AUTOWAVE Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.64B
• Operating Income: ¥109M
• Net Income: ¥101M
• EPS: ¥7.04

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

Verdict: Solid topline growth and sharp operating profit improvement, but cash conversion and ROIC remain weak, keeping the quality of earnings mixed. Revenue grew 14.1% YoY to 46.41, while operating income surged 87.4% YoY to 1.09, evidencing positive operating leverage. Gross profit reached 13.01, implying a gross margin of 28.0%. Operating margin improved to 2.35% (1.09/46.41), up roughly 92 bps from an estimated 1.43% a year ago. Ordinary income rose 50.4% YoY to 1.75, aided by 0.66 in non-operating income; however, profit before tax was 1.16, suggesting sizable extraordinary losses (~0.59). Net income increased 50.2% YoY to 1.01, putting the net margin at 2.18%, about 53 bps higher than the estimated 1.65% last year. EBITDA was 2.22 with an EBITDA margin of 4.8%, and interest coverage remained strong at 17.6x, indicating manageable debt service despite modest profitability. Liquidity is thin but above water: current ratio 108.5% and quick ratio 71.1%, with short-term loans of 5.0 versus cash of 5.30. Cash flow quality is a concern: operating cash flow was 0.66 versus net income of 1.01 (OCF/NI 0.65x), and estimated FCF was negative at about -0.29 after 0.95 of capex. Capital efficiency is weak with ROE at 2.4% and ROIC at 1.3%, well below a 5% warning line. The earnings mix leans on non-operating items (non-operating income ratio 65.4%), which may be less repeatable than core operations. Balance sheet leverage (D/E 0.81x) is moderate, but low ROIC reduces cushion against shocks. Effective tax rate is elevated at ~41.6%, which, alongside extraordinary losses, weighed on bottom-line conversion from ordinary income. Forward-looking, sustaining the improved operating margin while converting earnings to cash and lifting ROIC will be key to improving quality and resilience. Near-term focus should be on inventory discipline, SG&A control, and reducing reliance on non-operating gains to support a more durable earnings base.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.4% = Net Profit Margin 2.2% × Asset Turnover 0.623 × Financial Leverage 1.77x. The principal drag on ROE is the low net margin; asset turnover is modest and leverage is not excessive. Versus last year (estimated), the largest positive change is in net margin (up 53 bps), driven by improved operating margin (+92 bps) on strong revenue growth, partially offset by extraordinary losses that reduced PBT from ordinary income. Business drivers likely include better sales mix or pricing and operating leverage from SG&A contained relative to revenue; however, we lack detailed SG&A breakdown to confirm cost drivers. The non-operating contribution (0.66) also supported ordinary income, but reliance on such items is typically less sustainable than core operating gains. Sustainability: margin expansion could persist if demand holds and cost control continues, but extraordinary losses and a high effective tax rate temper visibility. Watch for any reversal in non-operating gains and for SG&A growth outpacing revenue, which would quickly erode the thin operating margin base.

Growth Assessment

Topline growth of 14.1% YoY indicates healthy demand recovery or share gains in the auto aftermarket. Operating income growth of 87.4% YoY reflected positive operating leverage from higher sales on a largely fixed SG&A base (SG&A at 26.8% of sales). Ordinary income growth of 50.4% was underpinned by non-operating income of 0.66, but extraordinary losses (~0.59) reduced profit before tax to 1.16. Net income rose 50.2% with net margin at 2.18%, still low but improving. Profit quality is mixed: OCF lagged NI (0.66 vs 1.01), indicating weaker cash conversion, likely from working capital build (inventory-heavy model: inventories 6.30 vs AR 2.72 and AP 2.80). Outlook hinges on sustaining sales momentum while normalizing extraordinary items and improving cash conversion; continued discipline on inventory and SG&A is necessary to preserve margin gains.

Financial Health

Liquidity: Current ratio 108.5% (thin but above 1.0) and quick ratio 71.1% (below the 1.0 comfort level), indicating a reliance on inventory to meet short-term obligations. No explicit warning threshold breached (current ratio is not below 1.0). Maturity profile: Current liabilities 16.82 vs current assets 18.26 provide a slim buffer; short-term loans of 5.0 are broadly covered by cash 5.30 plus AR 2.72, reducing immediate refinancing risk. Solvency: D/E 0.81x suggests moderate leverage; interest coverage is strong at 17.6x, implying adequate debt service capacity from earnings. Long-term debt of 8.8 and noncurrent liabilities of 16.99 are meaningful relative to operating scale; with ROIC at 1.3%, return on invested capital is below the cost of capital, raising longer-term balance sheet efficiency concerns. Off-balance sheet obligations: Not disclosed; none inferred from available data.

Cash Flow Quality

Earnings quality is weak: OCF/NI at 0.65x (<0.8) flags poor cash conversion. Estimated free cash flow is negative at about -0.29 (OCF 0.66 minus capex 0.95), indicating that internal cash generation did not fully fund capex in the period. Working capital likely absorbed cash, consistent with an inventory-centric model (inventories 6.30 > AR 2.72 and AP 2.80); limited disclosure prevents precise attribution among AR/AP/inventory. No clear signs of aggressive working capital management beyond the implied inventory build; however, sustained OCF shortfalls versus NI would be a red flag if repeated in subsequent quarters.

Dividend Sustainability

The calculated payout ratio is 42.9%, nominally within a sustainable range (<60%). However, with estimated negative FCF (-0.29) in the period and OCF under-earning NI, near-term dividend coverage from organic cash is weak. Financing CF of -1.43 suggests debt repayment and/or distributions, but actual dividends paid are unreported. Sustainability will depend on restoring positive FCF via better cash conversion and maintaining capex discipline; if OCF normalizes above NI and capex remains around current levels, cash coverage should improve.

Risk Assessment

Business Risks:

• Demand cyclicality in the auto aftermarket and discretionary consumer spending sensitivity
• Margin pressure from competition and promotions in car accessories/services
• Execution risk in inventory management leading to markdowns or obsolescence
• Operational reliance on non-operating income to support ordinary profit

Financial Risks:

• Thin liquidity cushion (current ratio ~1.09, quick ratio ~0.71)
• Low ROIC (1.3%) relative to cost of capital, risking value dilution
• OCF consistently below NI in this period (0.65x), indicating cash conversion risk
• Exposure to extraordinary losses that can compress PBT despite healthy ordinary income
• Moderate leverage (D/E 0.81x) amid low returns

Key Concerns:

• Extraordinary losses (~0.59) materially reduced PBT in Q2
• High effective tax rate (~41.6%) constrains net margin
• Earnings mix dependence on non-operating gains (0.66) elevates volatility
• Inventory-heavy working capital ties up cash and can impair OCF if not controlled

Investment Implications

Key Takeaways:

• Solid YoY topline growth (+14.1%) with notable operating margin expansion (~+92 bps)
• Ordinary income supported by non-operating gains; core profitability improving but still thin
• Cash conversion is a weak point (OCF/NI 0.65x) with estimated negative FCF after capex
• Liquidity adequate but tight; inventory dependence heightens execution risk
• Capital efficiency low (ROE 2.4%, ROIC 1.3%), limiting valuation support absent further improvement

Metrics to Watch:

• OCF/Net income ratio and working capital movements (inventory days, AR/AP turnover)
• SG&A-to-sales ratio and operating margin trajectory
• Extraordinary items and non-operating income sustainability
• ROIC versus WACC, and asset turnover improvements
• Current and quick ratios, refinancing needs for short-term debt

Relative Positioning: Within Japan’s auto aftermarket retail/service peers, Autowave shows improving operating trends but remains sub-scale with low margins and very low ROIC; leverage is moderate and interest coverage is strong, but cash conversion and reliance on non-operating contributions leave it positioned below best-in-class operators on quality metrics.

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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