UNITIKA LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥62.15B
• Operating Income: ¥5.64B
• Net Income: ¥-9.97B
• 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

Unichika (31030) delivered a mixed FY2026 Q2 result: modest topline growth but a substantial rebound in operating profitability, offset by large extraordinary losses that pushed the company into a net loss. Revenue increased 1.0% YoY to ¥62.1bn, indicating stable but subdued demand conditions. Gross profit reached ¥12.3bn with a gross margin of 19.8%, reflecting improved cost pass-through and/or product mix versus the prior year. Operating income surged 152.7% YoY to ¥5.64bn, lifting the operating margin to approximately 9.1%, a notable recovery from weak prior-year levels. Ordinary income was ¥4.83bn, suggesting non-operating items (e.g., interest and other financial/operating-related income/expenses) modestly weighed on operating results. Despite these improvements, net income was a loss of ¥3.49bn (EPS -¥60.49), indicating significant below-the-line charges. Based on reconciliation, extraordinary losses are estimated at roughly ¥7.9bn (difference between ordinary income and pre-tax income implied by reported tax expense and net loss), likely stemming from impairment, restructuring, or other one-off factors under JGAAP. Operating cash flow was solid at ¥4.91bn, outpacing accounting profit and pointing to reasonable cash earnings and working-capital discipline in the period. Liquidity remains tight: current ratio is 64.8% and quick ratio 35.4%, with negative working capital of ¥40.9bn, implying reliance on short-term funding. Leverage is elevated: total liabilities of ¥133.2bn against equity of ¥32.1bn, yielding a debt-to-equity ratio of 4.15x and financial leverage of 5.39x. Interest coverage on an EBIT basis is 8.8x, supported by the stronger operating profit, though interest expense of ¥641m remains a meaningful fixed burden. The reported equity ratio is shown as 0.0% (unreported), but balance sheet data imply an equity ratio around 18.6% (equity/total assets). Dividend payments are suspended (DPS ¥0.00), consistent with loss-making bottom-line results and a balance sheet focused on deleveraging and liquidity preservation. Cash and equivalents and investing cash flow are shown as zero due to non-disclosure; as such, free cash flow and capex cannot be robustly assessed from the provided data. Overall, core profitability is improving, but balance sheet constraints and extraordinary losses are key overhangs. Near-term priorities likely include stabilizing cash flow, managing inventories and payables to improve liquidity, and addressing sources of extraordinary losses to restore net profitability.

Profitability Analysis

ROE decomposes to a net profit margin of -5.61%, asset turnover of 0.359x, and financial leverage of 5.39x, yielding a calculated ROE of -10.86%. The negative margin is the primary drag, as operating and ordinary levels are profitable but extraordinary losses overwhelm net results. Operating margin is approximately 9.1% (¥5.64bn/¥62.15bn), evidencing a significant YoY recovery and improved operating leverage versus the prior period. Gross margin of 19.8% supports the view that pricing/mix and cost discipline improved, with SG&A absorption likely aiding operating leverage. EBITDA is ¥8.38bn (13.5% margin), indicating healthy cash operating profitability in the core business. Ordinary margin is about 7.8%, showing some non-operating pressure (notably interest expense of ¥641m). The swing to net loss is best explained by estimated extraordinary losses of roughly ¥7.9bn, which are non-recurring by nature but materially distort reported ROE and net margin. Absent these one-offs, underlying profitability looks compatible with mid-to-high single digit operating margins. Sustainability will hinge on maintaining gross margin gains and managing input costs and energy prices.

Growth Assessment

Revenue grew 1.0% YoY, which suggests stable but modest end-market demand or pricing improvement without significant volume growth. The 152.7% YoY increase in operating income reflects strong margin recovery, potentially from mix optimization, cost reductions, and easing raw material pressures. Ordinary income remained positive, though the gap to operating income reflects the cost of carry (interest) and other non-operating items. The net loss is driven by extraordinary charges; if these are non-repeatable, headline growth in profits could resume once they roll off. Near-term revenue sustainability appears moderate; inventory levels of ¥34.2bn (over half of quarterly revenue) highlight the importance of disciplined sell-through and demand visibility. Profit quality at the operating level is improving, evidenced by solid EBITDA and EBIT margins, but bottom-line visibility is clouded by special losses. Outlook depends on continued cost normalization, pricing discipline, and avoidance of additional extraordinary items. Given the small revenue delta and large profit swing, incremental growth should focus on margin management rather than volume expansion in the near term. Risks to the trajectory include input cost volatility, demand softness in textiles/materials, and FX sensitivity for imported raw materials and energy.

Financial Health

Total assets are ¥173.0bn, with equity of ¥32.1bn and liabilities of ¥133.2bn, implying an equity ratio near 18.6% (reported as 0.0% due to non-disclosure). Leverage is high: debt-to-equity is 4.15x and financial leverage 5.39x, elevating sensitivity to earnings volatility. Liquidity is tight: current assets ¥75.3bn vs current liabilities ¥116.2bn yields a current ratio of 64.8% and working capital of -¥40.9bn. Quick ratio is 35.4%, indicating dependence on inventory monetization and short-term financing. Interest expense of ¥641m is manageable against EBIT (coverage 8.8x) in the current half, but sustained coverage depends on maintaining operating earnings. The liability structure appears short-term heavy (current liabilities comprise ~87% of total liabilities), which heightens refinancing and rollover risk. Inventories at ¥34.2bn are significant and a key lever for cash generation if managed down. Overall solvency is acceptable but with limited cushion; any renewed earnings weakness or further extraordinary losses would pressure equity.

Cash Flow Quality

Operating cash flow of ¥4.91bn is strong relative to a net loss of ¥3.49bn, giving an OCF/Net Income ratio of -1.41 (positive OCF against negative NI). This indicates cash earnings resilience and likely benefits from non-cash charges (e.g., D&A of ¥2.74bn) and/or working capital inflows. EBITDA of ¥8.38bn corroborates healthy core cash generation capacity. Investing cash flow is shown as zero (not disclosed), so actual capex and free cash flow cannot be reliably determined; reported FCF is therefore not analyzable from the provided data. Financing cash flow of -¥218m suggests modest net repayments, consistent with a deleveraging stance or scheduled amortization; dividends appear suspended. Working capital remains a focus area: inventories are large and current liabilities exceed current assets, implying that payables and short-term borrowings are material cash sources. Sustaining positive OCF will require careful alignment of inventory and receivables with sales, alongside cost control.

Dividend Sustainability

Annual DPS is ¥0.00 and payout ratio is 0.0%, consistent with a period of balance sheet protection and loss-making bottom line. With net income negative and large extraordinary losses, earnings-based coverage for dividends is not present. OCF is positive, but with investing cash flows undisclosed, free cash flow coverage cannot be assessed (reported FCF coverage 0.00x reflects data limitations rather than true capacity). Given elevated leverage (D/E 4.15x) and tight liquidity (current ratio 64.8%), preserving cash is prudent. Any future resumption of dividends would likely require (1) normalization of bottom-line profitability, (2) visibility on recurring FCF after capex, and (3) progress in deleveraging. Policy-wise, the near-term stance appears conservative, prioritizing financial stability over shareholder returns.

Risk Assessment

Business Risks:

• Demand cyclicality in textiles/materials and industrial applications affecting volumes and pricing
• Raw material and energy cost volatility impacting gross margin
• Inventory risk given high inventory balance relative to sales
• FX exposure on imported inputs and energy
• Execution risk in cost reduction and product mix optimization
• Potential for further extraordinary losses (impairments/restructuring) if market conditions deteriorate

Financial Risks:

• Tight liquidity (current ratio 64.8%, quick ratio 35.4%) and negative working capital
• High leverage (debt-to-equity 4.15x; financial leverage 5.39x)
• Short-term funding concentration with refinancing/rollover risk
• Interest rate risk given meaningful interest expense (¥641m)
• Limited equity buffer (equity ~18.6% of assets) reducing shock absorption

Key Concerns:

• Large extraordinary losses estimated at ~¥7.9bn driving net loss despite strong operating profit
• Persistent negative working capital requiring continuous access to short-term funding
• Unreported cash and investing cash flow data constraining visibility on FCF and capex needs

Investment Implications

Key Takeaways:

• Core operations improved materially: operating margin ~9.1% and EBITDA margin 13.5%
• Net loss driven by sizable extraordinary losses; underlying earnings are stronger than reported bottom line
• Liquidity remains tight and leverage high, elevating refinancing sensitivity
• Positive OCF supports near-term funding, but capex/FCF visibility is limited due to undisclosed investing cash flows
• Dividend suspension aligns with balance sheet preservation priorities

Metrics to Watch:

• Magnitude and recurrence of extraordinary gains/losses
• Operating margin sustainability and gross margin trajectory
• Working capital trends (inventories, receivables, payables) and OCF conversion
• Interest coverage and debt maturity profile
• Capex levels and resulting true free cash flow once disclosed
• Equity ratio and net debt/EBITDA (when data become available)

Relative Positioning: Relative to domestic peers in fibers/materials, Unichika shows stronger near-term operating recovery but weaker bottom-line stability given extraordinary losses and more constrained liquidity; leverage is higher than typical mid-cap peers, making cash flow discipline and balance sheet repair more urgent.

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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