UNITIKA LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥62.15B
• Operating Income: ¥5.64B
• Net Income: ¥-3.46B
• EPS: ¥-60.49

Income Statement

Balance Sheet

Cash Flow Statement

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: Core operations improved materially in FY2026 Q2, but large below-the-line losses drove a net loss and weakened the capital structure. Revenue grew 1.0% YoY to 621.47, while operating income surged 152.7% YoY to 56.44, implying strong cost discipline and mix improvement. Gross profit was 152.82, for a GPM of 24.6%, and operating margin rose to 9.1%. Ordinary income reached 48.28 (+319.5% YoY), indicating manageable non-operating drag (non-op income 5.37 vs expenses 13.53). However, profit before tax fell to -30.61, implying approximately 78.9 of extraordinary losses between ordinary and pre-tax (details not disclosed). Net income was -34.87 (EPS -60.49 JPY), and total comprehensive income -41.14, underscoring additional OCI headwinds. Operating cash flow was solid at 55.62, exceeding EBITDA outflows for interest and capex, but financing cash inflow was heavy at 197.09, signaling reliance on short-term borrowing. Liquidity remains tight: current ratio 79.2% and quick ratio 52.5% with working capital of -260.80. Leverage is elevated with D/E at 4.39x and very short maturity profile (short-term loans 383.19 vs long-term loans 4.87). Interest coverage is acceptable at 6.51x on the quarter’s operating performance, but sustainability depends on avoiding further extraordinary losses. Earnings quality flags arise from the divergence between positive OCF and negative NI (OCF/NI -1.60x), driven by non-recurring losses rather than weak operations. Book value per share is 557.08 JPY, but retained earnings are negative (-27.30), limiting balance sheet resilience. Forward-looking, the key is whether the extraordinary loss is one-time (restructuring/impairment) and whether the company can sustain the improved operating margin. Priorities include strengthening liquidity, terming out debt, and maintaining cost/pricing discipline to protect the new operating baseline. Without clarity on dividends and investing cash flows, capital allocation appears constrained, with focus likely on balance sheet repair.

Profitability Analysis

ROE decomposition: ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-5.6%) × 0.359 × 5.39x ≈ -10.9% (matches reported). The dominant driver of the negative ROE is the Net Profit Margin turning negative due to approximately 78.9 in extraordinary losses between ordinary and pre-tax. Asset turnover at 0.359 is modest for a manufacturing/materials company and reflects a large asset base relative to sales; it likely did not change dramatically YoY given revenue was up only 1.0%. Financial leverage at 5.39x is very high and amplifies swings in ROE, worsening the impact of any net loss. Business reason: core operations improved (operating margin 9.1%), but undisclosed special losses wiped out earnings, likely linked to restructuring, impairment, or disposal losses. Sustainability: the operating improvement looks more sustainable than the special loss, provided cost initiatives and mix hold; however, high leverage and tight liquidity could force further restructuring that produces additional one-off charges. Concerning trends: despite revenue rising 1.0%, SG&A disclosure is limited (total 96.38), but the operating leverage is positive this quarter; still, reliance on non-operating financing and extraordinary items elevates earnings volatility.

Growth Assessment

Revenue grew 1.0% YoY to 621.47, a modest pace suggesting stabilization rather than strong expansion. Operating income jumped to 56.44 (+152.7% YoY), indicating significant cost/mix progress; operating margin expanded from about 3.6% to 9.1% (+545 bps). Ordinary income also improved to 48.28 (+319.5% YoY), proving that non-operating items were manageable. The negative pre-tax result (-30.61) implies large extraordinary losses, which mask the underlying growth in operating profit. EBITDA was 72.94 (margin 11.7%), supporting improved operational cash generation. Given limited end-market detail, sustainability of the margin uplift hinges on maintaining pricing and continued cost control amid raw material/energy volatility. Near-term growth outlook is cautious: weak balance sheet could constrain investment, while any macro softness in fiber/industrial materials demand may cap top-line growth. Watch for normalization after the extraordinary loss and for inventory management (inventories 335.80) to avoid margin pressure.

Financial Health

Liquidity is weak: current ratio 79.2% and quick ratio 52.5% (warnings). Working capital is negative at -260.80, highlighting short-term funding stress. Maturity mismatch risk is high: short-term loans are 383.19 versus long-term loans of only 4.87, while current liabilities (1,255.22) exceed current assets (994.42). Cash and deposits are 395.51, providing a buffer, but rollover risk remains material given the scale of near-term obligations. Solvency: total liabilities 1,408.62 vs equity 321.18 yields D/E of 4.39x (warning). Retained earnings are negative (-27.30), reducing shock absorption capacity. Interest coverage is 6.51x (operating income/interest), acceptable at current run-rate, but could deteriorate if operating momentum slows or rates rise. No explicit off-balance sheet obligations were reported; absence of data does not preclude leasing or guarantees.

Cash Flow Quality

OCF was 55.62 despite a net loss of -34.87, yielding OCF/NI of -1.60x, which flags an earnings quality concern based on the benchmark. The divergence is largely due to non-cash or non-recurring items (extraordinary losses) rather than weak operations; EBITDA coverage of interest and capex appears adequate this quarter. Capex was -11.35, implying an OCF-minus-capex proxy of about 44.27, suggesting capacity to self-fund maintenance capex. Investing CF was unreported, so true FCF (including asset sales/purchases) cannot be confirmed. Financing CF was a large inflow at 197.09, indicating heightened reliance on external funding (likely short-term debt), which reduces the sustainability of cash generation if not paired with durable operating cash flows. Working capital behavior cannot be fully assessed without itemized CF, but the high inventory level (335.80) warrants monitoring for potential cash release or future write-down risk.

Dividend Sustainability

Dividend data were unreported for the period. With net income negative and D/E at 4.39x, balance sheet repair likely takes precedence over shareholder returns. On a cash basis, OCF minus capex (~44.27) would theoretically support modest distributions, but given tight liquidity (current ratio 0.79) and heavy short-term debt, prudent capital allocation suggests conserving cash. Payout and FCF coverage ratios cannot be computed from disclosed data. Policy outlook likely cautious or suspended until profitability normalizes and leverage is reduced.

Risk Assessment

Business Risks:

• Extraordinary loss risk: large undisclosed special losses (~78.9) driving net loss
• Raw material and energy cost volatility impacting margins
• Demand softness in fibers/industrial materials end-markets (apparel, automotive, industrial)
• Pricing power and mix sustainability risk after rapid margin expansion
• Inventory valuation risk with inventories at 335.80

Financial Risks:

• Liquidity risk: current ratio 0.79 and quick ratio 0.53 with negative working capital
• Refinancing/rollover risk: short-term loans 383.19 vs long-term loans 4.87
• High leverage: D/E 4.39x magnifying earnings volatility
• Potential covenant pressure if losses persist
• Interest rate risk affecting interest coverage (currently 6.51x)

Key Concerns:

• Persistence and nature of the extraordinary losses between ordinary and pre-tax
• Negative retained earnings (-27.30) limiting balance sheet flexibility
• Reliance on financing CF (197.09 inflow) to support liquidity
• Limited disclosure on investing CF and dividend policy, hindering FCF assessment

Investment Implications

Key Takeaways:

• Core operating recovery evident: operating margin 9.1% vs ~3.6% prior (+545 bps)
• Net loss driven by sizable extraordinary items, not core operations
• Liquidity is stressed and leverage is high, elevating refinancing risk
• OCF positive and covers maintenance capex, but heavy financing inflows highlight funding dependence
• Balance sheet repair (retain cash, extend maturities) likely to dominate near-term strategy

Metrics to Watch:

• Disclosure and normalization of extraordinary losses
• Operating margin trajectory and SG&A discipline
• Current ratio and short-term debt rollover progress
• Inventory turnover and working capital release
• Interest coverage and average borrowing costs
• OCF minus capex (proxy FCF) sustainability over coming quarters

Relative Positioning: Within Japanese mid-cap industrial materials/textiles peers, Unitika’s operating margin this quarter is competitive, but its balance sheet leverage and near-term liquidity are weaker than typical peers with more balanced debt maturities. The company’s recovery narrative hinges on sustaining operating gains while resolving extraordinary loss sources and de-risking the capital structure.

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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