TAIYO HOLDINGS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥67.83B
• Operating Income: ¥15.19B
• Net Income: ¥11.02B
• EPS: ¥198.36

Income Statement

Balance Sheet

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: A strong first half with double-digit top-line growth and outsized operating profit expansion, delivering mid-teens net margin and ROE above 10%. Revenue rose 13.2% YoY to 678.3, while operating income grew 22.2% YoY to 151.9, indicating positive operating leverage. Ordinary income increased 21.4% YoY to 150.8, and net income advanced 19.7% YoY to 110.2. Operating margin stands at 22.4% (151.9/678.3), signaling a solid profitability profile for a specialty materials/chemicals business. Gross margin is 48.0% (325.8/678.3), evidencing strong value-add and pricing power or mix improvements. Using YoY growth rates, we estimate operating margin expanded by roughly 163 bps YoY to 22.4%. Net margin is 16.2% (110.2/678.3), implying an estimated YoY expansion of about 89 bps. Non-operating balance was a slight net expense (non-op income 8.37 vs. non-op expenses 9.46), with investment securities gains (5.16) and interest income (1.49) largely offset by interest expense (2.56) and other items. The effective tax rate was 27.7%, broadly in line with a normalized level, limiting below-the-line distortion. Balance sheet strength is notable: current ratio 267% and quick ratio 243% with cash and deposits of 393.1 versus current liabilities of 369.3. Leverage remains conservative with D/E at 0.79x and interest coverage at 59.3x, despite sizable long-term loans (433.1). ROE is 10.3% per DuPont (margin 16.2%, asset turnover 0.354, leverage 1.79x), and ROIC at 9.8% sits above typical 7–8% targets, underscoring efficient capital deployment. Earnings quality cannot be fully assessed due to unreported cash flow data; OCF/NI is not calculable this period. The calculated payout ratio is high at 100.7%, which warrants scrutiny absent FCF disclosure. Forward-looking, margin gains suggest improving mix/pricing or cost discipline, but sustainability hinges on demand in end-markets (notably electronics/semiconductor cycles) and input cost stability. Overall, the company enters the back half with momentum, robust liquidity, and adequate capacity to invest, but cash flow confirmation and payout calibration remain key watch points.

Profitability Analysis

ROE decomposition (DuPont): ROE 10.3% = Net Profit Margin (16.2%) × Asset Turnover (0.354) × Financial Leverage (1.79x). The most impactful driver this period is the improvement in profitability (net margin), inferred from revenue growth (+13.2%) lagging operating income growth (+22.2%) and resulting operating margin expansion to 22.4%. Business drivers likely include favorable product mix in higher-margin materials, pricing discipline, and SG&A ratio containment (current SG&A/revenue at 25.6%), alongside potential easing of input costs. The leverage component (1.79x) is moderate and stable, and asset turnover remains modest, reflecting a capital-intensive, R&D- and asset-heavy profile with substantial cash and intangibles. Sustainability: margin gains appear structurally supported by mix/pricing and scale, but may partially be cyclical given exposure to electronics/semiconductor demand and commodity/energy costs; we view a portion as sustainable with some cyclical tailwind. Watch-outs: without prior SG&A detail, we cannot confirm whether SG&A grew slower than revenue, but the spread between sales and operating profit growth suggests positive operating leverage. No red flags on interest burden; interest coverage is very strong (59.3x).

Growth Assessment

Top-line grew 13.2% YoY to 678.3, with operating profit up 22.2%—clear evidence of operating leverage. Estimated operating margin expanded ~163 bps YoY to 22.4%; net margin rose to 16.2%, up an estimated ~89 bps YoY. Non-operating items were a small net drag, indicating core operations are the primary growth engine. The growth quality appears solid given high gross margin (48.0%), but confirmation requires OCF data, which is unreported. Near-term outlook hinges on end-market demand (electronics/semiconductor-related) and maintaining pricing/mix advantages; risk from input cost normalization exists. With ROIC at 9.8%, incremental growth investment is value-accretive if maintained. Absent segment disclosure, we assume broad-based contribution from core materials; no evidence of one-time gains in operating lines.

Financial Health

Liquidity is strong: current ratio 267.3% and quick ratio 242.5%, with cash and deposits (393.1) roughly matching total current liabilities (369.3). No warning flags: Current Ratio > 1.0 and D/E at 0.79x (<2.0). Maturity profile is favorable: short-term loans are only 9.3, while long-term loans are 433.1; cash exceeds short-term borrowings by a wide margin, minimizing near-term refinancing risk. Working capital is ample at 617.8. Solvency is robust with interest coverage of 59.3x. Intangible assets (153.9) and goodwill (29.0) are material but not excessive relative to equity (1,070.1), though they introduce some impairment risk in downturns. No off-balance sheet obligations are reported in the provided data.

Cash Flow Quality

OCF, investing CF, financing CF, and capex are unreported; therefore, OCF/Net Income and FCF cannot be calculated. Earnings quality cannot be validated against cash conversion metrics this period. With inventories at 91.4 and receivables at 347.5 versus payables at 102.0, working capital intensity is material; without OCF detail we cannot assess whether the period benefited from working capital release or suffered a build. Interest coverage is strong, suggesting no cash strain from financing costs. We see no direct signs of working capital manipulation but cannot rule out timing effects due to missing cash flow statements.

Dividend Sustainability

The calculated payout ratio is 100.7%, which is elevated relative to a typical <60% sustainability benchmark. Due to unreported dividends, DPS, and FCF, we cannot verify cash coverage. If payout is indeed near 100%, sustainability would depend on stable cash generation and limited capex needs; this could be stretched if growth investments or working capital use rise in H2. Balance sheet liquidity is strong, which provides interim flexibility, but structurally high payout ratios may constrain reinvestment or increase reliance on the balance sheet in a downturn. Dividend policy outlook cannot be confirmed without guidance; monitor DPS announcements and cash flow trends.

Risk Assessment

Business Risks:

• End-market cyclicality in electronics/semiconductors affecting volumes and pricing
• Raw material and energy cost volatility impacting gross margin
• FX exposure (e.g., USD, CNY) influencing import costs and overseas revenue translation
• Customer concentration risk common in specialty materials
• Intangible assets and goodwill exposure to impairment if growth stalls

Financial Risks:

• High implied payout ratio (~101%) potentially pressuring cash in weaker periods
• Interest rate risk on sizable long-term debt (433.1), though current coverage is strong
• Working capital swings given large receivables (347.5) relative to payables (102.0)

Key Concerns:

• Lack of cash flow disclosure prevents validation of earnings quality and dividend coverage
• Slight non-operating expense drag limits bottom-line upside
• Asset turnover is modest (0.354), which can cap ROE absent sustained high margins

Investment Implications

Key Takeaways:

• Strong H1 with revenue +13.2% YoY and operating income +22.2% YoY
• Operating margin ~22.4% and gross margin 48.0% underscore pricing/mix strength
• ROE 10.3% and ROIC 9.8% indicate efficient capital use
• Balance sheet is liquid (current ratio 267%) with conservative leverage (D/E 0.79x)
• Non-operating items are a small net drag; core operations drive earnings
• High implied payout ratio (~101%) warrants scrutiny without FCF data
• Cash flow disclosure is the critical missing piece to confirm sustainability

Metrics to Watch:

• Operating cash flow and free cash flow conversion vs. net income
• SG&A ratio trend and further operating margin expansion
• Receivables and inventory turns (working capital efficiency)
• Capex intensity and its impact on ROIC
• FX impacts and raw material cost trends
• Dividend announcements vs. cash generation

Relative Positioning: Within Japanese specialty materials/chemicals peers, the company exhibits above-average profitability (22% operating margin, 48% gross margin), solid ROE/ROIC, and a strong liquidity profile. The main differentiator versus peers is margin quality and capital efficiency, offset by limited current visibility on cash conversion and a seemingly high payout ratio.

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