POVAL KOGYO CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.84B
• Operating Income: ¥243M
• Net Income: ¥158M
• EPS: ¥59.35

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: Strong recovery in profitability in FY2026 Q2 with significant margin expansion, but cash conversion lagged and ROIC remains below target. Revenue grew 13.0% YoY to 18.42, with operating income up 102.9% YoY to 2.43 and net income up 190.8% YoY to 1.56. Gross profit reached 7.41, implying a gross margin of 40.2%. Operating margin improved to 13.2% (2.43/18.42), ordinary margin to 13.7%, and net margin to 8.5%. Based on the disclosed YoY growth rates, we estimate prior-year operating income at roughly 1.20 and revenue at 16.30, implying operating margin expansion of about 584 bps YoY (from ~7.4% to 13.2%). Similarly, prior-year net income was roughly 0.54, implying net margin expansion of about 518 bps YoY (from ~3.3% to 8.5%). SG&A ratio stands at 27.0%, suggesting operating leverage as revenue growth outpaced fixed cost growth. Ordinary income was 2.52, supported modestly by non-operating income of 0.13, mainly dividends of 0.12. Tax burden was heavy, with an effective tax rate of 44.4%, tempering bottom-line leverage. The balance sheet is robust: equity of 58.22 on assets of 70.59 implies an equity ratio of roughly 82.5% and D/E of 0.21x, with ample liquidity (current ratio 308%). However, earnings quality is a concern: operating cash flow was only 0.48 versus net income of 1.56 (OCF/NI 0.31x), indicating working capital drag or timing effects. Capex was 1.21, exceeding OCF, implying negative pre-disposal FCF for the half. ROE is modest at 2.7% via DuPont (8.5% net margin × 0.261 asset turnover × 1.21x leverage), and ROIC is low at 2.6%, below a 5% warning threshold. Forward-looking, maintaining the improved margin profile while normalizing cash conversion will be critical to support dividends (payout ratio 64.2%) and reinvestment. The quarter signals improved pricing/mix and cost discipline, but sustainability hinges on demand stability and better working capital management in H2. Overall, the company’s financial resilience is high, but capital efficiency and cash flow conversion need to improve for a durable re-rating.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.7% = Net Profit Margin 8.5% × Asset Turnover 0.261 × Financial Leverage 1.21x. The largest change driver versus last year is the margin component: operating income rose 102.9% vs revenue +13.0%, implying material operating margin expansion (~584 bps YoY from ~7.4% to 13.2% by back-calculation) and net margin expansion (~518 bps to 8.5%). Business drivers likely include better pricing/mix and SG&A operating leverage (SG&A ratio 27.0%) on increased volumes, possibly aided by lower input cost pressure versus last year. Asset turnover remains low at 0.261, reflecting a capital-intensive asset base relative to annualized sales; leverage is conservative at 1.21x and not a ROE driver. Sustainability: some margin gains could persist if pricing and cost controls hold; however, the elevated effective tax rate (44.4%) and weak OCF conversion suggest part of the improvement may be timing-related and could normalize. Watch for SG&A growth outpacing revenue; at present, revenue growth outstrips SG&A disclosure is limited, but the operating leverage signal is positive this quarter.

Growth Assessment

Top-line grew 13.0% YoY to 18.42, indicating demand recovery or improved pricing/mix in core products. Operating profit growth of 102.9% shows strong operating leverage, with operating margin at 13.2%. Ordinary income rose to 2.52, supported by 0.13 in non-operating gains (dividends 0.12), but core profitability (operating) was the main driver. Net income rose 190.8% to 1.56 despite a high tax rate, reflecting improved pre-tax profitability. EBITDA was 3.09 (16.8% margin), offering additional buffer for reinvestment needs. Revenue sustainability will hinge on end-market conditions (likely industrial/automotive-related), order backlog, and pricing power; no segment detail was disclosed. Non-operating contributions are small but positive; earnings quality depends on converting these operating gains into cash, which was weak this half. Outlook: if demand and price discipline continue into H2 and working capital normalizes, full-year profit trajectory can remain favorable; however, tax and cash conversion are risks to net and FCF delivery.

Financial Health

Liquidity is strong: current ratio 307.8% and quick ratio 299.6% (cash 9.00 vs current liabilities 9.59 implies cash ratio ~0.94). No warning on current ratio or D/E thresholds (D/E 0.21x). Total assets 70.59 and equity 58.22 imply an equity ratio ~82.5% and financial leverage 1.21x. Interest coverage is extremely strong at 284x; interest expense is de minimis (0.01). Maturity mismatch risk appears low: short-term loans 2.20 are well covered by cash (9.00) and current assets (29.53). No off-balance sheet obligations were reported in the provided data. Overall solvency and liquidity are robust.

Cash Flow Quality

OCF of 0.48 vs net income of 1.56 yields OCF/NI 0.31x, flagging low earnings quality this half. Working capital likely absorbed cash (receivables 8.78 appear elevated relative to half-year sales; AR days roughly ~87 assuming annualized revenue), while inventory is small (0.79). Capex of 1.21 exceeded OCF, implying negative pre-disposal free cash flow of approximately -0.73 if we treat capex as the primary investing outflow (full investing CF not disclosed). Dividend and buyback cash flows were not disclosed; financing CF was -0.50, suggesting net outflows (likely debt repayment or dividends). No overt signs of working capital manipulation are evident from the limited snapshot, but the divergence between profit and cash requires monitoring into H2 for normalization.

Dividend Sustainability

The calculated payout ratio is 64.2%, slightly above the <60% benchmark. With OCF at 0.48 and capex at 1.21, FCF coverage of dividends appears weak for the half, though total dividend cash paid is unreported. The balance sheet (retained earnings 49.86 and low leverage) provides capacity to maintain dividends through temporary cash softness. Sustainability depends on improving OCF/NI toward >1.0 and capex discipline in H2. Policy outlook cannot be assessed from disclosures, but current profitability supports dividends if cash conversion improves; otherwise, payout may rely on cash reserves.

Risk Assessment

Business Risks:

• End-market cyclicality (industrial/automotive demand swings) affecting volumes and pricing
• Input cost and procurement risk (resins, chemicals, energy) impacting gross margin
• Customer concentration risk (common in niche industrials; not disclosed but plausible)
• High effective tax rate (44.4%) reducing net leverage to growth

Financial Risks:

• Low cash conversion (OCF/NI 0.31x) raising near-term FCF risk
• Capex exceeding OCF in H1, pressuring internal funding
• ROIC at 2.6% below cost of capital, implying value creation risk if not improved
• Refinancing and interest rate risk minimal but present on short-term loans (2.20)

Key Concerns:

• Sustainability of margin expansion absent clear drivers/segment data
• Working capital build (receivables) potentially persistent if sales terms lengthen
• Limited disclosure on SG&A components and investing cash flows
• Non-operating income reliance modest but present (dividend income 0.12)

Investment Implications

Key Takeaways:

• Sharp YoY profit rebound with operating margin up to 13.2% and net margin to 8.5%
• Cash conversion weak (OCF/NI 0.31x) and capex > OCF, leading to negative indicative FCF
• Balance sheet strength (equity ratio ~82.5%, D/E 0.21x) provides resilience
• ROE modest at 2.7% and ROIC low at 2.6%, indicating capital efficiency improvement needed
• Tax rate elevated at 44.4%, capping bottom-line gains

Metrics to Watch:

• OCF/Net Income and working capital trends (AR days, AP days)
• Gross and operating margin trajectory in H2
• Capex run-rate vs OCF to gauge FCF sustainability
• ROIC progression toward >5% and ideally 7–8%
• Effective tax rate normalization
• Order intake/backlog or book-to-bill (if disclosed)

Relative Positioning: Versus domestic niche industrial peers, ポバール興業 shows superior balance sheet health and a strong margin rebound this half, but lags on capital efficiency (ROIC 2.6%) and cash conversion, leaving upside contingent on sustaining margins and improving OCF.

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