Mitsubishi Paper Mills Limited FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥79.02B
• Operating Income: ¥58M
• Net Income: ¥-1.28B
• EPS: ¥-29.22

Income Statement

Balance Sheet

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: FY2026 Q2 was weak, marked by steep top-line contraction, a collapse in operating profitability, and a net loss driven by extraordinary items and an unusually adverse tax line. Revenue fell 10.6% YoY to 790.2, while operating income plunged 93.7% YoY to 0.6, implying a near-breakeven core business. Gross profit was 102.1 against SG&A of 101.5, leaving an operating margin of about 0.07%. Ordinary income remained positive at 3.6, supported by 8.35 in non-operating income (notably 3.28 of dividend income), but profit before tax swung to a loss of -6.6, indicating roughly -10.2 in extraordinary losses. The company recorded a net loss of -12.8 (down 19.4% YoY), with total comprehensive income at -18.5, underscoring broader equity valuation effects or OCI losses. Based on estimates, operating margin compressed by roughly 97 bps YoY (from ~1.04% to ~0.07%), and net margin deteriorated by about 41 bps to -1.6%. Interest coverage is a low 0.17x (OI 0.58 vs interest expense 3.45), highlighting pressure from finance costs. Liquidity is thin: current ratio is 101.6% and quick ratio 74.8%, indicating reliance on inventory and short-term funding (short-term loans 416.5). Leverage is elevated with D/E at 1.45x, and asset turnover is modest at 0.390, constraining ROE, which was -1.6% via DuPont. Earnings quality is not assessable this quarter due to unreported cash flow statements, but the divergence between ordinary income (+3.6) and net income (-12.8) suggests one-off charges and tax effects dominate. The effective tax rate appears distorted (-93.2%), consistent with losses and likely valuation allowance or extraordinary items. Forward-looking, the profit base needs margin repair (pricing, mix, cost pass-through) and debt service capacity needs improvement, particularly if energy and pulp costs or demand softness persist. Balance sheet flexibility is limited by significant short-term borrowings and small working capital buffer. Until operating margins normalize above interest costs and extraordinary losses abate, sustained profitability and dividend visibility remain challenged. Overall, near-term outlook hinges on cost control, price discipline, and stabilization of extraordinary factors.

Profitability Analysis

ROE decomposition (DuPont): ROE (-1.6%) = Net Profit Margin (-1.6%) × Asset Turnover (0.390) × Financial Leverage (2.45x). The dominant driver of the ROE decline is the net profit margin, which deteriorated with operating income collapsing to 0.58 and an estimated 97 bps YoY contraction in operating margin. Business drivers include revenue decline (-10.6% YoY) amid a cost structure where SG&A (101.5) nearly fully consumed gross profit (102.1), leaving negligible operating profit, plus extraordinary losses (~-10.2) that pushed PBT negative. Non-operating income (8.35) helped ordinary income, but interest expense (3.45) and extraordinary losses erased those gains at the bottom line. Asset turnover at 0.390 reflects subdued utilization of a 2,026 asset base after revenue contraction; leverage at 2.45x amplifies margin swings to equity but cannot offset negative margins. The margin deterioration appears cyclical/operational rather than purely one-time, though the extraordinary loss component is likely non-recurring. Sustainability: margin repair depends on effective price-cost management, product mix, and volume recovery; the extraordinary loss is likely one-time, but ongoing interest burden and weak operating leverage are structural headwinds. Flags: SG&A (101.5) grew as a share of sales due to revenue decline and limited cost flexibility; operating leverage is unfavorable with gross-to-SG&A spread only 0.6.

Growth Assessment

Revenue contracted 10.6% YoY to 790.2, indicating demand softness and/or price normalization after prior hikes. Profitability weakened sharply: operating income fell 93.7% YoY to 0.58, ordinary income declined 19.7% to 3.62, and net income was a deeper loss of -12.8. The growth mix is unfavorable, with non-operating income (dividends 3.28) propping up ordinary income while core operations are near breakeven. Extraordinary losses (~-10.2 by bridging ordinary income to PBT) drove the bottom line negative; absent these, underlying earnings would still be thin given a 0.07% operating margin and low interest coverage. Outlook: Near-term growth depends on stabilizing volumes in paper and related businesses, continued price retention versus input costs (pulp, energy), and lowering SG&A intensity. Without disclosure on capex, depreciation, or OCF, visibility into capacity changes and productivity initiatives is limited. Expect cautious guidance bias given weak margins and leverage constraints; any improvement likely back-half weighted, contingent on cost relief and mix upgrades.

Financial Health

Liquidity: Current ratio 101.6% is barely above the 1.0 threshold; quick ratio 74.8% is below 1.0, implying dependence on inventory conversion and external funding. Working capital is slim at 13.5, while short-term loans are high at 416.5 versus cash 81.6 and receivables 261.4, indicating a maturity mismatch risk. Solvency: D/E at 1.45x is at the upper bound of conservative, with total liabilities 1,199 vs equity 827; long-term loans are 204.5, and current liabilities 847.2 dominate the liability stack. Debt service risk: interest coverage is 0.17x on operating income, a clear warning; improvement requires either margin recovery or deleveraging. Off-balance sheet: No disclosures provided; cannot assess guarantees or lease obligations beyond balance sheet items. Explicit warnings: Current ratio is slightly >1.0 (borderline), D/E not >2.0 (no red flag on that metric), but debt service capacity is strained.

Cash Flow Quality

OCF, FCF, and working capital cash movements are unreported, preventing direct assessment of earnings-to-cash conversion (OCF/NI) or FCF coverage. Earnings quality signals are mixed: ordinary income is positive due to non-operating income, but net income is negative due to extraordinary losses and tax effects, implying bottom-line volatility. With interest expense at 3.45 exceeding operating profit capacity, internally generated cash is likely inadequate for debt service absent working capital releases or asset sales. FCF sustainability for dividends and capex cannot be determined, but given margin compression and leverage, caution is warranted. No evidence of working capital manipulation can be assessed due to lack of cash flow detail.

Dividend Sustainability

Dividend data are unreported; the calculated payout ratio of -52.4% is not meaningful under a net loss. With operating income near zero and interest coverage at 0.17x, internal coverage of shareholder returns is weak. FCF coverage cannot be calculated given missing OCF and capex. Policy outlook likely prioritizes balance sheet stabilization over distributions until profitability normalizes and cash generation improves. Any dividend resumption or maintenance would likely require clear evidence of positive OCF and improved operating margins above interest costs.

Risk Assessment

Business Risks:

• Demand decline and structural shift away from printing/writing paper weighing on volumes and pricing
• Input cost volatility (pulp, energy, chemicals) compressing margins if not passed through
• Operational fixed-cost rigidity leading to unfavorable operating leverage when sales fall
• Extraordinary loss risk from asset impairments, restructuring, or incident-related costs

Financial Risks:

• Debt service strain: interest coverage 0.17x and short-term loans 416.5 imply refinancing and rollover dependence
• Thin liquidity: quick ratio 0.75 and minimal working capital buffer heighten liquidity risk
• Leverage elevated at D/E 1.45x; limited headroom for adverse shocks
• Tax volatility: negative effective tax rate, potential valuation allowances affecting net income

Key Concerns:

• Operating margin at ~0.07% leaves little cushion against input or volume shocks
• Extraordinary losses (~-10.2) drove PBT negative; recurrence risk would prolong losses
• Reliance on non-operating income (dividends 3.28) to support ordinary income
• Limited disclosure on OCF and capex reduces visibility on sustainability and needed investments

Investment Implications

Key Takeaways:

• Core operations near breakeven with operating income 0.58 on 790.2 revenue
• Ordinary income positive (3.62) but net loss (-12.81) due to sizable extraordinary losses and adverse tax
• Interest coverage 0.17x and quick ratio 0.75 flag elevated liquidity and refinancing risk
• Estimated operating margin compressed ~97 bps YoY; SG&A nearly equals gross profit
• Leverage significant (D/E 1.45x) with short-term loans dominating the liability profile

Metrics to Watch:

• Operating margin recovery and gross-to-SG&A spread (gross profit vs SG&A)
• Cash flow from operations and free cash flow once disclosed
• Debt maturity profile and interest expense trend; interest coverage >2x as a milestone
• Extraordinary items recurrence and impairment/restructuring activity
• Working capital turnover (receivables, inventory) and short-term loan reliance

Relative Positioning: Within the Japanese paper and pulp space, the company currently sits on the weaker end of profitability and liquidity metrics, with lower operating margin resilience, higher short-term funding reliance, and greater sensitivity to input cost and demand swings relative to peers that have advanced portfolio shifts toward packaging, specialty papers, or energy-efficient operations.

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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