MEITO CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥14.24B
• Operating Income: ¥1.04B
• Net Income: ¥2.20B
• EPS: ¥129.89

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: A mixed Q2 with solid operating improvement but weaker bottom-line and poor cash conversion. Revenue rose 3.1% YoY to 142.39, while operating income increased 12.3% YoY to 10.37, indicating decent operating leverage. Gross profit was 45.77, yielding a gross margin of 32.1%, and SG&A was 35.39 (24.8% of revenue). Operating margin improved to 7.3% (10.37/142.39), from roughly 6.7% a year ago, implying c. +60 bps expansion. Ordinary income reached 17.86 (+8.3% YoY), supported by sizeable non-operating income of 8.30, of which dividend income was 7.73. Profit before tax was 31.26, implying material extraordinary gains not detailed in the disclosure (difference vs ordinary income of ~13.4). Despite stronger operations, net income fell 35.3% YoY to 21.99, compressing the net margin to 15.4% from an estimated 24.6% in the prior year period (-920 bps), likely due to a tougher comparison on below-ordinary items. Cash quality was weak: operating cash flow was -4.76, producing an OCF/NI ratio of -0.22x, well below quality thresholds. Financing cash inflow was 62.17, indicating reliance on external funding alongside significant capital expenditures of -90.28. Balance sheet remains sound on solvency (D/E 0.60x; interest coverage 28.8x), but liquidity is tight with a quick ratio of 99.3% near 1.0. ROE was 3.7% with a very low asset turnover (0.149x) and modest leverage (1.60x), reflecting a large investment securities portfolio (471.58, ~49% of assets) and subdued capital efficiency (ROIC 1.1%). The profit mix is skewed to non-operating income (non-operating income ratio 37.7%), raising durability questions if dividend inflows normalize. Dividend policy signals look conservative (calculated payout ratio 27.5%), but coverage by free cash flow cannot be validated due to negative OCF and unreported investing CF. Forward-looking, near-term earnings resilience depends on maintaining operating margin gains while normalizing working capital to lift cash conversion. Key watchpoints are the sustainability of dividend income from investment securities, the returns on elevated capex, and progress in improving ROIC toward cost of capital.

Profitability Analysis

DuPont: ROE (3.7%) = Net Profit Margin (15.4%) × Asset Turnover (0.149) × Financial Leverage (1.60x). The largest driver in the current period is the very low asset turnover, which suppresses ROE despite a healthy accounting net margin boosted by non-operating and extraordinary items. Operating margin improved to 7.3% from ~6.7% YoY (c. +60 bps), indicating some operating leverage (revenue +3.1% vs operating income +12.3%). However, the net margin compressed by ~920 bps YoY because last year likely benefited from larger below-ordinary gains; this makes the current net margin more fragile and less reflective of core operations. Business reason: a sizable investment securities balance generates dividend income (7.73) and lifts accounting net margin, while sluggish core asset turns depress overall efficiency. Sustainability: Operating margin gains could be sustainable if cost control persists, but the elevated contribution from dividend/extraordinary income is inherently volatile. Concern: SG&A at 24.8% of revenue is high; without a disclosed YoY SG&A figure, the risk is that SG&A growth may outpace revenue if cost discipline wanes, which would quickly erode the recent operating margin improvement.

Growth Assessment

Top-line growth was modest at +3.1% YoY, likely driven by price/mix more than volume given the scale of improvement in operating income. Profit growth quality is mixed: operating income rose +12.3% YoY, but ordinary income (+8.3% YoY) and net income (-35.3% YoY) deteriorated at the bottom line due to weaker below-ordinary items versus a strong prior-year base. Non-operating income (8.30) is dominated by dividends (7.73), underscoring dependence on investment returns rather than operating scale. With ROIC at 1.1%, incremental growth investments need better returns; otherwise, growth dilutes capital efficiency. Near-term outlook hinges on sustaining 7%+ operating margins while improving working capital to convert earnings into cash. If dividend income normalizes downward or extraordinary gains fade, reported growth could underwhelm despite stable operations. The company’s large investment securities (471.58) remain a double-edged sword: they support income in good markets but add volatility and depress asset turnover.

Financial Health

Liquidity: Current ratio 117.1% (above 1.0 but below 1.5 benchmark); quick ratio 99.3% is borderline, warranting close monitoring. No explicit warning threshold breaches (current ratio is not <1.0), but cushion is thin. Working capital is 25.66, with cash 54.74 and receivables 50.20 versus current liabilities 149.91; short-term loans are 69.29. Maturity mismatch risk is moderate: ST debt (69.29) is largely covered by cash (54.74) plus near-cash receivables, but any collection slippage could pressure liquidity. Solvency: D/E at 0.60x is conservative; long-term loans 79.33 provide term funding alongside noncurrent liabilities 208.94. Interest coverage is strong at 28.81x (operating income 10.37 vs interest expense 0.36), indicating low refinancing risk at current earnings levels. Off-balance sheet obligations are not disclosed in the provided data, so contingent liabilities cannot be assessed.

Cash Flow Quality

OCF was -4.76 against net income of 21.99, yielding an OCF/NI ratio of -0.22x, a flagged quality concern (<0.8). The gap likely reflects working capital build and classification effects (under JGAAP, dividend income is often presented in investing CF, while it boosts P/L), plus unspecified extraordinary gains that may be non-cash. Capex was significant at -90.28, and with OCF negative, free cash flow is likely negative, though investing CF was unreported and formal FCF cannot be calculated. Financing CF was +62.17, implying the company relied on external funding to support capex and operations in the period. No clear signs of deliberate working capital manipulation are evident from limited disclosures, but receivables (50.20) look high relative to half-year revenue, reinforcing the need to monitor collections. Sustainability: Without a rebound in OCF, funding capex plus dividends will continue to require debt or asset sales.

Dividend Sustainability

The calculated payout ratio is 27.5%, which appears conservative versus typical <60% benchmarks. However, OCF was negative and investing CF was unreported, so FCF coverage of dividends cannot be confirmed and is likely weak this period. Given high capex (-90.28) and reliance on financing CF (+62.17), near-term dividend sustainability depends on cash generation recovery, continued access to debt markets, or monetization of investment securities. Policy outlook: Absent explicit guidance, we expect a cautious stance aligned with earnings but sensitive to cash flow normalization; any sustained shortfall in OCF would pressure payout capacity despite the modest payout ratio.

Risk Assessment

Business Risks:

• High reliance on non-operating dividend income (7.73) to support profits; potential volatility if investee distributions decline
• Low ROIC (1.1%) indicating value-dilutive investment risk if returns do not improve
• Large investment securities balance (471.58) concentrates exposure to market conditions and investee performance
• Input cost volatility (e.g., dairy, sugar, oils/commodities) could pressure margins if not offset by pricing
• Potential FX exposure on imported raw materials affecting COGS

Financial Risks:

• Negative operating cash flow (-4.76) and heavy capex (-90.28) drive likely negative FCF
• Borderline liquidity with quick ratio at 99.3%, increasing short-term funding sensitivity
• Dependence on financing CF (+62.17) to bridge cash shortfalls raises refinancing risk if credit conditions tighten
• Asset turnover of 0.149x depresses ROE/ROIC and may limit financial flexibility

Key Concerns:

• Earnings quality flagged (OCF/NI -0.22x) with material contributions from non-operating and extraordinary items
• Net income down 35.3% YoY despite higher operating income, highlighting fragility in the profit mix
• ROE at 3.7% and ROIC at 1.1% are below typical cost of capital, challenging medium-term value creation
• Insufficient disclosure granularity (SG&A breakdown, investing CF) limits transparency on cost drivers and FCF

Investment Implications

Key Takeaways:

• Core operations improved: operating income +12.3% on revenue +3.1%, with ~60 bps operating margin expansion
• Bottom line weakened: net income -35.3% YoY; net margin compressed by ~920 bps YoY
• Profit composition is skewed: non-operating dividend income is material (7.73), and extraordinary gains lifted PBT
• Cash conversion is poor: OCF negative, capex elevated, financing inflows bridging the gap
• Capital efficiency remains low: ROE 3.7%, ROIC 1.1%, asset turnover 0.149x due to large securities holdings
• Liquidity adequate but tight: current ratio 117%, quick ratio 99.3%, D/E 0.60x

Metrics to Watch:

• Operating cash flow trend and working capital (receivables and inventory turnover)
• Size and sustainability of dividend income from investment securities
• Capex deployment and post-investment ROIC progression
• Operating margin trajectory and SG&A intensity
• Leverage and liquidity (short-term loans vs cash and receivables)
• Extraordinary items and their recurrence

Relative Positioning: Versus domestic mid-cap food/ingredients peers, profitability improvement at the operating level is encouraging, but overall returns (ROE/ROIC) remain below peer averages due to low asset turnover and reliance on non-operating income; balance sheet leverage is conservative, yet liquidity is tighter than typical sector leaders.

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
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis