ALCONIX CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥102.05B
• Operating Income: ¥4.41B
• Net Income: ¥2.58B
• EPS: ¥85.87

Income Statement

Balance Sheet

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: Solid top-line and operating recovery in FY2026 Q2, but bottom-line underperformed due to higher non-operating costs and taxes, leaving ROE and ROIC subdued. Revenue grew 6.7% YoY to 1,020.46, with operating income up 27.8% YoY to 44.12, evidencing operating leverage. Gross profit reached 142.52 and gross margin was 14.0%. SG&A was 98.39, implying an SG&A ratio of 9.6% and improved operating efficiency. Ordinary income declined 1.8% YoY to 39.60 as non-operating expenses (12.39) outweighed non-operating income (7.87), creating a net drag of 4.52. Profit before tax was 40.71, slightly exceeding ordinary income, suggesting a small positive extraordinary contribution (~1.11). Net income fell 3.3% YoY to 25.73, with an effective tax rate of 36.7% constraining the bottom-line. Operating margin improved to 4.32% from approximately 3.61% a year ago, a roughly 71 bps expansion driven by better gross-to-operating conversion. Ordinary margin was 3.88% and net margin settled at 2.52%, reflecting the non-operating headwinds and tax burden. Earnings quality is uncertain this quarter since operating cash flow was unreported, preventing verification of cash conversion against net income. Balance sheet liquidity is adequate on a current basis (current ratio 135%) but less comfortable on a quick basis (93%), highlighting inventory reliance in working capital. Leverage is elevated but manageable (D/E 1.82x; interest coverage 8.9x), yet capital efficiency remains weak (ROE 3.7%, ROIC 3.0%). Dividend affordability looks stretched with a calculated payout ratio of 89.4% against modest free cash flow visibility (FCF unreported). For a specialty trading company exposed to metals and currency volatility, dependence on non-operating items (e.g., dividends and financial income) remains a key swing factor. Forward-looking, maintaining operating margin gains while reducing non-operating drag and improving cash conversion will be critical to lift ROIC toward a 7–8% target range and safeguard dividends.

Profitability Analysis

DuPont decomposition: ROE (3.7%) = Net Profit Margin (2.5%) × Asset Turnover (0.515x) × Financial Leverage (2.82x). The most notable change this quarter appears in margins: operating income surged 27.8% versus revenue +6.7%, implying meaningful operating margin expansion (~71 bps YoY to 4.32%). However, net margin remained low at 2.5% due to non-operating net expenses (−4.52) and a high effective tax rate (36.7%). Business drivers: improved operating spread likely reflects better pricing/mix and SG&A control (SG&A ratio 9.6%), while non-operating headwinds reflect higher interest costs (4.95) and possibly weaker financial/affiliate contributions (dividend income 2.97 insufficient to offset non-operating expenses). Sustainability: the operating margin improvement is more repeatable if underlying demand and pricing hold, but net margin is vulnerable to financing costs, affiliate performance, and FX/commodity swings. Asset turnover at 0.515x is typical for a metals-focused trading/processing model with heavy working capital; without structural working capital reduction, efficiency gains may be limited. Leverage (assets/equity 2.82x) is propping up ROE despite low margins; this is not a durable driver if interest rates or credit costs rise. Concerning trends: ordinary income fell YoY (−1.8%) despite higher operating income, pointing to growing non-operating drag; also, the quick ratio below 1.0 indicates higher reliance on inventory to support sales.

Growth Assessment

Top-line growth of 6.7% to 1,020.46 indicates resilient demand or improved pricing in non-ferrous metals and related processed products. Operating profit rose 27.8% to 44.12, showing positive operating leverage and cost discipline (SG&A ratio 9.6%). Gross margin at 14.0% suggests stable spread management in a volatile commodity environment. Ordinary income decreased 1.8% to 39.60 due to higher non-operating expenses, offsetting operating gains. Net income declined 3.3% to 25.73 as tax burden (36.7%) compounded non-operating drag. Revenue sustainability depends on commodity price trends, customer demand in automotive/electronics, and FX; absent these tailwinds, growth could normalize. Profit quality is mixed: operating performance improved, but a larger share of earnings sensitivity sits in financial/affiliate items, as evidenced by non-operating net losses this quarter. With ROIC at 3.0% (below 5% warning), incremental growth needs to be ROIC-accretive to create value. Near-term outlook hinges on maintaining operating margin >4% while reducing interest burden and improving affiliate returns (dividend/other income).

Financial Health

Liquidity: Current ratio 135% is acceptable, but quick ratio 93% is below the 100% comfort level, indicating reliance on inventories (inventory is 41.9% of current liabilities). Cash ratio is modest at ~21% (cash 222.52 vs current liabilities 1,072.18). Solvency: Debt-to-equity is 1.82x (elevated vs 1.5x benchmark but below the 2.0x warning threshold). Interest coverage is strong at 8.9x (operating income 44.12 vs interest 4.95). Maturity profile: Short-term loans total 314.62 against cash 222.52; while receivables (551.70) and inventories (448.95) provide coverage, refinancing/working capital risk persists if demand slows or credit tightens. No off-balance sheet obligations were reported in the provided data. Equity base stands at 703.45, supporting operations but delivering low returns (ROE 3.7%).

Cash Flow Quality

Operating cash flow was unreported, so OCF/Net Income cannot be assessed; this is a key limitation for earnings quality evaluation. Free cash flow and capex were also unreported, preventing validation of cash generation versus dividend needs. Working capital intensity is high (AR 551.70, inventories 448.95), creating potential cash volatility; inventory reliance (quick ratio <1) raises the risk of cash conversion slippage in downcycles. No clear signs of working capital manipulation can be inferred without cash flow details or turnover metrics. Given non-operating net losses and higher interest expense, monitoring cash interest outlays versus OCF will be important in subsequent quarters.

Dividend Sustainability

The calculated payout ratio is 89.4%, which is high relative to the <60% benchmark for sustainability. With ROE at 3.7% and ROIC at 3.0%, internal capital generation is modest, increasing reliance on stable cash flows to fund dividends. OCF and FCF were unreported, so coverage cannot be confirmed; this elevates uncertainty around dividend sustainability if earnings or cash conversion weaken. Policy outlook likely emphasizes stability, but room for dividend growth appears limited until ROIC improves and non-operating drags ease. Balance sheet capacity exists but should not be leaned on heavily given elevated D/E (1.82x).

Risk Assessment

Business Risks:

• Commodity price volatility in non-ferrous metals impacting spreads and inventory valuations
• FX fluctuation risk (JPY vs USD/CNY) affecting import costs and translation of overseas earnings
• Demand cyclicality in key end-markets (automotive, electronics, machinery)
• Affiliate/financial income variability (dividend and other investment income)
• Supply chain disruptions affecting procurement and delivery

Financial Risks:

• Elevated leverage (D/E 1.82x) with meaningful short-term loans (314.62)
• Quick ratio below 1.0 indicating reliance on inventories and potential liquidity strain in downturns
• Interest rate risk as interest expense (4.95) erodes ordinary income; interest coverage could compress if EBIT declines
• Low ROIC (3.0%) below likely WACC, implying value dilution risk if investments do not improve returns
• Tax burden at 36.7% keeping net margins thin

Key Concerns:

• Ordinary income decreased despite stronger operating income due to non-operating drag
• Dividend payout (89.4%) appears high relative to earnings quality and unreported FCF
• Capital efficiency is weak (ROE 3.7%, ROIC 3.0%), limiting shareholder value creation
• Working capital heaviness (AR and inventories) may pressure cash conversion if growth slows

Investment Implications

Key Takeaways:

• Operating recovery is evident with margin expansion (~71 bps YoY) and +27.8% operating profit growth.
• Non-operating items turned into a net drag (−4.52), pulling ordinary income down YoY.
• Net profit declined 3.3% amid a high tax rate, leaving net margin at 2.5%.
• Liquidity adequate on a current basis, but quick ratio <1.0 signals inventory dependence.
• Leverage is elevated but serviceable (interest coverage 8.9x); however, ROIC at 3.0% is a clear weak spot.
• Dividend payout around 89% looks aggressive given low returns and unreported FCF.

Metrics to Watch:

• Operating cash flow and FCF to validate earnings quality and dividend coverage
• Ordinary income bridge: interest expense, equity/affiliate income, and other non-operating items
• Inventory and receivables turnover (DSI/DSO) and overall cash conversion cycle
• Operating margin sustainability (>4%) and SG&A discipline
• ROIC trajectory toward 5–7% through mix/pricing and asset efficiency
• Net debt trend and proportion of short-term borrowing
• FX sensitivity and commodity price indices (aluminum, copper, nickel)

Relative Positioning: As a specialty trading company in non-ferrous metals, Alconix shows better operating momentum than last year but remains behind best-in-class trading peers on capital efficiency (ROIC/ROE) and earnings stability, given its exposure to non-operating volatility and working capital intensity.

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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