ARIAKE JAPAN Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥31.28B
• Operating Income: ¥5.11B
• Net Income: ¥4.18B
• EPS: ¥129.59

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 profitability with meaningful margin expansion despite slight topline contraction; quality broadly acceptable but capital efficiency remains weak. Revenue declined 0.8% YoY to 312.78, but operating income rose 8.1% YoY to 51.06, lifting operating margin to 16.3%. Ordinary income surged 70.3% YoY to 59.12, aided by higher non-operating income (8.77), including interest income of 3.21 and dividends of 1.21. Net income nearly doubled (+97.0% YoY) to 41.27, pushing the net margin to 13.2%. Gross profit was 93.61, implying a gross margin of 29.9%, consistent with higher-value mix and cost control. Using inferred priors, operating margin expanded by about 134 bps YoY (from ~15.0% to 16.3%), while net margin expanded by roughly 655 bps (~6.6% to 13.2%) on stronger non-operating contributions and a normalized tax rate. EBITDA came in at 61.69 (19.7% margin), supporting improved underlying earnings power. Cash generation was decent with operating cash flow of 36.47, equating to OCF/NI of 0.88x—below the ideal >1.0 but not alarming. The balance sheet is exceptionally conservative: current ratio 715%, quick ratio 665%, D/E 0.13x, and interest expense effectively zero. However, ROIC of 4.5% is below the 5% warning threshold, highlighting underutilized capital given a large cash and securities base (cash 502.38; investment securities 429.76). Reported payout ratio (calculated) of 103.3% suggests a potentially elevated distribution policy versus earnings, though official DPS and total dividends are unreported, limiting precision. Forward-looking, the resilient margins and abundant liquidity provide cushioning, but sustaining net profit at current levels may require continued non-operating tailwinds or reacceleration in sales. Management focus should pivot to improving asset turnover and ROIC via disciplined capex, portfolio optimization, or shareholder returns. Near-term catalysts include mix upgrades, pricing discipline, and interest income continuity; risks include input cost volatility and FX.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 13.2% × Asset Turnover 0.211 × Financial Leverage 1.13x ≈ ROE 3.2%. The largest driver of YoY improvement is the Net Profit Margin, which jumped on higher operating margin and a sizable lift in non-operating income (interest income 3.21; total non-operating income 8.77). Asset turnover remains low at 0.211, reflecting a sizable cash and investment securities position relative to revenue, and thus continues to weigh on ROE. Financial leverage is modest (1.13x), offering little magnification—appropriate given the conservative balance sheet. Business reasons: pricing/mix and SG&A discipline supported operating margin, while higher interest rates and portfolio income boosted non-operating results and ordinary income (+70.3% YoY). Sustainability: operating margin improvement looks more durable than the non-operating uplift; interest income can persist near-term if cash balances and rates stay elevated, but it is not a core operating driver. Concerning trends: revenue fell 0.8% YoY while SG&A details are unreported; however, operating income grew faster than sales, indicating positive operating leverage this quarter. Watch for any reversion if volume softness persists.

Growth Assessment

Revenue contracted 0.8% YoY to 312.78, implying some volume or pricing headwinds. Operating income rose 8.1% YoY to 51.06, indicating favorable mix/pricing and cost control despite the topline dip. Ordinary income (+70.3% YoY) and net income (+97.0% YoY) were boosted by non-operating gains (notably interest and dividend income). Operating margin improved to 16.3% (+134 bps YoY by inference), while net margin reached 13.2% (+655 bps YoY by inference). EBITDA margin is a healthy 19.7%, supportive of ongoing reinvestment capacity. Growth sustainability hinges on stabilizing sales (particularly overseas/end-market demand) and maintaining pricing; heavy reliance on non-operating income elevates volatility risk. With ROIC at 4.5%, incremental growth should prioritize high-return projects to lift capital efficiency. Near-term outlook: steady margins are plausible; topline acceleration would be the key swing factor.

Financial Health

Liquidity is exceptionally strong: current ratio 7.15x and quick ratio 6.65x—well above benchmarks; no warning flags (Current Ratio >> 1.0). Solvency is robust with D/E 0.13x and negligible interest expense, yielding de facto infinite interest coverage. Maturity mismatch risk appears minimal: current assets 761.74 vs current liabilities 106.54, and cash alone (502.38) comfortably exceeds total current liabilities. Investment securities are large at 429.76, implying some market risk but also liquidity optionality depending on the portfolio composition (not disclosed). No off-balance sheet obligations were reported in the provided data. Overall balance sheet strength provides a significant buffer.

Cash Flow Quality

OCF/Net Income is 0.88x, slightly below the >1.0 benchmark but above the 0.8 watch level—mildly weaker quality, yet acceptable. Depreciation of 10.63 supports non-cash earnings components; working capital drivers are not disclosed, limiting granular assessment of timing effects. Capex was 9.11; against OCF of 36.47, implied FCF is approximately 27.36, suggesting capacity to fund recurring investments and a baseline dividend. No signs of aggressive working capital manipulation can be inferred from the limited data, but the OCF trailing NI warrants monitoring. Financing CF was -35.32, indicating cash outflows to shareholders and/or debt reduction; specific dividend cash outflow is unreported.

Dividend Sustainability

The calculated payout ratio of 103.3% appears elevated relative to earnings, but DPS and total dividends paid are unreported, so this figure may reflect different timing or a trailing basis. On an implied basis, OCF (36.47) less capex (9.11) leaves roughly 27.36 of FCF, which could cover a normal dividend but not an aggressive payout exceeding earnings on a sustained basis. With a very strong balance sheet and large cash/securities holdings, short-term dividend capacity is ample; however, sustaining a >100% payout would not be prudent without continued non-operating support or profit growth. Policy outlook likely balances stable-to-progressive dividends with opportunities for buybacks or special distributions, contingent on improving ROIC.

Risk Assessment

Business Risks:

• Input cost volatility (animal/seafood extracts, energy) can pressure gross margin.
• Demand softness in food service/processed foods could weigh on volumes (revenue -0.8% YoY).
• Product mix and pricing execution risk affecting operating margin sustainability.
• FX fluctuations impacting overseas operations and translation of profits.

Financial Risks:

• High exposure to financial assets (investment securities 429.76) introduces market valuation and income volatility.
• Earnings sensitivity to interest income; a decline in rates or cash balances would reduce non-operating gains.
• ROIC at 4.5% indicates capital efficiency risk if cash and investments are not redeployed effectively.

Key Concerns:

• Capital efficiency below threshold (ROIC 4.5%).
• OCF/NI at 0.88x, slightly below ideal, requires monitoring of cash conversion.
• Ordinary income dependence on non-operating items elevates earnings volatility.
• Revenue contraction suggests underlying demand challenges that could resurface.

Investment Implications

Key Takeaways:

• Quality quarter with strong margin expansion despite a small sales decline.
• Non-operating income materially lifted ordinary and net profits; core operating margin improved to 16.3%.
• Balance sheet strength is exceptional, enabling flexibility in capital allocation.
• Capital efficiency is the main weakness (ROIC 4.5%, ROE 3.2%) due to low asset turnover and minimal leverage.
• Dividend capacity is supported by cash and implied FCF, but a >100% payout is not structurally sustainable.

Metrics to Watch:

• Sales growth reacceleration (volume/mix and pricing by region).
• Gross and operating margin trajectory versus input costs.
• Non-operating income components (interest income, dividends, any securities-related gains/losses).
• OCF/NI and working capital movements (AR and inventory turnover).
• ROIC improvement via portfolio actions or higher-return growth.

Relative Positioning: Within Japanese food ingredient peers, Ariake combines superior balance sheet strength and healthy operating margins with below-average capital efficiency and muted topline growth; improving asset turnover and sustaining core margin gains are key to narrowing the gap with higher-ROIC 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
• 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