Kioxia Holdings Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥791.14B
• Operating Income: ¥130.82B
• Net Income: ¥58.94B
• EPS: ¥109.26

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: Mixed quarter—solid cash generation and positive ROE/ROIC despite sharp profit compression amid top-line decline. Revenue was 7,911.45 (100M JPY), down 13.0% YoY, while operating income fell 55.2% YoY to 1,308.20 (100M JPY). Gross profit was 1,933.17, yielding a gross margin of 24.4%. Net income declined 66.5% YoY to 589.46, translating to a net margin of 7.5%. Operating margin stands at 16.5% this quarter (1,308.20 / 7,911.45). Based on the disclosed YoY deltas, prior-year operating income was approximately 2,919 and prior revenue approximately 9,094, implying prior operating margin of about 32.1%; thus operating margin compressed by roughly 1,560 bps YoY. Similarly, prior net income was roughly 1,760, implying a prior net margin of about 19.4% and a net margin compression of roughly 1,190 bps YoY. Earnings quality was strong: OCF was 1,751.52 versus net income of 589.46 (OCF/NI = 2.97x), and FCF was positive at 682.70 after capex of 1,431.27. Leverage is elevated: equity ratio is 27.5% and D/E is 2.64x (flag), with retained earnings negative (-1,305.94), signaling still-repairing balance sheet quality. ROE calculated at 7.2% (NPM 7.5% × AT 0.265 × leverage 3.64x), and ROIC at 11.2% exceed the 8% benchmark, aided by operating cash flow strength and high asset leverage. Liquidity assessment is constrained due to unreported current liabilities and debt details; accounts payable are sizable at 5,446.41 relative to accounts receivable (2,364.12) and inventories (3,616.34). The quarter’s positive cash conversion likely reflects working capital release and disciplined capex pacing. Equity-method income is negligible (1.56), indicating results are driven by core operations rather than affiliates. Forward-looking, the key swing factors are NAND pricing/mix, utilization, and capex discipline; sustaining ROIC > 8% while de-levering would be supportive, but the high D/E and negative retained earnings constrain financial flexibility. Monitor FX (USD/JPY), potential inventory valuation impacts, and any goodwill impairment risk (goodwill 3,955.11). Overall, execution on cash, ROIC, and cost control is positive, but margin compression and leverage remain the key overhangs.

Profitability Analysis

ROE decomposition: ROE 7.2% = Net Profit Margin 7.5% × Asset Turnover 0.265 × Financial Leverage 3.64x. The component that changed the most YoY is Net Profit Margin, which compressed by an estimated ~1,190 bps (from ~19.4% to 7.5%), far outweighing likely modest changes in asset turnover. Business drivers: memory pricing normalization/softness, adverse mix, and lower utilization likely cut gross profitability and operating leverage, while SG&A (660.82) provided limited offset relative to the gross profit decline. Sustainability: margin pressure in memory is cyclical—partial recovery is plausible with ASP stabilization, mix shift to higher-layer/advanced nodes, and utilization normalization; however, timing is market-dependent. Operating leverage turned adverse this quarter: operating income fell 55.2% on a 13.0% revenue decline, implying significant deleveraging. Concerning trends: topline contraction outpaced any SG&A reduction (SG&A is positive but YoY detail unreported), implying limited cost flexibility; margin compression across the P&L (gross to net) is the dominant headwind.

Growth Assessment

Revenue fell 13.0% YoY to 7,911.45 amid cyclical memory headwinds; operating income contracted 55.2% YoY to 1,308.20. EBITDA of 2,896.59 (36.6% margin) indicates capacity to absorb downturns, but EBIT compression was substantial (16.5% margin). Profit quality is credible: OCF outpaced NI by 2.97x, aided by working capital tailwinds and non-cash D&A (1,588.39). Outlook hinges on NAND ASPs, bit growth, product mix (higher-layer 3D, enterprise SSD), and utilization rates; operating leverage can turn positive quickly if pricing stabilizes. Equity-method income (1.56) is immaterial, so future profit growth depends on core manufacturing/marketing execution rather than affiliates. ROIC at 11.2% suggests current investment base is earning above the 8% benchmark; sustaining this will require disciplined capex and improving margins. Given negative retained earnings and elevated D/E, growth should prioritize cash accretion and deleveraging over aggressive expansion.

Financial Health

Liquidity: Current ratio not available due to unreported current liabilities; thus short-term liquidity cannot be conclusively assessed. Accounts payable (5,446.41) are large versus accounts receivable (2,364.12) and inventories (3,616.34), suggesting reliance on trade payables; maturity mismatch risk cannot be quantified without short-term debt disclosure. Solvency: Equity ratio at 27.5% is modest, and D/E at 2.64x triggers a high-leverage warning (D/E > 2.0). Total equity is 8,193.42 with retained earnings negative (-1,305.94), indicating cumulative losses still weigh on capital quality. Interest-bearing debt details and interest coverage are unreported, limiting assessment of refinancing risk; however, the presence of positive OCF and FCF in the period provides some buffer. Off-balance sheet obligations: none disclosed in the provided data. Key watchpoints: debt maturity ladder, covenants, and refinancing conditions amidst cyclical earnings.

Cash Flow Quality

OCF/Net Income is 2.97x, indicating high-quality earnings under IFRS. Free cash flow was positive at 682.70 after capex of 1,431.27, supporting deleveraging potential and optionality. The gap between EBITDA (2,896.59) and OCF reflects working capital dynamics; given sizable payables and inventories, the strong OCF likely benefited from working capital release or payables support—sustainability into future quarters is uncertain. With NI at 589.46 and OCF at 1,751.52, cash conversion is robust this quarter; no immediate signs of manipulation are evident from available data, but lack of quarterly working capital roll-forward limits verification. Dividend funding capacity appears available from FCF in this period, but balance sheet constraints (negative retained earnings, high D/E) argue for cash retention. Monitoring: changes in inventories and payables, capex cadence versus utilization, and OCF stability if margins recover.

Dividend Sustainability

Dividend data are unreported; payout ratio and DPS are not calculable. On a mechanical basis, FCF of 682.70 would cover modest dividends, but strategic sustainability is constrained by elevated leverage (D/E 2.64x) and negative retained earnings (-1,305.94), which often lead management to prioritize balance sheet repair. Policy outlook therefore skews to conservative cash allocation (debt reduction, strategic capex) until profitability normalizes and equity base strengthens.

Risk Assessment

Business Risks:

• Commodity-like pricing in NAND/flash memory leading to margin volatility
• Demand cyclicality tied to PCs/phones/data center storage upgrades
• Utilization rate swings impacting unit costs and operating leverage
• Product mix risk between consumer vs enterprise SSD and advanced nodes
• Goodwill impairment risk given goodwill of 3,955.11

Financial Risks:

• High leverage: D/E 2.64x with modest equity ratio (27.5%)
• Refinancing/maturity risk unknown due to unreported debt breakdown
• Working capital reliance on trade payables (AP 5,446.41 vs AR 2,364.12)
• Negative retained earnings (-1,305.94) limiting financial flexibility
• FX exposure (USD/JPY) affecting ASPs, costs, and translation

Key Concerns:

• Sharp YoY margin compression (operating margin down ~1,560 bps; net margin down ~1,190 bps)
• Visibility on liquidity is limited (current liabilities, short-term debt unreported)
• Sustainability of strong OCF if working capital tailwinds reverse
• Potential capex intensity remains high (capex 1,431.27) amid weaker earnings
• Limited contribution from affiliates (equity-method income 1.56) places full burden on core operations

Investment Implications

Key Takeaways:

• Top line down 13% YoY with disproportionate operating profit decline (-55.2%), indicating negative operating leverage
• OCF very strong (2.97x NI) and FCF positive despite downturn
• Leverage elevated (D/E 2.64x) and retained earnings negative, constraining capital allocation
• ROIC 11.2% and ROE 7.2% indicate acceptable returns despite cycle pressure
• Equity-method income negligible; results are driven by core memory operations

Metrics to Watch:

• NAND ASPs and bit shipment growth
• Operating and net margins (bps trend) and utilization rates
• OCF stability and working capital movements (inventories, payables)
• Capex-to-sales and ROIC sustainability (>8%)
• Debt maturities, interest costs, and D/E trajectory
• FX (USD/JPY) sensitivity on revenue and costs

Relative Positioning: Within memory peers, profitability is cyclically pressured but cash generation and ROIC (>8%) are positives; however, balance sheet leverage is higher than conservative benchmarks, making de-leveraging progress a key differentiator in the next 2–4 quarters.

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