TOMOEGAWA CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥17.16B
• Operating Income: ¥955M
• Net Income: ¥693M
• EPS: ¥57.25

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: A mixed Q2 with resilient operating profit and strong cash conversion, but headline net income fell sharply and capital efficiency remains weak. Revenue was 171.61, down 0.4% YoY, showing top-line softness. Gross profit reached 42.67 with a 24.9% gross margin, indicating decent pricing and mix despite flat demand. Operating income rose 3.6% YoY to 9.55, with operating margin at 5.6%, implying margin expansion against a declining sales base. Based on estimated prior-period figures, operating margin expanded by roughly 22 bps YoY (from ~5.35% to ~5.57%). Ordinary income was 10.24 (+0.3% YoY), supported by net non-operating gains of 0.69 (non-op income 2.42 vs non-op expenses 1.73). However, net income declined 24.6% YoY to 5.72, as the step-down from profit before tax (8.85) to net reflects tax (1.91) and a notable share to non-controlling interests or similar items. Cash flow quality was strong with operating cash flow of 14.19, yielding an OCF/net income ratio of 2.48x. EBITDA was 18.45 (margin 10.8%), supporting an interest coverage ratio of 7.29x despite interest expense of 1.31. Liquidity is adequate with a current ratio of 118.1% and working capital of 33.95, though reliance on short-term loans (65.83) is noticeable relative to cash (49.03). Leverage is at the upper end of comfort (D/E 1.39x), and ROE of 2.8% remains subdued. ROIC is 2.7%, well below the 5% warning threshold, underscoring capital efficiency challenges. Non-operating income accounts for a sizable share of earnings (non-operating income ratio 42.3%), highlighting profit composition risk if these items normalize. Capex of 12.28 largely absorbed OCF, leaving a thin proxy FCF buffer for dividends and buybacks. Forward-looking, sustaining operating margin gains and lifting ROIC above the cost of capital will be key, alongside reducing reliance on short-term funding and non-operating contributions.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.8% = Net Profit Margin 3.3% × Asset Turnover 0.357 × Financial Leverage 2.39x. The main drag is profitability (NPM 3.3%) and efficiency (asset turnover 0.357), with leverage contributing but not enough to offset weak core returns. The most notable change this quarter versus revenue and operating income trends is a decline in bottom-line profitability, as net income fell 24.6% despite operating income rising 3.6%, implying a deterioration in NPM. Business drivers include higher below-OP items (e.g., the step-down from PBT to net, likely due to non-controlling interests and tax) and a heavier interest burden (1.31) that constrains net margin despite positive non-operating income (2.42). The operating margin improved modestly (~+22 bps YoY), suggesting some operating leverage or pricing/mix improvement even on slightly lower sales. Sustainability: the operating margin improvement appears achievable if pricing discipline and cost controls hold, but the low ROIC (2.7%) signals structural returns remain below target and not yet self-sustaining without further mix upgrades or asset pruning. Watch for SG&A discipline; while the aggregate SG&A of 33.12 is stable versus sales, any SG&A growth outpacing revenue would quickly erode thin margins.

Growth Assessment

Top-line growth was slightly negative (-0.4% YoY), indicating soft demand or price pressure in core end-markets. Operating profit grew 3.6% YoY to 9.55, implying efficiency gains or better product mix. Ordinary income was broadly flat (+0.3% YoY), reflecting a limited contribution from non-operating items net of expenses. Net income declined 24.6% YoY, signaling pressure below the operating line (tax, minority interests, and interest). Revenue sustainability looks challenged near-term absent volume recovery, given the weak asset turnover (0.357) and industry headwinds in functional materials and specialty paper markets. Profit quality is moderately mixed: operating margin expansion and strong OCF support quality, but high reliance on non-operating items (non-operating income ratio 42.3%) and low ROIC weigh on durability. Outlook hinges on continued cost pass-through, energy/input cost stability, and a shift toward higher-margin functional materials; without these, earnings growth may be constrained.

Financial Health

Liquidity is adequate: current ratio 118.1% and quick ratio 118.1% (note: inventories unreported, so the quick ratio may be overstated). No explicit warning threshold breach (CR is above 1.0), but it is below the >1.5 comfort benchmark. Working capital is 33.95, with current assets of 221.69 vs current liabilities of 187.74. Maturity mismatch risk exists: short-term loans of 65.83 exceed cash of 49.03, though accounts receivable of 63.79 provide additional coverage. Total liabilities are 279.37 vs total equity 201.19, yielding a D/E of 1.39x, at the high end of a conservative range. Long-term loans are 59.06, indicating a balanced but meaningful leverage profile. Interest coverage is healthy at 7.29x. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

OCF/Net Income is 2.48x, indicating strong cash earnings conversion. With capex of 12.28, proxy FCF (OCF minus capex) is about 1.91; however, total investing cash flows were unreported, so true FCF may differ. Financing CF was a net inflow of 0.60, and share repurchases totaled 1.93, roughly equivalent to the proxy FCF, implying dividends plus buybacks likely exceed underlying FCF and are partially supported by cash on hand or incremental financing. No clear signs of working capital manipulation can be identified due to missing inventory and other WC detail; nonetheless, the high OCF vs NI is a positive indicator of earnings quality.

Dividend Sustainability

The calculated payout ratio is 27.2%, comfortably below the 60% sustainability benchmark. Based on net income of 5.72 (≈¥5.72bn), this implies total dividends of roughly 1.56 (≈¥1.56bn) and an implied DPS near ¥15–16 given EPS of ¥57.25. Proxy FCF of approximately 1.91 covers this estimated dividend, but coverage becomes tight when including share repurchases of 1.93 in the period. With leverage at D/E 1.39x and ROIC at 2.7%, maintaining both dividends and buybacks at current levels may depend on sustained OCF and disciplined capex. Absent disclosed dividend policy updates, the current payout appears manageable, but incremental increases would require either stronger OCF or capex moderation.

Risk Assessment

Business Risks:

• Demand softness in core segments (functional paper/electronic materials) evidenced by -0.4% YoY revenue.
• Commodity and energy input cost volatility that could compress margins despite recent modest expansion.
• Product mix dependence with low ROIC (2.7%) indicating subpar structural returns.
• Profit composition reliance on non-operating income (non-operating income ratio 42.3%).
• Potential minority interest dilution between PBT and net income.

Financial Risks:

• Elevated leverage with D/E at 1.39x and Debt/EBITDA at ~6.8x.
• Short-term refinancing risk: short-term loans (65.83) exceed cash (49.03).
• Thin liquidity buffer with current ratio at 118.1% (below the 1.5x comfort level).
• Interest rate risk given meaningful interest expense (1.31) despite decent coverage.

Key Concerns:

• Capital efficiency below warning threshold (ROIC 2.7%).
• Net income decline of 24.6% YoY despite operating profit growth, indicating pressure below the operating line.
• Data gaps on inventories and detailed SG&A reduce visibility into margin durability and working capital trends.
• Potential over-reliance on buybacks alongside tight FCF.

Investment Implications

Key Takeaways:

• Operating margin expanded modestly (~+22 bps YoY) despite a slight revenue decline.
• Strong cash conversion (OCF/NI 2.48x) supports earnings quality.
• Headline net income fell 24.6% YoY due to below-OP headwinds and non-controlling interests/tax effects.
• Leverage is at the upper end of comfort (D/E 1.39x), with notable short-term funding reliance.
• ROIC at 2.7% flags structural return issues; portfolio/pricing actions likely needed.
• Proxy FCF roughly matched buybacks, leaving limited headroom for incremental shareholder returns.

Metrics to Watch:

• Operating margin trajectory and SG&A discipline relative to sales.
• ROIC improvement toward 5–8% through mix upgrades and asset efficiency.
• Share of non-operating income in ordinary profit.
• Short-term debt vs cash/AR coverage and refinancing profile.
• OCF/NI ratio and working capital days (especially inventories, once disclosed).
• Capex intensity vs growth and margin uplift.

Relative Positioning: Within Japan specialty materials/paper peers, profitability and ROIC remain below average despite acceptable liquidity and cash conversion; balance sheet leverage and dependence on non-operating items temper the otherwise stable operating performance.

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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