KROSAKI HARIMA CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥88.41B
• Operating Income: ¥7.42B
• Net Income: ¥11.20B
• Earnings per Unit (EPU): ¥319.10

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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: Solid operational improvement with margin expansion, but bottom-line surge is flattered by one-off gains, and capital efficiency (ROIC) remains below target. Revenue was 884.05 (100M JPY), up 0.4% YoY, while operating income rose 18.1% YoY to 74.21, indicating strong cost control and pricing/mix resilience despite flat top-line. Gross profit reached 185.14, yielding a gross margin of 20.9%. SG&A was 110.92, implying an SG&A ratio of 12.6%, supporting operating leverage. Operating margin improved to 8.4% from an estimated 7.1% a year ago, a roughly 126 bps expansion. Ordinary income rose to 80.06 (+22.4% YoY), aided modestly by net non-operating income of 5.85. Profit before tax jumped to 159.11, well above ordinary income, implying sizable extraordinary gains (not itemized), which also drove net income to 107.46 (+158.1% YoY). Net margin expanded to 12.2% from an estimated 4.7% last year (about +743 bps), but the magnitude reflects non-recurring items rather than pure operating strength. Comprehensive income of 90.03 fell below net income, indicating negative OCI (likely valuation/FX impacts), tempering equity accretion. Balance sheet quality is strong: current ratio 254.9% and quick ratio 215.6% with working capital of 711.61; D/E (total liabilities/equity) is 0.63x, while interest coverage is a robust 39.3x. ROE is 9.9% via NPM 12.2%, AT 0.501, and leverage 1.63x, but ROIC is 4.2%—below a typical 7–8% target range—signaling capital efficiency headroom. The implied payout ratio is 35.6%, suggesting manageable dividend affordability against earnings; FCF coverage cannot be assessed due to unreported cash flows. Overall, core profitability trends are favorable, but sustainability relies on maintaining operating margin gains absent extraordinary items, improving ROIC through better asset turns/returns, and stabilizing OCI-related volatility.

Profitability Analysis

ROE decomposition (DuPont): ROE 9.9% = Net Profit Margin (12.2%) × Asset Turnover (0.501) × Financial Leverage (1.63x). The most notable change YoY is the net margin expansion (to 12.2% from an estimated 4.7%), driven by both operating margin uplift (approx. +126 bps YoY to 8.4%) and significant extraordinary gains that inflated PBT versus ordinary income. Business driver: flat revenue (+0.4% YoY) coupled with better gross-to-operating conversion (SG&A ratio at ~12.6%) lifted operating profit; the non-recurring gains (implicit in PBT >> ordinary income) amplified the bottom line. Sustainability: the operating margin improvement appears achievable if cost discipline and mix hold, but the extraordinary contribution is one-time and unlikely to recur at similar scale; thus, the current net margin is not a steady-state baseline. Watchpoints: SG&A growth is not disclosed, but the higher operating leverage despite flat sales suggests good cost control; ensure SG&A does not outpace revenue in subsequent quarters. Non-operating reliance is modest at the ordinary-income level, but extraordinary items dominated PBT/NI this quarter, which should be normalized when evaluating run-rate profitability.

Growth Assessment

Top-line growth was modest at +0.4% YoY (884.05), pointing to a stable but not expanding demand backdrop. Operating income rose +18.1% to 74.21, indicating improved efficiency/mix and cost control as key drivers in a low-growth environment. Ordinary income increased +22.4% to 80.06, helped by net non-operating gains (+5.85), which were accretive but not primary. The outsized increase in PBT (159.11) and NI (107.46, +158.1%) reflects extraordinary items; core earnings growth is materially lower than headline NI growth. Gross margin is 20.9% and operating margin 8.4%; continuation of these levels would underpin mid- to high-single-digit EBIT growth even on flat sales. Comprehensive income (90.03) below NI indicates valuation/FX drags in OCI; this may persist given currency and market volatility. Near-term outlook hinges on maintaining pricing discipline versus raw material/energy costs and sustaining SG&A efficiencies. Medium term, raising ROIC (currently 4.2%) requires either higher asset turns or incremental returns from invested capital (process improvements, higher-value products, or portfolio optimization). Without disclosed cash flow data or capex, visibility on investment-led growth is limited.

Financial Health

Liquidity is strong with current ratio 254.9% and quick ratio 215.6%, supported by cash and deposits of 101.04 and sizable receivables (594.82). No warning triggers: current ratio is well above 1.0, and reported D/E (total liabilities/equity) is 0.63x; interest-bearing debt to equity approximates 0.23x (short-term 96.64 + long-term 156.64 vs equity 1,084.23), indicating conservative leverage. Interest coverage is robust at 39.26x (operating income/interest expense). Maturity mismatch risk appears low: short-term loans (96.64) are covered by cash (101.04) and substantial current assets. Equity ratio (calculated) is approximately 61.4% (1,084.23 / 1,765.48), reflecting a solid capital base. No off-balance sheet obligations are disclosed in the provided data. Receivables are large relative to sales, but without turnover metrics YoY, collection risk cannot be assessed.

Cash Flow Quality

Operating cash flow, investing cash flow, and capex are unreported, so OCF/NI and FCF cannot be calculated. Earnings quality caveat: NI was boosted by extraordinary gains (implied by PBT >> ordinary income), which typically do not generate recurring cash flows—this raises the risk that OCF/NI would be below 1.0 if working capital also expanded. Working capital position is ample (711.61), but with no period-over-period movement data, we cannot detect working capital-driven earnings management. Dividend coverage by earnings looks comfortable given a 35.6% payout ratio; however, FCF coverage is not assessable without OCF and capex.

Dividend Sustainability

The calculated payout ratio is 35.6%, which is within a generally sustainable range (<60%). Given strong liquidity and low leverage, balance sheet capacity supports dividend stability even through moderate cycles. However, NI this quarter includes non-recurring gains; for sustainability, dividends should be evaluated against normalized earnings and FCF, which are not disclosed. Without OCF and capex data, we cannot confirm FCF coverage, but earnings-based coverage is adequate. Policy signals are not provided; absent explicit guidance, a stable-to-cautious dividend stance aligned with normalized EPS would be prudent from a risk perspective.

Risk Assessment

Business Risks:

• Exposure to steel and industrial production cycles impacting refractory demand
• Raw material price volatility (e.g., magnesia, alumina, graphite) and energy costs affecting gross margin
• Customer concentration risk with large steelmakers
• FX fluctuations impacting import costs and translation of overseas operations
• Execution risk in improving ROIC from a low base (4.2%)

Financial Risks:

• Earnings volatility from extraordinary items; NI may diverge from cash generation
• Receivable concentration and potential collection risk given large AR balance (594.82)
• OCI volatility (comprehensive income below NI), potentially from securities valuation or FX
• Interest rate risk on floating-rate debt, though leverage is modest

Key Concerns:

• ROIC at 4.2% (<5%) signals capital efficiency below industry targets
• Sustainability of margin gains with only +0.4% revenue growth
• Lack of OCF/capex disclosure limits assessment of FCF and investment needs
• Dependence on non-recurring gains this quarter (PBT 159.11 vs ordinary income 80.06)

Investment Implications

Key Takeaways:

• Core operating recovery evidenced by +18.1% YoY operating income on flat sales
• Operating margin expanded ~126 bps YoY to 8.4% via cost control/mix
• Bottom-line surge is non-recurring-heavy; normalize NI for valuation/forecasting
• Balance sheet is robust (equity ratio ~61%, current ratio ~255%, interest coverage ~39x)
• Capital efficiency is the key overhang: ROIC 4.2% versus typical 7–8% targets

Metrics to Watch:

• Operating margin trajectory and SG&A ratio in subsequent quarters
• Disclosure of extraordinary gains and their recurrence
• OCF, capex, and FCF once reported; OCF/NI > 1.0 as a quality marker
• Working capital turns (AR and inventory days) and cash conversion
• ROIC improvement path (WIP turns, asset utilization, mix) and comprehensive income stability

Relative Positioning: Within Japanese industrial materials/refractories peers, the company shows stronger near-term operating margin momentum and a conservative balance sheet, but lags on capital efficiency (ROIC) and exhibits higher earnings volatility due to non-recurring items in the quarter.

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