Rengo Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥497.22B
• Operating Income: ¥19.97B
• Net Income: ¥19.67B
• EPS: ¥44.50

Income Statement

Balance Sheet

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

Rengo Co., Ltd. (TSE: 3941) reported FY2026 Q2 consolidated results under JGAAP with revenue of ¥497.2bn (+0.4% YoY) and operating income of ¥20.0bn (+0.9% YoY), indicating broadly flat top-line with marginal operating improvement. Gross profit was ¥91.6bn, translating to a gross margin of 18.4%, consistent with a materials- and energy-intensive packaging profile. Operating margin came in at 4.0%, reflecting modest pricing power and cost control amid a muted demand backdrop. Ordinary income of ¥20.0bn was roughly in line with operating income, implying limited net non-operating impact this half. Net income declined sharply to ¥11.0bn (-41.6% YoY), creating a large gap versus stable operating trends and pointing to higher tax burden and/or extraordinary factors below ordinary income. Using reported tax expense (¥6.1bn) and net income, we estimate an implied effective tax rate around the mid-30%s, which would partly explain the step-down in bottom-line profitability versus the small uptick in operating earnings. DuPont analysis yields ROE of 2.19%, driven by net margin of 2.22%, asset turnover of 0.392x, and financial leverage of 2.51x, underscoring that lower net margin is the primary constraint on shareholder returns this period. Liquidity remains sound with a current ratio of 114% and a quick ratio of 101%, supported by positive working capital of ¥58.0bn. The capital structure is moderate with total liabilities/equity at 1.47x and an implied equity ratio near 40% (calculated from the balance sheet, as the reported equity ratio field shows 0% due to non-disclosure). Interest coverage is comfortable at about 9.9x (operating income/interest), suggesting manageable financial risk. Inventory stood at ¥56.1bn (roughly 11% of sales), providing a buffer without appearing excessive relative to the half-year cost base. Cash flow figures (OCF, FCF, financing CF) and depreciation are not disclosed in the dataset, limiting cash conversion and capex intensity analysis; zeros should be interpreted as unreported. Dividend-related fields (DPS, payout, FCF coverage) are also non-disclosed, restricting assessment of distribution trends in this interim. Overall, the business shows stable operations but weaker net profitability, with tax/extraordinary factors likely the swing item, and a balance sheet that appears resilient. Outlook hinges on sustaining pricing, managing fiber and energy costs, and normalizing below-the-line items to lift net margins and ROE.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 2.22% (NI ¥11.0bn / Revenue ¥497.2bn)
• asset_turnover: 0.392x (Revenue ¥497.2bn / Total assets ¥1,267.1bn; note interim period effect)
• financial_leverage: 2.51x (Assets ¥1,267.1bn / Equity ¥503.9bn)
• calculated_ROE: 2.19% (matches provided DuPont result)
• commentary: ROE is primarily constrained by a thin net margin; operating efficiency and leverage are secondary drivers this period. margin_quality:
• gross_margin: 18.4% (¥91.6bn/¥497.2bn) — consistent with materials/energy exposure in packaging
• operating_margin: 4.0% (¥20.0bn/¥497.2bn) — modest, indicating limited pricing power and ongoing cost pressure
• net_margin: 2.22% — impacted by higher taxes and/or extraordinary items given ordinary income ≈ operating income operating_leverage: Revenue grew +0.4% YoY while operating income rose +0.9% YoY, implying slight positive operating leverage from cost control and mix. However, the translation to net profit was negative due to below-ordinary line impacts.

Growth Assessment

revenue_sustainability: Top-line was broadly flat (+0.4% YoY), suggesting stable demand and pricing in corrugated/containerboard with potential pockets of softness in volumes. profit_quality: Ordinary income tracked operating income closely, indicating limited non-operating noise; the large NI decline points to tax/extraordinary effects rather than core deterioration. outlook: Near-term growth hinges on maintaining price discipline versus fiber and energy costs, improving product mix, and stabilizing below-the-line items to restore net margin. With operating margin at 4.0%, incremental pricing or cost-outs are needed to expand profit given muted demand.

Financial Health

liquidity: Current ratio 114.1%, quick ratio 100.5%, and working capital of ¥58.0bn indicate adequate short-term liquidity. Cash and equivalents not disclosed in this dataset. solvency: Debt-to-equity (proxied by total liabilities/equity) at 1.47x and implied equity ratio ~39.8% (computed from balance sheet) reflect a moderate leverage profile. capital_structure: Financial leverage at 2.51x supports ROE but remains conservative for a capital-intensive sector. Interest coverage at ~9.9x indicates comfortable service capacity.

Cash Flow Quality

earnings_quality: Depreciation and operating cash flow are not disclosed, limiting assessment of non-cash earnings and accruals. With operating income close to ordinary income, earnings quality at the operating level appears stable, but bottom-line volatility from tax/extraordinary items reduces predictability. FCF_analysis: OCF and capex data are unreported (zero placeholders), so true FCF cannot be assessed. Absent disclosure, we cannot judge cash conversion or reinvestment intensity this half. working_capital: Inventories of ¥56.1bn (~11% of sales) appear reasonable for a half-year; current and quick ratios imply manageable receivables/payables balance. Detailed turnover metrics cannot be derived without cash flow detail.

Dividend Sustainability

payout_ratio_assessment: DPS and payout ratio are not disclosed for the period (zeros are placeholders). With EPS of ¥44.50 and NI of ¥11.0bn, capacity exists for distributions, but the sharp YoY NI decline tempers visibility. FCF_coverage: Unavailable; OCF and capex not disclosed. Cannot evaluate dividend coverage by FCF. policy_outlook: Given moderate leverage and stable operating profits, baseline distribution capacity appears supported, but sustainability and growth depend on normalization of below-the-line impacts and cash generation data not provided here.

Risk Assessment

Business Risks:

• Raw material price volatility (wastepaper, pulp, linerboard) affecting gross margins
• Energy cost fluctuations impacting manufacturing costs
• Demand cyclicality in corrugated packaging linked to domestic consumption and industrial activity
• Competitive pricing pressure in containerboard and converted products
• Operational downtime and maintenance cycles for paper machines affecting utilization
• Regulatory and environmental compliance costs (emissions, recycling mandates)
• Logistics and freight cost variability

Financial Risks:

• Exposure to tax and extraordinary items driving volatility in net income
• Potential increases in interest rates raising finance costs (interest expense ¥2.0bn; coverage ~9.9x currently solid)
• Working capital swings affecting cash conversion in a materials-heavy supply chain
• Capex intensity for maintenance/efficiency projects potentially elevating leverage if funded by debt

Key Concerns:

• Sharp -41.6% YoY decline in net income despite stable operating performance
• Limited disclosure of cash flows and depreciation, constraining visibility on cash conversion and capex
• Low net margin (2.22%) and low interim ROE (2.19%) requiring improvement to enhance returns

Investment Implications

Key Takeaways:

• Stable operating performance (OP +0.9% YoY) against flat revenue (+0.4% YoY)
• Net income underperformed due to tax/extraordinary impacts; margin normalization is key
• ROE subdued at 2.19%, constrained by low net margin
• Liquidity healthy; leverage moderate with comfortable interest coverage
• Cash flow and depreciation not disclosed, limiting confirmation of earnings quality and FCF

Metrics to Watch:

• Pricing vs. input costs (wastepaper/pulp and energy) and gross margin trajectory
• Operating margin progression from 4.0% and cost-out execution
• Below-the-line items (tax rate, extraordinary gains/losses, non-controlling interests) driving NI
• Working capital discipline and any disclosed OCF/FCF when available
• Capex commitments and depreciation trends once reported

Relative Positioning: Within Japan’s paper and packaging space, Rengo exhibits typical margin structure and moderate leverage; current period ROE and net margin underperform peers with stronger price-cost spread, while liquidity and interest coverage are sound.

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