YOTAI REFRACTORIES CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥13.96B
• Operating Income: ¥1.33B
• Net Income: ¥765M
• EPS: ¥41.65

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: Soft quarter with margin compression and weak cash conversion despite a solid balance sheet. Revenue declined 3.6% year over year to 139.57, while operating income fell 16.3% to 13.27 and net income dropped 34.9% to 7.64. Gross profit was 27.04, implying a gross margin of 19.4%, and operating margin stood at 9.5% (13.27/139.57). Ordinary income came in at 14.04 with non-operating income of 0.92 (notably 0.65 from dividends), cushioning operating softness. Using YoY arithmetic, we estimate prior-period revenue at about 144.79 and operating income at about 15.85, suggesting operating margin compressed by roughly 145 basis points (from ~11.0% to 9.5%). Net margin contracted by about 261 basis points (from ~8.1% to 5.5%) given the sharper decline in net income versus sales. Operating cash flow was only 1.85 versus net income of 7.64, yielding an OCF/NI of 0.24x and signaling weak earnings quality this half. Capex was 6.41, implying negative free cash flow of roughly -4.56 using OCF minus capex. Liquidity remains very strong with a current ratio of 480.8% and cash and deposits of 50.35, and leverage is conservative with long-term loans of 1.00 and a reported D/E of 0.23x. ROE calculated via DuPont is 2.3%, dragged by a low net margin (5.5%) and modest asset turnover (0.34x), with low leverage (1.23x) limiting amplification. ROIC at 3.3% is below the 5% warning threshold, indicating subdued capital efficiency. The dividend payout ratio shown at 230.8% indicates distributions and buybacks exceeded earnings, funded by cash and balance sheet strength rather than internally generated cash this period. Non-operating income (12% of ordinary income) is a meaningful contributor, highlighting some reliance on financial returns (dividends from investment securities). The effective tax rate was 30.4%, consistent with a normalized tax burden. Forward-looking, management likely needs to restore pricing power and throughput to lift margins and improve cash conversion, while monitoring raw material and energy costs. With ample liquidity, the company has time to execute, but sustained OCF improvement and ROIC expansion above 5% are key to strengthening the investment case.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 5.5% × 0.340 × 1.23 ≈ 2.3%. The component most visibly under pressure is net profit margin: operating income fell 16.3% on a 3.6% revenue decline, and net income fell 34.9%, pointing to margin compression rather than balance sheet or turnover effects. Business drivers likely include cost pressures in raw materials/energy and mix, with SG&A appearing sticky relative to sales (revenue -3.6% vs operating income -16.3%), implying negative operating leverage. Asset turnover is modest at 0.34x, typical for capital-intensive refractory businesses with meaningful inventories and receivables; no evidence suggests a step change here in the period. Financial leverage is low at 1.23x, so leverage is not a meaningful driver of ROE, nor a swing factor. The estimated operating margin contraction of roughly 145 bps (to 9.5%) and net margin contraction of about 261 bps (to 5.5%) explain most of the ROE softness. These pressures look at least partly cyclical; if realized prices and volumes stabilize and cost inflation abates, some recovery is plausible. However, if cost passthrough remains difficult or demand in steel/cement remains weak, the margin pressure could persist. Watch for any period where SG&A growth runs ahead of revenue; in this quarter, the steeper decline in operating income versus sales indicates operating deleverage and warrants cost control focus.

Growth Assessment

Top line contracted 3.6% YoY to 139.57, suggesting softer demand or pricing in core refractory applications. Operating income fell 16.3% to 13.27, with ordinary income down 15.8% to 14.04, indicating core profitability pressure partly mitigated by non-operating contributions (dividends of 0.65). Net income decreased 34.9% to 7.64, reflecting additional headwinds below operating line (e.g., normal taxes and smaller non-operating cushion). Current operating margin is 9.5% and net margin 5.5%, versus estimated prior margins of ~11.0% and ~8.1%, respectively, showing negative operating leverage. EBITDA was 19.88 (margin 14.2%), offering some buffer, but not enough to offset revenue softness. The decline appears cyclical rather than structural given sector dynamics; however, ROIC at 3.3% shows limited value creation at present. Outlook hinges on recovery in steel/cement production, pricing discipline, and input cost normalization; stabilization of non-operating income (dividends) will also matter. Near-term growth is likely subdued until order inflow and utilization improve. Key watchpoints: book-to-bill or order backlog (not disclosed), pricing actions, and export demand sensitivity to FX.

Financial Health

Liquidity is strong: current assets 287.97 vs current liabilities 59.90 imply a current ratio of 480.8% and working capital of 228.07. Quick ratio is similarly strong given significant cash and receivables (cash and deposits 50.35; accounts receivable 98.18). Leverage is conservative: total liabilities 78.04 vs equity 332.51; reported D/E is 0.23x, and long-term loans are only 1.00. Interest burden appears minimal this period (interest expense line item shows 0.00; treated as immaterial/not disclosed rather than actual zero), aligning with a very high reported interest coverage. No warning flags: Current Ratio well above 1.0 and D/E well below 2.0. Maturity mismatch risk looks low given large current assets versus current liabilities and very small borrowings. Off-balance sheet obligations were not disclosed; none identified from the provided data.

Cash Flow Quality

OCF was 1.85 versus net income of 7.64, yielding OCF/NI of 0.24x, a clear earnings quality concern for the half. Free cash flow proxy (OCF minus capex) was approximately -4.56, indicating internal cash generation did not cover investment needs. Financing cash outflows were -8.45, including share repurchases of -2.90, implying distributions were funded from cash on hand rather than current-period cash generation. Weak OCF relative to earnings suggests working capital absorption or cash tax timing; inventories and detailed working capital data were not disclosed, limiting diagnosis. There are no overt signs of aggressive working capital management from the limited data, but the low OCF/NI necessitates monitoring for collection delays or inventory build. Sustained dividends and buybacks will require a rebound in OCF or continued drawdown of cash balances.

Dividend Sustainability

Dividend data were not disclosed, but a calculated payout ratio of 230.8% indicates distributions exceeded earnings for the period. With negative FCF of approximately -4.56 and financing outflows including buybacks of -2.90, shareholder returns are currently reliant on balance sheet strength rather than internally generated cash. Cash and deposits of 50.35 and retained earnings of 284.92 provide near-term flexibility to maintain policy, but sustainability depends on restoring OCF coverage. For a conservative framework, a payout ratio below 60% and FCF coverage >1x would be preferred; the current profile does not meet these thresholds. Expect management to calibrate dividends and buybacks to cash generation trends; any commitment to stable or progressive dividends should be evaluated against medium-term OCF outlook and capex needs.

Risk Assessment

Business Risks:

• Demand cyclicality in steel/cement/glass end markets impacting refractory volumes and pricing
• Input cost inflation (raw materials and energy) pressuring gross margins if passthrough lags
• Product mix shifts toward lower-margin items reducing profitability
• Dependence on non-operating income (dividends 0.65; 12% of ordinary income) to support earnings

Financial Risks:

• Weak cash conversion (OCF/NI 0.24x) and negative FCF (-4.56) in the period
• Potential working capital build (inventories not disclosed) affecting liquidity if sustained
• Market valuation risk of investment securities (35.15) influencing comprehensive income
• Currency exposure on exports or imported raw materials (not quantified in data)

Key Concerns:

• ROIC at 3.3% below 5% warning threshold, indicating low capital efficiency
• Margin compression: operating margin down ~145 bps, net margin down ~261 bps YoY
• Reliance on balance sheet to fund returns (payout ratio 230.8%) amid negative FCF
• Data limitations on inventories, SG&A detail, and investing cash flows obscure drivers

Investment Implications

Key Takeaways:

• Earnings softness driven by margin compression and negative operating leverage
• Cash conversion weak; OCF significantly trails net income
• Balance sheet remains a key mitigant with high liquidity and low leverage
• Capital efficiency subdued with ROIC 3.3%; improvement needed to create value
• Non-operating income provides a cushion but is not a substitute for core margin recovery

Metrics to Watch:

• OCF/Net Income and working capital movements (receivables days, inventory levels)
• Gross and operating margin trajectory versus input cost trends
• Order backlog/book-to-bill and utilization rates
• Capex discipline and FCF coverage of dividends/buybacks
• ROIC progression toward or above 5% as a near-term milestone

Relative Positioning: Within Japanese basic materials/refractory peers, the company exhibits stronger-than-average liquidity and low leverage but underwhelming cash conversion and subpar ROIC this period. Near-term relative performance will hinge on ability to stabilize margins and improve OCF versus peers facing similar input cost and demand headwinds.

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