Mitsubishi Paper Mills Limited FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥79.02B
• Operating Income: ¥58M
• Net Income: ¥-239M
• 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

Mitsubishi Paper Mills (TSE:3864) reported FY2026 Q2 consolidated results under JGAAP showing significant top-line contraction and a swing to deeper bottom-line losses despite positive ordinary income. Revenue declined 10.6% year over year to ¥79.0 billion, reflecting soft demand and/or price pressure in core paper-related businesses. Gross profit is presented at ¥11.5 billion, implying a gross margin of 14.6%; however, the reported cost of sales line appears inconsistent with the gross profit figure, so we rely on the provided gross margin metric for analysis. Operating income fell 93.7% YoY to ¥58 million, indicating substantial compression of operating margin to approximately 0.07% and highlighting elevated fixed-cost absorption and/or higher SG&A burdens. Ordinary income improved to ¥362 million, suggesting positive non-operating contributions offsetting interest expense, but this was insufficient to prevent a net loss. Net income came in at a loss of ¥1.281 billion (EPS -¥29.22), a 19.4% YoY deterioration, pointing to continued structural profitability challenges. Interest expense was sizable at ¥485 million, and the interest coverage ratio was only 0.1x, underscoring financing cost pressure relative to reduced operating earnings. The DuPont framework yields a net margin of -1.62%, asset turnover of 0.390x, and financial leverage of 2.45x, resulting in a calculated ROE of -1.55%. Balance sheet scale remains large with total assets of ¥202.6 billion and equity of ¥82.7 billion; while the reported equity ratio is shown as 0.0% (likely unreported), the implied equity ratio based on available balances is approximately 40.8%. Liquidity is tight with a current ratio of 103% and quick ratio of 78.5%, and working capital is modest at ¥2.63 billion, increasing short-term refinancing and cash conversion risks. Inventory of ¥21.7 billion constitutes roughly 24% of current assets, indicating working capital tied up in stock amid softer sales. Cash flow statements are not disclosed in this dataset (items shown as zero were not reported), limiting direct assessment of operating cash generation and free cash flow. Dividend distributions are suspended (DPS ¥0) with a payout ratio of 0%, consistent with loss-making conditions and the need to preserve liquidity. Overall, the quarter reflects a sharp deterioration in operating profitability, heavy reliance on non-operating income to sustain ordinary profit, and a tightened liquidity position. Key watch points include pricing discipline in printing/specialty papers, cost pass-through for energy and materials, and working capital normalization to support cash conversion.

Profitability Analysis

ROE decomposition indicates weak underlying profitability: net margin -1.62% × asset turnover 0.390 × financial leverage 2.45 = ROE -1.55%. The negative net margin is the principal drag, as operating margin is approximately 0.07% (¥58m/¥79,023m) and far below normal cyclical mid-single-digit levels for the sector. Ordinary income at ¥362m implies net non-operating income of roughly ¥304m (ordinary ¥362m minus operating ¥58m), which, given interest expense of ¥485m, suggests other non-operating gains of around ¥789m; this reliance on non-operating items is not a durable earnings driver. The gross margin is indicated at 14.6%; the drop in operating margin despite a mid-teens gross margin points to elevated SG&A and/or manufacturing fixed costs that were not adequately leveraged on the lower revenue base. Operating leverage worked negatively this quarter: a 10.6% revenue decline produced a 93.7% fall in operating income, underscoring high fixed cost intensity. Interest coverage of ~0.1x (operating income/interest) signals earnings are insufficient to comfortably cover financing costs, adding sensitivity to any additional margin compression. Depreciation and amortization were not disclosed; absent this, EBITDA cannot be reliably assessed, but the combination of low operating profit and sizable interest burden indicates structurally thin cash earnings. Tax expense of ¥550m despite a net loss suggests non-deductible items or changes in valuation allowances, which further depress bottom-line profitability. Overall margin quality is weak, with a significant gap between gross and operating margins and meaningful dependence on non-operating gains to sustain ordinary income.

Growth Assessment

Revenue fell 10.6% YoY to ¥79.0b, implying both volume and/or price headwinds in core segments. Given industry trends in printing paper demand, the decline likely reflects structural pressures compounded by cyclical softness. The company’s gross margin at 14.6% indicates some price-cost spread, but the collapse in operating income suggests SG&A and fixed manufacturing costs could not be flexed adequately with lower volumes. Ordinary income remained positive due to non-operating support, which is not a reliable growth engine. Net income declined 19.4% YoY to a ¥1.281b loss, demonstrating deteriorating profit quality after financing and below-the-line items. With asset turnover at 0.390x, efficiency appears subdued, consistent with lower throughput on a large asset base. Near-term outlook hinges on pricing initiatives, product mix shift toward specialty/high-value papers, and cost rationalization, including energy and logistics. The margin trajectory will depend on the company’s ability to pass through input costs and reduce fixed cost intensity; without that, operating leverage will stay negative on declining sales. Non-operating contributions (e.g., subsidies, equity-method income, FX) supported ordinary income but should be treated as transient. Absent disclosed cash flows, we cannot validate whether inventory or receivables unwound to support sales or whether working capital built up, which affects the sustainability of any rebound. Overall, revenue sustainability remains challenged, with profit recovery contingent on structural cost actions and improved mix.

Financial Health

Liquidity is tight: current ratio 103% and quick ratio 78.5% signal limited cushion to meet short-term obligations without relying on inventory monetization or external funding. Working capital stands at ¥2.63b, modest relative to current liabilities of ¥88.9b, raising execution risk if sales weaken further. Total liabilities are ¥122.9b against equity of ¥82.7b, implying a debt-to-equity ratio of 1.49x; while the reported equity ratio is shown as 0.0% (unreported), the implied equity ratio based on balances is roughly 40.8%, indicating a meaningful but not overextended capital base. Interest expense of ¥485m versus operating income of ¥58m yields a very low interest coverage (~0.1x), leaving little room for earnings volatility before incurring financing strain. Asset intensity is high (total assets ¥202.6b), and asset turnover at 0.390x underscores efficiency headwinds that can weigh on returns and free cash flow. Cash and equivalents were not disclosed; thus, net debt and liquidity headroom cannot be quantified from this dataset. The balance sheet appears stable in aggregate size, but near-term solvency hinges on access to credit lines and successful working capital management.

Cash Flow Quality

Operating, investing, and financing cash flows were not disclosed in this dataset (zeros indicate unreported), preventing direct assessment of cash earnings, reinvestment, and funding flows. With net income at -¥1.281b and no OCF data, the OCF/Net Income ratio cannot be interpreted; the reported 0.00 should not be treated as actual. Free cash flow similarly cannot be computed. The gap between gross margin (14.6%) and near-breakeven operating margin suggests limited cash conversion from operations absent working capital release. Inventory of ¥21.7b is sizable; if inventory rose amid revenue contraction, operating cash flow would be pressured, but this cannot be confirmed. Interest expense at ¥485m is a hard cash outflow that likely consumed a large share of any operating cash generated. Depreciation/amortization were not disclosed, limiting our ability to separate non-cash charges from operating results. Overall, earnings quality appears weak given reliance on non-operating income and low operating margin, and cash conversion risk is elevated until working capital and cost structure improve.

Dividend Sustainability

The company declared no dividend (annual DPS ¥0), with a payout ratio of 0%. Given net losses and weak operating profitability, dividend restraint aligns with balance sheet preservation needs. Free cash flow coverage cannot be assessed due to undisclosed cash flows; the reported FCF and coverage of 0 should be treated as unreported rather than zero. With interest coverage at ~0.1x and tight liquidity (current ratio ~103%, quick ratio ~78.5%), maintaining cash is prudent. Future dividend resumption would likely require: (1) sustained positive operating margin, (2) demonstrated operating cash generation after working capital, and (3) visibility on reducing financing burden. Policy-wise, we would expect a conservative stance until profitability normalizes and leverage/coverage metrics improve.

Risk Assessment

Business Risks:

• Structural decline in printing paper demand weighing on volumes and pricing
• High fixed-cost base leading to negative operating leverage on revenue downdrafts
• Input cost volatility (energy, pulp, chemicals) challenging margin pass-through
• Product mix transition risk toward specialty/high-value papers
• Customer destocking and inventory normalization impacting near-term orders

Financial Risks:

• Weak interest coverage (~0.1x) amid sizeable interest expense (¥485m)
• Tight liquidity with current ratio ~103% and quick ratio ~78.5%
• Thin working capital buffer (¥2.63b) versus large current liabilities (¥88.9b)
• Potential dependence on non-operating gains to sustain ordinary income
• Limited visibility on cash flows due to undisclosed OCF/FCF

Key Concerns:

• Sustainability of gross margin (14.6%) translating into operating profit amid SG&A and fixed costs
• Ability to monetize inventory (¥21.7b) without incremental discounting
• Refinancing and covenant risk if earnings do not recover and rates remain elevated
• Tax expense (¥550m) despite net loss, which depresses bottom-line and may recur if driven by valuation allowances or non-deductibles

Investment Implications

Key Takeaways:

• Revenue down 10.6% YoY with operating income collapsing 93.7% to ¥58m; operating margin ~0.07%
• Net loss of ¥1.281b; calculated ROE -1.55% driven by -1.62% net margin
• Ordinary income positive at ¥362m due to non-operating gains offsetting ¥485m interest expense
• Liquidity tight: current ratio 103%, quick ratio 78.5%, working capital ¥2.63b
• Implied equity ratio ~40.8% despite reported value being undisclosed
• Cash flow data unreported; FCF assessment not possible from provided dataset

Metrics to Watch:

• Operating margin and SG&A ratio progression
• Interest coverage and trajectory of interest expense
• Working capital metrics: inventory days, receivables/payables turnover
• Non-operating income components and sustainability
• Price/mix versus input cost spread (gross margin stability)
• Disclosure and trend of operating cash flow and free cash flow

Relative Positioning: Within the Japanese paper and pulp sector, Mitsubishi Paper Mills exhibits weaker near-term operating leverage and interest coverage than would be comfortable, with asset intensity and subdued asset turnover constraining returns; recovery depends on cost rationalization and mix shift compared to peers focusing on specialty papers.

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