KROSAKI HARIMA CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥88.41B
• Operating Income: ¥7.42B
• Net Income: ¥4.63B
• EPS: ¥319.10

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

Kurosaki Harima (TSE: 5352) delivered a solid FY2026 Q2 (cumulative) performance with operating leverage despite essentially flat topline growth. Revenue was ¥88.4bn, up 0.4% YoY, indicating stable demand conditions in core refractory markets. Gross profit reached ¥17.1bn, implying a gross margin of 19.3%, which is healthy for a capital-intensive materials business. Operating income was ¥7.4bn (+18.1% YoY), lifting the operating margin to approximately 8.4% and evidencing improved cost discipline and mix. Ordinary income of ¥8.0bn exceeded operating income, suggesting positive non-operating contributions net of ¥0.17bn in interest expense. Net income surged to ¥10.75bn (+158.1% YoY), pushing the net margin to 12.16%; this outsized bottom-line growth relative to operating trends likely reflects non-recurring or non-operating gains. DuPont analysis yields ROE of 9.91%, decomposed into a 12.16% net margin, 0.501x asset turnover, and 1.63x financial leverage. The ROE uplift is primarily margin-driven this half, rather than higher asset turnover or leverage. The balance sheet appears strong: total assets ¥176.5bn and total equity ¥108.4bn imply an equity ratio of roughly 61% (despite a reported 0.0% equity ratio field, which appears undisclosed), and liabilities/equity of about 0.79x. Liquidity is ample with a current ratio of 216% and quick ratio of 185%, while interest coverage stands at a robust 43x. Working capital totals ¥67.8bn, supported by current assets of ¥126.1bn and inventories of ¥18.3bn. Cash flow statements and D&A were not disclosed in the dataset, so EBITDA and OCF-derived metrics (e.g., OCF/NI, FCF) cannot be assessed. The effective tax rate in the provided metrics shows 0.0%, but using available data (income tax expense of ¥1.87bn and net income of ¥10.75bn) implies a rough ETR in the mid-teens, acknowledging limitations without an explicit pre-tax profit figure. Dividend information was not disclosed; therefore, payout and coverage cannot be evaluated for this period. Overall, profitability improved and financial resilience remains strong, but the quality and repeatability of the sharp net income increase should be examined once cash flow and extraordinary item details are available.

Profitability Analysis

ROE is 9.91%, driven by net profit margin of 12.16%, asset turnover of 0.501x, and financial leverage of 1.63x (assets/equity ≈ 176.5/108.4). Operating margin is approximately 8.4% (¥7.42bn/¥88.41bn), showing meaningful operating leverage versus a modest 0.4% revenue increase. Gross margin of 19.3% points to favorable input costs, product mix, and/or pricing, as cost of sales rose slower than revenue. Ordinary income margin of about 9.1% (¥8.01bn/¥88.41bn) indicates supportive non-operating items, more than offsetting interest expense of ¥0.17bn. Net margin of 12.16% materially exceeds operating margin, implying contributions from below-operating-line items (e.g., extraordinary gains or equity-method income), which may not be recurring. Interest coverage is strong at 43.1x (operating income/interest expense), demonstrating headroom against rate or credit cost increases. The DuPont bridge suggests the ROE level is achieved with moderate leverage and modest asset intensity; the primary swing factor is margin rather than turnover. Given D&A is undisclosed, EBITDA/EBITDA margin are uninformative in this dataset and should not be interpreted as zero.

Growth Assessment

Revenue growth of +0.4% YoY indicates a stable demand backdrop in refractory end-markets through the half, likely anchored by steady steel-related activity. Operating income growth of +18.1% YoY outpaced revenue, evidencing operating leverage from cost control, mix improvement, or pricing discipline. Net income growth of +158.1% YoY far exceeds the operating trend, likely reflecting non-operating or extraordinary tailwinds this period; sustainability into 2H remains uncertain pending detail. Margin expansion (gross 19.3%, operating ≈8.4%) supports the view that underlying profitability improved even excluding below-the-line effects. Asset turnover at 0.501x (based on period-end assets) is consistent with a capital-intensive business and suggests growth will continue to require disciplined capital deployment. Looking forward, revenue sustainability will depend on steel production levels, maintenance/outage schedules at key customers, and global industrial activity; pricing resilience versus raw material and energy cost volatility will be pivotal for margins. Profit quality should be reassessed once disclosure on extraordinary items, equity-method gains/losses, and cash flow is available to gauge repeatability.

Financial Health

Liquidity is strong with current ratio 216.1% (¥126.1bn/¥58.4bn) and quick ratio 184.7% (ex-inventories), indicating ample near-term coverage of obligations. Working capital is ¥67.8bn, providing operational flexibility to navigate raw material procurement and customer billing cycles. Total liabilities of ¥85.4bn vs total equity of ¥108.4bn imply a liabilities/equity ratio of ~0.79x and an implied equity ratio near 61%, signifying a conservatively capitalized balance sheet. Interest expense is modest at ¥0.17bn relative to operating income of ¥7.42bn, supporting an interest coverage of 43.1x and low near-term solvency risk. While the reported “Equity Ratio” field shows 0.0%, the balance sheet figures indicate solid capitalization; we rely on the non-zero line items for analysis. Absence of detailed debt composition (short/long-term, fixed/floating) and off-balance liabilities (leases, pensions) limits deeper solvency assessment.

Cash Flow Quality

Operating cash flow, investing cash flow, financing cash flow, and D&A were not disclosed in this dataset; consequently, OCF/Net Income and FCF cannot be evaluated and should not be interpreted as zeros. Earnings quality signals from P&L alone are mixed: operating profit improved on flat revenue, which is encouraging, but net income materially exceeded operating income, suggesting contributions from non-operating or extraordinary items that may not convert to cash at the same rate as recurring operations. Working capital context: inventories are ¥18.3bn within current assets of ¥126.1bn, implying a relatively liquid current asset mix; however, receivables and payables are not broken out, so the magnitude and direction of working capital changes—and hence OCF—are unknown. Until OCF and capex are disclosed, free cash flow coverage of earnings and dividends cannot be assessed.

Dividend Sustainability

Dividend per share, payout ratio, and FCF coverage were not disclosed in the dataset provided for FY2026 Q2; these fields should not be treated as zero. On an earnings capacity basis, the company generated ¥10.75bn in net income for the half, and the balance sheet shows strong liquidity and low leverage, which would generally support dividend capacity. However, without OCF and capex data, we cannot confirm cash coverage, and the outsized gap between net and operating income suggests potential non-recurring components. Dividend sustainability and policy outlook should be reassessed once management provides interim dividend decisions, payout policy commentary, and cash flow details.

Risk Assessment

Business Risks:

• Cyclical demand tied to global and domestic steel production and maintenance schedules
• Raw material price volatility (e.g., magnesia, bauxite) affecting gross margins
• Energy cost volatility impacting production economics
• Product mix and pricing discipline amid competitive dynamics in refractory markets
• Execution risks on large refurbishment and project-based orders
• Foreign exchange fluctuations affecting overseas revenues and input costs
• Supply chain logistics and procurement risks for refractory minerals
• Customer concentration risk in steel and heavy industry end-markets

Financial Risks:

• Working capital swings affecting operating cash flow in a project- and inventory-intensive model
• Potential non-recurring or below-the-line gains inflating net income relative to operating income
• Inventory valuation and potential write-down risk if end-market conditions weaken
• Limited visibility on debt structure, leases, and pension obligations due to undisclosed details
• Interest rate and refinancing risks are currently modest but not fully disclosed

Key Concerns:

• Sustainability of net income significantly exceeding operating income in the half
• Lack of disclosed cash flow data impedes assessment of earnings-to-cash conversion
• Dependence on steel sector activity, which can turn quickly with macro conditions
• Need for clarity on extraordinary items, equity-method results, and tax effects

Investment Implications

Key Takeaways:

• Operating leverage delivered: operating income +18.1% on revenue +0.4%, with operating margin ≈8.4%
• Net margin 12.16% and ROE 9.91% boosted by below-the-line items; repeatability uncertain
• Balance sheet is strong with implied equity ratio ~61% and liabilities/equity ~0.79x
• Liquidity robust: current ratio 216% and quick ratio 185%; interest coverage 43x
• Cash flow and D&A not disclosed; earnings quality and FCF coverage remain to be validated

Metrics to Watch:

• Disclosure of operating cash flow, capex, and free cash flow for 1H and full year
• Breakdown of non-operating and extraordinary items driving gap between OI and NI
• Order intake, backlog, and utilization in steel and industrial end-markets
• Raw material and energy cost trends versus pricing/mix to sustain gross margin
• Inventory days, receivable days, and working capital intensity
• Tax rate normalization and any one-off tax effects
• Debt composition (short vs long, fixed vs floating) and interest cost trajectory
• FX exposure and hedging impact on ordinary income

Relative Positioning: Within Japanese refractory peers, Kurosaki Harima appears financially conservative with strong liquidity and moderate leverage, and it posted improved operating profitability despite flat revenue; however, the pronounced reliance on below-the-line contributions this half makes profit quality appear less robust than purely operating-led improvements until further disclosure clarifies the nature and sustainability of those gains.

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