MITACHI CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥58.35B
• Operating Income: ¥1.57B
• Net Income: ¥1.24B
• EPS: ¥154.00

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: Strong top-line driven beat with modest margin expansion, but cash conversion and short-term funding structure are clear pressure points. Revenue surged 46.2% YoY to 583.5, lifting operating income 66.1% YoY to 15.7 and net income 70.8% YoY to 12.3. Operating margin improved to 2.7% from 2.4% (+33 bps), and net margin rose to 2.1% from 1.8% (+30 bps), reflecting scale benefits and positive net non-operating contributions. Gross margin held at 5.4%, indicating a predominantly pass-through business model with limited pricing power typical for electronics/component trading. Ordinary income climbed to 16.7, aided by net non-operating gains of 0.94, with interest income partly offsetting interest expense. The DuPont ROE is 7.3% (Net Margin 2.1% × Asset Turnover 1.389 × Leverage 2.51x), below the 8% threshold, highlighting profitability as the main constraint despite solid asset velocity. Earnings quality is weak this half: OCF of 4.82 covers only 39% of net income (0.39x), and cash conversion (OCF/EBITDA) is 0.29x, implying a significant working capital build (likely inventories) to support growth. Liquidity is mixed: current ratio is healthy at 161%, but the quick ratio is only 77%, and cash covers just 40% of short-term loans; all interest-bearing debt is short-term, elevating refinancing risk. Leverage measured by Debt/EBITDA is high at 7.2x despite very strong interest coverage (~28–29x) due to low absolute EBITDA margin. ROIC is 4.7%, below the 5% warning line, indicating limited value creation after tax at current margins. CapEx/Depreciation is 1.0x, suggesting maintenance-level reinvestment; accruals are low (1.8%), supporting the integrity of earnings despite weak cash conversion. Dividend policy appears conservative with a calculated payout ratio of ~39%, but near-term cash coverage is tight if working capital remains elevated. Forward-looking, normalization of inventories and receivables is critical to restore OCF, while sustaining higher run-rate sales should continue to provide modest operating leverage. Focus areas: working capital release, refinancing of short-term debt, and incremental margin improvement through mix, procurement, and value-added services.

Profitability Analysis

ROE decomposition (DuPont 3-factor): ROE 7.3% = Net Profit Margin 2.1% × Asset Turnover 1.389 × Financial Leverage 2.51x. DuPont 5-factor indicates Tax Burden 0.708, Interest Burden 1.102 (net non-op positive), and EBIT margin 2.7%. The component most constraining ROE is Net Profit Margin (2.1%), which remains below industry comfort levels; asset turnover is a relative strength for a trading-oriented model. Business driver: volume-led revenue expansion delivered operating leverage, modestly widening operating margin to 2.7% (+33 bps YoY), while net non-operating income (interest income exceeding expense plus other non-op gains) lifted EBT/EBIT above 1.0. Sustainability: scale benefits can persist if elevated sales are maintained, but margin gains are thin and vulnerable to mix/price pressure; the positive interest burden is unlikely to be a structural tailwind. Watch for SG&A discipline: SG&A was 15.88 (2.7% of sales), broadly in line with operating margin, implying tight overhead control; we lack prior-period SG&A detail to compare growth vs revenue, a data limitation. Overall, ROE improvement depends primarily on further operating margin enhancement and working capital efficiency (to prevent finance cost creep), not on higher leverage.

Growth Assessment

Revenue grew 46.2% YoY to 583.5, outpacing operating income growth of 66.1%, reflecting some operating leverage. Operating margin increased to 2.7% from 2.4% and net margin to 2.1% from 1.8%, confirming modest quality of growth. Growth appears volume-led in a low-margin distribution/trading model; gross margin at 5.4% suggests limited pricing power. Non-operating tailwinds contributed 0.94 to ordinary income (2.85 income vs 1.91 expense), but this is not a reliable growth engine. Sustainability hinges on demand durability in end-markets (likely electronics/industrial components), supply chain normalization, and inventory management to avoid further cash strain. Near-term outlook: if sales stabilize at the higher run-rate, incremental fixed-cost absorption could support low-single-digit margin expansion; however, any slowdown could quickly compress margins given thin gross margin. Key swing factors: procurement terms, product mix shift toward higher value-added items/services, and funding costs if refinancing spreads widen.

Financial Health

Liquidity: Current ratio 161.3% (healthy), but quick ratio 77.4% (below 1.0), indicating reliance on inventories (207.4) to meet short-term obligations. Cash and deposits of 48.2 cover only 40% of short-term loans (119.8), and all interest-bearing debt is short-term (short-term debt ratio 100%), elevating refinancing risk despite ample current assets. Solvency: D/E 1.51x (above conservative 1.0x but below 2.0x red line), Debt/Capital 41.7% (near the 40% investment-grade threshold), and interest coverage very strong at ~28–29x, mitigating immediate solvency concerns. Balance sheet composition: working capital-heavy with AR 129.9 and inventories 207.4 vs AP 108.2; maturity mismatch is moderate because current assets exceed current liabilities by 151.6, but cash liquidity is tight. No off-balance sheet obligations disclosed in the provided data. Explicit warnings: Quick ratio < 1.0 and Short-term debt ratio 100% require active liquidity management; D/E is not excessive but should not rise further while cash conversion is weak.

Cash Flow Quality

OCF/Net Income is 0.39x (<0.8), indicating weak earnings-to-cash conversion this period. Cash conversion (OCF/EBITDA) is 0.29x, pointing to significant working capital absorption, likely inventory build aligned with revenue growth. Accruals ratio is low at 1.8%, supporting accounting earnings quality despite cash shortfall. CapEx/Depreciation is 1.0x, consistent with maintenance spend; CapEx of 0.90 is modest relative to OCF, but OCF is largely absorbed by working capital. Free cash flow cannot be precisely calculated due to unreported investing CF, but OCF (~4.82) minus CapEx (~0.90) implies pre-investment FCF of ~3.92 if no additional investments, which is tight against prospective dividends and debt service. No clear signs of working capital manipulation, but the scale of inventory vs payables suggests genuine operating investment to support growth; normalization should improve OCF in subsequent periods if sales remain strong.

Dividend Sustainability

The declared DPS totals 60 JPY (25 interim, 35 year-end), implying a payout ratio of ~39% versus EPS of 154 JPY, within a conservative range. On a cash basis, the implied annual dividend outlay is roughly 4.8 (100M JPY equivalent), close to the period OCF of 4.82; including CapEx (0.90) suggests limited headroom unless working capital releases in H2. With ROE at 7.3% and ROIC at 4.7%, capital efficiency is modest; however, the payout level is not aggressive and should be sustainable if OCF normalizes and refinancing remains available. Key caveat: cash coverage is tight due to weak conversion and high short-term debt reliance; management may prioritize liquidity over incremental shareholder returns near term.

Risk Assessment

Business Risks:

• Thin margin model (gross margin 5.4%, operating margin 2.7%) leaves earnings highly sensitive to price/mix and volume fluctuations.
• Inventory risk: elevated inventories (207.4) increase obsolescence and markdown risk if demand softens.
• Customer concentration or cyclical end-markets (typical in electronics/components distribution) could amplify volatility (data on concentration not disclosed).
• Supply chain and procurement term shifts could compress gross margin given limited pricing power.

Financial Risks:

• Refinancing risk: 100% of interest-bearing debt is short-term (119.8) with cash/short-term debt at 0.40x, exposing the company to rollover and spread risk.
• Leverage risk: Debt/EBITDA 7.2x is high for distributers, though interest coverage is strong; a downturn in EBITDA would quickly deteriorate leverage metrics.
• Liquidity tightness: quick ratio 0.77x and weak cash conversion (OCF/EBITDA 0.29x) constrain financial flexibility.
• ROIC 4.7% below cost of capital proxy suggests limited value creation; prolonged sub-5% ROIC could pressure valuation and investment capacity.

Key Concerns:

• ⚠️ EARNINGS_QUALITY — Root Cause: OCF/Net Income at 0.39 indicates significant working capital build depressing cash. Context: Below the 0.8 benchmark and weaker than typical for mature distributors during steady-state. Impact: Raises uncertainty around cash availability for dividends and debt service without working capital normalization.
• ⚠️ LOW_CASH_CONVERSION — Root Cause: OCF/EBITDA at 0.29 reflects low cash realization from operations. Context: Well below the 0.7 benchmark; likely due to rapid sales growth requiring inventory/receivable funding. Impact: Increases reliance on short-term borrowing and heightens liquidity risk.
• ⚠️ LOW_OPERATING_EFFICIENCY — Root Cause: EBIT margin at 2.7% (<5%) evidences thin operating efficiency. Context: Common in trading/distribution, but still below comfort; leaves little buffer against shocks. Impact: Constrains ROE/ROIC improvement and magnifies earnings volatility.
• ⚠️ HIGH_LEVERAGE — Root Cause: Debt/EBITDA of 7.2x indicates high leverage on an earnings basis. Context: Above the 4.0x high-yield threshold; partially mitigated by strong interest coverage (~28–29x). Impact: Elevates downside risk if EBITDA softens; may limit borrowing headroom.
• ⚠️ REFINANCING_RISK — Root Cause: 100% short-term debt composition. Context: Atypically high; distributors often have sizable short-term lines, but full short-term concentration is aggressive. Impact: Exposure to rollover risk and rate hikes; could force working capital reduction or asset sales if markets tighten.
• ⚠️ LIQUIDITY_STRESS — Root Cause: Cash/short-term debt at 0.40x. Context: Below 0.5 benchmark; quick ratio also sub-1.0. Impact: Tight day-to-day liquidity, increasing dependence on bank lines and covenants.
• ⚠️ CAPITAL_EFFICIENCY — Root Cause: ROIC 4.7% (<5%). Context: Below industry cost of capital proxies; prior trends unreported. Impact: Limits long-term value creation; necessitates margin and/or asset efficiency improvements.

Investment Implications

Key Takeaways:

• Top-line strength (+46% YoY) translated into modest margin expansion and strong YoY profit growth.
• ROE at 7.3% and ROIC at 4.7% point to profitability/efficiency constraints as the core thesis challenge.
• Earnings-to-cash conversion is weak due to working capital build; liquidity relies on short-term facilities.
• Leverage optics (Debt/EBITDA 7.2x) are stretched for the margin profile, although interest coverage is currently strong.
• Dividend payout (~39%) is conservative, but cash coverage is tight unless OCF improves in H2.

Metrics to Watch:

• Working capital days (DSO, DIO, DPO) and inventory levels for signs of normalization.
• Operating margin trajectory vs 3% threshold; gross margin stability.
• OCF/Net Income and OCF/EBITDA recovery to >0.8 and >0.7 respectively.
• Debt mix and maturity profile; progress on terming out short-term loans.
• ROIC improvement toward >5% near term and >7% medium term.

Relative Positioning: Within electronics/component trading peers, the company shows above-peer revenue growth and strong interest coverage but lags on cash conversion and capital efficiency; short-term debt concentration is higher than typical, placing it in a weaker liquidity posture despite adequate current assets.

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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