MATSUOKA CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥34.83B
• Operating Income: ¥973M
• Net Income: ¥1.24B
• EPS: ¥116.95

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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: A mixed FY2026 Q2—core operations were very weak, but strong non-operating gains lifted ordinary and net income into positive YoY growth. Revenue was 348.28 (100M JPY), down 1.2% YoY, indicating subdued demand or pricing pressure in the apparel OEM/end-market. Gross profit was 40.43 with an 11.6% gross margin, consistent with a low-margin OEM profile. Operating income was 9.73, collapsing 94.4% YoY, and the operating margin printed at roughly 2.8%, signaling sharp erosion in core profitability. Non-operating income surged to 18.29, far exceeding non-operating expenses of 2.58, and this swing drove ordinary income up 30.2% YoY to 25.44. Net income rose 16.4% YoY to 12.20 despite the operating shortfall, highlighting the outsized contribution of below-the-line items. Ordinary income margin is approximately 7.3%, which, based on the YoY ordinary income increase and broadly flat revenue, implies margin expansion by roughly 170–180 bps. Operating margin clearly compressed materially; however, precise bps quantification versus prior year is not reliable due to anomalous YoY data for operating profit. Earnings quality is weak: operating cash flow was only 4.78 versus net income of 12.20 (OCF/NI 0.39x), and implied free cash flow after capex was negative. Total comprehensive income was -16.78 due to significant OCI losses (likely currency translation), partially offsetting the net profit accretion to equity. Liquidity is solid with a current ratio of 202% and quick ratio of ~180%, and solvency is moderate with D/E at 0.86x and interest coverage at 6.66x. Capital efficiency is a key concern: ROE is 3.2% and ROIC is only 1.5%, well below a typical cost of capital. The profit mix is unfavorable, with a non-operating income ratio of ~150%, making results vulnerable to reversals in FX or valuation-related gains. The effective tax rate is elevated at 45.5%, likely reflecting geographic mix and deferred tax effects—another headwind to normalized earnings power. Forward-looking, recovery requires operating margin normalization; reliance on non-operating gains is not a durable strategy. Inventory and receivable levels look manageable relative to sales, but W/C movements weighed on cash conversion. With payout ratio calculated at 77.8%, dividend capacity appears tight against weak OCF, suggesting heightened sensitivity to operating recovery. The negative comprehensive income warns of potential equity erosion if currency headwinds persist.

Profitability Analysis

ROE decomposition: 3.2% ROE = 3.5% net profit margin × 0.490 asset turnover × 1.86x financial leverage. The largest swing factor this quarter is the net profit margin component—operating margin collapsed to ~2.8%, but outsized non-operating gains preserved net margin at 3.5% and allowed YoY growth in ordinary and net income. Business driver: core OEM operations faced margin pressure (likely from client pricing resets, cost inflation, and/or utilization inefficiencies), while below-the-line items (e.g., FX gains, valuation or other non-operating income) filled the gap. Sustainability: the improvement in ordinary and net income is not high quality; non-operating gains are volatile and non-recurring by nature, while the operating margin degradation appears structural near term unless cost pass-through or mix improves. Asset turnover at 0.49x is low for a manufacturing/OEM model, hinting at underutilized assets or elevated working capital relative to sales; improving throughput and W/C velocity is a lever but may be constrained by client demand. Leverage at 1.86x is moderate and not the main driver of ROE; with ROIC at 1.5%, incremental leverage would not be value accretive without operating recovery. Flagged trends: SG&A of 30.70 against gross profit of 40.43 leaves a slim operating income buffer; given revenue declined, fixed-cost absorption likely worsened. Also, ordinary income outpacing operating income is a red flag for profit quality and volatility.

Growth Assessment

Top-line declined 1.2% YoY to 348.28, suggesting soft orders or pricing in core apparel OEM. Operating income fell 94.4% YoY to 9.73, indicating severe operating deleverage and/or one-off costs. Ordinary income rose 30.2% YoY to 25.44 and net income rose 16.4% YoY to 12.20, but these were driven by non-operating gains (18.29) that exceeded operating profit. Gross margin at 11.6% is thin; without improved mix or procurement efficiency, sustained margin recovery is challenging. The ordinary income margin expanded to ~7.3% (approx. +175 bps YoY by estimation), while operating margin compressed significantly; this divergence is not a healthy growth pattern. EBITDA was 19.52 with an EBITDA margin of 5.6%, indicating limited room to absorb shocks. The effective tax rate of 45.5% curtails net income conversion and could normalize lower if geographic mix shifts favorably, but visibility is limited. Overall, revenue appears fragile and profit quality is weak, making the near-term outlook dependent on stabilizing core operations, controlling SG&A, and avoiding a reversal of non-operating gains.

Financial Health

Liquidity is strong: current ratio 202% and quick ratio ~180% reflect ample coverage of 239.70 in current liabilities by 484.30 in current assets. Cash and deposits of 183.42 plus receivables of 84.73 comfortably exceed short-term loans of 91.04, limiting near-term refinancing risk. Working capital stands at 244.60, and inventories of 52.98 appear manageable versus revenue scale. Solvency is moderate: D/E at 0.86x is within conservative bounds (<1.5x), and interest coverage at 6.66x indicates acceptable debt service capacity. Long-term loans are 54.02 versus total assets of 711.13, implying manageable long-term leverage. No explicit off-balance sheet obligations were reported in the provided data. Maturity mismatch risk is low given current assets substantially exceed current liabilities, though reliance on short-term borrowings remains notable.

Cash Flow Quality

OCF was 4.78 versus net income of 12.20, yielding OCF/NI of 0.39x—flagging poor earnings-to-cash conversion. With capex of 9.06, implied free cash flow is approximately -4.28 (OCF – capex), suggesting internal cash generation was insufficient to fund investment needs this period. Financing cash flow was -1.40, indicating net outflows (potential debt repayment or dividends), further highlighting reliance on cash reserves. The gap between NI and OCF likely reflects working capital absorption (receivables/inventories build or payables reduction) and/or non-cash gains within non-operating income. There are no clear signs of aggressive W/C manipulation from the limited snapshot, but the weak conversion warrants monitoring of DSO, DIO, and DPO trends in subsequent quarters. Sustained dividend and capex outlays would require either a rebound in OCF or use of the sizable cash balance.

Dividend Sustainability

The calculated payout ratio is 77.8%, which is high relative to a <60% sustainability benchmark and especially so given weak OCF (0.39x of NI) and negative implied FCF. Total dividends paid and DPS by quarter were unreported, limiting precision. With cash and deposits at 183.42, near-term funding is available, but maintaining a high payout absent an operating rebound would erode balance sheet flexibility. Given ROE at 3.2% and ROIC at 1.5%, returning cash at elevated payout levels is difficult to justify unless core profitability normalizes. Policy outlook likely skews to caution: steady or flexible dividends contingent on OCF recovery and capex cadence.

Risk Assessment

Business Risks:

• Core operating margin weakness amid client pricing pressure and cost inflation
• Order volatility in apparel OEM end-markets and seasonality
• Supply chain and labor cost pressures in production geographies
• Execution risk on SG&A control and factory utilization

Financial Risks:

• Earnings quality risk: non-operating income (~18.29) exceeding operating profit (9.73)
• Cash conversion risk: OCF/NI at 0.39x and negative implied FCF after capex
• High effective tax rate (45.5%) dampening net profitability
• Currency translation losses driving negative comprehensive income (-16.78)

Key Concerns:

• ROIC at 1.5% well below typical WACC, indicating value dilution risk
• Non-operating income ratio ~150% implies elevated P&L volatility if FX/valuation gains reverse
• Potential dividend strain if OCF does not improve
• Dependence on short-term loans (91.04) despite ample liquidity—exposure to rate/rollover conditions

Investment Implications

Key Takeaways:

• Headline profitability supported by non-operating gains; core operations notably weak
• Ordinary and net income improved YoY despite an operating income collapse
• Cash conversion is poor and free cash flow likely negative after capex
• Balance sheet liquidity is strong; solvency moderate, providing a buffer
• Capital efficiency is low (ROE 3.2%, ROIC 1.5%), requiring operational turnaround

Metrics to Watch:

• Operating margin trajectory and SG&A-to-sales ratio
• OCF/NI and free cash flow after capex
• Magnitude and drivers of non-operating income (FX, valuation, others)
• Working capital metrics (DSO, DIO, DPO) and cash conversion cycle
• OCI components affecting comprehensive income and equity
• ROIC versus management targets and cost of capital

Relative Positioning: Within Japan-listed apparel OEM/contract manufacturers, liquidity is comparatively strong, but profitability quality and capital efficiency lag peers that derive earnings primarily from operations rather than non-operating items.

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