Hayashikane Sangyo Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥22.37B
• Operating Income: ¥787M
• Net Income: ¥735M
• EPS: ¥87.49

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: Despite a 9.4% revenue decline, FY2026 Q2 delivered a sharp profit rebound with materially higher margins, but cash flow quality deteriorated materially. Revenue was 223.69, gross profit 30.92, and operating income rose 298.2% YoY to 7.87, with ordinary income at 9.69 and net income at 7.35 (+204.8% YoY). Operating margin improved to 3.52% (7.87/223.69), while net margin reached 3.29% (7.35/223.69). Using last year’s implied revenue of ~246.8 and operating income of ~1.98, operating margin expanded by roughly 272 bps YoY (from ~0.80% to 3.52%). Net margin expanded by approximately 231 bps YoY (from ~0.98% to 3.29%). Gross margin was 13.8%, underpinned by better cost control despite weaker sales. Non-operating items were supportive: net non-operating income of 1.82 (2.41 income less 0.59 expenses) lifted ordinary income by about 23% versus operating income, including dividend income of 0.71. EPS was 87.49 yen on an average share count of 8.41 million, with book value per share at 1,501.78 yen. Leverage remains moderate with debt-to-equity of 1.42x and interest coverage a strong 16.1x. Liquidity is adequate (current ratio 138.8%, quick ratio 122.2%), though reliance on short-term loans is high (72.71 out of 88.99 total loans). The major concern is cash conversion: operating cash flow was -25.08 versus net income of 7.35, yielding an OCF/NI of -3.41x, well below quality thresholds. Working capital appears the likely drag, with sizable receivables of 76.02 and inventories of 20.74 against payables of 29.41. ROE of 6.0% (NPM 3.3% × AT 0.753 × FL 2.42) improved via margin gains, but ROIC is only 2.9%, below the 5% warning threshold. Capital allocation included 2.00 of capex and 2.14 in buybacks, largely debt-financed (financing CF 13.69) amid negative OCF. The quarter’s mix—margin recovery plus negative OCF—implies near-term focus should be on normalizing working capital to sustain earnings quality. Forward-looking, cost discipline and non-operating supports help earnings resilience, but sustained improvement hinges on cash conversion, ROIC uplift, and reducing short-term funding reliance.

Profitability Analysis

ROE decomposition (DuPont): ROE 6.0% = Net Profit Margin 3.3% × Asset Turnover 0.753 × Financial Leverage 2.42x. The largest driver of YoY improvement is net profit margin expansion, as operating income rose 298.2% despite a 9.4% revenue decline, indicating strong operating leverage from cost control and possibly favorable input pricing or mix. Asset turnover declined YoY implicitly (given lower sales with likely similar asset base), acting as a headwind. Financial leverage appears broadly stable at 2.42x, providing only a modest contribution. Business reason: improved gross-to-operating spread (gross margin 13.8% with SG&A at 23.04) and supportive non-operating income (net +1.82) lifted ordinary and net profits. Sustainability: margin gains are partially sustainable if procurement discipline and pricing hold; however, the contribution from non-operating items (dividend income and other) is less controllable and could normalize. Watch for SG&A growth outpacing revenue—current SG&A discipline looks acceptable given revenue decline, but we lack a detailed SG&A breakdown to confirm fixed-cost absorption improvements.

Growth Assessment

Top-line contracted 9.4% YoY to 223.69, likely reflecting softer demand and/or price normalization in key product lines. Despite this, operating income surged to 7.87, lifting the operating margin to 3.52%. Estimated YoY operating margin expansion is about 272 bps (from ~0.80% to 3.52%), and net margin widened by roughly 231 bps (from ~0.98% to 3.29%). Non-operating tailwinds (net +1.82, including 0.71 dividends) accounted for ~19% of pretax profit (1.82/10.55), indicating part of the profit increase came from financial/investment income rather than core operations. EBITDA of 12.15 implies an EBITDA margin of 5.4%, providing some cushion against input volatility. The effective tax rate of 30.2% looks normalized. Outlook: near-term profit sustainability depends on maintaining gross margin and controlling SG&A amidst softer sales. With ROIC at 2.9%, incremental growth should prioritize high-return projects or working capital efficiency to lift capital productivity. Absent revenue reacceleration, further profit gains will likely hinge on mix improvements, procurement, and cost-out rather than volume.

Financial Health

Liquidity is adequate with a current ratio of 138.8% and quick ratio of 122.2%; no explicit warning as current ratio is above 1.0 but below the 1.5 comfort benchmark. Solvency is moderate: debt-to-equity is 1.42x (within but near the conservative upper bound), and interest coverage is strong at 16.06x, indicating ample service capacity. Balance sheet structure shows a maturity skew toward short-term funding: short-term loans are 72.71 versus long-term loans of 16.29, elevating refinancing and rate reset risk. Current assets of 173.76 exceed current liabilities of 125.18, mitigating near-term liquidity stress, but negative OCF suggests embedded working capital risk. We see no disclosed off-balance sheet obligations in the provided data. No breach of explicit thresholds (Current Ratio < 1.0 or D/E > 2.0) is observed.

Cash Flow Quality

Earnings quality is weak this quarter: OCF/Net Income is -3.41x (<0.8), signaling poor cash conversion and potential working capital stress. With capex of 2.00, implied FCF (OCF – capex) is approximately -27.08, necessitating external funding (financing CF 13.69) to support operations and shareholder returns (buybacks of 2.14). The negative OCF alongside rising receivables (76.02) and inventories (20.74) versus payables (29.41) suggests a working capital build or slower collections; while we lack prior-period deltas, the structure points to receivables as the likely drag. No clear signs of aggressive working capital manipulation are evident from the snapshot alone, but monitoring DSO/DIO/CCC is critical given the magnitude of OCF shortfall.

Dividend Sustainability

The calculated payout ratio is 30.3%, which appears conservative relative to earnings. However, cash coverage is weak this period: implied FCF is negative, and shareholder returns (including 2.14 of buybacks) seem debt-funded (financing CF 13.69). In the absence of disclosed DPS and total dividends paid, we cannot quantify cash outlays, but sustainability hinges on OCF normalization in H2. If margins hold and working capital reverses, a payout around 30% is likely maintainable; sustained negative OCF would pressure distributions or require continued leverage.

Risk Assessment

Business Risks:

• Raw material price volatility (e.g., fishmeal/fishoil/grains) affecting cost of sales and gross margin
• Demand softness in core food and feed channels, as indicated by a 9.4% revenue decline
• Customer concentration risk and pricing power limits in commoditized product lines
• Operational risks in processing and logistics that could disrupt supply chains

Financial Risks:

• Cash flow risk: OCF/NI at -3.41x and implied negative FCF necessitating external funding
• Refinancing and interest rate risk due to high reliance on short-term loans (72.71 vs 16.29 long-term)
• ROIC at 2.9% below the 5% warning threshold, indicating low capital efficiency
• FX risk on imported raw materials (exposure to USD/JPY) impacting cost base

Key Concerns:

• Earnings quality divergence: strong NI alongside deeply negative OCF
• Profit reliance on non-operating income (net +1.82), including dividends (0.71)
• Potential working capital buildup implied by large receivables vs payables
• Ability to sustain margin expansion if input prices rise or pricing normalization occurs

Investment Implications

Key Takeaways:

• Margin recovery delivered a step-change in profitability despite top-line contraction
• Quality flags: OCF deeply negative relative to NI; ROIC below threshold
• Balance sheet liquidity is adequate but funding skewed to short-term debt
• Non-operating income is a meaningful profit contributor and may be volatile

Metrics to Watch:

• Operating cash flow and implied free cash flow (OCF – capex)
• Receivables, inventories, and DSO/DIO/CCC trends
• Gross and operating margin trajectory versus input cost benchmarks
• Debt mix (short-term vs long-term) and effective interest rates
• ROIC progression toward >5% and ultimately ~7–8%

Relative Positioning: Within Japanese small-cap food/feed processors, profitability improved to mid-single-digit operating margin territory but cash flow conversion lags peers; leverage is moderate with strong coverage, yet the short-term debt bias and low ROIC place the company in a middle-to-cautious cohort pending OCF normalization.

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