JFE Holdings,Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥2.23T
• Operating Income: ¥69.79B
• Net Income: ¥28.36B
• EPS: ¥41.94

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

JFE Holdings (5411) reported FY2026 Q2 consolidated IFRS results showing a cyclical slowdown typical for the steel sector. Revenue was 22,326.49 (100M JPY), down 8.9% YoY, reflecting softer volumes/prices and a weaker demand environment. Gross profit was 2,764.98 (100M JPY), implying a gross margin of 12.4%, which, while positive, indicates margin compression from cyclical peaks. SG&A expenses were 1,971.30 (100M JPY), absorbing 8.8% of sales, and operating income came in at 697.88 (100M JPY), implying a modest 3.1% operating margin. The step-down from operating income to profit before tax was steep: PBT was 341.74 (100M JPY), suggesting material net non-operating losses (finance costs and/or valuation losses) in the quarter. Net income was 266.76 (100M JPY), down 37.2% YoY, with an elevated effective tax rate of 49.1% that further pressured bottom-line earnings. Total comprehensive income was 143.77 (100M JPY), below net income, indicating negative other comprehensive income items (e.g., securities valuation, FX, pension remeasurements). ROE calculated via DuPont was a low 1.0%, driven by a thin net profit margin of 1.2%, moderate asset turnover of 0.395x, and financial leverage of 2.20x. The equity ratio stood at 44.4%, reflecting a reasonably solid balance sheet for a capital-intensive business, although liabilities to equity of 1.19x underscore ongoing leverage in the model. Current assets were 23,687.85 (100M JPY), with inventories high at 12,285.40 (100M JPY), consistent with the steel value chain but a working capital drag if demand softens. Equity-method investment income was sizable at 186.18 (100M JPY), a meaningful contributor relative to net income and an important profit pillar to watch. Cash and equivalents were reported at 1,728.41 (100M JPY), offering liquidity, but cash flow details were unreported, limiting assessment of operating cash conversion and capex sufficiency. Dividend datapoints were not disclosed; a calculated payout ratio of 239.7% suggests potential mismatch between dividends and near-term earnings if it reflects the current period, but detailed DPS/FCF coverage is unavailable. Overall, results show cyclical pressure on revenue and profitability, heavier non-operating headwinds, and reliance on affiliates for earnings resilience, while the balance sheet remains acceptable for the sector. Data gaps (notably cash flow statement, interest expense, current liabilities) constrain certain ratio analyses; conclusions focus on reported non-zero items and computed metrics provided.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin 1.2% x asset turnover 0.395x x financial leverage 2.20x yields ~1.0% ROE (in line with the reported 1.0%). The margin leg is the primary constraint: net income of 266.76 (100M JPY) on revenue of 22,326.49 (100M JPY) is low for the sector. Gross margin of 12.4% (gross profit 2,764.98) indicates contribution from value-added products and price-cost management, yet it remains compressed versus cyclical highs. SG&A intensity at 8.8% constrains operating leverage; operating income of 697.88 (100M JPY) implies a 3.1% operating margin, modest for a heavy industry upcycle and vulnerable to further price declines. The large negative swing between operating income (697.88) and PBT (341.74) signals substantial non-operating losses, likely interest expense and/or valuation/FX impacts, which depress ordinary profitability. Equity-method income of 186.18 (100M JPY) provided critical support, highlighting dependence on affiliates for earnings stability. Tax burden was heavy (effective tax rate 49.1%), reducing net earnings conversion from PBT. Overall profitability is currently subdued, with thin margins, limited operating leverage benefits, and notable non-operating headwinds.

Growth Assessment

Top-line contracted 8.9% YoY to 22,326.49 (100M JPY), reflecting weaker steel demand and/or lower realized prices. Profit contraction was sharper: net income fell 37.2% YoY to 266.76 (100M JPY), demonstrating high operating and financial leverage in a downcycle. The 12.4% gross margin suggests some resilience in product mix, but pricing power remains challenged amid softer end markets. Operating margin at 3.1% and the PBT step-down imply that incremental revenue at current conditions may not translate efficiently to earnings due to finance costs and other non-operating items. Equity-method gains (186.18) offset part of the weakness and will be a key swing factor for near-term growth. Outlook-wise, sustaining revenue will depend on domestic construction demand, automotive production trends, and export pricing; inventory levels are high, which could pressure future pricing if destocking resumes. With the tax rate elevated at 49.1%, bottom-line growth recovery will require both operating improvement and normalization of non-operating/tax items. Given limited disclosures on depreciation and R&D, assessing structural efficiency improvements is constrained; however, IFRS reporting implies continuing capex requirements for maintenance, decarbonization, and quality upgrades that will shape medium-term growth capacity.

Financial Health

Total assets were 56,517.91 (100M JPY) and total equity 25,687.63, yielding an equity ratio of 44.4%—solid for a steel major. Liabilities to equity measured 1.19x (30,607.68 / 25,687.63), pointing to moderate leverage. Cash and equivalents stood at 1,728.41 (100M JPY), or roughly 3.1% of total assets, providing baseline liquidity, albeit we lack current liabilities and debt composition to compute current and quick ratios. Current assets totaled 23,687.85, with inventories large at 12,285.40 and receivables at 6,929.85, typical for the sector but a potential liquidity sink if cycle weakens. Interest-bearing debt breakdown and interest expense were unreported, limiting solvency and coverage analysis; nonetheless, the negative non-operating result from operating income to PBT suggests meaningful finance costs and/or valuation losses in the period. Capital surplus of 5,795.14 and retained earnings of 16,079.51 underpin net assets, offering buffer against volatility. Overall, balance-sheet strength is adequate, but visibility on debt structure, maturities, and working capital liabilities is limited due to missing current liability detail.

Cash Flow Quality

Operating cash flow, investing cash flow, and capex were not disclosed, preventing direct assessment of earnings-to-cash conversion, free cash flow generation, and reinvestment intensity. The OCF/Net Income ratio and FCF figures are thus not calculable. High inventories (12,285.40) and receivables (6,929.85) indicate meaningful working capital tied up; if sales continue to slow, there is risk of inventory liquidation and weaker cash conversion. The step-down from operating income to PBT suggests finance costs or valuation impacts that do not aid cash generation; however, without OCF we cannot determine interest cash coverage. Cash and equivalents of 1,728.41 provide a liquidity cushion, but sustainability of dividends and capex commitments depends on underlying OCF, which is unreported. Equity-method income (186.18) may have limited immediate cash impact depending on dividends received from affiliates. In sum, earnings quality appears strained by non-operating items and high working capital needs, but definitive conclusions await cash flow disclosures.

Dividend Sustainability

Dividend details were unreported for the period. A calculated payout ratio of 239.7% suggests dividends exceeding current earnings if this metric pertains to the current run-rate; however, with DPS and cash flows unreported, the precise base is unclear. Without OCF and capex data, FCF coverage of dividends cannot be assessed. Balance sheet capacity (equity ratio 44.4%) could support distributions temporarily, but with net margin at 1.2% and PBT pressured by non-operating losses, sustained payout above earnings would not be prudent if continued. Equity-method contributions help earnings but may not translate one-for-one to cash, adding uncertainty to dividend funding. Policy outlook cannot be inferred from data provided; monitoring full-year guidance, DPS announcements, and management capital allocation comments will be essential.

Risk Assessment

Business Risks:

• Cyclical demand and pricing volatility in steel markets impacting volumes and margins
• High inventory levels (12,285.40) exposing the company to price decline risk and working capital pressure
• Customer sector dependence (construction, automotive) with potential for synchronized slowdowns
• Raw material cost volatility (iron ore, coking coal) challenging spread management
• Regulatory and environmental capex requirements (decarbonization) potentially elevating fixed costs

Financial Risks:

• Material non-operating losses implied by the gap between operating income (697.88) and PBT (341.74), suggesting significant finance/valuation costs
• Elevated effective tax rate (49.1%) depressing net earnings
• Limited visibility on debt structure and interest burden due to unreported interest expense and interest-bearing debt
• Working capital intensity (large inventories and receivables) increasing cash flow volatility in a downturn
• Dependence on equity-method income (186.18) for earnings support, which may be less predictable and less cash-generative

Key Concerns:

• Net margin compression to 1.2% and operating margin at 3.1% signal fragile profitability
• Revenue down 8.9% YoY with net income down 37.2% YoY indicates high operating leverage
• Comprehensive income below net income points to negative OCI, potentially equity or FX-related
• Dividend sustainability uncertain given a calculated payout ratio of 239.7% and no FCF data
• Data gaps (cash flow, debt details, current liabilities) limit assessment of liquidity and coverage

Investment Implications

Key Takeaways:

• Profitability under pressure: 12.4% gross margin, 3.1% operating margin, 1.2% net margin; ROE at 1.0%
• Significant non-operating headwinds driving PBT below operating income by roughly 356 (100M JPY)
• Revenue contraction of 8.9% YoY with sharper earnings decline highlights operating and financial leverage
• Balance sheet reasonably solid with 44.4% equity ratio, but leverage to equity at 1.19x
• Equity-method income (186.18) is a notable earnings contributor and a key volatility factor
• High inventories and receivables elevate working capital risk amid softer demand
• Dividend outlook uncertain; calculated payout ratio suggests caution absent FCF visibility

Metrics to Watch:

• Operating margin trajectory and spread management versus raw material costs
• Ordinary income and finance costs to understand non-operating drag
• OCF, capex, and FCF once disclosed; OCF/NI conversion and dividend coverage
• Inventory levels and days; receivables collection; overall working capital intensity
• Equity-method income sustainability and cash dividends from affiliates
• Effective tax rate normalization and any one-off items in non-operating or OCI

Relative Positioning: Within the Japanese steel sector, JFE exhibits typical cyclical sensitivity with moderate balance-sheet strength (44.4% equity ratio) but currently weaker profitability and higher non-operating drag, making earnings more sensitive to price/volume recovery and financial costs than peers with steadier ordinary income and lower leverage.

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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