Isamu Paint Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.09B
• Operating Income: ¥380M
• Net Income: ¥329M
• EPS: ¥168.30

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: Solid profitability inflection with clear margin expansion and healthy cash conversion in FY2026 Q2, albeit with persistently low capital efficiency. Revenue grew 1.2% YoY to 40.86, while operating income rose 30.5% YoY to 3.80, indicating strong operating leverage despite tepid top-line growth. Ordinary income increased 29.4% to 4.61, supported by 0.87 in non-operating income (notably dividends and interest of 0.25), and net income climbed 29.6% to 3.21. Gross profit reached 13.15, for a gross margin of 32.2%, with operating margin at approximately 9.3% and net margin at 7.9%. Based on growth rates, operating margin expanded roughly 210 bps YoY (from ~7.2% to ~9.3%), and net margin expanded about 170 bps YoY (from ~6.2% to ~7.9%). The margin gains likely reflect price discipline and/or mix improvement against stabilizing raw material costs, as revenue growth was modest. Cash flow quality was robust: operating cash flow of 3.93 exceeded net income of 3.21 (OCF/NI 1.23x), indicating earnings backed by cash with limited working-capital drag. Balance sheet strength is exceptional with a current ratio of 391% and debt-to-equity of 0.19x, supported by 40.15 in cash and 72.39 in investment securities. However, capital efficiency remains a key weakness: ROE is just 1.8% and ROIC 1.9%, constrained by very low asset turnover (0.192) and minimal leverage. Non-operating income contributed meaningfully (0.87), implying some reliance on financial income/valuation gains alongside core operations. EBITDA was 4.84 (11.8% margin), underscoring improved underlying profitability vs. last year’s run-rate. Effective tax rate stood at 28.7%, broadly in line with domestic norms. Dividend sustainability appears comfortable with a calculated payout ratio of 31.2% and OCF likely covering both capex and shareholder returns. Forward-looking, sustaining the improved operating margin while lifting asset turnover will be critical to improve ROE/ROIC. Large investment securities exposure introduces market valuation risk but also provides liquidity and dividend income that buffers earnings. Overall, the quarter demonstrates improved operational execution and cash generation, but the strategic task remains to raise capital efficiency and reduce dependence on non-operating income.

Profitability Analysis

DuPont decomposition: ROE (1.8%) = Net Profit Margin (7.9%) × Asset Turnover (0.192) × Financial Leverage (1.19x). The largest driver of the YoY improvement in earnings is margin expansion (net and operating), given operating income grew 30.5% on just 1.2% revenue growth. Asset turnover remains very low, reflecting a large balance sheet relative to sales (notably 72.39 in investment securities and 40.15 in cash), which dampens ROE. Financial leverage is minimal (1.19x), limiting ROE uplift from gearing but enhancing financial resilience. Business rationale: likely raw material cost normalization and/or improved price pass-through/mix supported gross-to-operating margin expansion; SG&A was 9.36, and with modest sales growth, fixed-cost absorption aided operating leverage. Sustainability: price/mix gains could be sticky if the company retains pricing and product mix improvements; however, any rebound in resin/solvent costs or weaker demand could compress margins. Non-operating income of 0.87 (including 0.19 dividend and 0.06 interest) provided an additional tailwind; this is partly market/interest-rate sensitive and not purely recurring at the same level. Concerning trends to watch: asset turnover at 0.192 is structurally low; also, non-operating income accounted for a meaningful share of ordinary income, indicating some dependence on financial income. No evidence that SG&A growth exceeded revenue growth this quarter, but the topline’s slow pace suggests vigilance on cost discipline.

Growth Assessment

Revenue growth of 1.2% YoY is modest, suggesting a stable but not accelerating demand environment for coatings. Profit growth was strong: operating income +30.5% and net income +29.6%, driven by margin expansion rather than volume growth. Gross margin at 32.2% and operating margin near 9.3% indicate improved pricing/mix and cost control; sustainability depends on raw material price stability and ongoing pass-through effectiveness. Ordinary income benefited from 0.87 in non-operating income, including dividends and interest, implying part of profit growth is financial-income assisted. EBITDA of 4.84 (11.8% margin) shows healthier underlying performance versus last year. With asset turnover at 0.192, organic growth or portfolio optimization is needed to improve capital efficiency. Outlook: near-term profitability should remain resilient if input costs stay benign and pricing holds; top-line catalysts likely hinge on construction/industrial demand, new product introductions, and potentially overseas sales if applicable. Continued focus on working capital discipline can support cash generation even under moderate growth.

Financial Health

Liquidity is very strong: current assets 88.96 vs current liabilities 22.75 yield a current ratio of 391% and a quick ratio of 346.5%. No warning on current ratio (<1.0) or high leverage (D/E > 2.0); reported D/E is 0.19x. Cash and deposits are 40.15, and investment securities total 72.39, providing ample liquidity buffers. Maturity mismatch risk appears low: current assets (88.96) comfortably cover current liabilities (22.75); accounts receivable of 23.23 and inventories of 10.15 exceed accounts payable of 3.81, indicating net working capital strength. Interest expense is negligible (0.00), and interest coverage is effectively not a constraint (3486x). Off-balance sheet obligations are not disclosed in the provided data; no explicit guarantees/commitments noted. Overall solvency and funding flexibility are excellent, though the large securities portfolio introduces market value volatility on equity.

Cash Flow Quality

OCF of 3.93 exceeds net income of 3.21, yielding OCF/NI of 1.23x, which indicates good earnings quality. Working capital appears well managed, with no signs of aggressive pull-forwards; OCF positivity alongside rising earnings suggests accruals are not inflating profit. While FCF is unreported, a proxy FCF of approximately 3.10 can be inferred as OCF (3.93) minus capex (0.83), implying healthy coverage for maintenance needs and dividends. No red flags of manipulation (e.g., unusual inventory/receivable build) are evident from the limited disclosures. Sustainability: with modest capex and strong liquidity, cash generation should remain adequate if margins hold and revenue does not contract.

Dividend Sustainability

The calculated payout ratio is 31.2%, comfortably below the 60% benchmark for sustainability. Although total dividends paid and DPS are unreported, the payout rate versus earnings and inferred FCF indicates good coverage. With proxy FCF (~3.10) and strong cash/securities holdings, dividend capacity appears secure absent a sharp earnings decline. Policy outlook: given ample balance sheet headroom and low leverage, stable or gradually increasing dividends are plausible if profitability and cash generation remain steady; however, reliance on non-operating income introduces some variability, so a conservative stance is likely.

Risk Assessment

Business Risks:

• Raw material price volatility (resins, solvents, pigments) potentially compressing gross margins
• Demand cyclicality in construction, industrial, and auto-related end markets impacting volumes and mix
• Competitive pricing pressure in general industrial/coatings markets
• Product mix shifts away from higher-margin lines could erode operating margin

Financial Risks:

• Large investment securities exposure (72.39) introduces market valuation and dividend income variability
• Low asset turnover (0.192) depresses ROE/ROIC and may signal capital tied in low-yield assets
• Currency fluctuation risk if raw materials are imported and/or overseas sales exist
• Potential concentration risk in key customers or suppliers (not disclosed)

Key Concerns:

• Structural capital efficiency weakness: ROE 1.8% and ROIC 1.9% well below 5% warning threshold
• Earnings reliance on non-operating income (0.87), part of which may be non-recurring
• Modest top-line growth (+1.2% YoY) may limit operating leverage going forward if costs rise

Investment Implications

Key Takeaways:

• Clear margin-driven earnings improvement with operating margin expanding ~210 bps YoY
• OCF exceeds net income (1.23x), supporting earnings quality and potential dividend capacity
• Balance sheet is fortress-like (current ratio 391%, D/E 0.19x), offering resilience
• Capital efficiency is the main overhang (ROIC 1.9%, ROE 1.8%) due to low turnover and low leverage
• Non-operating income meaningfully supports ordinary income; sustainability depends on markets

Metrics to Watch:

• Gross and operating margin trajectory and price pass-through effectiveness
• Raw material cost indices (epoxy, acrylics, solvents) and JPY/USD exchange rate
• Asset turnover and ROIC progression, including utilization of cash/securities
• Ordinary income composition: operating vs non-operating (dividends, security gains/losses)
• Working capital turns (receivables and inventory days) and OCF conversion

Relative Positioning: Versus domestic paint/coatings peers, the company exhibits stronger balance sheet conservatism and solid near-term margin gains but lags in capital efficiency and growth, with a higher share of earnings influenced by financial income.

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