HOKUETSU METAL Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥12.40B
• Operating Income: ¥0
• Net Income: ¥199M
• EPS: ¥3.58

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

Hokuetsu Metal Co., Ltd. (5446) reported FY2026 Q2 consolidated results under JGAAP showing a sharp contraction in profitability alongside resilient balance sheet strength. Revenue was ¥12.40bn, down 20.4% YoY, reflecting a cyclical slowdown in steel-related demand and/or pricing pressure typical for long-product and rebar/processing businesses. Gross profit is disclosed at ¥1.91bn, implying a gross margin of 15.4%, which indicates the core spread over raw materials and processing costs remained positive despite volume and/or price declines. Operating income is not disclosed in the XBRL (shown as zero), but ordinary income of ¥59m and net income of ¥13m suggest the company remained marginally profitable at the bottom line. Net profit margin was 0.10%, consistent with a DuPont-based ROE of 0.07%, underscoring very low earnings generation on a sizable equity base. Asset turnover of 0.478x and financial leverage of 1.45x indicate modest efficiency and conservative leverage. The balance sheet appears solid: total assets were ¥25.93bn and total equity ¥17.85bn, implying an equity ratio around 69% by calculation (despite the equity ratio line item being unreported). Liquidity is strong with a current ratio of 202% and a quick ratio of 152%, supported by inventories of ¥3.24bn and ample working capital of ¥6.58bn. Total liabilities of ¥8.90bn translate into a debt-to-equity ratio of approximately 0.50x, conservative for the sector. Interest expense totaled ¥10.37m; although EBIT is unreported (hence the mechanical interest coverage is 0.0x), ordinary income coverage appears adequate in this quarter. Cash flow statement items are not disclosed in this dataset, limiting assessment of earnings-to-cash conversion. The effective tax line appears inconsistent with ordinary and net income, likely reflecting timing or classification effects; therefore, tax rate analysis is not reliable for this period. Dividend per share is unreported at ¥0.00 and payout is mechanically 0.0%, consistent with conserving cash amid weak profits. Overall, results point to a demand/pricing-driven earnings trough with compressed margins below the operating line, but the company maintains a robust balance sheet and liquidity buffer. The near-term focus is on revenue normalization, cost pass-through, and recovery of operating margin to restore ROE. Data limitations (notably operating income, cash flows, and share count) constrain precision, so conclusions rely on the disclosed DuPont metrics and balance sheet strength.

Profitability Analysis

ROE_decomposition: Reported DuPont metrics indicate net profit margin 0.10% × asset turnover 0.478 × financial leverage 1.45 = ROE ~0.07%, matching the reported figure. This points to subdued profitability primarily driven by very thin net margins, with moderate asset efficiency and conservative leverage. margin_quality: Gross profit of ¥1.91bn on ¥12.40bn revenue implies a 15.4% gross margin, indicating core spread remains positive. However, the step-down from gross to ordinary profit (¥59m) suggests significant SG&A, manufacturing overhead absorption, and/or non-operating factors weighing on operating margin. Net income of ¥13m (0.10% margin) highlights that below-gross profitability is under heavy pressure. operating_leverage: Revenue fell 20.4% YoY while net income dropped 93.1% YoY, signaling high operating leverage and poor cost absorption at reduced volumes/prices. This dynamic is typical in steel processing when fixed costs and energy/logistics are less variable, amplifying earnings volatility.

Growth Assessment

revenue_sustainability: The 20.4% YoY decline suggests cyclical demand softness and/or selling price normalization. Sustainability hinges on construction and manufacturing activity in the Hokuriku/Kanto markets and the company’s mix in rebar/sections/wire products. profit_quality: Net margin of 0.10% with positive gross margin indicates value capture at the gross level but limited control over operating costs and non-operating items. Ordinary income of ¥59m provides only a minimal buffer against financial costs and taxes. outlook: Recovery depends on volume pickup and improved spread management. With low leverage and high liquidity, the company is positioned to withstand near-term softness and benefit when demand normalizes, but ROE is likely to remain depressed until operating margin recovers.

Financial Health

liquidity: Current assets ¥12.99bn vs current liabilities ¥6.42bn yield a current ratio of 202.5% and a quick ratio of 152.0%. Working capital is ¥6.58bn, providing a substantial short-term cushion. solvency: Total liabilities are ¥8.90bn against equity of ¥17.85bn, implying debt-to-equity of ~0.50x and an equity ratio near 69% by calculation, indicating conservative leverage. capital_structure: Financial leverage at 1.45x (assets/equity) aligns with a strong equity base. Interest expense is modest at ¥10.37m relative to ordinary income, suggesting manageable interest burden despite unreported EBIT.

Cash Flow Quality

earnings_quality: Operating, investing, and financing cash flows are unreported this period, preventing direct assessment of earnings-to-cash conversion or the OCF/NI ratio (displayed as 0.00 due to non-disclosure). FCF_analysis: Free cash flow is unreported. Given weak profits and the sector’s typical maintenance capex needs, sustained positive FCF would require stable working capital and disciplined capex; however, this cannot be verified from available data. working_capital: Inventories of ¥3.24bn represent a material component of current assets. The strong quick ratio implies adequate liquidity even excluding inventories, but changes in inventory and receivables turnover cannot be assessed without cash flow details.

Dividend Sustainability

payout_ratio_assessment: Annual DPS is unreported (¥0.00) and payout ratio shows 0.0% due to low net income and missing dividend disclosure. With ROE at 0.07% and net income of ¥13m, capacity for distributions appears limited near term. FCF_coverage: FCF data are unavailable, so dividend coverage by FCF cannot be assessed. Balance sheet strength would support flexibility if distributions were considered, but prudent retention is consistent with current earnings. policy_outlook: Given depressed profitability and the cyclical backdrop, a conservative dividend stance is likely until operating margin rebounds and cash generation is evidenced.

Risk Assessment

Business Risks:

• Demand cyclicality tied to construction and manufacturing activity in Japan.
• Raw material price volatility affecting spreads and inventory valuation.
• Energy and logistics cost pressure impacting cost absorption at lower volumes.
• Competitive pricing in long products/rebar markets compressing margins.
• Customer concentration risk typical in regional steel processing networks.

Financial Risks:

• High operating leverage causing large earnings swings on volume/price moves.
• Limited margin of safety at the net level (0.10% margin) leaving little buffer against shocks.
• Potential working capital swings (inventories/receivables) impacting cash flow in downcycles.
• Interest coverage reliance on ordinary income while EBIT is undisclosed.

Key Concerns:

• Sharp YoY profit contraction (net income -93.1%).
• Unreported operating income and cash flows limit transparency.
• Tax line appears incongruent with ordinary and net income, complicating tax rate analysis.
• ROE at 0.07% well below cost of equity, signaling value creation challenges near term.

Investment Implications

Key Takeaways:

• Revenue declined 20.4% YoY to ¥12.40bn; profitability compressed to a 0.10% net margin.
• Gross margin remains positive at 15.4%, but below-gross profitability is weak.
• ROE is only 0.07%, driven by thin margins despite conservative leverage.
• Balance sheet is strong: current ratio 202%, D/E ~0.50x, working capital ¥6.58bn.
• Cash flows are undisclosed, constraining assessment of earnings quality and FCF.
• Dividend appears conservatively positioned amid low earnings.

Metrics to Watch:

• Revenue trajectory and pricing/spread trends per ton.
• Operating income and operating margin when disclosed.
• Inventory and receivables turnover; OCF vs. net income when cash flows are available.
• Ordinary income relative to interest expense (coverage).
• Capex levels and maintenance vs. growth split.
• Order backlog and end-market demand indicators in construction and manufacturing.

Relative Positioning: Within Japanese steel processing/long-products peers, the company exhibits stronger-than-average balance sheet conservatism and liquidity but weaker profitability and ROE in the current quarter; recovery in operating margin is key for closing the gap with more profitable peers.

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