TOMOEGAWA CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥17.16B
• Operating Income: ¥955M
• Net Income: ¥899M
• 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

For FY2026 Q2 (consolidated, JGAAP), Tomoegawa Corporation reported revenue of ¥17,161 million, a slight decline of 0.4% YoY, indicating broadly stable topline conditions amid a soft demand backdrop. Gross profit was ¥4,116 million, translating to a gross margin of 24.0%, which is reasonable for a specialty materials/paper-adjacent mix, though not high by advanced materials standards. Operating income rose 3.6% YoY to ¥955 million, implying some operating margin improvement despite flat-to-down revenue, likely driven by cost control, product mix optimization, or pricing actions. Ordinary income reached ¥1,024 million, and net income came in at ¥572 million, down 24.6% YoY, suggesting non-operating items, below-the-line effects, or tax timing factors weighed on bottom-line comparability. The DuPont ROE is 2.84% (net margin 3.33%, asset turnover 0.357x, financial leverage 2.39x), an uninspiring level that underscores modest profitability and balance-sheet-driven returns rather than high operating efficiency. EBITDA was ¥1,811 million, implying an EBITDA margin of 10.6%, adequate but leaving limited cushion should input costs rise or volumes soften. Interest coverage (EBIT/interest) stands at 8.8x, signaling healthy debt service capacity at present earnings. Cash flow quality is weak this half: operating cash flow (OCF) was ¥160 million versus net income of ¥572 million (OCF/NI of 0.28), indicating working capital consumption or timing effects more than offsetting non-cash add-backs (depreciation/amortization of ¥856 million). Liquidity looks serviceable with a current ratio of 118.9% and working capital of ¥3,442 million, though the quick ratio equals the current ratio because inventories are unreported in the dataset. From the balance sheet, total equity is ¥20,119 million against total assets of ¥48,057 million, implying an equity ratio of approximately 41.9% even though the disclosed metric is shown as 0% (undisclosed), a solid capitalization level. Financing cash flow was an outflow of ¥400 million, likely reflecting net debt repayment in the absence of cash dividend payments. The company paid no dividends (DPS ¥0.00), producing a 0.0% payout ratio; given weak OCF and unreported capex, a conservative stance on distributions appears consistent with balance-sheet preservation. Reported free cash flow is 0 due to undisclosed investing cash flows; thus true FCF cannot be determined from the provided data. Overall, the period shows margin discipline at the operating level, but weaker earnings quality given the OCF shortfall and a softer bottom line YoY. The capital structure appears moderate with debt-to-equity of 1.32x and comfortable interest coverage, mitigating near-term solvency concerns. Data gaps (inventories, cash and equivalents, equity ratio, investing CF, shares) limit depth of analysis and require caution in interpreting liquidity and FCF. Near-term outlook hinges on sustaining pricing/mix gains, normalizing working capital, and managing energy and material costs.

Profitability Analysis

ROE_decomposition: ROE 2.84% = Net profit margin 3.33% × Asset turnover 0.357 × Financial leverage 2.39. The low ROE is primarily constrained by modest margins and slow asset turnover; leverage contributes but does not offset operating intensity. margin_quality: Gross margin 24.0% and EBITDA margin 10.6% indicate reasonable cost pass-through but limited structural profitability. Operating income grew 3.6% YoY on a 0.4% revenue decline, implying margin expansion via cost control or improved mix. Net income fell 24.6% YoY, signaling weaker below-the-line items (non-operating or tax effects) that dilute overall margin quality. operating_leverage: Positive operating leverage is evident (OP up with flat-to-down sales), but the magnitude is modest. D&A of ¥856 million versus EBIT of ¥955 million indicates a relatively capital-intensive base, which can dampen incremental margin expansion when volumes are subdued.

Growth Assessment

revenue_sustainability: Revenue decreased slightly by 0.4% YoY to ¥17,161 million, suggesting stable but not expanding end-market demand. Absent volume detail, growth appears driven more by pricing/mix than unit growth. profit_quality: Operating income grew 3.6% YoY, but net income declined 24.6% YoY, pointing to non-operating drags (e.g., interest, FX, equity method, or one-offs) or tax/timing effects. OCF/NI at 0.28 implies earnings are not well-supported by cash this period due to working capital consumption. outlook: Near-term outlook will depend on sustaining pricing discipline, normalizing working capital, and input cost trends (energy/chemicals). With asset turnover at 0.357x and ROE at 2.84%, structural growth and efficiency improvements are needed to lift returns; execution on higher-value product mix could help.

Financial Health

liquidity: Current assets ¥21,639 million vs current liabilities ¥18,197 million yields a current ratio of 118.9% and working capital of ¥3,442 million. The quick ratio equals the current ratio due to inventories being undisclosed; true quick liquidity may be lower. Cash and equivalents are undisclosed. solvency: Total equity ¥20,119 million vs total assets ¥48,057 million implies an equity ratio of ~41.9% (despite the reported 0% field). Debt-to-equity is 1.32x and interest coverage is 8.8x, indicating manageable leverage and comfortable debt service capacity. capital_structure: Leverage (financial leverage 2.39x in DuPont) supports ROE but is not excessive given the implied equity buffer. Financing CF of -¥400 million suggests net repayments, which, alongside no dividends, indicates a conservative capital allocation posture.

Cash Flow Quality

earnings_quality: OCF of ¥160 million vs net income of ¥572 million (OCF/NI 0.28) signals weak cash conversion this half, likely from working capital build or timing effects. This is notable given D&A of ¥856 million, which should ordinarily bolster OCF. FCF_analysis: Free cash flow is reported as 0 due to undisclosed investing cash flows (investing CF shown as 0 = unreported). Without capex data, true FCF cannot be assessed; however, low OCF suggests limited capacity for discretionary outlays absent working capital normalization. working_capital: Working capital is ¥3,442 million, but with inventories undisclosed, the composition is unclear. The OCF shortfall implies an increase in receivables and/or a reduction in payables during the period.

Dividend Sustainability

payout_ratio_assessment: DPS is ¥0.00 and payout ratio is 0.0%. With net income of ¥572 million but weak OCF (¥160 million), a non-payment stance aligns with preserving balance sheet flexibility. FCF_coverage: FCF coverage is reported as 0.00x due to undisclosed investing cash flows; therefore, dividend coverage cannot be reliably computed. Given low OCF, sustainable distributions would require either stronger cash generation or a draw on balance sheet capacity. policy_outlook: A resumption or initiation of dividends would likely depend on improved cash conversion, clearer visibility on capex, and stabilization of earnings. Until OCF improves relative to earnings, a conservative policy appears prudent.

Risk Assessment

Business Risks:

• End-market demand softness in specialty paper and functional materials segments, pressuring volumes.
• Input cost volatility (pulp, chemicals, energy) potentially compressing margins.
• Product mix and pricing execution risk in moving toward higher-value applications.
• Supply chain and logistics disruptions affecting lead times and inventory management.
• Customer concentration or contract renewal risks in key industrial niches.
• FX exposure on imported inputs and any export sales affecting costs and competitiveness.

Financial Risks:

• Weak cash conversion (OCF/NI 0.28) increasing reliance on working capital financing.
• Interest rate risk on floating-rate debt given debt-to-equity of 1.32x.
• Potential covenant headroom sensitivity if earnings soften and interest coverage narrows from 8.8x.
• Capex visibility risk due to undisclosed investing cash flows, complicating FCF assessment.
• Pension or other long-term liabilities (not disclosed here) that could affect equity and cash flows.

Key Concerns:

• Net income declined 24.6% YoY despite improved operating income, highlighting below-the-line volatility.
• OCF significantly lags earnings, indicating working capital drag or timing effects.
• Limited revenue momentum (-0.4% YoY) with low asset turnover (0.357x) constraining ROE (2.84%).
• Data gaps (inventories, cash, investing CF, equity ratio) limit transparency on liquidity and FCF.

Investment Implications

Key Takeaways:

• Stable topline (-0.4% YoY) with modest operating margin expansion (OP +3.6% YoY).
• Bottom-line softness (NI -24.6% YoY) and weak cash conversion (OCF/NI 0.28) temper earnings quality.
• Capitalization appears solid with implied equity ratio ~41.9% and interest coverage 8.8x.
• Leverage (D/E 1.32x) is manageable, but sustaining margins is critical to maintain coverage.
• Dividend on hold (DPS ¥0), consistent with prioritizing balance sheet and cash flow stabilization.

Metrics to Watch:

• OCF/Net income and working capital days (AR, AP, inventory once disclosed).
• Capex and investing cash flows to gauge true FCF.
• Gross and operating margins relative to energy and material cost trends.
• Interest coverage and net debt trajectory post -¥400 million financing CF.
• Asset turnover improvement via product mix and capacity utilization.
• Tax rate normalization and non-operating income/expense volatility.

Relative Positioning: Versus domestic paper/material peers, the company exhibits modest margins and low ROE, with manageable leverage and decent interest coverage; improving cash conversion and asset efficiency would be key to closing the gap with higher-return specialty materials peers.

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