The Yokohama Rubber Company,Limited FY2026 Q2 Earnings Report

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Executive Summary

The Yokohama Rubber Company delivered substantial increases in revenue and profit during the current period, driven by price revisions and easing cost pressures. Revenue was ¥6,394.0B (+10.4% YoY), Operating Income was ¥1,097.0B (+100.0%), Profit Before Tax was ¥1,108.2B (+118.7%), and Net Income was ¥730.2B (+103.7%). The Operating Income margin improved significantly to 17.2% from 9.5% in the previous year, driven by improved gross margins and operating leverage resulting from the containment of SG&A growth. Meanwhile, Operating Cash Flow was -¥87.8B, substantially below Net Income, leaving delayed cash conversion due to increases in inventories and accounts receivable as an issue.

Factors Affecting Performance

【Revenue】Revenue increased 10.4% YoY to ¥6,394.0B. By segment, the core Tire Business led growth with revenue of ¥5,803.6B (+10.8%), accounting for 90.8% of the revenue mix. MBMultiple was ¥548.6B (+6.9%), while Other was ¥41.7B (-3.6%). The high degree of business concentration means that overall company performance is substantially determined by supply and demand conditions in the tire market.

【Profit and Loss】Operating Income doubled to ¥1,097.0B (+100.0% YoY), and the Operating Income margin improved by +768bp to 17.2% from 9.5% in the previous year. The gross margin improved to 38.7% (+453bp YoY), primarily due to the establishment of price revisions and a lull in raw-material and logistics costs. SG&A expenses were ¥1,515.8B, or 23.7% of revenue, compared with 23.4% in the previous year, indicating that growth was contained at roughly the same pace as revenue growth. The improvement in gross margin was therefore reflected directly in Operating Income. Profit Before Tax was ¥1,108.2B (+118.7%), and Net Income was ¥730.2B (+103.7%), confirming that the company achieved both revenue and profit growth.

Segment Analysis

The Tire Business is the core business, accounting for 90.8% of the revenue mix, and led growth with revenue of ¥5,803.6B (+10.8% YoY). MBMultiple showed steady growth at ¥548.6B (+6.9%), while Other Businesses declined slightly to ¥41.7B (-3.6%). Although segment-level Operating Income and loss are not disclosed, the concentration of revenue indicates that the improvement in the company-wide profit margin is highly dependent on price and product-mix effects in the Tire Business.

Key Financial Metrics

【Profitability】The Operating Income margin improved significantly to 17.2% from 9.5% in the previous year, while the Net Income margin expanded to 11.3% from 6.2% in the previous year. ROE was 6.4%, led by the improvement in the Net Income margin; however, the Total Asset Turnover ratio was 0.295x, indicating limited asset efficiency and partially offsetting the increase in ROE.【Cash Flow Quality】Operating Cash Flow was -¥87.8B, representing a substantial divergence from Net Income of ¥730.2B, and the Operating Cash Flow/Net Income ratio was -0.12x. Increases in inventories (-¥469.5B) and income taxes paid (-¥710.8B) constrained cash generation.【Investment Efficiency】Capital expenditures were ¥598.5B. Proceeds from the sale of property, plant and equipment partially offset this amount, resulting in a modest Investing Cash Flow outflow of -¥120.6B.【Financial Soundness】The Equity Ratio remained at a sound level of 51.8% (51.6% in the previous year), while interest-bearing debt totaled approximately ¥6,152.2B across current and non-current liabilities. Current short-term borrowings rose substantially from the previous year to ¥2,382.5B, suggesting a response to working capital requirements.

Cash Flow Analysis

Operating Cash Flow was -¥87.8B, substantially below Net Income of ¥730.2B. Operating Cash Flow before changes in working capital was ¥659.5B, indicating that core earnings-based cash generation capacity was maintained; however, increases in inventories (-¥469.5B), increases in trade receivables (-¥59.8B), and income taxes paid (-¥710.8B) combined to reduce Operating Cash Flow. Investing Cash Flow was -¥120.6B, as proceeds from the sale of property, plant and equipment offset Capital expenditures of ¥598.5B. Financing Cash Flow was positive at ¥567.1B, with funds secured through increased short-term borrowings, while dividend payments of ¥134.0B were made. Free Cash Flow (Operating Cash Flow + Investing Cash Flow) was negative at -¥208.4B, indicating a funding structure dependent on external financing because dividends and investments could not be fully funded solely through internal funds. Cash and cash equivalents were ¥1,470.6B, an increase from the previous year.

Earnings Quality

The expansion in Net Income during the current period was primarily attributable to improved profit margins at the operating level, and earnings quality was generally favorable. However, Operating Cash Flow was -¥87.8B, substantially below Net Income, and attention is warranted because increases in inventories and accounts receivable are delaying cash conversion. Other income of ¥384.0B and Other expenses of ¥245.4B provided a net contribution of +¥138.5B, potentially including temporary factors such as gains on the sale of fixed assets. Financial income of ¥91.1B was approximately 1.4% of revenue and was not excessive, with no particular distortion evident in the composition of non-operating income. Income taxes of ¥378.0B were charged against Profit Before Tax of ¥1,108.2B, resulting in Net Income of ¥730.2B. The effective tax rate was 34.1%, slightly higher than the previous year's rate (income taxes of ¥148.2B / Profit Before Tax of ¥506.6B = approximately 29.3%).

Earnings Forecast and Guidance

The full-year forecast is Revenue of ¥1,320.0B and Operating Income of ¥1,995.0B (+30.5% YoY). Based on first-half results, the progress rates are 48.4% for Revenue and 55.0% for Operating Income, with Operating Income ahead of the standard progress benchmark of approximately 50% for the first half. The EPS forecast is ¥744.11, and the dividend forecast is ¥223.00. Both the earnings forecast and the dividend forecast were revised during the current quarter. Given the pace of profit improvement in the first half, the progress level suggests potential upside to the full-year plan, even after considering seasonality and higher expenses in the second half.

Shareholder Returns

The dividend per share for the first half was ¥87, and the full-year dividend forecast is ¥223. Based on first-half Net Income attributable to owners of the parent, the first-half Payout Ratio is estimated at approximately 19.9%, a conservative level. The forecast Payout Ratio based on forecast EPS of ¥744.11 is approximately 30.0%, indicating a policy of dividend increases. Share repurchases were negligible during the current period (-¥0.0B), and shareholder returns were primarily made through dividends. Given that Free Cash Flow was negative at -¥208.4B, first-half dividend payments were not fully covered by internal funds, making improvement in second-half cash flow a prerequisite for sustaining shareholder returns.

Risk Factors

1. Business concentration risk: The Tire Business accounts for 90.8% of revenue, creating a structure in which changes in raw-material market conditions, demand cycles, and the competitive environment directly affect overall company performance.

2. Cash flow quality risk: Operating Cash Flow was -¥87.8B, substantially below Net Income of ¥730.2B, while increases in inventories and accounts receivable constrained cash-generation capacity. Free Cash Flow was also negative at -¥208.4B, raising concerns about reduced short-term financial flexibility.

3. Goodwill and M&A-related asset risk: Goodwill was ¥3,404.4B, reaching approximately 30.0% of net assets. The impact on equity arising from impairment recognition in the event of a deterioration in the macroeconomic environment should be monitored.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

The company's profitability is substantially above the industry median and is positioned in the upper range.

Growth and Capital Efficiency

The Revenue growth rate is approximately in line with the industry median, with no notable distinctiveness in terms of growth.

※Source: Company analysis

Key Points in the Financial Results

1. The Operating Income margin improved structurally to 17.2% from 9.5% in the previous year due to price revisions and a stabilizing cost environment, while full-year progress for both Operating Income and Net Income is ahead of schedule.

2. Meanwhile, Operating Cash Flow was -¥87.8B, representing a substantial divergence from Net Income, and delayed cash conversion due to increases in inventories and accounts receivable was observed. Trends in working capital during the second half will be a key point in evaluating the sustainability of profit growth.

3. Although the Equity Ratio of 51.8% indicates a sound capital structure, the increase in short-term borrowings and goodwill equivalent to approximately 30.0% of net assets require continued monitoring from the perspectives of the funding structure and asset quality.

Theoretical Share Price (Reference Value)

Sensitivity: ¥7,379–¥7,818 at Cost of Equity ±1%, and ¥7,582–¥7,611 at ω±0.1.

Notes:

• The ratio of goodwill to net assets is high, and the assumptions will change substantially if impairment occurs.
• Net assets as of the end of the quarter are used (there is a time lag relative to the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated values based solely on publicly disclosed data; these are not forecasts of the market share price or recommendations of specific investment actions, and do not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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