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

Financial Highlights

• Net Sales: ¥8.80B
• Operating Income: ¥-225M
• Net Income: ¥-90M
• 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

Awa Paper Mfg. (3896) reported FY2026 Q2 (cumulative) consolidated results under JGAAP showing revenue of ¥8.804bn, up 8.8% YoY, but with a sharp deterioration in profitability. Gross profit was ¥1.138bn, implying a gross margin of 12.9%, which is thin for specialty paper and filtration materials and suggests incomplete pass-through of input cost inflation or adverse mix. Operating income deteriorated to -¥225m (operating margin -2.6%), and ordinary income fell to -¥311m, indicating non-operating burdens (e.g., interest, forex, or other items). Net income was -¥461m (EPS -¥46.20), a steep YoY decline, underscoring ongoing margin pressure and possibly one-off factors. Despite the net loss, operating cash flow was positive at ¥143m, supported by non-cash depreciation of ¥327m and working capital movements, but the OCF/Net Income ratio of -0.31 points to weak earnings quality consistency at this stage. EBITDA was ¥102m (1.2% margin), barely positive, signaling limited operating buffer against fixed costs and energy/raw material volatility. The interest coverage ratio was -5.3x, reflecting insufficient operating earnings to service interest from operations. Balance sheet totals show assets of ¥26.634bn and equity of ¥7.003bn; this implies an equity ratio around 26.3% (the disclosed 0.0% appears unreported), and leverage (liabilities/equity) of 2.80x is elevated for the sector. Liquidity is tight with a current ratio of 99.9% and quick ratio of 85.5%, and working capital was slightly negative at -¥9m, highlighting near-term refinancing and cash management needs. Financing cash inflow of ¥2.516bn suggests reliance on external funding (likely new borrowings) to support operations or refinancing. DuPont analysis indicates an ROE of -6.58% driven by a -5.24% net margin and modest asset turnover of 0.331, amplified by 3.80x financial leverage. Inventory of ¥1.332bn and positive OCF hint at some normalization in working capital, but sustainability is unclear without capex data and cash balances. Dividend distribution remains suspended (DPS ¥0), which is consistent with negative earnings and tight liquidity. Overall, the company is experiencing revenue growth but lacks pricing power and operating leverage to convert it into profits, while solvency is adequate but liquidity is stretched. Data limitations exist (e.g., cash balance, capex, share count, equity ratio reporting), so interpretations rely on computed metrics from disclosed line items.

Profitability Analysis

• ROE decomposition: Net margin -5.24% x Asset turnover 0.331 x Financial leverage 3.80 = ROE approximately -6.6%, aligning with the reported -6.58%.
• Margins: Gross margin 12.9% indicates modest spread over cost of sales; operating margin -2.6% reflects inability to cover SG&A and fixed costs amid input cost pressures; EBITDA margin 1.2% shows minimal cushion.
• Operating leverage: With EBITDA barely positive and operating income negative, fixed-cost absorption is weak; small top-line changes can swing operating results materially. The YoY revenue growth of 8.8% did not translate to operating profit, indicating adverse mix, insufficient price pass-through, or elevated overheads.
• Interest burden: Interest expense of ¥42m against negative EBIT yields interest coverage of -5.3x; ordinary loss (-¥311m) shows non-operating drag beyond interest.
• Tax: ¥36m tax expense despite a loss suggests non-deductible items or timing; effective tax rate measure is not meaningful in a loss period.
• Segment/price-cost dynamics: Data suggests input cost inflation or energy/pulp/chemicals pressures outpaced pricing; pricing discipline and mix improvement are required to restore margins.

Growth Assessment

• Revenue sustainability: +8.8% YoY to ¥8.804bn suggests demand resilience in core paper and functional materials niches; however, without segment detail, sustainability of growth across products/regions is uncertain.
• Profit quality: Despite higher sales, profitability deteriorated, implying weak price-cost balance and limited operating leverage. EBITDA of ¥102m against depreciation of ¥327m underscores thin underlying earnings power.
• Outlook considerations: Recovery hinges on successful pass-through of raw material and energy costs, efficiency gains, and product mix upgrades. With ordinary and net losses, near-term earnings recovery is uncertain; macro cost normalization and contract repricing cycles are key. Working capital improvements supported OCF in H1, but FCF sustainability depends on capex levels (not disclosed).

Financial Health

• Liquidity: Current ratio 99.9% and quick ratio 85.5% indicate tight short-term liquidity; working capital is slightly negative at -¥9m. Absence of disclosed cash and equivalents limits visibility on immediate buffer.
• Solvency: Total assets ¥26.634bn and equity ¥7.003bn imply an equity ratio around 26.3% and financial leverage (assets/equity) of 3.80x. Debt-to-equity at 2.80x indicates elevated leverage for a paper manufacturer.
• Interest serviceability: Negative EBIT leads to -5.3x interest coverage; cash interest is currently supported by financing inflows and limited OCF rather than operating profits.
• Capital structure: Financing CF of ¥2.516bn suggests increased borrowings or refinancing; this raises gross debt and interest burden unless used to retire higher-cost debt. Visibility on maturity profile and covenants is not provided.

Cash Flow Quality

• Earnings vs cash: Net loss of -¥461m contrasts with positive OCF of ¥143m (OCF/NI -0.31), indicating that non-cash charges and working capital inflows offset losses; however, the negative ratio signals misalignment between accounting earnings and cash generation quality in the period.
• Free cash flow: FCF not disclosed; investing CF was unreported at ¥0. Without capex data, true FCF cannot be assessed. Given sector norms, maintenance capex likely consumes a material portion of OCF, making underlying FCF likely weak or negative.
• Working capital: Inventories ¥1.332bn appear manageable relative to sales, and OCF positivity suggests some collection/turn improvements. Sustainability is unclear without receivables/payables detail. Monitoring inventory turns and DSO/DPO will be critical.
• Non-operating cash: Large financing inflow (¥2.516bn) indicates dependence on external funding to bridge liquidity and investment needs.

Dividend Sustainability

• Current policy/practice: DPS is ¥0 with a payout ratio of 0%, consistent with loss-making status and liquidity constraints.
• Coverage: With negative earnings and unknown capex, dividend capacity is not supported by profits or clearly by FCF. OCF of ¥143m is insufficient to support stable dividends when interest and potential capex are considered.
• Outlook: Resumption of dividends would likely require restoration of positive operating margin, stronger EBITDA conversion, and improved liquidity. Balance sheet leverage (D/E 2.80x) also argues for prioritizing deleveraging over distributions in the near term.

Risk Assessment

Business Risks:

• Input cost volatility (pulp, chemicals, energy) outpacing pricing power
• Weak operating leverage with thin EBITDA margin (1.2%)
• Demand cyclicality in industrial/specialty paper end-markets
• Customer price negotiations and timing of pass-through clauses
• Product mix and capacity utilization risk
• Supply chain and FX risks on imported raw materials

Financial Risks:

• Tight liquidity (current ratio ~1.0x, quick ratio 0.86x)
• Elevated leverage (Debt-to-equity 2.80x) and negative interest coverage (-5.3x)
• Reliance on external financing (¥2.516bn inflow) amid loss-making operations
• Potential covenant or refinancing risk if losses persist
• Limited visibility on cash balance and capex commitments

Key Concerns:

• Sustained operating loss despite 8.8% revenue growth
• Gross margin at 12.9% insufficient to cover SG&A and interest
• Negative ROE (-6.58%) driven by margin pressure and leverage
• Unknown FCF due to undisclosed capex; dividend capacity constrained
• Liquidity headroom limited with slightly negative working capital

Investment Implications

Key Takeaways:

• Top-line growth (+8.8% YoY) is not translating into profits; operating margin -2.6%.
• EBITDA margin of 1.2% and interest coverage -5.3x highlight fragile operating cushion.
• Leverage is elevated (D/E 2.80x; equity ratio estimated ~26%), increasing sensitivity to earnings volatility.
• OCF positive (¥143m) but earnings negative; FCF unclear due to undisclosed capex.
• Liquidity tight (current ratio ~1.0x; quick ratio 0.86x); reliance on ¥2.516bn financing inflow.

Metrics to Watch:

• Gross and operating margin trajectory by quarter
• Price pass-through progress vs pulp/energy cost indices
• EBITDA/interest and ordinary income trends
• Operating cash flow and capex disclosure to derive FCF
• Working capital metrics (inventory turns, DSO, DPO)
• Net debt and equity ratio movements
• Utilization rates and product mix in specialty segments

Relative Positioning: Within Japan’s specialty paper and industrial materials peers, Awa Paper currently sits on the weaker side of profitability and coverage metrics, with lower margins and higher leverage than conservative peers; balance sheet solvency appears adequate but liquidity is tighter than typical sector averages.

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