ASHIMORI INDUSTRY CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥33.74B
• Operating Income: ¥1.20B
• Net Income: ¥804M
• EPS: ¥133.60

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: Soft quarter with margin compression and weak cash conversion; headline net profit rose YoY on a low prior-year base and tax effects, but core profitability and ROIC remain subdued. Revenue declined 2.3% YoY to 337.41, while operating income fell 43.5% YoY to 12.01, taking the operating margin down to 3.6%. Gross profit was 49.30, implying a gross margin of 14.6% against cost pressures and/or weaker mix. Ordinary income was 14.00 (-19.9% YoY), but profit before tax was 8.78, suggesting extraordinary losses reduced earnings below ordinary income. Net income, however, increased 192.3% YoY to 8.04 (EPS 133.60 yen), supported by a low effective tax rate of 8.3% and a depressed prior-year base. We estimate operating margin compressed by about 260 bps YoY (from ~6.2% to 3.6%), and ordinary margin compressed ~91 bps (from ~5.1% to 4.2%). Net margin expanded by ~158 bps YoY (from ~0.8% to 2.4%) due to the prior-year drag and this year’s low taxes. Operating cash flow was negative at -1.65, diverging sharply from net income (OCF/NI -0.21x), indicating earnings quality concerns from working capital or accruals. Capex was heavy at 20.96, and financing cash inflow of 21.21 suggests debt-funded investment amid weak internally generated cash. Balance sheet liquidity is adequate (current ratio 151%, quick ratio 140%), but short-term loans of 73.04 create some refinancing dependence. Leverage looks moderate by liabilities-to-equity (reported D/E 1.18x), with loans totaling 113.15 against equity of 248.56. DuPont ROE is low at 3.2% (NPM 2.4% × ATO 0.623 × leverage 2.18x), and ROIC is 3.7%, both below cost-of-capital proxies and sector norms. Non-operating income of 4.26 helped support ordinary results; reliance on non-operating items (non-operating income ratio 53.0%) is notable. Dividend payout ratio is calculated at 75.3%, implying low buffer given negative OCF and sizable capex. Forward-looking, margin recovery will depend on easing input costs, price pass-through to OEM customers, and normalization of working capital; without improvement in OCF and ROIC toward >5%, capital efficiency remains a concern. Near term, we watch if inventory/receivables normalization restores cash conversion and if extraordinary items abate to align PBT with ordinary income.

Profitability Analysis

ROE decomposition: ROE 3.2% = Net Profit Margin 2.4% × Asset Turnover 0.623 × Financial Leverage 2.18x. The most significant driver of the YoY shift is margin compression at the operating level: operating margin fell from an estimated ~6.16% in the prior year to 3.56% this year (~260 bps compression), far outpacing the modest 2.3% revenue decline. Business context: weaker OEM volumes/mix and cost inflation likely pressured gross margin (14.6%), while SG&A of 37.29 did not fall commensurately with sales; salaries and allowances were 9.86, indicating fixed cost stickiness. Ordinary income declined less than operating income (-19.9% vs -43.5%) due to higher non-operating income (4.26), but extraordinary losses reduced PBT to 8.78. Sustainability: the operating margin pressure appears cyclical (input costs, pricing lag) and could recover with improved pass-through and mix; the low effective tax rate (8.3%) and non-operating support are less reliable as sustainable drivers. Warning signs: SG&A efficiency deteriorated as revenue fell faster than SG&A reduction, indicating negative operating leverage; also, non-operating reliance is elevated relative to thin operating profitability.

Growth Assessment

Top line contracted 2.3% YoY to 337.41, implying softer demand or pricing in key auto safety and industrial textile lines. Operating profit dropped 43.5% YoY to 12.01, showing significant negative operating leverage. Ordinary income fell 19.9% to 14.00, cushioned by non-operating income of 4.26 (dividends and interest totaled 0.40; other non-op contributors unspecified). Net income rose 192.3% to 8.04 due to a very low prior-year base and a low tax burden (8.3%), not due to underlying margin improvement. EBITDA was 19.94 (margin 5.9%), underscoring tight profitability. With ROIC at 3.7% (<5% benchmark), current growth investments are not yet earning sufficient returns. Near-term outlook hinges on cost pass-through to OEMs, stabilization of raw materials, and utilization recovery; without these, revenue and profit growth may remain constrained. We see limited evidence of sustainable profit growth until the operating margin normalizes toward historical mid-single-digit levels and cash conversion improves.

Financial Health

Liquidity is adequate: current ratio 151.1% and quick ratio 139.8% both exceed benchmarks. No warning on current ratio (<1.0) or excessive leverage (reported D/E 1.18x) based on provided metrics. Short-term loans of 73.04 versus cash of 60.86 and strong receivables (121.59) suggest manageable, but present, refinancing/maturity mismatch risk if cash conversion remains weak. Total liabilities are 292.67 against equity of 248.56; loans total 113.15 (short + long term), implying modest financial risk if earnings stabilize. Working capital is positive at 116.75; accounts payable 59.40 vs accounts receivable 121.59 indicates reliance on timely collections. No explicit off-balance sheet obligations disclosed in the provided data.

Cash Flow Quality

OCF was -1.65 vs net income 8.04, yielding OCF/NI of -0.21x, which flags poor earnings quality for the period. With capex at 20.96, estimated free cash flow is about -22.61, implying external funding (financing CF +21.21) was required to support investment. The divergence likely stems from working capital build (e.g., higher receivables or lower payables) or accrual timing; inventory appears moderate at 25.79 but receivables at 121.59 are large relative to payables at 59.40, making collections cadence critical. We do not see signs of aggressive working capital improvement; rather, cash conversion deteriorated despite reported profits. Sustained dividends and capex at this cash conversion level are not supported by internal cash generation.

Dividend Sustainability

The calculated payout ratio is 75.3%, above the <60% comfort threshold. With OCF negative (-1.65) and estimated FCF around -22.61, dividends are not covered by free cash flow this period. Financing inflows of 21.21 suggest reliance on debt to fund both investment and shareholder returns. Unless OCF normalizes and capex moderates or earns higher returns, payout flexibility will be constrained. Policy outlook is unclear from the data; absent explicit guidance, we assume management may prioritize balance sheet stability over aggressive distributions if weak cash conversion persists.

Risk Assessment

Business Risks:

• Automotive OEM demand volatility impacting volumes and mix
• Input cost inflation and pricing lag pressuring gross margin (14.6%)
• Customer concentration typical of auto suppliers, creating pricing pressure
• Execution risk on capex (20.96) with ROIC at 3.7% below hurdle
• Potential extraordinary items affecting PBT (ordinary 14.00 vs PBT 8.78 suggests non-recurring losses)

Financial Risks:

• Weak cash conversion (OCF/NI -0.21x) leading to external funding needs
• Short-term debt reliance (73.04) vs soft OCF increases refinancing risk
• Dividend coverage shortfall at a 75.3% payout amid negative FCF
• Sensitivity to interest rate movements despite healthy interest coverage (16.23x)

Key Concerns:

• Sustained operating margin compression (~260 bps YoY) with limited visibility on recovery
• Reliance on non-operating income (4.26) to support ordinary profit
• Low effective tax rate (8.3%) boosting net profit; not structural
• ROE 3.2% and ROIC 3.7% below acceptable thresholds, implying capital efficiency issues

Investment Implications

Key Takeaways:

• Core earnings under pressure: operating margin down to 3.6% on a 2.3% revenue decline
• Headline NI up +192% YoY driven by low taxes/one-offs rather than core profit strength
• Cash generation weak (OCF -1.65) and FCF likely negative (~-22.6) amid high capex
• Balance sheet liquidity acceptable, but short-term loans (73.0) add rollover risk if OCF stays weak
• Capital efficiency subpar: ROE 3.2%, ROIC 3.7% below cost-of-capital proxies

Metrics to Watch:

• Operating margin trajectory and gross margin recovery from 14.6%
• OCF/Net income conversion improving toward >1.0x
• Working capital trends (receivables days vs payables days) and inventory turns
• Capex-to-sales and post-investment returns (ROIC moving >5%)
• Extraordinary items bridging ordinary income to PBT and normalized tax rate

Relative Positioning: Versus Japan auto parts peers, profitability and returns are currently below average (ROE/ROIC), with adequate liquidity but weaker cash conversion; recovery hinges on margin normalization and working capital discipline.

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
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis