Ensuiko Sugar Refining Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥16.67B
• Operating Income: ¥1.45B
• Net Income: ¥1.52B
• EPS: ¥55.21

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 topline and recurring profit growth, but bottom-line outperformance was boosted by non-recurring gains and cash conversion lagged. Revenue rose 3.1% YoY to 166.67, with gross profit of 31.54 and operating income of 14.48 (+1.9% YoY). Ordinary income increased 4.3% YoY to 15.70, helped by 1.74 in non-operating income (notably 1.14 in dividend income and 0.20 in interest income). Net income surged 43.7% YoY to 15.16, implying a sizable non-recurring gain, as profit before tax (21.75) exceeded ordinary income (15.70) by 6.05. Operating margin stood at 8.7%, implying a modest ~10 bps YoY compression given revenue outgrew operating income. Net margin improved markedly to 9.1%, a roughly +257 bps expansion YoY, driven by the above-mentioned non-recurring gain. Gross margin was 18.9% and EBITDA margin 10.4%, indicating adequate cost pass-through but not expanding at the operating level this quarter. ROE was 8.3%, supported by higher net margin but with relatively low asset turnover (0.546) and moderate leverage (1.68x). Cash generation trailed accounting profit: operating cash flow was 10.20 vs net income of 15.16 (OCF/NI 0.67x), signaling weaker earnings quality this period. Liquidity remains comfortable (current ratio 137%, quick ratio 121%), and solvency is conservative (D/E 0.68x; equity ratio calculated at ~59.6%). Interest coverage is strong at 29.96x, reflecting modest interest burden vs EBITDA. Free cash flow (OCF minus capex) is estimated at 6.44, likely sufficient to cover the implied dividend outflow at a 34.6% payout ratio. However, reliance on non-operating and non-recurring items to bridge earnings adds volatility to the bottom line. Investment securities of 83.03 and dividend income exposure introduce market and income variability. Forward-looking, the key will be sustaining operating margins and improving cash conversion while managing raw sugar and energy cost volatility. Overall, a decent quarter operationally with strong reported earnings, but quality flags warrant monitoring.

Profitability Analysis

ROE decomposition (DuPont): ROE 8.3% = Net Profit Margin (9.1%) × Asset Turnover (0.546) × Financial Leverage (1.68x). The largest driver of change QoQ/YoY appears to be the net profit margin, which expanded significantly on a reported basis due to a ~6.05 boost from items between ordinary income and profit before tax (likely non-recurring), lifting NI by 43.7% YoY. Operating margin compressed slightly (~10 bps) as revenue growth (+3.1%) outpaced operating income growth (+1.9%), indicating limited operating leverage in the quarter. The business reason for the margin pattern: stable but pressured operating spread (raw material and energy cost environment) offset by higher non-operating income and a one-time gain lifting PBT. Asset turnover at 0.546 reflects a capital-heavy base including investment securities (83.03) and sizeable noncurrent assets (197.08), typical for the industry, and likely little changed YoY. The non-operating uplift is unlikely to be sustainable; future ROE resilience will depend on maintaining gross spreads and SG&A discipline. Watch for SG&A growth potentially outpacing revenue; although detail was unreported, the slight operating margin compression suggests cost pressure that needs monitoring.

Growth Assessment

Topline growth of 3.1% YoY indicates stable demand/pricing in core products. Operating profit growth of 1.9% lagged revenue, pointing to mixed operating leverage. Ordinary income growth of 4.3% benefited from a positive non-operating contribution (net +1.21 vs OI), including dividend and interest income. Net income jumped 43.7% YoY due to a 6.05 increase between ordinary income and profit before tax, suggesting one-time/extraordinary gains; recurring growth is much more modest. Gross margin at 18.9% appears adequate but not expanding; sustaining pricing vs raw sugar and energy costs will determine margin trajectory. EBITDA margin of 10.4% supports ongoing reinvestment capacity, though not high. ROIC at 5.1% is below typical 7–8% targets seen in best-in-class Japanese industrials/food processors, signaling room to improve capital efficiency. Outlook hinges on cost normalization and improved working capital management to convert earnings into cash.

Financial Health

Liquidity is sound: current ratio 137.2% and quick ratio 120.6% (no warning; both >1.0). Solvency is conservative with D/E 0.68x and strong interest coverage of 28.96x. Equity ratio (calculated) is ~59.6% (182.03/305.40), indicating a robust capital base. Short-term loans of 24.00 are well covered by current assets of 108.31; maturity mismatch risk is low given cash and deposits of 39.47 plus receivables of 20.02. Total borrowings are 56.56 (short + long), implying moderate net debt after offsetting cash. No off-balance sheet obligations were disclosed in the provided data. Overall balance sheet resilience is high.

Cash Flow Quality

OCF/Net Income is 0.67x (<0.8), a quality flag suggesting weaker cash conversion this period, likely due to working capital build (specific drivers not disclosed). Estimated free cash flow is 6.44 (OCF 10.20 minus capex 3.76), positive and likely sufficient for dividends and modest deleveraging. Financing cash flow of -12.53 suggests debt repayment and/or dividends, but the detailed split was not reported. No clear signs of deliberate working capital manipulation can be concluded from the limited snapshot; however, the divergence between OCF and NI warrants monitoring in subsequent quarters.

Dividend Sustainability

The calculated payout ratio is 34.6%, conservative against typical <60% benchmarks. With estimated FCF of 6.44 and implied dividends of ~5.25 (based on payout ratio and NI), FCF coverage is roughly 1.2x, indicating baseline sustainability. Strong interest coverage and a solid equity base add flexibility. Key watchpoint: if bottom-line strength is supported by non-recurring gains and OCF remains sub-par, dividend coverage could tighten. No official DPS or total dividend paid were disclosed this quarter; assessment relies on calculated proxies.

Risk Assessment

Business Risks:

• Raw sugar price and energy cost volatility pressuring gross margins
• Execution risk in passing through input costs to selling prices
• Operational efficiency risk leading to persistent operating margin compression
• Customer demand softness in domestic sugar/food channels

Financial Risks:

• Earnings quality risk with OCF/NI at 0.67x
• Market valuation risk on investment securities (83.03) affecting comprehensive income
• Income volatility from non-operating items (dividend income 1.14; potential one-time gains)
• Interest rate risk on 56.56 of loans despite currently strong coverage

Key Concerns:

• Net income uplift driven by ~6.05 of non-recurring gains between ordinary income and PBT
• Slight operating margin compression despite revenue growth
• ROIC at 5.1% below typical 7–8% target range
• Limited disclosure on SG&A components and investing cash flows, obscuring cost/CF drivers

Investment Implications

Key Takeaways:

• Stable revenue growth (+3.1%) with modest operating profit growth (+1.9%)
• Significant NI beat (+43.7%) largely non-recurring; sustainability uncertain
• Operating margin slightly compressed (~10 bps), net margin expanded (+257 bps) due to one-offs
• Cash conversion weak (OCF/NI 0.67x) but FCF positive (6.44)
• Balance sheet conservative (D/E 0.68x; equity ratio ~59.6%)

Metrics to Watch:

• OCF/Net Income and working capital movements (AR, inventories, AP)
• Operating margin trajectory and SG&A discipline
• Raw sugar and energy cost trends vs pricing pass-through
• Frequency and scale of extraordinary gains/non-operating income
• ROIC improvement and capex efficiency
• Dividend coverage by FCF and financing cash outflows

Relative Positioning: Within domestic food processors, the company shows conservative leverage and strong interest coverage but only mid-single-digit ROIC and modest operating margins. Reported profitability this quarter is boosted by one-off gains; on a recurring basis, it is competitive but not standout. Sustained improvement hinges on cost control and better cash conversion.

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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