ITO YOGYO CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.57B
• Operating Income: ¥104M
• Net Income: ¥55M
• EPS: ¥18.72

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: Mixed quarter—solid operating recovery but bottom-line compressed by non-operating/tax effects, leaving ROE and ROIC subdued. Revenue rose 1.1% YoY to 15.75, while operating income surged 110.9% YoY to 1.04, implying a sharp improvement in operating margin to about 6.6%. Ordinary income rose 115.9% YoY to 1.03, confirming better core profitability despite only modest topline growth. Profit before tax jumped to 2.37, suggesting sizable extraordinary gains versus ordinary earnings. However, net income fell 65.9% YoY to 0.55, indicating heavy tax/deferred tax impact or other below-the-line items that offset the pre-tax strength. Gross margin printed at 31.9%, and SG&A was 4.53 (28.8% of sales), leaving a modest 1.04 operating profit buffer. Using the YoY growth rates to approximate last year’s base, the operating margin likely expanded by roughly 340 bps, but the net margin compressed by about 690 bps due to tax/extraordinary line effects. DuPont ROE is 1.5%, with net margin at 3.5%, asset turnover at 0.291, and financial leverage at 1.46x—return remains constrained primarily by thin net margin and low turnover. ROIC is 1.9% (below the 5% warning threshold), highlighting capital efficiency challenges. Liquidity is healthy (current ratio 166.9%, quick ratio 136.5%) and interest coverage is strong at 25.75x; D/E is conservative at 0.58x. Cash and deposits of 8.30 vs short-term loans of 6.50 mitigate near-term refinancing risk. Earnings quality is hard to validate given unreported cash flows; the NI vs PBT gap raises the possibility of large deferred tax charges or other below-the-line adjustments. Forward-looking, operating improvement is encouraging, but sustainability depends on demand in construction-related end-markets and cost pass-through, while the bottom line may remain volatile if extraordinary and tax items persist.

Profitability Analysis

ROE (DuPont) = Net Profit Margin × Asset Turnover × Financial Leverage = 3.5% × 0.291 × 1.46 ≈ 1.5%. Biggest change driver YoY appears to be the net profit margin, which declined despite higher operating margin (operating income +110.9% vs revenue +1.1%), implying below-the-line/tax effects overwhelmed operating gains. Business reason: sizable difference between profit before tax (2.37) and net income (0.55) suggests heavy tax (including possible deferred tax expense) or other adjustments; meanwhile, extraordinary gains inflated PBT relative to ordinary income. Sustainability: the operating margin uplift looks more sustainable if driven by better gross spread and SG&A discipline, while the net margin pressure from tax/extraordinary items is likely one-off or volatile rather than structural. Asset turnover at 0.291 is low and likely seasonally depressed at Q2 for a single-entity manufacturer; improving utilization and sales velocity is key for ROE. SG&A at 28.8% of sales is high for a low-teen gross margin business, but operating leverage kicked in this quarter (OP +110.9% on sales +1.1%), indicating cost containment benefits; we see no sign of SG&A growth outpacing revenue in this print.

Growth Assessment

Topline growth was modest at +1.1% YoY, but profit leverage was strong at the operating level (+110.9% YoY). Gross margin of 31.9% and a lower non-operating drag supported ordinary income. However, net income decreased 65.9% YoY due to large tax/below-the-line impacts, underscoring earnings volatility. Revenue sustainability will hinge on public/private construction demand and the company’s ability to pass through input costs (cement, aggregates, energy). Profit quality appears better at the operating line but is clouded at the bottom line by extraordinary/tax movements. Outlook: Expect operating results to trend steady if demand holds and cost controls persist, but headline EPS may remain choppy given extraordinary items and tax adjustments.

Financial Health

Liquidity is solid: current ratio 166.9% and quick ratio 136.5% (both healthy). Debt metrics are conservative: D/E 0.58x with interest coverage of 25.75x indicates ample servicing capacity. Short-term loans of 6.50 are well covered by cash and deposits of 8.30 and current assets of 25.36, implying low maturity mismatch risk. Total liabilities are 21.63 vs total equity 37.10, supporting balance sheet resilience. No explicit off-balance sheet obligations were disclosed in the provided data. No warnings triggered: current ratio comfortably >1.0 and D/E well below 2.0.

Cash Flow Quality

Operating cash flow, investing, and financing cash flows were unreported, so OCF/NI and FCF cannot be evaluated. This limits assessment of accrual quality and working capital dynamics. The large divergence between profit before tax (2.37) and net income (0.55) suggests material tax/deferred tax or other adjusting items, which can make accrual earnings volatile; cash conversion cannot be confirmed. With inventories at 4.63 and receivables at 4.97, working capital appears manageable relative to current liabilities, but without cash flow data we cannot rule out timing effects. Overall earnings quality: indeterminate due to missing OCF and the significant below-the-line impact.

Dividend Sustainability

Reported DPS data are unavailable, but the calculated payout ratio stands at 129.7%, implying dividends exceed current net income. With FCF unreported, cash coverage cannot be verified. Balance sheet liquidity (cash 8.30, low net debt) provides near-term flexibility, yet sustaining a payout above 100% of earnings is typically not advisable without recurring FCF support. Policy outlook likely cautious unless second-half earnings and cash generation improve; room exists to maintain dividends temporarily from the balance sheet, but medium-term sustainability depends on restoring net margin and cash conversion.

Risk Assessment

Business Risks:

• End-market cyclicality in construction/infrastructure impacting order volumes and pricing
• Input cost volatility (cement, aggregates, energy) affecting gross margins and pass-through timing
• Small scale (sales 15.75 for the half) limits operating leverage and bargaining power
• Potential customer concentration risk (not disclosed) typical in niche materials/components

Financial Risks:

• Earnings volatility from extraordinary and tax items causing swings between PBT and NI
• Low capital efficiency (ROIC 1.9%) increases hurdle to value creation
• Seasonal/working capital swings could strain OCF (cash flow data absent)
• Interest rate risk on 6.50 short-term loans; rising rates could lift interest burden

Key Concerns:

• Net margin compression despite strong operating performance due to below-the-line effects
• Inability to assess cash conversion given unreported OCF/FCF
• Dividend payout above 100% of earnings without confirmed FCF support

Investment Implications

Key Takeaways:

• Core operations improved markedly: operating income +110.9% YoY on +1.1% sales
• Net income fell 65.9% YoY due to tax/extraordinary impacts despite higher PBT
• Liquidity strong and leverage conservative; interest coverage 25.75x
• ROE 1.5% and ROIC 1.9% highlight capital efficiency headwinds
• Dividend sustainability questionable with payout ratio at 129.7% and FCF unreported

Metrics to Watch:

• Operating margin trajectory and SG&A ratio in 2H
• Cash from operations and free cash flow (when disclosed)
• Extraordinary gains/losses and deferred tax movements
• Working capital turns (receivables, inventories) and asset turnover
• Pricing vs input cost inflation (cement/energy) and order backlog (if disclosed)

Relative Positioning: Compared to small-cap peers in construction materials/components, the company shows healthy liquidity and improved operating leverage this quarter but lags on capital efficiency (ROIC/ROE). Bottom-line volatility from non-operating/tax items and limited scale remain differentiating constraints.

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