JAPAN INSULATION CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥7.24B
• Operating Income: ¥693M
• Net Income: ¥479M
• EPS: ¥55.28

Income Statement

Balance Sheet

Cash Flow Statement

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 strong FY2026 Q2 with robust top-line growth and significant margin-driven earnings expansion, tempered by softer cash conversion and a still-modest ROE/ROIC profile. Revenue rose 27.5% YoY to 72.36, indicating healthy demand and/or price realization in core insulation-related businesses. Operating income surged 78.1% YoY to 6.93, with operating margin improving to approximately 9.6%. Ordinary income grew 72.6% YoY to 7.01, supported by a small positive non-operating balance (net +0.09). Net income increased 50.7% YoY to 4.78, translating to a net margin of 6.6%. Operating margin expanded by roughly 273 bps YoY (from ~6.9% to ~9.6%), and net margin expanded by about 102 bps (from ~5.6% to 6.6%). Gross margin stands at 26.6%, showing healthy pricing and cost control this period. Expense discipline is evident: the SG&A ratio is 17.0%, allowing operating leverage to drive earnings growth ahead of sales. Cash conversion lagged: OCF of 3.42 implies an OCF/NI ratio of 0.72x, below the 0.8 threshold, suggesting working-capital build or accruals. Balance sheet strength is notable with a current ratio of 354% and net cash far exceeding interest-bearing debt. Interest coverage is extremely strong at 129.9x, and effective tax rate is 31.4% in line with statutory norms. ROE is 3.4% on low leverage (1.32x), indicating capital efficiency remains an area for improvement despite better margins. ROIC is 5.5%, below the 7–8% target range for high-quality industrials, signaling room to optimize asset turns and/or margin mix. Dividend payout ratio is calculated at 67.4%, slightly above a conservative threshold; without full investing CF disclosure, coverage rests on modest FCF generation and strong cash reserves. Forward-looking, the combination of higher operating margin and solid liquidity provides a cushion to navigate demand variability, but sustaining cash conversion and lifting ROIC above 7% will be key to improving return metrics and dividend flexibility.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 6.6% × 0.392 × 1.32 ≈ 3.4%. The largest change driver YoY appears to be margin expansion (operating income +78.1% vs revenue +27.5%), implying improved pricing/mix and cost discipline. Operating margin rose from ~6.9% to 9.6% (+273 bps), while net margin improved from 5.6% to 6.6% (+102 bps). Asset turnover at 0.392 indicates a relatively asset-heavy or low-velocity model for this half-year snapshot, limiting the ROE uplift despite better margins. Financial leverage is low at 1.32x, which keeps risk low but caps ROE. Business drivers: likely favorable pricing and cost pass-through, along with SG&A leverage (SG&A ratio 17.0%), underpinned the operating profit surge. Sustainability: margin gains appear partly structural (cost control/efficiency) but could be sensitive to raw material and energy costs; caution warranted if input prices reflate or demand normalizes. Watch for SG&A growth exceeding revenue growth in subsequent periods; for this period, operating leverage is positive (profit growth > sales growth), a favorable sign.

Growth Assessment

Revenue growth of +27.5% YoY is strong and likely a mix of volume recovery and pricing. Operating income growth of +78.1% YoY reflects significant operating leverage and improved cost structure. Net income growth of +50.7% YoY trails operating income growth due to tax normalization and minor non-operating items. Margin expansion (operating +273 bps; net +102 bps) suggests better pricing power and cost pass-through. EBITDA margin of 11.7% and operating margin of ~9.6% provide a healthier base than last year. The sustainability of this growth will depend on end-market demand (construction/industrial insulation), continued cost management, and stable input prices. Order visibility/backlog is not disclosed; growth visibility is therefore moderate. Non-operating income is small (0.28) and not a material earnings driver currently, indicating cleaner profit quality from core operations. ROIC at 5.5% indicates further efficiency gains are needed to sustain attractive growth returns. Near-term outlook: margins can remain resilient if pricing holds and energy/material costs stay benign; watch for any normalization in H2 as comps toughen.

Financial Health

Liquidity is very strong: current ratio 354.3% and quick ratio 339.2% comfortably exceed benchmarks; no warnings (both >1.0). Cash and deposits (58.16) far exceed total interest-bearing debt (short-term 1.00, long-term 3.12), implying net cash. Debt-to-equity (total liabilities/equity) is 0.32x; well below risk thresholds (no D/E > 2.0 warning). Interest coverage is exceptionally strong at ~129.9x, indicating minimal refinancing or coverage risk. Maturity mismatch risk is low: current assets 119.8 vs current liabilities 33.81; short-term loans (1.0) are negligible relative to cash on hand. Working capital is ample at 85.99, supporting operational needs and contingencies. No off-balance sheet obligations are disclosed in the data provided. Overall solvency and liquidity profiles are conservative and supportive of operations and potential investment needs.

Cash Flow Quality

OCF/Net Income is 0.72x (<0.8), a cautionary signal of weaker cash conversion this period, likely due to working capital build (receivables/inventory timing) or accruals. Operating CF of 3.42 against NI of 4.78 indicates earnings outpaced cash; monitor whether this reverses in H2. Approximate FCF, using Capex of 2.16, is about +1.26 (before any other investing flows), positive but modest relative to NI. With financing CF of -3.34 (likely dividends and/or debt repayment), cash outflows to shareholders/creditors exceeded internally generated free cash this half. No signs of aggressive working capital manipulation are evident from disclosed point-in-time balances, but the OCF shortfall warrants tracking DSO/DIO trends. Sustainability: FCF should improve if working capital normalizes; otherwise, continued cash draws could constrain incremental shareholder returns despite strong cash reserves.

Dividend Sustainability

Calculated payout ratio is 67.4%, slightly above the <60% conservative benchmark, implying less buffer if earnings or cash flows normalize. Using approximate FCF (OCF 3.42 – Capex 2.16 ≈ 1.26) and H1 NI (4.78), cash coverage for dividends could be tight if the 67.4% payout were applied to H1 earnings (implied dividend cash need ~3.22), though actual paid dividends are not disclosed and policy may be annual. Strong net cash provides flexibility to support dividends in the near term, but medium-term sustainability should rest on FCF rather than balance sheet drawdown. With ROE at 3.4% and ROIC at 5.5%, management may balance shareholder returns with investments aimed at lifting capital efficiency. Outlook: dividend appears serviceable near term given liquidity, but improved cash conversion (OCF/NI ≥1.0) and sustained margins would enhance coverage.

Risk Assessment

Business Risks:

• End-market cyclicality in construction/industrial insulation demand affecting volumes and pricing
• Raw material and energy price volatility impacting gross margin sustainability
• Potential slowdown in infrastructure or housing starts reducing order intake
• Customer concentration risk if large projects or clients dominate sales (not disclosed)
• Supply chain constraints affecting lead times and inventory levels

Financial Risks:

• OCF/NI at 0.72x indicating weaker cash conversion and potential working capital drag
• Payout ratio at 67.4% may limit flexibility if earnings soften or capex rises
• ROIC at 5.5% below 7–8% target range, risking value dilution if growth requires higher investment
• Currency exposure on imported inputs could pressure costs if JPY weakens (not quantified)

Key Concerns:

• Sustainability of margin expansion if input costs reflate
• Conversion of earnings to cash in H2 to support dividends and capex
• Maintaining asset turnover and improving capital efficiency to raise ROE above mid-single digits

Investment Implications

Key Takeaways:

• Strong H1 with revenue +27.5% YoY and operating income +78.1% YoY; clear operating leverage
• Operating margin expanded ~273 bps to ~9.6%; net margin up ~102 bps to 6.6%
• Cash conversion lagging (OCF/NI 0.72x); FCF positive but modest (~1.26 pre-other investing CF)
• Balance sheet conservative: net cash and current ratio >3.5x; interest coverage ~130x
• ROE 3.4% and ROIC 5.5% indicate room to improve capital efficiency
• Dividend payout ratio 67.4% may be slightly elevated vs conservative thresholds; near-term supported by cash

Metrics to Watch:

• OCF/NI ratio and working capital turnover (DSO/DIO/DPO)
• Gross and operating margins vs raw material and energy cost trends
• Capex trajectory and resulting ROIC uplift
• Order intake/backlog and pricing sustainability
• Dividend policy disclosures and cash coverage
• Asset turnover improvement to lift ROE

Relative Positioning: Within Japanese industrial materials/insulation peers, the company exhibits stronger-than-average balance sheet resilience (net cash, high liquidity) and a solid rebound in margins, but lags best-in-class peers on ROIC and ROE. Near-term earnings momentum is favorable, contingent on sustaining price/cost discipline and normalizing cash conversion.

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