Vertex Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥17.65B
• Operating Income: ¥2.36B
• Net Income: ¥1.44B
• EPS: ¥28.94

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 resilient but slightly softer Q2, with modest revenue and profit declines offset by strong margins and an exceptionally solid balance sheet. Revenue was 176.53 (−2.0% YoY), with gross profit of 59.93 and SG&A of 36.32, yielding operating income of 23.61 (−3.6% YoY). Operating margin was approximately 13.4% (23.61/176.53), while gross margin stood at 34.0%. Ordinary income came in at 24.28 (−4.4% YoY), and net income was 14.42 (−0.7% YoY), implying a net margin of 8.2%. Non-operating income and expenses netted to a small positive (+0.66), with interest expense only 0.19 and interest coverage a very strong 126.4x. The effective tax rate was elevated at 39.6%, a notable drag on bottom line conversion. Balance sheet strength is a highlight: total assets were 501.96, equity 354.39, and liabilities 147.57, implying a conservative total D/E of 0.42x and a high implied equity ratio around 70.6%. Liquidity is robust with a current ratio of 289.6% and quick ratio of 251.0%; cash and deposits of 169.33 exceed total loans (short + long) of 32.86 by roughly 136.5, indicating a clear net cash position. ROE was 4.1% per DuPont (8.2% margin × 0.352 turnover × 1.42x leverage), underscoring that low asset turnover and modest leverage cap return efficiency despite healthy margins. We cannot quantify YoY basis point changes in gross or operating margins due to lack of prior-period margin detail; however, the small YoY declines in operating and ordinary income suggest mild margin compression. Earnings quality cannot be assessed because operating cash flow is unreported; OCF/NI is N/A. Reported payout ratio of 240.1% indicates dividends exceeded earnings for the period, but DPS/total dividends were not disclosed, limiting certainty on true cash commitments. Forward-looking, room exists to support investment or shareholder returns given the cash-rich balance sheet, but improving asset turnover (currently 0.352) and managing the elevated tax rate will be key to lifting ROE above mid-single digits. Overall, performance is stable with resilient profitability, but low capital efficiency and limited growth momentum temper the near-term upside. The company’s ROIC of 6.5% is slightly below the 7–8% benchmark and should be a management focus. With limited non-operating dependencies and minimal interest burden, core operating execution and mix will mainly drive H2 outcomes.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (8.2%) × Asset Turnover (0.352) × Financial Leverage (1.42x) = ROE 4.1%. Among the three components, asset turnover is the most constraining factor for ROE: revenue-to-asset efficiency at 0.352 is low for a manufacturer/infrastructure-related business with sizable cash holdings. Net margin of 8.2% is respectable, supported by a 34.0% gross margin and disciplined SG&A (36.32), but an elevated effective tax rate of 39.6% is dampening net conversion. Financial leverage is modest (assets/equity 1.42x), reflecting a conservative balance sheet; while positive for risk, it limits ROE uplift from leverage. Business drivers: slightly softer revenue (−2.0% YoY) and small declines in operating (−3.6% YoY) and ordinary income (−4.4% YoY) point to mild operating deleverage and/or mix effects; non-operating items were net positive but small. Sustainability: gross profitability appears structurally healthy; interest burden is negligible; margin resilience seems sustainable near-term, but ROE improvement likely requires either higher turnover (inventory/receivables discipline, asset-light growth) or a lower tax burden. Watch for any sign of SG&A growth outpacing revenue; for this quarter, SG&A absolute level looks contained against revenue, but lack of prior-period SG&A detail limits trend confirmation.

Growth Assessment

Top line declined 2.0% YoY to 176.53, indicating lukewarm demand or project timing effects. Operating income fell 3.6% and ordinary income 4.4%, consistent with slight operating deleverage. Net income decreased only 0.7%, aided by small non-operating tailwinds and despite a high tax rate. Revenue sustainability: without segment disclosure, the decline appears broad-based; backlog/ordering trends are not provided, so visibility into H2 recovery is limited. Profit quality: operating profit remains the core driver; non-operating contributions are modest and not masking the core. Outlook: with a cash-rich balance sheet and negligible financing costs, the company has capacity to invest in efficiency and growth; the key swing factors for H2 are volume recovery, product/mix maintenance to protect the 34% gross margin, and tighter working capital to lift turnover. ROIC at 6.5% is slightly below target thresholds (7–8%); improving asset turns should be a priority. Tax-rate normalization (if any) would provide meaningful EPS leverage given the current 39.6% rate.

Financial Health

Liquidity is strong: current ratio 289.6% and quick ratio 251.0% far exceed healthy benchmarks; no warning flags (both >>1.0). Solvency is conservative: total D/E is 0.42x (liabilities/equity), and interest coverage is 126.4x. Short-term loans are 25.40 against cash of 169.33 and current assets of 331.72, indicating no maturity mismatch risk; near-term obligations appear well-covered by liquid resources. Long-term loans are modest at 7.46. The company is in a sizeable net cash position (~136.5), enhancing financial flexibility. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

Operating cash flow is unreported; OCF/Net Income is N/A, so earnings-to-cash conversion cannot be assessed. Free cash flow and capex are also unreported, limiting visibility into reinvestment intensity and cash coverage. Working capital accounts (AR 57.98, inventory 44.25) are meaningful relative to revenue and assets, which, combined with large cash, contribute to low asset turnover; however, without period-to-period WC change, potential manipulation or temporary swings cannot be identified. Given the net cash fortress and minimal interest burden, short-term liquidity risk is low, but the absence of OCF data is a constraint for judging the durability of earnings.

Dividend Sustainability

Reported payout ratio is 240.1%, indicating dividends exceeded earnings in the period; however, DPS and total dividends paid are unreported, preventing reconciliation and cash coverage analysis. FCF coverage is N/A due to missing OCF and capex. Balance sheet capacity is ample (net cash ~136.5) and could support dividends tactically, but structural sustainability depends on future OCF. Policy outlook cannot be inferred from the data provided; monitor full-year guidance, payout policy statements, and interim DPS announcements.

Risk Assessment

Business Risks:

• Demand softness or project timing risk reflected in −2.0% YoY revenue.
• Potential margin pressure if mix deteriorates from current 34.0% gross margin.
• Execution risk in improving asset turnover from a low 0.352 level.
• High effective tax rate (39.6%) constraining net profitability.

Financial Risks:

• Dividend payout exceeding earnings (reported 240.1%) could be unsustainable absent strong OCF.
• Concentration in working capital (AR 57.98, inventory 44.25) increases sensitivity to collections and inventory turns.
• Limited leverage reduces ROE uplift; pressure to optimize capital structure may arise if returns remain subdued.

Key Concerns:

• Low ROE at 4.1% vs. likely cost of equity, primarily due to low turnover and modest leverage.
• ROIC at 6.5% sits below a common 7–8% target range, implying value-creation headroom is limited.
• Data gaps (cash flow, dividend details, segment performance) constrain assessment of earnings quality and payout durability.

Investment Implications

Key Takeaways:

• Stable profitability with slight YoY declines: revenue −2.0%, OP −3.6%, NI −0.7%.
• Healthy margins: 34.0% gross, ~13.4% operating, 8.2% net.
• Exceptional balance sheet strength: current ratio 289.6%, quick ratio 251.0%, net cash ~136.5.
• ROE 4.1% capped by low asset turnover (0.352) and modest leverage (1.42x).
• Tax rate of 39.6% is a material headwind to EPS.
• Payout ratio reported at 240.1% raises sustainability questions pending OCF/FCF data.
• ROIC 6.5% slightly below typical target range; improving asset efficiency is key.

Metrics to Watch:

• Operating cash flow and FCF (when disclosed) for earnings quality and dividend coverage.
• Asset turnover and working capital turns (AR days, inventory days).
• Gross and operating margin trajectory in basis points vs. prior periods.
• Effective tax rate normalization potential.
• Capex and capital allocation (use of net cash for growth vs. shareholder returns).

Relative Positioning: Versus domestic building materials/infrastructure peers, the company exhibits stronger liquidity and lower leverage than average, comparable or better operating margins, but lower capital efficiency (ROE/asset turnover). The cash-rich position provides optionality, but returns lag benchmark targets until turnover and ROIC improve.

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