF.
• ROIC at 4.0% below cost-of-capital benchmarks, risking value dilution from incremental investments.

Key Concerns:

• Earnings quality flagged by low OCF/NI and possible non-recurring gains driving PBT.
• Dependence on short-term funding heightens sensitivity to credit conditions and interest rates.
• Limited disclosure on investing CF and dividends reduces visibility into FCF and capital allocation durability.

Investment Implications

Key Takeaways:

• Strong YoY profit growth with significant operating and net margin expansion.
• Earnings quality is weak this quarter as cash conversion lags materially.
• Balance sheet liquidity is adequate but relies heavily on short-term borrowings.
• Capital efficiency remains subpar with ROIC at 4.0%, restrained by low asset turnover and heavy intangibles.
• Shareholder returns (notably buybacks) appear aggressive relative to internal cash generation.

Metrics to Watch:

• OCF/NI and working capital movements (receivables and inventory turnover).
• Recurring operating margin trajectory (targeting stability around mid- to high-teens).
• Composition of below-ordinary income items and recurrence.
• Short-term debt rollover profile and interest cost trends.
• ROIC improvement through asset turnover and disciplined capex/M&A.

Relative Positioning: Within Japan mid-cap industrial/resource-linked peers, profitability this quarter is above average on margins and coverage, but the company screens weaker on cash conversion and ROIC; balance sheet leverage is moderate, though the reliance on short-term funding is higher than many peers.

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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