AWA PAPER & TECHNOLOGICAL COMPANY,Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥8.80B
• Operating Income: ¥-225M
• Net Income: ¥-334M
• EPS: ¥-46.20

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: FY2026 Q2 was weak operationally with a deeper operating loss and ordinary loss, despite moderate top-line growth and solid operating cash inflow. Revenue rose 8.8% YoY to 88.04, but gross profit of 9.71 implies a slim 11.0% gross margin, insufficient to cover SG&A of 11.96, driving operating income to -2.25. Operating margin deteriorated to -2.6%, pressured by cost inflation and limited price pass-through. Non-operating balance was negative (income 0.25 vs expenses 1.11), including 0.75 of interest expense, pushing ordinary income to -3.11. Net loss widened to -4.61 (EPS -46.2 yen), with a tax expense of 0.71 despite pre-tax loss, creating a negative effective tax rate. EBITDA was positive at 4.01 (margin 4.6%), but depreciation of 6.26 kept EBIT in the red, highlighting a heavy fixed cost base and asset intensity. Operating cash flow was a notable positive at 11.97, diverging from the net loss, suggesting favorable working capital movements and non-cash expenses. However, capex was sizable at -20.47, leading to an estimated negative FCF of about -8.5 even with the strong OCF. The balance sheet is leveraged (D/E 2.80x), with total liabilities of 196.31 and long-term loans of 103.17, keeping interest burden elevated (interest coverage -3.0x on EBIT). Liquidity is tight but not critical: current ratio is 108% and quick ratio 91.2%, indicating limited short-term cushion. Asset turnover is low at 0.331, and ROIC is negative at -1.2%, both underscoring weak capital efficiency. DuPont shows ROE at -6.6% driven by negative margin (-5.2%) and high leverage (3.8x). Earnings quality flags are present per metric thresholds (OCF/NI -2.6x), though the positive OCF partially mitigates near-term cash concerns. Forward-looking, the company must lift gross margin via price increases/mix and cost control, temper capex, and reduce debt to restore coverage. Execution on pricing, energy/pulp cost normalization, and working capital discipline will determine the path to breakeven and balance sheet stabilization.

Profitability Analysis

ROE decomposition (DuPont): ROE (-6.6%) = Net Profit Margin (-5.2%) × Asset Turnover (0.331) × Financial Leverage (3.80x). The margin component is the primary drag as operating margin sits at -2.6% and the net margin is -5.2%. Asset turnover of 0.331 is low for a manufacturing business, reflecting a heavy asset base relative to sales. Leverage at 3.80x amplifies losses into equity, elevating ROE downside. The largest change QoQ/YoY appears in profitability (operating loss deepening and higher non-operating expense), rather than in leverage, which remains high but relatively stable. Business reasons include cost inflation (energy, materials), insufficient price pass-through, and elevated depreciation from prior capex. Sustainability: negative margin is not sustainable; partial relief could come from price revisions and easing input costs, but structural fixed-cost absorption remains a headwind until utilization improves. Concerning trends include SG&A exceeding gross profit (11.96 vs 9.71) and likely outpacing revenue growth, indicating negative operating leverage.

Growth Assessment

Revenue grew 8.8% YoY to 88.04, suggesting some recovery or price/mix gains, but profitability did not follow. Gross margin at 11.0% points to tight pricing power versus input costs. EBITDA margin of 4.6% is thin, with depreciation (6.26) pushing EBIT negative, implying recent investments are not yet earning their cost of capital. Non-operating items (especially interest) further depress bottom line. Growth sustainability hinges on: (1) passing through cost inflation to customers, (2) stabilizing energy/pulp costs, and (3) improving utilization to dilute fixed costs. Near-term outlook is cautious: without clear evidence of price-cost spread improvement, operating losses may persist. Management’s capex of -20.47 suggests strategic investments; execution risk is high until returns materialize. Watch for sequential improvement in gross and operating margins and order backlog/mix upgrades.

Financial Health

Liquidity: Current ratio 108% (slightly above 1.0) and quick ratio 91.2% (below 1.0) indicate tight short-term liquidity; explicit warning triggers for CR<1.0 are not met but cushion is thin. Working capital is modest at 6.45, with current assets 86.68 vs current liabilities 80.23. Maturity profile: short-term loans 26.50 alongside cash 14.54 and receivables 31.63 suggest rollover risk is manageable but present; reliance on short-term funding persists. Solvency: D/E 2.80x (warning >2.0) denotes high leverage; long-term loans 103.17 underpin a heavy debt load. Interest coverage based on EBIT is -3.0x, highlighting inability to cover interest from operations. No off-balance sheet obligations are disclosed in the provided data. Overall, financial flexibility is limited, and refinancing risk rises if rates increase or lenders tighten.

Cash Flow Quality

OCF of 11.97 contrasts with net loss of -4.61, yielding OCF/NI of -2.60x, which flags under our threshold yet indicates positive cash generation driven by non-cash charges and likely working capital release. EBITDA of 4.01 plus working capital tailwinds appear to underpin OCF; the sustainability of working capital benefits is uncertain. Capex was -20.47, resulting in an estimated FCF of about -8.50 (OCF minus capex), implying external funding is needed to sustain investment. Financing CF of 16.34 indicates continued dependence on debt capital. No evident signs of aggressive working capital manipulation from the limited snapshot, but the divergence between OCF and NI should be monitored for reversals. Near-term dividend and capex funding rely on continued access to financing unless profitability improves.

Dividend Sustainability

Dividend information is unreported for the period. Given negative net income (-4.61), negative FCF (approx. -8.5), and high leverage (D/E 2.80x), distributable capacity appears constrained. Any dividend would likely require balance sheet support rather than being covered by internal cash generation. Without visibility on policy (payout ratio or DOE), the prudent assumption is that dividend sustainability is weak until operating profits and FCF turn positive and interest coverage normalizes.

Risk Assessment

Business Risks:

• Input cost volatility (pulp, chemicals, energy) compressing margins
• Pricing power limitations and delayed pass-through to customers
• Low utilization and high fixed costs leading to negative operating leverage
• Product mix and demand softness in specialty paper end-markets
• Execution risk on capex (20.47) with delayed returns

Financial Risks:

• High leverage (D/E 2.80x) and weak interest coverage (-3.0x on EBIT)
• Tight liquidity (quick ratio 91.2%) and reliance on short-term loans (26.50)
• Refinancing and interest rate risk given sizable long-term loans (103.17)
• Potential covenant pressure if losses persist
• Negative ROIC (-1.2%) signaling value destruction

Key Concerns:

• Sustained operating losses with SG&A exceeding gross profit
• Dependence on working capital movements to support OCF
• Tax expense despite losses, potentially reducing cash buffer
• Limited buffer to absorb external shocks before liquidity tightens
• Data gaps (e.g., investing CF, dividend details) reduce transparency

Investment Implications

Key Takeaways:

• Top-line growth (+8.8% YoY) failed to translate into profits; operating margin -2.6%
• OCF positive (11.97) but FCF negative (~-8.5) due to heavy capex
• Balance sheet leverage elevated (D/E 2.80x); coverage inadequate
• ROE (-6.6%) and ROIC (-1.2%) indicate weak capital efficiency
• Liquidity adequate but thin (CR 108%, quick 91.2%) with refinancing reliance

Metrics to Watch:

• Gross and operating margin progression (bps change QoQ/YoY)
• Price-cost spread versus energy and pulp indices
• Interest coverage (EBIT/interest) and EBITDA trajectory
• Working capital metrics (AR and inventory days) and OCF sustainability
• Capex cadence versus realized returns (ROIC) and net debt trend
• Current ratio and short-term loan rollovers

Relative Positioning: Versus domestic paper peers, the company exhibits weaker profitability (negative EBIT), higher leverage, lower asset turnover, and negative ROIC, implying below-peer resilience and greater sensitivity to input costs and financing conditions.

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