Arisawa Mfg.Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥26.54B
• Operating Income: ¥2.45B
• Net Income: ¥1.56B
• EPS: ¥47.00

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: A mixed FY2026 Q2—top-line growth but margin compression and weak cash conversion led to a sharp drop in below-the-line earnings. Revenue rose 5.4% YoY to 265.37, with gross profit of 60.25 and operating income of 24.54 (-10.2% YoY). Operating margin declined to 9.3% from an estimated 10.9% a year ago, indicating roughly 159 bps of compression. Ordinary income fell 26.1% YoY to 21.54, implying ordinary margin compression of about 346 bps to 8.1%. Net income declined 26.4% YoY to 15.62, with net margin down ~255 bps to 5.9%. Gross margin was 22.7%; SG&A was 35.71, suggesting weaker operating leverage despite revenue growth. Non-operating items were a net drag (income 1.53 vs expenses 4.53), including interest expense of 0.86, contributing to the step-down from operating to ordinary income. Cash flow quality is a key concern: operating cash flow of 4.88 equates to only 0.31x net income, well below best-practice thresholds (>1.0x). Liquidity remains solid (current ratio 197%, quick ratio 173%), and leverage is moderate (D/E 0.60x; interest coverage 28.5x), mitigating immediate balance sheet risk. ROE was 3.2% per DuPont (net margin 5.9% × asset turnover 0.344 × leverage 1.60x), with capital efficiency subdued; ROIC at 4.0% is below the 5% warning threshold. Capex was 2.65 and financing CF was -22.75 (likely repayments and dividends), implying net cash outflows despite positive OCF. EPS (basic) was 47.00 JPY; BVPS ~1,451 JPY. Dividend disclosures are limited, but the calculated payout ratio of 206.5% looks elevated versus earnings and implied FCF, suggesting potential reliance on the balance sheet. Forward-looking, sustaining growth will require restoring operating leverage, stabilizing non-operating costs, and improving cash conversion; otherwise, low ROIC and weak OCF will constrain capital returns and reinvestment capacity.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 5.9% × 0.344 × 1.60 ≈ 3.2%. The weakest component is asset turnover (0.344), reflecting a capital-intensive profile and/or inventory and receivable build relative to sales. Net margin compressed YoY: net margin 5.9% vs ~8.4% prior, driven by operating margin decline (9.3% vs ~10.9% prior) and higher non-operating burden (non-op expenses 4.53 > non-op income 1.53). The largest YoY change in the DuPont chain is margin compression, amplified at the ordinary and net levels due to non-operating expenses and a ~29.6% effective tax rate. Business drivers likely include: 1) mix or pricing headwinds (gross margin steady at 22.7% but not enough to offset SG&A), 2) SG&A not flexing with revenue (35.71 rising faster than gross profit), and 3) higher interest and other non-operating costs. Sustainability: margin pressure could persist if demand/pricing remain soft or if input costs (e.g., resins, copper-related inputs) stay elevated; non-operating costs are partly structural (interest) though potentially manageable as leverage is moderate. Concerning trend flags: operating income fell despite revenue growth (negative operating leverage), and ordinary/net profits declined faster than operating profit (non-operating drag).

Growth Assessment

Revenue grew 5.4% YoY to 265.37, but profit growth was negative across operating (-10.2%), ordinary (-26.1%), and net (-26.4%). Operating margin compressed ~159 bps to 9.3%, ordinary margin compressed ~346 bps to 8.1%, and net margin compressed ~255 bps to 5.9%. EBITDA was 35.63 (13.4% margin), with D&A of 11.09, highlighting ongoing capital intensity. The gap between revenue growth and profit decline indicates deteriorating operating leverage and/or price/mix headwinds. Non-operating expenses (4.53) outpaced non-operating income (1.53), exacerbating the decline from operating to ordinary income. With ROIC at 4.0% (<5% warning), growth currently appears value-dilutive unless margins recover. Outlook hinges on demand normalization in electronics/advanced materials end-markets, cost pass-through, and utilization improvements; near term, guidance discipline on SG&A and managing non-operating costs will be critical to re-expand margins.

Financial Health

Liquidity is strong: current ratio 197.1% and quick ratio 173.1% (warning threshold <1.0 not breached). Working capital of 240.75 supports operations; cash and deposits of 138.51 cover short-term loans of 50.98 nearly 2.7x. Solvency appears conservative to moderate: D/E 0.60x; Debt/EBITDA 2.36x; interest coverage 28.46x (well above 5x benchmark). Maturity profile: current liabilities 247.89 vs current assets 488.63 suggests low near-term refinancing risk; short-term debt is comfortably covered by liquidity. Total liabilities are 288.75 vs equity 482.90, indicating ample equity cushion. No off-balance sheet obligations were disclosed in the provided data. No explicit red flags on leverage or liquidity.

Cash Flow Quality

OCF of 4.88 versus net income of 15.62 yields OCF/NI of 0.31x, flagging poor earnings-to-cash conversion. The shortfall likely reflects working capital outflows (receivables 183.81 and inventories 59.42 are sizable relative to sales), though itemized WC changes were not disclosed. Implied FCF (OCF minus Capex) is approximately 2.23, indicating limited internal funding after investments; official FCF was not reported. Financing CF of -22.75 suggests debt repayment and/or dividends, implying net cash outflow despite positive OCF. No apparent signs of aggressive WC manipulation from the disclosed snapshot, but the low OCF/NI ratio warrants monitoring for potential over-recognition of revenue/profit versus cash collections.

Dividend Sustainability

Dividend disclosures are limited (DPS and total dividends unreported), but the calculated payout ratio of 206.5% appears elevated relative to earnings. With OCF at 4.88 and implied FCF near 2.23 versus net income of 15.62, organic coverage of dividends would be weak if payouts track the calculated ratio. Balance sheet strength (cash 138.51; low leverage) could temporarily support distributions, but sustainability would depend on improved OCF and margin recovery. Policy outlook likely cautious unless cash conversion normalizes; prioritizing ROIC uplift and cash generation over payouts would be prudent if current trends persist.

Risk Assessment

Business Risks:

• End-market cyclicality in electronics/semiconductor-related materials affecting volumes and pricing.
• Input cost volatility (resins, copper-related materials) pressuring gross margin if pass-through lags.
• Customer concentration risk typical in specialty materials ecosystems.
• Utilization risk from capacity under-absorption impacting operating leverage.

Financial Risks:

• Weak cash conversion (OCF/NI 0.31x) increasing reliance on balance sheet for funding/dividends.
• ROIC at 4.0% below cost-of-capital benchmarks, risking value dilution if growth continues without margin recovery.
• Potential sensitivity to interest rates (non-operating expenses > income; interest expense 0.86) though current coverage is strong.
• Working capital intensity (receivables/inventory) increasing exposure to demand slowdowns.

Key Concerns:

• Margin compression across operating, ordinary, and net levels despite revenue growth.
• Non-operating expense drag (4.53) outweighing non-operating income (1.53), accelerating profit decline.
• Dividend sustainability questioned by elevated calculated payout ratio (206.5%) and modest implied FCF.
• Execution risk in restoring operating leverage and improving ROIC from 4.0%.

Investment Implications

Key Takeaways:

• Top-line growth (+5.4% YoY) did not translate into profit growth; operating income -10.2% YoY.
• Material margin compression: operating margin down ~159 bps; net margin down ~255 bps.
• Cash conversion weak (OCF/NI 0.31x), constraining self-funded growth and payouts.
• Balance sheet remains a support (current ratio 197%, D/E 0.60x), mitigating near-term risk.
• Capital efficiency subdued (ROE 3.2%, ROIC 4.0%), highlighting the need for margin and turnover improvements.

Metrics to Watch:

• OCF/NI and working capital turns (DSO/DIO) to confirm cash conversion recovery.
• Operating margin trajectory vs input cost trends and pricing.
• Ordinary income bridge (non-operating income vs expenses, especially interest).
• ROIC versus 7–8% target band; progress on asset turnover.
• Capex discipline and payback; Debt/EBITDA and interest coverage.
• Dividend policy disclosures (DPS, payout guidance) and coverage by FCF.

Relative Positioning: Within Japanese specialty/advanced materials peers, the company’s liquidity and leverage are strong, but profitability and capital efficiency currently lag given low ROIC and margin compression. Improving operating leverage and cash conversion would be necessary to close the gap with higher-ROIC peers.

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
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