A&A Material Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥21.87B
• Operating Income: ¥651M
• Net Income: ¥533M
• EPS: ¥98.85

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

A&A Material Co., Ltd. (5391) delivered FY2026 Q2 consolidated results under JGAAP with resilient topline growth but pressured operating profitability. Revenue increased 8.0% year over year to ¥21.871 billion, indicating stable demand across core materials segments. Gross profit was ¥4.574 billion, translating to a gross margin of 20.9%, which is reasonable for a materials supplier but suggests limited pricing power amid cost inflation. Operating income declined 26.2% YoY to ¥651 million, signaling meaningful margin compression at the operating level despite higher sales. EBITDA was ¥1.086 billion (5.0% margin), highlighting tight operating leverage and limited buffer against input cost volatility. Ordinary income stood at ¥590 million, slightly below operating income due to finance costs and non-operating items, though interest expense remained modest at ¥27 million and the interest coverage ratio was a comfortable 24.1x. Notably, net income rose 42.3% YoY to ¥758 million, exceeding ordinary income, implying the presence of extraordinary gains and/or tax effects in the quarter. The reported effective tax rate metric shows as 0.0%; however, with income tax expense of ¥290 million and positive profit, the displayed rate likely reflects disclosure limitations, not an actual zero rate. DuPont decomposition yields ROE of 3.93%, driven by a net profit margin of 3.47%, asset turnover of 0.503, and financial leverage of 2.25x, indicating modest profitability on a moderately levered equity base. Liquidity remains sound with a current ratio of 140.4% and quick ratio of 119.7%, underpinned by ¥18.62 billion of current assets against ¥13.26 billion of current liabilities. The balance sheet shows total assets of ¥43.464 billion and equity of ¥19.288 billion, implying a debt-to-equity ratio of 1.15x, which is reasonable for the sector. Operating cash flow was negative at ¥133 million despite positive earnings, reflecting working capital investment; inventories were ¥2.744 billion, and higher receivables or other current assets likely contributed to OCF pressure. Financing cash inflow of ¥2.064 billion supported liquidity during the half, consistent with bridging working capital needs; investing cash flow was not disclosed in XBRL for the period. Dividend per share was not reported for the period (displayed as 0.00), so payout assessments rely on earnings and cash flow rather than declared distributions. Overall, the quarter shows healthy revenue momentum but cost and mix pressures compressing operating margins, with accounting one-offs lifting net income. Near-term focus should be on price pass-through, cost normalization, and working capital discipline to convert earnings into cash.

Profitability Analysis

ROE_decomposition: ROE 3.93% = Net Margin 3.47% × Asset Turnover 0.503 × Financial Leverage 2.25. The low net margin is the key constraint; asset turnover is moderate, and leverage is typical for materials. margin_quality: Gross margin of 20.9% versus EBITDA margin of 5.0% and operating margin of ~3.0% (¥651m/¥21.871b) indicates heavy SG&A/overheads and limited cost pass-through. Ordinary income below operating income suggests some non-operating drag, but net income exceeded ordinary income, pointing to extraordinary gains and/or tax effects. operating_leverage: Revenue grew 8.0% YoY while operating income fell 26.2% YoY, implying negative operating leverage in the period, likely due to higher raw materials/energy/logistics and/or product mix pressure. Interest expense remained low (¥27m), so financial leverage did not materially distort operating trends.

Growth Assessment

revenue_sustainability: Topline growth of 8.0% YoY to ¥21.871b suggests steady demand. Sustainability hinges on construction-related demand, industrial materials orders, and the ability to maintain pricing amidst input cost volatility. profit_quality: Net income growth (+42.3% YoY to ¥758m) contrasts with operating income decline, indicating that bottom-line strength was aided by non-recurring or below-the-line items. Core profitability (EBITDA/OP) is under pressure, reducing quality of earnings. outlook: If price increases and cost normalization continue, margins could recover in H2. However, persistent energy/raw material costs and a soft macro for construction and industrial end markets could cap upside. Execution on cost control and mix improvement is essential.

Financial Health

liquidity: Current ratio 140.4% and quick ratio 119.7% indicate adequate short-term coverage. Working capital stands at ¥5.36b, providing operational flexibility despite negative OCF in H1. solvency: Debt-to-equity ratio is 1.15x (total liabilities ¥22.185b vs equity ¥19.288b). Interest coverage at 24.1x reflects low interest burden. Financial leverage of 2.25x (assets/equity) is moderate for a materials company. capital_structure: Total assets ¥43.464b funded 44% by equity and 56% by liabilities (derived from reported balances). Equity ratio displayed as 0.0% in the dataset is an undisclosed metric; based on balances, the implied equity ratio is approximately 44%.

Cash Flow Quality

earnings_quality: OCF/Net Income ratio of -0.18 indicates weak cash conversion in the half, driven by working capital outflows despite positive earnings. The gap between EBITDA (¥1.086b) and OCF (-¥133m) underscores timing and WC effects. FCF_analysis: Free cash flow is not computable due to undisclosed investing cash flows/capex in the period. Depreciation and amortization of ¥435m suggests a baseline capex need, but actual spending is not reported. working_capital: Inventories at ¥2.744b appear manageable relative to half-year sales, but increases in receivables or other current assets likely weighed on OCF. Monitoring inventory days and receivable collections is key to normalizing cash conversion.

Dividend Sustainability

payout_ratio_assessment: Annual DPS and payout ratio show as 0.00%, indicating non-disclosure rather than an actual zero payout for the period. On an earnings basis, interim profitability could support a modest payout if policy allows. FCF_coverage: FCF coverage cannot be assessed reliably due to missing capex data and negative OCF in the half. Absent clear FCF, coverage of dividends would depend on H2 cash generation and existing liquidity. policy_outlook: Without disclosed DPS or formal guidance, dividend visibility is limited. Stability would hinge on restoring operating cash flow via working capital normalization and margin recovery.

Risk Assessment

Business Risks:

• Raw material and energy cost volatility impacting gross margin
• Pricing power constraints in construction and industrial materials
• Demand cyclicality in building, infrastructure, and industrial end markets
• Product mix shifts toward lower-margin items
• Competition from domestic and regional peers
• Potential extraordinary items creating earnings volatility

Financial Risks:

• Negative operating cash flow in H1 requiring financing inflows
• Working capital build increasing liquidity needs
• Exposure to interest rate changes despite currently low interest costs
• Leverage sensitivity if profitability softens

Key Concerns:

• Operating income down 26.2% YoY despite 8.0% revenue growth
• OCF/Net Income at -0.18 indicating weak cash conversion
• Net income exceeding ordinary income suggests reliance on non-recurring items
• Limited visibility on capex and FCF due to undisclosed investing cash flows

Investment Implications

Key Takeaways:

• Topline growth solid at +8.0% YoY, but operating margins compressed
• ROE modest at 3.93% with slim net margin (3.47%) the main constraint
• Liquidity adequate (current ratio 140.4%, quick ratio 119.7%) and low interest burden
• Negative OCF in H1 points to working capital pressure
• Extraordinary/tax effects likely boosted net income relative to core performance

Metrics to Watch:

• Gross margin and operating margin trajectory in H2
• OCF/Net Income and working capital days (inventory and receivables)
• Price pass-through and input cost trends (energy/raw materials)
• Order backlog and demand indicators in construction/industrial segments
• Capex disclosures and investing cash flows
• Net debt and interest coverage as rates evolve

Relative Positioning: Within Japan’s building and industrial materials peer set, A&A Material shows average leverage, solid liquidity, but thinner operating margins and weaker cash conversion this half, placing it in the middle of the pack on balance sheet strength and below average on near-term profitability quality.

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
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