Kuroda Group Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥59.47B
• Operating Income: ¥2.88B
• Net Income: ¥1.19B
• EPS: ¥27.40

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

For FY2026 Q2 (cumulative), Kuroda Group Co., Ltd. reported revenue of 594.73 (100M JPY), down 1.5% YoY, with operating income of 28.75, down a steeper 8.1% YoY, indicating negative operating leverage as modest top-line contraction translated into a larger profit decline. Gross profit of 106.89 implies a gross margin of 18.0%, while SG&A of 74.30 (12.5% of sales) resulted in an operating margin of 4.8%. Profit before tax was 25.36, and net income fell sharply to 11.63 (-49.4% YoY), with an effective tax rate of 25.9%. The DuPont profile shows a net margin of 2.0%, asset turnover of 0.622x, and financial leverage of 2.46x, yielding a low ROE of 3.0%, in line with the reported figure. EBITDA was 40.71 and the EBITDA margin 6.8%, showing moderate cash earnings capacity relative to sales. On balance sheet, total assets were 955.92 and equity 388.86 (equity ratio 39.4%), with total liabilities of 561.74 (liabilities-to-equity of 1.44x). Interest-bearing debt disclosed via loans totals 284.03 (short-term 73.62; long-term 210.41), indicating a leveraged structure against current EBITDA. Liquidity data are limited due to unreported current liabilities, but current assets are sizable at 561.58, including accounts receivable of 288.05 and inventories of 102.21, suggesting ample coverage for short-term obligations albeit with working capital intensity. Cash generation was solid: operating cash flow (OCF) reached 39.30, 3.38x net income, indicating strong cash conversion and likely favorable working capital dynamics or non-cash charges. Free cash flow was positive at 19.52 despite capex of 22.07, supporting ongoing investment. However, financing cash outflows of 17.14 and dividends paid of 25.46 exceeded FCF (FCF coverage 0.73x), implying reliance on cash on hand (period-end cash and equivalents 154.76) or incremental borrowings to support shareholder returns. The payout ratio is elevated at 230.5%, not sustainable if current earnings softness persists. Overall profitability and ROE are subdued, leverage is meaningful, and dividends appear ahead of internally generated free cash, though cash conversion is a relative strength. Data limitations are notable for non-operating items, current liabilities, and interest expense; conclusions focus on disclosed metrics only.

Profitability Analysis

ROE_decomposition: ROE 3.0% = Net margin 2.0% x Asset turnover 0.622x x Financial leverage 2.46x. This points to low profitability as the primary constraint; leverage is moderate and asset turnover is middling. margin_quality: Gross margin 18.0% and SG&A ratio 12.5% yield an operating margin of 4.8% (28.75/594.73). Pretax margin is 4.3% and net margin 2.0%, indicating meaningful dilution below the operating line (tax, non-operating, and other items). The sharp YoY contraction in net income (-49.4%) versus operating income (-8.1%) suggests adverse non-operating effects or one-offs. operating_leverage: Revenue declined 1.5% YoY while operating income fell 8.1%, evidencing negative operating leverage. Fixed cost absorption appears pressured; maintaining SG&A discipline and gross margin will be key to stabilizing operating profits.

Growth Assessment

revenue_sustainability: Top-line declined 1.5% YoY to 594.73, indicating mild contraction. With accounts receivable at 288.05 and inventories at 102.21, the business remains working-capital intensive, which may weigh on growth efficiency. profit_quality: EBITDA of 40.71 and OCF of 39.30 vs net income of 11.63 indicate strong cash conversion (OCF/NI 3.38x), suggesting underlying earnings quality is better than headline net profit implies. However, net profit’s sharp decline points to potential non-operating drags. outlook: Absent guidance and with limited disclosure on non-operating items and R&D, near-term outlook hinges on gross margin resilience and cost control to counteract negative operating leverage. A return to stable revenue and normalization below the operating line would be needed to improve ROE from 3%.

Financial Health

liquidity: Current assets are 561.58, but current liabilities are unreported, so current and quick ratios are not calculable. Cash and equivalents at period-end were 154.76, exceeding short-term loans of 73.62, suggesting near-term liquidity headroom. Large receivables (288.05) and inventories (102.21) imply dependence on working capital turnover. solvency: Total liabilities of 561.74 vs equity of 388.86 yields liabilities-to-equity of 1.44x; equity ratio is 39.4%. Loans total 284.03 (short 73.62; long 210.41), indicating material leverage. capital_structure: Using cash and equivalents as a proxy for cash (due to unreported balance sheet cash), net debt is approximated at 129.27 (284.03 debt minus 154.76 cash). This implies net debt/EBITDA of roughly 3.2x and gross debt/EBITDA of about 7.0x, a leveraged posture that reduces financial flexibility.

Cash Flow Quality

earnings_quality: OCF of 39.30 vs net income of 11.63 (3.38x) indicates robust cash realization, reflecting non-cash charges (D&A 11.96) and likely favorable working capital. Effective tax rate of 25.9% appears normal. FCF_analysis: FCF of 19.52 is positive after capex of 22.07, supporting reinvestment while generating surplus cash. Investing CF of -19.78 aligns broadly with capex, suggesting limited M&A or financial investments in the period. working_capital: High receivables (288.05) and inventories (102.21) vs payables (209.87) highlight working capital intensity. The positive OCF suggests either receivable collections or payables support; detailed period-to-period movements are not disclosed.

Dividend Sustainability

payout_ratio_assessment: Calculated payout ratio is 230.5%, far above sustainable levels given net income of 11.63. This likely reflects a weak earnings base rather than a structurally high policy, but it is not supportable if profits do not recover. FCF_coverage: FCF coverage is 0.73x, indicating dividends exceed free cash flow and are being funded by balance sheet resources or financing. Dividends paid were 25.46, exceeding FCF of 19.52. policy_outlook: Without explicit guidance, maintaining current dividends would require improved earnings and FCF or continued balance sheet usage. Given leverage and a low ROE (3%), a conservative stance would be prudent absent earnings recovery.

Risk Assessment

Business Risks:

• Margin pressure from input cost inflation and pricing power limits
• Negative operating leverage if volumes soften further
• Working capital concentration in receivables and inventories leading to cash flow volatility
• Potential FX exposure affecting costs or overseas sales (not disclosed)
• Customer demand cyclicality and potential order delays (sector unspecified)

Financial Risks:

• Leverage with loans totaling 284.03 and estimated net debt/EBITDA ~3.2x
• Dividend outflows exceeding FCF (0.73x coverage), reducing financial flexibility
• Refinancing and interest rate risk given sizable long-term and short-term borrowings
• Sensitivity of covenants/credit metrics to earnings volatility
• Limited visibility on interest expense and non-operating items

Key Concerns:

• Sharp net income decline (-49.4% YoY) despite modest revenue dip
• Low ROE at 3.0% with limited margin of safety
• Dividend policy out of line with current FCF and earnings capacity
• Data gaps on current liabilities, interest expense, and non-operating income/expenses

Investment Implications

Key Takeaways:

• Top-line contraction of 1.5% YoY and negative operating leverage pressured operating profit (-8.1% YoY).
• Net income fell 49.4% YoY, highlighting below-OP headwinds.
• Gross margin at 18.0% and SG&A at 12.5% produced a modest 4.8% operating margin.
• ROE is low at 3.0%, constrained primarily by thin net margins.
• Cash conversion is strong (OCF/NI 3.38x), supporting positive FCF of 19.52.
• Leverage is meaningful (approx. gross debt/EBITDA ~7.0x; net debt/EBITDA ~3.2x).
• Dividends exceed FCF (coverage 0.73x) and imply an elevated payout ratio of 230.5%, a potential pressure point.
• Liquidity appears manageable with cash and equivalents of 154.76 vs short-term loans of 73.62, but WC intensity is high.

Metrics to Watch:

• Gross margin and SG&A ratio trajectory
• Operating margin and EBITDA margin progression
• OCF/Net income ratio and FCF sustainability
• Receivables and inventory levels relative to sales (turnover days)
• Net debt/EBITDA and interest coverage (once interest expense is disclosed)
• Dividend payouts relative to FCF and earnings

Relative Positioning: Within a broad Japan universe, the company exhibits below-average profitability (ROE 3%) with moderate-to-high leverage and strong cash conversion. Dividend policy appears aggressive relative to current earnings power, which may weigh on financial flexibility compared to more conservatively financed 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
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